<PAGE>
FILED PURSUANT TO RULE 424B(2)
FILE NUMBER: 333-81953-01
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1999
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 13, 1999)
AES TRUST III
6,000,000 TRUST CONVERTIBLE PREFERRED SECURITIES
[GRAPHIC OMITTED]
THE AES CORPORATION
We are offering all of these Trust Convertible Preferred Securities which
represent preferred undivided beneficial interests in the assets of AES Trust
III and we will receive all of the proceeds of this offering.
We are offering the Trust Convertible Preferred Securities at the same time that
our parent, The AES Corporation, is offering 16 million shares of its common
stock. Our offering of the Trust Convertible Preferred Securities is not
contingent upon the closing of the AES offering of the common stock.
We intend to apply to list the Trust Convertible Preferred Securities on the New
York Stock Exchange.
See "Risk Factors" on page 5 of the accompanying prospectus for a discussion of
certain factors that you should consider before buying the Trust Convertible
Preferred Securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURRACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER PREFERRED
SECURITY TOTAL
<S> <C> <C>
Initial public offering price(1) ......... $50 $300,000,000
Underwriting commission .................. (2) (2)
Proceeds to AES Trust III ................ $50 $300,000,000
</TABLE>
- ----------
(1) Plus accrued distributions, if any, from October , 1999.
(2) Underwriting commissions of $ per Preferred Security will be paid by The AES
Corporation.
----------------
The underwriters may, under certain circumstances, purchase up to an additional
900,000 Trust Convertible Preferred Securities on the same terms set forth
above.
----------------
The underwriters are severally underwriting the Trust Convertible Preferred
Securities being offered. The underwriters expect to deliver the Trust
Convertible Preferred Securities against payment in New York, New York on
October , 1999.
The joint lead managers are J.P. Morgan & Co., Goldman, Sachs & Co. and Salomon
Smith Barney.
JOINT BOOK-RUNNING MANAGERS
J.P. MORGAN & CO. GOLDMAN, SACHS & CO.
----------------
SALOMON SMITH BARNEY DONALDSON, LUFKIN & JENRETTE
, 1999
The Information in this prospectus supplement is not complete and may be
changed. This prospectus supplement is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
<PAGE>
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the trust convertible preferred securities offered hereby,
but only under circumstances and in jurisdictions where it is lawful to do so.
The information contained in this prospectus is current only as of its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement
Special Note on Forward-Looking
Statements ........................................ S-2
The Company .......................................... S-3
Recent Developments .................................. S-3
Summary Information .................................. S-5
Summary of Terms ..................................... S-7
Use of Proceeds ...................................... S-11
Capitalization ....................................... S-12
Selected Consolidated Financial Data ................. S-13
Common Stock Price Ranges and Dividends .............. S-14
AES Trust III ........................................ S-15
Description of the Preferred Securities .............. S-16
Description of the Guarantee ......................... S-32
Description of the Junior Subordinated
Debentures ........................................ S-32
Relationship between the Preferred Securities, the
Junior Subordinated Debentures and the
Preferred Securities Guarantee .................... S-37
Certain Federal Tax Consequences ..................... S-38
ERISA Considerations ................................. S-43
Underwriting ......................................... S-45
Legal Matters ........................................ S-46
Experts .............................................. S-46
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus
About this Prospectus ............................... 2
Summary Information ................................. 3
Risk Factors ........................................ 5
Where You Can Find More Information ................. 15
Incorporation of Documents by Reference ............. 16
Special Note on Forward-Looking
Statements ........................................ 16
Use of Proceeds ..................................... 17
Ratio of Earnings to Fixed Charges .................. 17
The Company ......................................... 17
The AES Trusts ...................................... 18
Description of the Preferred Securities ............. 23
Description of the Preferred Securities
Guarantees ........................................ 24
Description of the Junior Subordinated Debt
Trust Securities .................................. 27
Certain Covenants of AES Applicable to the
Junior Subordinated Debt Trust Securities ......... 29
Plan of Distribution ................................ 33
Legal Matters ....................................... 34
Experts ............................................. 34
</TABLE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. AES has based these
forward-looking statements on its current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions related to AES, including, among other things:
o changes in company-wide operation and plant availability compared to
our historical performance;
o changes in our historical operating cost structure, including changes
in various costs and expenses;
o political and economic considerations in certain non-U.S. countries
where AES is conducting or seeking to conduct business;
o restrictions on foreign currency convertibility and remittance abroad,
exchange rate fluctuations and developing legal systems;
o regulation and restrictions related to AES' business;
o legislation intended to promote competition in U.S. and non-U.S.
electricity markets;
o tariffs;
o changes in market prices for electricity markets where AES has not
fully contracted for its electricity sales;
o governmental approval processes;
o environmental matters;
o construction, operating and fuel risks;
o load growth, dispatch and transmission constraints;
o impact of the Year 2000 issue;
o conflict of interest with contracting parties and
o adherence to its principles.
S-2
<PAGE>
AES undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
THE COMPANY
AES is a global power company committed to serving the world's need for
electricity in a socially responsible way.
AES has been successful in growing its business and serving additional
customers by, in part, participating in competitive bidding under privatization
initiatives. AES has been particularly interested in acquiring existing
businesses or assets in electricity markets that are promoting competition and
eliminating rate of return regulation. Sellers generally seek to complete such
transactions in less than one year, much quicker than the time periods
associated with greenfield development, and usually require payment in full on
transfer. AES believes that its experience in competitive markets and its
worldwide integrated group structure, with its significant geographic coverage
and presence, enable it to react quickly and creatively in these situations.
Since 1994, AES' total net generating capacity in megawatts or MW has grown from
2,479 MW to 28,986 MW at June 30, 1999 (an increase of 1,069%), with the total
number of plants in operation increasing from 9 to 98. Additionally, AES' total
revenues have increased at a compound annual growth rate of 46% from $533
million in 1994 to $2,398 million in 1998, while net income has increased at a
compound annual growth rate of 33% from $100 million to $311 million over the
same period.
AES' ownership portfolio of power facilities includes new plants
constructed for such purposes, so-called greenfield plants, as well as existing
power plants acquired through competitively bid privatization initiatives and
negotiated acquisitions. In the electricity generation business, AES now owns
and operates (entirely or in part) a diverse portfolio of electric power plants
(including those within integrated distribution companies) with, as of June 30,
1999, net capacity of 28,986 MW. Of that total, 42% are fueled by coal or
petroleum coke, 25% are fueled by natural gas, 28% are hydroelectric facilities
and 5% are fueled by oil. A majority of AES' sales of electricity are made to
customers (generally electric utilities or regional electric companies), on a
wholesale basis for further resale to end users. This is referred to as the
electricity "generation" business. Sales by these generation companies are
usually made under long-term contracts from power plants owned by AES'
subsidiaries and affiliates, although it does, in certain circumstances, make
sales into regional electricity markets without contracts.
RECENT DEVELOPMENTS
AES' recent activities evidence its accelerated pace of acquiring and
developing assets and businesses. Importantly, AES' activity has been worldwide
and diversified over generation, transmission, distribution, and competitive
retail services. For example:
AES announced on August 18, 1999 that one of its subsidiaries reached
agreement with National Power plc for the acquisition of the Drax Power Station,
Ltd. ("Drax") for 1.875 billion pounds (approximately $3 billion). Drax is a
3,960 MW coal fired power station complete with flue gas desulphurisation
located on an 1800 acre site in northern England. AES believes it is the largest
coal-fired plant in western Europe and generates approximately 8% of the
electricity consumed in England and Wales. The acquisition of Drax will provide
a foundation upon which AES intends to build its European franchise. Completion
of the transaction is subject to a number of conditions, including the receipt
of certain regulatory approvals and the approval of the shareholders of National
Power. Closing is expected to occur later this year.
AES announced on November 23, 1998, a definitive agreement to acquire all
of CILCORP's 13,610,680 common shares at a price of $65 per share, or
approximately $885 million. CILCORP is an integrated electric and gas utility
based in central Illinois that combines two coal-fired generation plants
producing an aggregate 1,157 MW of capacity and an extensive transmission and
distribution network that serves 193,000 electricity customers and 203,000 gas
customers.
S-3
<PAGE>
On August 20, 1999, AES received from the Securities and Exchange Commission an
exemption to the Public Utilities Holding Company Act of 1935, enabling it to
purchase CILCORP, while maintaining its existing ownership levels in the United
States power plants developed under the auspices of the 1978 Public Utility
Regulatory Policy Act. CILCORP represents AES' first investment in a U.S.
distribution company. AES plans to close the CILCORP acquisition early in the
fourth quarter of 1999.
In May 1999, AES completed the acquisition of six coal-fired, electric
generating plants from NGE Generation, a subsidiary of Energy East, Inc., for
approximately $950 million. The output of these plants is currently sold into
the merchant power market.
On August 10, 1999, AES announced the acquisition of 51% of Eletronet, a
Brazilian telecommunications company which owns and operates approximately 5,000
kilometers of dark fiber optic cable attached to Brazil's national electric
network, for approximately $155 million. Eletronet was created in 1998 to
construct a national broadband telecommunications network attached to the
existing national electrical transmissions grid in Brazil. This purchase price
will be paid in installments through 2002. Eletronet plans to use the proceeds
of the sale of 51% of the company to expand this network to approximately 12,000
kilometers of fiber optic cable. The fiber optic cable is intended to be sold to
other telecommunication carriers. The other 49% of Eletronet is controlled by
Lightpar, a subsidiary of state-controlled Eletrobras. This investment will
leverage into the telecommunications sector AES' existing operations and
experience in the Brazilian utilities market.
AES announced on May 18, 1999, the acquisition of energy services
provider New Energy Ventures for approximately $90 million in cash, stock and
debt. The new subsidiary, renamed NewEnergy, was purchased from UniSource Energy
and New Energy Holdings. It was formed in 1995 to serve customers in every state
where a competitive energy market is emerging. This technology-based energy
company is active in markets throughout the U.S. NewEnergy's services include
energy buying for customers, energy efficiency services and low-cost supply of
energy-related equipment and supplies. The acquisition of NewEnergy marks AES'
entrance into the energy retail marketing business.
On August 24, 1999 AES announced the formation of Power Direct, a new
energy services subsidiary that will provide electricity and natural gas
services to retail customers in the United States. Power Direct's principal
focus will be residential and small to mid-sized commercial energy users, and
will complement NewEnergy's focus on larger commercial and industrial customers.
AES announced on August 5, 1999 the completion of the acquisition of 50%
of Empresa Distribuidora de Electricidad del Este ("EDE Este") the distribution
company providing electricity to approximately 400,000 customers in the eastern
portion of the Dominican Republic, for approximately $109 million. AES believes
its investment in EDE Este complements its existing investments in the Los Mina
generating facility.
EDE Este was funded through a $340 million bridge loan with a subsidiary
of AES, AES Texas Funding LLC (the "Texas Bridge"). The Texas Bridge is secured
by a pledge of 15.8 million shares of AES common stock to the borrower. One of
AES' subsidiaries, AES New York Funding LLC, is party to a $300 million loan
which is also secured by a pledge of 15.6 million shares of AES common stock. If
the lenders to AES Texas Funding LLC or AES New York Funding LLC foreclose on
these loans, the lenders would be entitled to register and sell the number of
shares of AES common stock that would be required to repay these loans in full.
The registration and sale of such shares in the public market would likely have
an adverse effect on the market price of AES common stock.
None of the financial information included herein reflects or gives
effect to the pending acquisitions described above. AES cannot assure you that
these acquisitions will be consummated or will perform as expected or that the
returns from such acquisitions will support the indebtedness it will incur to
acquire them.
S-4
<PAGE>
SUMMARY INFORMATION
QUESTIONS AND ANSWERS
The following information supplements, and should be read together with
the other information contained in this prospectus supplement and in the
accompanying prospectus. This summary provides a brief overview of some aspects
of the Preferred Securities. You should carefully read the prospectus and this
prospectus supplement to understand the terms of the Preferred Securities as
well as the tax and other considerations that are important in making your
decision about whether to invest in the preferred securities. You should pay
special attention to the "Risk Factors" section beginning on page 5 of the
accompanying prospectus to determine whether an investment in the Preferred
Securities is appropriate for you.
WHAT ARE THE PREFERRED SECURITIES?
Each Preferred Security represents an undivided beneficial interest in
the assets of AES Trust III (the "Trust"). Each Preferred Security will entitle
the holder to receive cash distributions as described in this prospectus
supplement. The Trust is offering the Preferred Securities at a price of $50 for
each Preferred Security.
WHO IS AES TRUST III?
The Trust is a Delaware business trust and a subsidiary of AES. Its
principal place of business is c/o The AES Corporation, 1001 North 19th Street,
Arlington, Virginia 22209 and its telephone number is (703) 522-1315. All of the
common securities (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities") of the Trust will be owned by The AES
Corporation ("AES" or the "Company"). The Trust will use the proceeds from the
sale of the Preferred Securities and the Common Securities to buy a series of
junior subordinated deferrable interest debentures (the "Junior Subordinated
Debentures") from AES with the same financial terms as the Preferred Securities.
WHO IS THE AES CORPORATION?
AES is a global power company, with 98 power plants in operation, 87 of
which are located outside of the United States. The mailing address of AES'
principal executive office is 1001 North 19th Street, Arlington, Virginia 22209
and our telephone number is (703) 522-1315. AES' Internet address is
http://www.aesc.com. The information on our website is not incorporated into
this prospectus supplement or the accompanying prospectus.
WHEN WILL YOU RECEIVE DISTRIBUTIONS ON THE PREFERRED SECURITIES?
The Trust's only source of cash to make payments on the Preferred
Securities are payments on the Junior Subordinated Debentures it purchases from
AES. If you purchase the Preferred Securities, you are entitled to receive
cumulative cash distributions at an annual rate of $ per Preferred Security,
accruing from the date of original issuance of the Preferred Securities and
payable (except as described below) quarterly in arrears on
, , and of each year beginning on , 2000.
WHEN WILL PAYMENT OF YOUR DISTRIBUTIONS BE DEFERRED?
If AES defers interest payments on the Junior Subordinated Debentures,
the Trust will defer distributions on the Preferred Securities for up to 20
consecutive quarters. During any deferral period, with certain exceptions, AES
will not be permitted to:
o declare or pay a dividend or make any distributions on its capital
stock or redeem, purchase, acquire or make a liquidation payment on
any of its capital stock or make any guarantee payments relating to
the foregoing; or
o make an interest, principal or premium payment on, or repurchase or
redeem any of its debt securities that rank equal with or junior to
the Junior Subordinated Debentures.
WHEN CAN THE TRUST REDEEM THE PREFERRED SECURITIES?
The Trust must redeem all of the outstanding Trust Securities on ,
2029. In addition, if AES redeems any Junior
S-5
<PAGE>
Subordinated Debentures before their maturity, the Trust will use the cash it
receives from the redemption to redeem, on a pro rata basis, Preferred
Securities and Common Securities having a combined liquidation amount equal to
the principal amount of the Junior Subordinated Debentures redeemed.
AES can redeem some or all of the Junior Subordinated Debentures before
their maturity on one or more occasions in whole or in part at the prices
specified herein at any time on or after , 2002, and at any time at 100% of
their principal amount if certain changes in tax law occur and certain other
conditions are satisfied, as more fully described under "Description of the
Preferred Securities--Special Event Redemption or Distribution."
WHAT IS AES' GUARANTEE OF THE PREFERRED SECURITIES?
AES has irrevocably guaranteed that if a payment on the Junior
Subordinated Debentures is made to the Trust but for any reason, the Trust does
not make the corresponding distribution or redemption payment to the holders of
the Preferred Securities, then AES will make the payments directly to the
holders of the Preferred Securities. The guarantee does not cover payments when
the Trust does not have sufficient funds to make payments on the Preferred
Securities. AES' obligations under the guarantee are subordinated as described
on page 24 of the accompanying prospectus.
WHEN COULD THE JUNIOR SUBORDINATED DEBENTURES BE DISTRIBUTED TO YOU?
AES has the right to dissolve the Trust at any time. If AES terminates
the Trust, the Trust will redeem the Preferred Securities by distributing the
Junior Subordinated Debentures to holders of the Preferred Securities and the
Common Securities on a ratable basis. If the Junior Subordinated Debentures are
distributed, AES will use it best efforts to list the Junior Subordinated
Debentures on any exchange on which the Preferred Securities are then listed.
WILL THE PREFERRED SECURITIES BE LISTED ON A STOCK EXCHANGE?
Application will be made to list the Preferred Securities on the NYSE. If
approved for listing, the Trust expects the Preferred Securities to begin
trading within 30 days after they are first issued. The Preferred Securities
will trade under the symbol " ".
WILL HOLDERS OF THE PREFERRED SECURITIES HAVE ANY VOTING RIGHTS?
Generally, the holders of the Preferred Securities will not have any
voting rights. See "Description of the Preferred Securities."
IN WHAT FORM WILL THE PREFERRED SECURITIES BE ISSUED?
The Preferred Securities will be represented by one or more global
securities that will be deposited with and registered in the name of The
Depository Trust Company or its nominee. This means that you will not receive a
certificate for your Preferred Securities and that your broker will maintain
your position in the Preferred Securities.
S-6
<PAGE>
SUMMARY OF TERMS
SECURITIES OFFERED....... 6,000,000 Trust Convertible Preferred Securities
("Preferred Securities") (6,900,000 if the
underwriters' overallotment option is exercised in
full).
ISSUER.................... AES Trust III, (the "Trust") a Delaware business
trust. The only assets of the Trust will consist of
the % Junior Subordinated Convertible
Debentures due 2029 (the "Junior Subordinated
Debentures") of AES.
GUARANTOR................. The AES Corporation, a Delaware corporation.
DISTRIBUTIONS............. Your distributions on the Preferred Securities will
will accrue from , 1999 and will be payable at
an annual rate of $ per Preferred Security.
Subject to the deferral provisions described below,
distributions will be cumulative payable quarterly
in arrears on , , and of each year,
commencing , 2000. Because distributions on the
Preferred Securities are considered interest for
U.S. federal income tax purposes, corporate holders
thereof will not be entitled to a
dividends-received deduction.
DISTRIBUTION DEFERRAL
PROVISIONS................. The ability of the Trust to pay distributions on the
Preferred Securities depends only on the receipt of
interest payments from AES on the Junior
Subordinated Debentures. As long as AES does not
default in the payment of interest on the Junior
Subordinated Debentures, AES has the right to defer
payments of interest on the Junior Subordinated
Debentures by extending the interest payment period
from time to time for extension periods not
exceeding 20 consecutive quarterly interest periods
(each, an "Extension Period"); provided that AES may
not extend the interest payment periods beyond the
maturity of the Junior Subordinated Debentures.
Quarterly distributions on the Preferred Securities
would be deferred by the Trust, but would continue
to accumulate quarterly and accrue interest until
the end of any such extension period. Upon the
termination of an extension period, payment is due
on all accrued and unpaid amounts on the Junior
Subordinated Debentures. Upon such payment, the
Trust would be required to pay all accumulated and
unpaid distributions. If a deferral of an interest
payment occurs, the holders of the Preferred
Securities will continue to accrue income for U.S.
federal income tax purposes in advance of any
corresponding cash distribution.
RIGHTS UPON DEFERRAL OF
DISTRIBUTIONS............ During any period in which interest payments on
the Junior Subordinated Debentures are deferred,
interest will accrue on the Junior Subordinated
Debentures and quarterly distributions will
continue to accumulate with interest thereon at the
distribution rate, compounded quarterly. AES has
agreed not to declare or pay any dividend on, or
redeem, purchase, acquire or make a distribution or
liquidation payment with respect to its common stock
or preferred stock or make any guarantee payments
with respect thereto during any Extension Period.
The foregoing does not apply to any stock
dividends payable in AES common stock.
S-7
<PAGE>
CONVERSION RIGHTS........ Each Preferred Security is convertible at any
time prior to the close of business on , 2029
(or, in the case of Preferred Securities called for
redemption, prior to the close of business on the
Business Day (as defined herein) prior to the
applicable redemption date) at the option of the
holder into shares of AES common stock, at the rate
of shares of AES common stock for each
Preferred Security (equivalent to a conversion
price of $ per share of AES common stock),
subject to adjustment in certain circumstances. The
reported last sale price of AES common stock on the
NYSE composite tape on September 24, 1999 was
$63.625 per share. In connection with any
conversion of a Preferred Security, the conversion
agent, will exchange these Preferred Securities for
the appropriate principal amount of the Junior
Subordinated Debentures held for the Trust and
immediately convert these Junior Subordinated
Debentures into AES common stock. No fractional
shares of AES common stock will be issued as a
result of a conversion. Instead fractional interest
will be paid by AES in cash.
LIQUIDATION AMOUNT....... If the Trust is liquidated, you will be entitled
to receive $50 per Preferred Security plus an
amount equal to any accrued and unpaid
distributions thereon to the date of payment,
unless Junior Subordinated Debentures are
distributed to holders.
REDEMPTION................ The Junior Subordinated Debentures will be
redeemable for cash, at the option of AES in whole
or in part, from time to time on or after ,
2002 at the prices specified herein or at any time
in certain circumstances upon the occurrence of
certain changes in tax law at a redemption price
equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest
thereon, including compounded interest, to the date
of redemption. If AES redeems Junior Subordinated
Debentures, the Trust must redeem, at the
redemption price, trust securities having a
liquidation amount equal to the principal amount of
the Junior Subordinated Debentures so redeemed. The
Preferred Securities, will not have a stated
maturity date, although they will be subject to
mandatory redemption upon the repayment of the
Junior Subordinated Debentures at their stated
maturity ( , 2029), upon acceleration, earlier
redemption or otherwise.
PREFERRED SECURITIES
GUARANTEE................ . AES will irrevocably and unconditionally guarantee,
on a subordinated basis and to the extent set forth
herein, the payment in full of (1) any accrued and
unpaid distributions and the amount payable upon
redemption of the Preferred Securities to the extent
AES has made a payment to the Property Trustee of
interest or principal on the Junior Subordinated
Debentures and (2) generally, the liquidation amount
of the Preferred Securities to the extent the Trust
has assets available for distribution to holders of
Preferred Securities. The preferred securities
guarantee will be unsecured and will be subordinate
and junior in right of payment to all other
liabilities of AES and will rank pari passu in right
of payment with the most senior preferred stock
issued, from time to time, by AES.
S-8
<PAGE>
VOTING RIGHTS............ Generally, holders of the Preferred Securities
will not have any voting rights. If (1) the
property trustee fails to enforce its rights under
the Junior Subordinated Debentures or (2) the
guarantee trustee fails to enforce its rights under
the Guarantee, a record holder of the Preferred
Securities may institute a legal proceeding
directly against AES to enforce these rights
without first instituting any legal proceeding
against any other person or entity. Notwithstanding
the foregoing, if an event of default under the
indenture occurs and is continuing and is caused by
the failure of AES to pay interest or principal on
the Junior Subordinated Debentures or AES has
failed to make a guarantee payment, a holder of the
Preferred Securities may directly institute a
proceeding against AES for enforcement of that
payment.
SPECIAL EVENT DISTRIBUTION;
TAX EVENT REDEMPTION.......Upon the occurrence of a Special Event, as
defined in this prospectus supplement, except in
certain limited circumstances, AES may cause the
Trust to be dissolved and cause the Junior
Subordinated Debentures to be distributed to the
holders of the Preferred Securities. In the case of
a Tax Event, as defined in this prospectus
supplement, AES may also elect to cause the
Preferred Securities to remain outstanding and pay
additional interest, if any, on the Junior
Subordinated Debentures. In certain circumstances
upon the occurrence of a Tax Event, the Junior
Subordinated Debentures may be redeemed by AES at
100% of the principal amount thereof plus accrued
and unpaid interest thereon.
JUNIOR SUBORDINATED
DEBENTURES OF AES..........The Junior Subordinated Debentures will mature on
, 2029 and will bear interest at the rate of
% per annum, payable quarterly in arrears. As
long as AES is not in default with its interest
payments on the Junior Subordinated Debentures, AES
has the right to defer payments of interest on the
Junior Subordinated Debentures by extending the
interest payment period from time to time for an
Extension Period not exceeding 20 consecutive
quarterly interest periods. However, no interest
period may be extended beyond the stated maturity of
the Junior Subordinated Debentures. Prior to the
termination of any Extension Period, AES may pay all
or a portion of the accrued distributions or may
further defer interest payments, provided the
Extension Period, as previously and further
extended, does not exceed 20 consecutive quarters.
During any Extension Period, no interest will become
due, but interest will continue to accrue and
compound quarterly. Upon termination of the
Extension Period, payment is due on all accrued and
unpaid amounts. After the payment of all amounts
then due, AES may commence a new Extension Period,
subject to the conditions of this paragraph. During
any Extension Period, AES will be prohibited from
paying dividends on any of its common stock or
preferred stock or making any guarantee payments
with respect thereto; provided, among other things,
that the foregoing shall not apply to any stock
dividends payable in common stock.
S-9
<PAGE>
The payment of principal and interest on the Junior
Subordinated Debentures will rank junior to all
present and future senior and senior subordinated
debt of AES. In addition, payment of principal and
interest on the Junior Subordinated Debentures will
be structurally subordinated to the liabilities of
AES' subsidiaries. As of June 30, 1999, AES had
$2,260 million of senior and subordinated debt
(which includes $281 million of letters of credit)
outstanding. In addition, AES' subsidiaries had
debt of $5,363 million, to which the Junior
Subordinated Debentures are effectively
subordinated. The trust indenture, under which the
Junior Subordinated Debentures will be issued, does
not limit the aggregate amount of senior and
subordinated debt that may be incurred by AES and
does not limit the liabilities of its subsidiaries.
The Junior Subordinated Debentures will have
provisions with respect to interest, optional
redemption and conversion into AES common stock and
certain other terms substantially similar to those
of the Preferred Securities.
COMMON STOCK OFFERING... Concurrently with this offering, AES is selling
16,000,000 shares of its common stock in a common
stock offering (18,400,000 shares assuming the
underwriters' overallotment option in the common
stock offering is exercised in full). The
consummation of the Preferred Securities offering
is not contingent on the closing of the common
stock offering.
S-10
<PAGE>
USE OF PROCEEDS
The proceeds to the Trust from this offering are estimated to be $300.0
million ($345.0 million if the underwriters' overallotment option is exercised
in full). We will invest the proceeds from the sale of the Preferred Securities
in the junior subordinated debentures of AES. The net proceeds to AES from the
issuance of junior subordinated debentures to the Trust are estimated to be $
million ($ million if the underwriters' overallotment option is exercised in
full). AES intends to use the net proceeds from the issuance of the junior
subordinated debentures (1) to fund a portion of the purchase price of Drax, (2)
unless we obtain a waiver, to repay a portion of the $340 million Texas Bridge
and (3) for general corporate purposes. Pending such uses, AES may use a portion
of the proceeds to temporarily repay amounts outstanding under its revolving
credit agreement. The revolver bears interest at a weighted average interest
rate of LIBOR plus 2% and matures in December 2000. As of September 24, 1999,
amounts outstanding under the revolver were $122 million.
AES is concurrently offering 16,000,000 shares of its common stock. The
net proceeds (before expenses) from the common stock offering are estimated to
be $ million ($ million if the underwriters' overallotment option is exercised
in full). AES intends to use the net proceeds from the common stock offering (1)
to fund a portion of the purchase price of CILCORP, (2) to fund a portion of the
purchase price of Drax, (3) unless it obtains a waiver, to repay a portion of
the $340 million Texas Bridge and (4) for general corporate purposes.
AES expects to fund the remainder of the Drax and CILCORP acquisitions
through a combination of non-recourse project financing and additional debt
financing by AES. None of the foregoing sources of funds is committed.
Accordingly, AES cannot assure you that such sources or any other sources will
be available on favorable terms or at all.
The offerings of Preferred Securities and common stock are not
conditioned on each other or conditioned on the consummation of the acquisition
of Drax or CILCORP and accordingly, if these acquisitions are not consummated,
AES will use the net proceeds that would have been used for such acquisitions
for general corporate purposes.
One of AES' subsidiaries, AES Texas Funding LLC, is party to the $340
million Texas Bridge with an affiliate of Salomon Smith Barney Inc., as agent
and a lender, which is required to be prepaid out of the proceeds of certain
debt and equity issuances by AES, including the issuance of Preferred Securities
in this offering and the concurrent issuance of common stock. AES may seek a
waiver of the prepayment provision from the lenders under the Texas Bridge. If
AES does not obtain this waiver, it will use all or a portion of the net
proceeds of this offering to repay a portion of the amounts outstanding under
the Texas Bridge. The Texas Bridge bears interest at a rate of LIBOR plus 2.75%
and matures on March 6, 2000. Borrowings under the Texas Bridge were used to
fund the purchase price of EDE Este, a portion of the purchase price of
Eletronet and for general corporate purposes.
S-11
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and consolidated
capitalization of AES as of June 30, 1999, and as adjusted to give effect to the
issuance of the Preferred Securities in this offering and the concurrent
issuance of 16,000,000 shares of common stock by AES, but not the application of
the net proceeds therefrom or any overallotment options. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------
ACTUAL AS ADJUSTED
------------- ------------
IN MILLIONS, EXCEPT PAR
VALUE
<S> <C> <C>
SHORT-TERM DEBT:
Project financing debt (current portion) ................................. $ 676 $ 676
Revolving bank loan (current portion) .................................... -- --
-------- -------
Total short-term debt ................................................. $ 676 $ 676
======== =======
LONG-TERM DEBT:
Revolving bank loan ...................................................... $ 60 $ 60
Project financing debt ................................................... 4,687 4,687
9 1/2% Senior Notes due 2009 ............................................. 500 500
8% Senior Notes due 2008 ................................................. 200 200
10 1/4% Senior Subordinated Notes due 2006 ............................... 250 250
8 3/8% Senior Subordinated Notes due 2007 ................................ 325 325
8 1/2% Senior Subordinated Notes due 2007 ................................ 375 375
8 7/8% Senior Subordinated Debentures due 2027 ........................... 125 125
4 1/2% Convertible Junior Subordinated Debentures due 2005 ............... 150 150
Unamortized discounts on notes and debentures ............................ (6) (6)
---------- ----------
Total long-term debt .................................................. 6,666 6,666
--------- ---------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF THE AES CORPORATION ....................................... 550 850
--------- ---------
MINORITY INTEREST ........................................................ 773 773
--------- ---------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value: 500 shares authorized; 191 shares issued and
outstanding (207 on an as adjusted basis) ............................... 2 2
Additional paid-in capital ............................................... 1,757
Retained earnings ........................................................ 950 950
Accumulated other comprehensive loss ..................................... (1,195) (1,195)
--------- ---------
Total stockholders' equity ............................................ 1,514
---------
Total capitalization .................................................. $ 9,503 $
========= =========
</TABLE>
S-12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data, which should be read in conjunction with consolidated financial statements
and related notes to the consolidated financial statements of AES incorporated
by reference in this prospectus supplement. The selected consolidated financial
data as of and for each of the five years in the period ended December 31, 1998
have been derived from AES' audited consolidated financial statements. The
selected consolidated financial data presented below as of June 30, 1998 and
1999 are derived from the unaudited consolidated financial statements of AES.
The results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year. We
believe that the unaudited information for the six months ended June 30, 1998
and 1999 contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the operating results for such
periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ------------ ------------
IN MILLIONS, EXCEPT RATIO AND PER SHARE DATA
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales ........................................ $ 514 $ 672 $ 824 $ 1,361 $ 2,382
Services ..................................... 19 7 11 50 16
--------- --------- --------- -------- --------
Total revenues ............................. 533 679 835 1,411 2,398
--------- --------- --------- -------- --------
Operating cost and expenses:
Cost of sales ................................ 252 388 495 940 1,579
Cost of services ............................. 13 6 7 41 8
Selling, general and administrative
expenses ................................... 32 32 35 45 56
Provision to reduce contract receivables. -- -- 20 17 22
--------- --------- --------- -------- --------
Total operating costs and expenses ......... 297 426 557 1,043 1,665
--------- --------- --------- -------- --------
Operating income .............................. 236 253 278 368 733
Other income and (expense):
Interest expense ............................. (125) (127) (144) (244) (485)
Foreign currency exchange loss ............... -- -- -- (7) (1)
Interest income .............................. 22 27 24 41 67
Equity in pre-tax earnings (loss) of
affiliates ................................. 16 19 49 126 232
--------- --------- --------- ---------- ----------
Income before income taxes, minority
interest and extraordinary item .............. 149 172 207 284 546
Income tax provision .......................... 48 62 74 77 145
Minority interest ............................. 3 3 8 19 94
--------- --------- --------- ---------- ----------
Net income before extraordinary item .......... 98 107 125 188 307
Extraordinary item ............................ 2 -- -- (3) 4
--------- --------- --------- ----------- ----------
Net income .................................... $ 100 $ 107 $ 125 $ 185 $ 311
========= ========= ========= ========== ==========
Diluted earnings per share .................... $ 0.67 $ 0.70 $ 0.80 $ 1.09 $ 1.69
========= ========= ========= ========== ==========
Weighted average number of common and
potential common equivalent shares ........... 155.4 155.7 157.2 177.8 189.0
Ratio of earnings to fixed charges(1) ......... 2.10 x 2.20 x 1.88 x 1.46 x 1.65 x
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------
1998 1999
----------- ------------
IN MILLIONS, EXCEPT RATIO
AND PER
SHARE DATA
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales ........................................ $ 1,132 $ 1,266
Services ..................................... 8 12
--------- --------
Total revenues ............................. 1,140 1,278
--------- --------
Operating cost and expenses:
Cost of sales ................................ 777 825
Cost of services ............................. 5 5
Selling, general and administrative
expenses ................................... 27 31
Provision to reduce contract receivables. 15 --
--------- --------
Total operating costs and expenses ......... 824 861
--------- --------
Operating income .............................. 316 417
Other income and (expense):
Interest expense ............................. (202) (276)
Foreign currency exchange loss ............... -- (2)
Interest income .............................. 31 33
Equity in pre-tax earnings (loss) of
affiliates ................................. 100 (54)
--------- ----------
Income before income taxes, minority
interest and extraordinary item .............. 245 118
Income tax provision .......................... 69 28
Minority interest ............................. 40 32
--------- ----------
Net income before extraordinary item .......... 136 58
Extraordinary item ............................ -- --
--------- ----------
Net income .................................... $ 136 $ 58
========= ==========
Diluted earnings per share .................... $ 0.75 $ 0.31
========= ==========
Weighted average number of common and
potential common equivalent shares ........... 187.2 188.6
Ratio of earnings to fixed charges(1) ......... 1.71 x 1.56 x
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
-------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- ---------- ----------
IN MILLIONS, EXCEPT RATIOS
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ............................... $1,915 $2,341 $3,622 $8,909 $10,781 $10,464 $11,243
Revolving bank loan (current) .............. -- 50 88 -- 8 174 --
Project financing debt (current) ........... 61 84 110 596 1,405 599 676
Revolving bank loan (long-term) ............ -- -- 125 27 225 225 60
Project financing debt (long-term) ......... 1,019 1,098 1,558 3,489 3,597 4,560 4,687
Other notes payable (long-term) ............ 125 125 325 1,069 1,419 1,069 1,919
Company-obligated mandatorily
redeemable convertible preferred
securities of subsidiary trusts
(TECONS) .................................. -- -- -- 550 550 550 550
Minority interest .......................... 21 158 213 525 732 646 773
Stockholders' equity ....................... 401 549 721 1,481 1,794 1,532 1,514
</TABLE>
- ----------
(1) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes
and minority interest, plus fixed charges, less capitalized interest, less
excess of earnings over dividends of less-than-fifty-percent-owned
companies. Fixed charges consist of interest (including capitalized
interest) on all indebtedness, amortization of debt discount and expense and
that portion of rental expense which AES believes to be representative of an
interest factor.
COMMON STOCK PRICE RANGES AND DIVIDENDS
AES' common stock began trading on the New York Stock Exchange on October
16, 1996 under the symbol "AES". The following table sets forth for the periods
indicated the high and low sale closing prices for our common stock as reported
on the NYSE Composite Tape. In July 1997, AES announced a two-for-one stock
split, for holders of record on July 28, 1997 which was paid on August 28, 1997.
The prices set forth below reflect adjustment for such stock split.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
1997
- ----
First Quarter ...................................... $ 34.13 $ 22.38
Second Quarter ..................................... 37.75 27.50
Third Quarter ...................................... 45.25 34.63
Fourth Quarter ..................................... 49.63 35.00
1998
- ----
First Quarter ...................................... $ 54.31 $ 39.38
Second Quarter ..................................... 58.00 45.63
Third Quarter ...................................... 55.38 23.00
Fourth Quarter ..................................... 47.38 32.00
1999
- ----
First Quarter ...................................... $ 49.25 $ 32.81
Second Quarter ..................................... 59.75 36.75
Third Quarter (through September 24, 1999) ......... 66.69 53.94
</TABLE>
S-14
<PAGE>
No cash dividends have been paid on the common stock since December 22,
1993.
AES' ability to declare and pay dividends, if any, is dependent, among
other things, on:
o the ability of AES' project subsidiaries to declare and
pay dividends and otherwise distribute cash to AES;
o AES' ability to service parent company debt and
o AES' ability to meet certain criteria for paying
dividends under its corporate credit facility and under
existing indentures of its debt securities.
AES TRUST III
AES Trust III is a statutory business trust formed on November 13, 1996
under the Delaware Business Trust Act (the "Business Trust Act") pursuant to a
declaration of trust among the Trustees, as defined in the accompanying
prospectus, and AES and the filing of a certificate of trust with the Secretary
of State of the State of Delaware. Such declaration will be amended and restated
in its entirety (as so amended and restated, the "Declaration") substantially in
the form filed as an exhibit to the Registration Statement of which this
prospectus supplement and the accompanying prospectus form a part, as of the
date the Preferred Securities are initially issued. The Declaration is qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
Upon issuance of the Preferred Securities, the holders thereof will own all of
the issued and outstanding Preferred Securities. The Company will acquire Common
Securities in an amount equal to at least 3% of the total capital of the Trust
and will own, directly or indirectly, all of the issued and outstanding Common
Securities. The Trust exists for the purpose of (1) issuing its Trust Securities
for cash and investing the proceeds thereof in an equivalent amount of Junior
Subordinated Debentures and (2) engaging in such other activities as are
necessary, convenient and incidental thereto. The rights of the holders of the
Trust Securities, including economic rights, rights to information and voting
rights, are as set forth in the Declaration, the Business Trust Act and the
Trust Indenture Act. The Declaration does not permit the incurrence by the Trust
of any indebtedness for borrowed money or the making of any investment other
than in the Junior Subordinated Debentures. In the Declaration, AES has agreed
to pay for all debts and obligations (other than with respect to the Trust
Securities) and all costs and expenses of the Trust, including the fees and
expenses of the Trustees and any income taxes, duties and other governmental
charges, and all costs and expenses with respect thereto, to which the Trust may
become subject, except for United States withholding taxes.
S-15
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration which is qualified under the Trust Indenture Act. The Property
Trustee , but not the other Trustees of the Trust, will act as the indenture
trustee for purposes of the Trust Indenture Act. The terms of the Preferred
Securities and the Declaration include those stated in the Declaration and those
made part of the Declaration by the Trust Indenture Act and the Business Trust
Act. The following summarizes the material terms and provisions of the Preferred
Securities and is qualified in its entirety by reference to, the Declaration,
which has been filed as an exhibit to the Registration Statement of which this
prospectus supplement forms a part, the Business Trust Act and the Trust
Indenture Act. Capitalized terms used herein without definition have the
meanings ascribed to them in the accompanying prospectus.
GENERAL
The Declaration authorizes the Trust to issue the Preferred Securities,
which represent preferred undivided beneficial interests in the assets of the
Trust, and the Common Securities, which represent common undivided beneficial
interests in the assets of the Trust. All of the Common Securities will be
owned, directly or indirectly, by AES. The Common Securities and the Preferred
Securities rank pari passu with each other and will have equivalent terms except
that (1) if a Declaration Event of Default occurs and is continuing, the rights
of the holders of the Common Securities to payment in respect of periodic
Distributions and payments upon liquidation, redemption or otherwise are
subordinated to the rights of the holders of the Preferred Securities and (2)
holders of Common Securities have the exclusive right (subject to the terms of
the Declaration) to appoint, remove or replace Trustees and to increase or
decrease the number of Trustees. The Declaration does not permit the issuance by
the Trust of any securities or other evidences of beneficial ownership of, or
beneficial interests in, the Trust other than the Preferred Securities and the
Common Securities, the incurrence of any indebtedness for borrowed money by the
Trust or the making of any investment other than in the Junior Subordinated
Debentures. Pursuant to the Declaration, the Property Trustee will own and hold
the Junior Subordinated Debentures as trust assets for the benefit of the
holders of the Preferred Securities and the Common Securities. The payment of
Distributions out of moneys held by the Property Trustee and payments on
redemption of the Preferred Securities or liquidation of the Trust are
guaranteed by AES on a subordinated basis as and to the extent described under
"Description of the Guarantee" herein and "Description of the Preferred
Securities Guarantees" in the accompanying prospectus. The Property Trustee will
hold the Preferred Securities Guarantee for the benefit of holders of the
Preferred Securities. The Preferred Securities Guarantee is a full and
unconditional guarantee from the time of issuance of the Preferred Securities,
but the Preferred Securities Guarantee covers Distributions and other payments
on the Preferred Securities only if and to the extent that AES has made a
payment to the Property Trustee of interest or principal on the Junior
Subordinated Debentures deposited in the Trust as trust assets. See "--Voting
Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at an annual rate
of $ per Preferred Security. Distributions in arrears for more than one quarter
will bear interest thereon at the rate per annum of % (to the extent permitted
by law), compounded quarterly. The term "Distributions" as used herein includes
any such interest payable unless otherwise stated. The amount of distributions
payable for any period will be computed on the basis of a 360-day year of twelve
30 day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from , 1999 and, except as otherwise described below, will be payable on , , and
of each year, commencing on , 2000, but only if, and to the extent that,
interest payments are made in respect of Junior Subordinated Debentures held by
the Property Trustee.
So long as AES shall not be in default in the payment of interest on the
Junior Subordinated Debentures, the Company has the
S-16
<PAGE>
right under the Indenture to defer payments of interest on the Junior
Subordinated Debentures by extending the interest payment period (each an
"Extension Period") from time to time on the Junior Subordinated Debentures for
a period not exceeding 20 consecutive quarterly interest periods and, as a
consequence, the Trust would defer quarterly Distributions on the Preferred
Securities (though such Distributions would continue to accrue with interest
thereon at the rate of % per annum, compounded quarterly) during any such
Extension Period; provided that no such period may extend beyond the stated
maturity of the Junior Subordinated Debentures. If the Company exercises the
right to extend an interest payment period, the Company may not declare or pay
dividends on, or redeem, purchase, acquire or make a distribution or liquidation
payment with respect to, any of its common stock or preferred stock during such
Extension Period; provided that the foregoing will not apply to any stock
dividend by the Company payable in common stock. Prior to the termination of any
such Extension Period, the Company may further extend such Extension Period;
provided that such Extension Period together with all such previous and further
extensions thereof may not exceed 20 consecutive quarterly interest periods.
Upon the termination of any Extension Period and the payment of all amounts then
due, the Company may commence a new Extension Period, subject to the above
requirements. The Company may also prepay at any time all or any portion of the
interest accrued during an Extension Period. Consequently, there could be
multiple Extension Periods of varying lengths throughout the term of the Junior
Subordinated Debentures, not to exceed 20 consecutive quarters or to cause any
extension beyond the maturity of the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures -- Interest" and "-- Option
to Extend Interest Payment Period" herein and "Risk Factors" in the accompanying
prospectus. Payments of accrued distributions will be payable to holders of
Preferred Securities as they appear on the books and records of the Trust on the
first record date after the end of an Extension Period.
Distributions on the Preferred Securities must be paid on the dates
payable to the extent that the Property Trustee has cash on hand in the Property
Account to permit such payment. The funds available for distribution to the
holders of the Preferred Securities will be limited to payments received by the
Property Trustee in respect of the Junior Subordinated Debentures that are
deposited in the Trust as trust assets. See "Description of the Junior
Subordinated Debentures." If the Company does not make interest payments on the
Junior Subordinated Debentures, the Property Trustee will not make distributions
on the Preferred Securities. Under the Declaration, if and to the extent the
Company does make interest payments on the Junior Subordinated Debentures
deposited in the Trust as trust assets, the Property Trustee is obligated to
make distributions on the Trust Securities on a pro rata basis. The payment of
distributions on the Preferred Securities is guaranteed by the Company on a
subordinated basis as and to the extent set forth under "Description of the
Guarantees" herein and the "Description of the Preferred Securities Guarantees"
in the accompanying prospectus. The Preferred Securities Guarantee is a full and
unconditional guarantee from the time of issuance of the Preferred Securities
but the Preferred Securities Guarantee covers distributions and other payments
on the Preferred Securities only if and to the extent that the Company has made
a payment to the Property Trustee of interest or principal on the Junior
Subordinated Debentures deposited in the Trust as trust assets.
Distributions on the Preferred Securities will be made to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in book-entry
form, will be one Business Day prior to the relevant Distribution payment date.
Distributions payable on any Preferred Securities that are not punctually paid
on any Distribution payment date as a result of the Company having failed to
make the corresponding interest payment on the Junior Subordinated Debentures
will forthwith cease to be payable to the person in whose name such Preferred
Securities is registered on the relevant record date, and such defaulted
Distribution will instead be payable to the person in whose name such Preferred
Securities is registered on the special record date established by the Regular
Trustees, which record date shall correspond to the special record date or other
specified date determined in accordance with the Indenture; provided,
S-17
<PAGE>
however, that Distributions shall not be considered payable on any Distribution
payment date falling within an Extension Period unless the Company has elected
to make a full or partial payment of interest accrued on the Junior Subordinated
Debentures on such Distribution payment date. Distributions on the Preferred
Securities will be paid through the Property Trustee who will hold amounts
received in respect of the Junior Subordinated Debentures in the Property
Account for the benefit of the holders of the Preferred and Common Securities.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment will be made as described under "Book-Entry Only
Issuance -- The Depository Trust Company" below. In the event that the Preferred
Securities do not continue to remain in book-entry form, the Regular Trustees
shall have the right to select relevant record dates which shall be more than
one Business Day prior to the relevant payment dates. The Declaration provides
that the payment dates or record dates for the Preferred Securities shall be the
same as the payment dates and record dates for the Junior Subordinated
Debentures. All distributions paid with respect to the Trust Securities shall be
paid on a pro rata basis to the holders thereof entitled thereto. If any date on
which distributions are to be made on the Preferred Securities is not a Business
Day, then payment of the distribution to be made on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. "Business Day" shall mean any day other than Saturday,
Sunday or any other day on which banking institutions in the City of New York in
the State of New York are permitted or required by any applicable law to close.
CONVERSION RIGHTS
General
The Preferred Securities will be convertible at any time prior to the
close of business on , 2029 (or in the case of the Preferred Securities called
for redemption, prior to the close of the business on the Business Day prior to
the Redemption Date) (the "Conversion Expiration Date"), at the option of the
holders thereof and in the manner described below, into shares of common stock
at an initial conversion rate of share of common stock for each Preferred
Securities (equivalent to a conversion price of $ per security (the "Initial
Conversion Price")), subject to adjustment as described under "-- Conversion
Price Adjustments -- General" and "-- Conversion Price Adjustments --
Fundamental Change" below. If a Preferred Security is surrendered for conversion
after the close of business on any regular record date for payment of a
Distribution and before the opening of business on the corresponding
Distribution payment date, then, notwithstanding such conversion, the
Distribution payable on such Distribution payment date will be paid in cash to
the person in whose name the Preferred Security is registered at the close of
business on such record date, and (other than a Preferred Security or a portion
of a Preferred Security called for redemption on a redemption date occurring
after such record date and prior to such Distribution payment date) when so
surrendered for conversion, the Preferred Security must be accompanied by
payment of an amount equal to the Distribution payable on such Distribution
payment date.
The terms of the Preferred Securities provide that a holder of a
Preferred Security wishing to exercise its conversion right shall surrender such
Preferred Security, together with an irrevocable conversion notice, to the
Property Trustee, as conversion agent (the "Conversion Agent"), which shall, on
behalf of such holder, exchange such Preferred Security for an equivalent amount
of Junior Subordinated Debentures and immediately convert such Junior
Subordinated Debentures into common stock. Holders may obtain copies of the
required form of the conversion notice from the Conversion Agent. So long as a
book-entry system for the Preferred Securities is in effect, however, procedures
for converting the Preferred Securities into shares of common stock will differ,
as described under "-- Book-Entry Only Issuance -- The Depository Trust
Company."
No fractional shares of common stock will be issued as a result of
conversion, but in lieu
S-18
<PAGE>
thereof such fractional interest will be paid by AES in cash based on the market
price of common stock on the date such Preferred Securities are surrendered for
conversion.
Conversion Price Adjustments -- General
The Initial Conversion Price is subject to adjustment (under formulas set
forth in the Indenture) in certain events, including:
(i) the issuance of common stock as a dividend or distribution on common
stock;
(ii) certain subdivisions and combinations of common stock;
(iii) the issuance to all holders of common stock of certain rights or
warrants to purchase common stock at less than the then current market price;
(iv) the distribution to all holders of common stock of (A) equity
securities of the Company (other than common stock), (B) evidences of
indebtedness of the Company and/or (C) other assets (including securities, but
excluding (1) any rights or warrants referred to in clause (iii) above, (2) any
rights or warrants to acquire any capital stock of any entity other than the
Company, (3) any dividends or distributions in connection with the liquidation,
dissolution or winding-up of the Company, (4) any dividends payable solely in
cash that may from time to time be fixed by the Board of Directors of the
Company and (5) any dividends or distributions referred to in clause (i) above);
(v) distributions to all holders of common stock, consisting of cash,
excluding (a) any cash dividends on common stock to the extent that the
aggregate cash dividends per share of common stock in any consecutive 12-month
period do not exceed the greater of (x) the amount per share of common stock of
the cash dividends paid on common stock in the immediately preceding 12-month
period, to the extent that such dividends for the immediately preceding 12-month
period did not require an adjustment of the conversion price pursuant to this
clause (v) (as adjusted to reflect subdivisions or combinations of common
stock), and (y) 15% of the average of the daily Closing Price (as defined in the
Indenture) of common stock for the ten consecutive Trading Days (as defined in
the Indenture) immediately prior to the date of declaration of such dividend,
and (b) any dividend or distribution in connection with the liquidation,
dissolution or winding up of the Company or a redemption of any rights issued
under a rights agreement; provided, however, that no adjustment shall be made
pursuant to this clause (v) if such distribution would otherwise constitute a
Fundamental Change (as defined below) and be reflected in a resulting adjustment
described below; and
(vi) payment in respect of a tender or exchange offer by the Company or
any subsidiary of the Company for common stock to the extent that the cash and
value of any other consideration included in such payment per share of common
stock exceed (by more than 10%, with any smaller excess being disregarded in
computing the adjustment provided hereby) the first reported sale price per
share of common stock on the Trading Day next succeeding the Expiration Time (as
defined in the Indenture) for such tender or exchange offer.
If any adjustment is required to be made as set forth in clause (v) above
as a result of a distribution which is a dividend described in subclause (a) of
clause (v) above, such adjustment would be based upon the amount by which such
distribution exceeds the amount of the dividend permitted to be excluded
pursuant to such subclause (a) of clause (v). If an adjustment is required to be
made as set forth in clause (v) above as a result of a distribution which is not
such a dividend, such adjustment would be based upon the full amount of such
distribution. If an adjustment is required to be made as set forth in clause
(vi) above, such adjustment would be calculated based upon the amount by which
the aggregate consideration paid for the common stock acquired in the tender or
exchange offer exceeds 110% of the value of such shares based on the first
reported sale price of common stock on the Trading Day next succeeding the
Expiration Time. In lieu of making such a conversion price adjustment in the
case of certain dividends or distributions, the Company may provide that upon
the conversion of the Preferred Securities the holder converting such Preferred
Securities will receive, in addition to the common stock to which such holder is
entitled, the cash, securities or other property which such holder would have
received if such holder had, immediately prior to the record date for such
dividend or distribution, converted its Preferred Securities into common stock.
S-19
<PAGE>
No adjustment in the conversion price will be required unless the
adjustment would require a change of at least 1% in the conversion price then in
effect; provided, however, that any adjustment that would otherwise be required
to be made shall be carried forward and taken into account in any subsequent
adjustment.
The Company from time to time may, to the extent permitted by law, reduce
the conversion price by any amount for any period of at least 20 Business Days
(as defined in the Indenture), in which case the Company shall give at least 15
days' notice of such reduction. In particular, the Company may, at its option,
make such reduction in the conversion price, in addition to those set forth
above, as the Company deems advisable to avoid or diminish any income tax to
holders of common stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for tax purposes or
for any other reasons. See "Certain Federal Tax Consequences -- Adjustment of
Conversion Price."
Conversion Price Adjustments -- Fundamental Change
In the event that the Company shall be a party to any transaction or
series of transactions constituting a Fundamental Change, including, without
limitation, (i) any recapitalization or reclassification of common stock (other
than a change in par value or as a result of a subdivision or combination of
common stock); (ii) any consolidation or merger of the Company with or into
another corporation as a result of which holders of common stock shall be
entitled to receive securities or other property or assets (including cash) with
respect to or in exchange for common stock (other than a merger which does not
result in a reclassification, conversion, exchange or cancellation of the
outstanding common stock); (iii) any sale or transfer of all or substantially
all of the assets of the Company; or (iv) any compulsory share exchange,
pursuant to any of which holders of common stock shall be entitled to receive
other securities, cash or other property, then appropriate provision shall be
made so that the holder of each Preferred Security then outstanding shall have
the right thereafter to convert such Preferred Securities only into (x) if any
such transaction does not constitute a Common Stock Fundamental Change (as
defined below), the kind and amount of the securities, cash or other property
that would have been receivable upon such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of common stock issuable upon conversion of such Preferred
Security immediately prior to such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange, after, in the case of a
Non-Stock Fundamental Change (as defined below), giving effect to any adjustment
in the conversion price in accordance with clause (i) of the following
paragraph, and (y) if any such transaction constitutes a Common Stock
Fundamental Change, shares of common stock of the kind received by holders of
common stock as result of such Common Stock Fundamental Change in an amount
determined in accordance with clause (ii) of the following paragraph. The
company formed by such consolidation or resulting from such merger or which
acquires such assets or which acquires the common stock, as the case may be,
shall enter into a supplemental indenture with the Indenture Trustee,
satisfactory in form to the Indenture Trustee and executed and delivered to the
Indenture Trustee, the provisions of which shall establish such right. Such
supplemental indenture shall provide for adjustments which, for events
subsequent to the effective date of such supplemental indenture shall be as
nearly equivalent as practical to the relevant adjustments provided for in the
preceding paragraphs and in this paragraph.
Notwithstanding any other provision in the preceding paragraphs, if any
Fundamental Change occurs, the conversion price in effect will be adjusted
immediately after that Fundamental Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the conversion price
per share of common stock immediately following such Non-Stock Fundamental
Change will be the lower of (A) the conversion price in effect immediately prior
to such Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, and (B) the result
obtained by multiplying the greater of the Applicable Price (as defined below)
or the then applicable Reference Market Price (as defined below) by a fraction
of which the numerator
S-20
<PAGE>
will be 100 and the denominator of which will be an amount based on the date
such Non-Stock Fundamental Change occurs. For the 12-month period beginning ,
1999, the denominator will be , and the denominator will decrease by during each
successive 12-month period; provided, that the denominator shall in no event be
less than 100.
(ii) in the case of a Common Stock Fundamental Change, the conversion
price per share of common stock immediately following the Common Stock
Fundamental Change will be the conversion price in effect immediately prior to
the Common Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, multiplied by a
fraction, the numerator of which is the Purchaser Stock Price (as defined below)
and the denominator of which is the Applicable Price; provided, however, that in
the event of a Common Stock Fundamental Change in which (A) 100% of the value of
the consideration received by a holder of common stock (subject to certain
limited exceptions) is shares of common stock of the successor, acquiror or
other third party (and cash, if any, paid with respect to any fractional
interests in the shares of common stock resulting from the Common Stock
Fundamental Change) and (B) all of the common stock (subject to certain limited
exceptions) shall have been exchanged for, converted into, or acquired for,
shares of common stock (and cash, if any, with respect to fractional interests)
of the successor, acquiror or other third party, the conversion price per share
of common stock immediately following the Common Stock Fundamental Change shall
be the conversion price in effect immediately prior to the Common Stock
Fundamental Change divided by the number of shares of common stock of the
successor, acquiror, or other third party received by a holder of one share of
common stock as a result of the Common Stock Fundamental Change.
The foregoing conversion price adjustments are designed, in "Fundamental
Change" transactions where all or substantially all of the common stock is
converted into securities, cash, or property and not more than 50% of the value
received by the holders of common stock consists of stock listed or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on the Nasdaq National Market of the Nasdaq Stock Market, Inc. (a
"Non-Stock Fundamental Change," as defined herein), to increase the securities,
cash or property into which each Preferred Securities is convertible.
In a Fundamental Change transaction where all or substantially all the
common stock is converted into securities, cash, or property and more than 50%
of the value received by the holders of common stock (subject to certain limited
exceptions) consists of listed or Nasdaq National Market traded common stock (a
"Common Stock Fundamental Change," as defined herein), the foregoing adjustments
are designed to provide in effect that (a) where common stock is converted
partly into such common stock and partly into other securities, cash, or
property, each Preferred Securities will be convertible solely into a number of
shares of such common stock determined so that the initial value of such shares
(measured as described in the definition of Purchaser Stock Price below) equals
the value of the shares of common stock into which such Preferred Securities was
convertible immediately before the transaction (measured as aforesaid) and (b)
where common stock is converted solely into such common stock, each Preferred
Securities will be convertible into the same number of shares of such common
stock receivable by a holder of the number of shares of common stock into which
such Preferred Security was convertible immediately before such transaction.
In determining the amount and type of consideration received by a holder
of common stock in the event of a Fundamental Change, consideration received by
a holder of common stock pursuant to a statutory right of appraisal will be
disregarded.
"Applicable Price" means (i) in the event of a Non-Stock Fundamental
Change in which the holders of common stock receive only cash, the amount of
cash receivable by a holder of one share of common stock and (ii) in the event
of any other Fundamental Change, the average of the Closing Prices (as defined
in the supplemental indenture) for one share of common stock during the ten
Trading Days immediately prior to the record date for the determination of the
holders of common stock entitled to receive cash, securities, property or other
assets in connection with such Fundamental Change or, if there is no such
S-21
<PAGE>
record date, prior to the date on which the holders of the common stock will
have the right to receive such cash, securities, property or other assets.
"Common Stock Fundamental Change" means any Fundamental Change in which
more than 50% of the value (as determined in good faith by the Company's board
of directors) of the consideration received by holders of common stock (subject
to certain limited exceptions) pursuant to such transaction consists of shares
of common stock that, for the ten consecutive Trading Days immediately prior to
such Fundamental Change has been admitted for listing or admitted for listing
subject to notice of issuance on a national securities exchange or quoted on the
Nasdaq National Market, provided, however, that a Fundamental Change will not be
a Common Stock Fundamental Change unless either (i) the Company continues to
exist after the occurrence of such Fundamental Change and the outstanding
Preferred Securities continue to exist as outstanding Preferred Securities or
(ii) the outstanding Preferred Securities continue to exist as Preferred
Securities and are convertible into shares of common stock of the successor to
the Company.
"Fundamental Change" means the occurrence of any transaction or event or
series of transactions or events pursuant to which all or substantially all of
the common stock is exchanged for, converted into, acquired for or constitutes
solely the right to receive cash, securities, property or other assets (whether
by means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise); provided,
however, in the case of a plan involving more than one such transaction or event
for purposes of adjustment of the conversion price, such Fundamental Change will
be deemed to have occurred when substantially all of the common stock has been
exchanged for, converted into, or acquired for or constitutes solely the right
to receive cash, securities, property or other assets but the adjustment shall
be based upon the consideration that the holders of common stock received in the
transaction or event as a result of which more than 50% of the common stock
shall have been exchanged for, converted into, or acquired for, or shall
constitute solely the right to receive such cash, securities, properties or
other assets.
"Non-Stock Fundamental Change" means any Fundamental Change other than a
Common Stock Fundamental Change.
"Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for one share of common
stock received by holders of common stock in such Common Stock Fundamental
Change during the ten Trading Days immediately prior to the record date for the
determination of the holders of common stock entitled to receive such shares of
common stock or, if there is no such record date, prior to the date upon which
the holders of common stock shall have the right to receive such shares of
common stock.
"Reference Market Price" will initially mean $ (which unless otherwise
specified in this prospectus supplement or the accompanying prospectus will be
66 2/3% of the last reported sale price per share of AES's common stock on the
NYSE on October , 1999) and, in the event of any adjustment to the conversion
price other than as a result of a Fundamental Change, the Reference Market Price
will also be adjusted so that the ratio of the Reference Market Price to the
conversion price after giving effect to any adjustment will always be the same
as the ratio of the initial Reference Market Price to the Initial Conversion
Price of the Preferred Securities.
Conversions of the Preferred Securities may be effected by delivering
them to the office or agency of the Company maintained for such purpose in the
Borough of Manhattan, the City of New York.
Conversion price adjustments may, in certain circumstances, result in
constructive distributions that could be taxable as dividends under the Internal
Revenue Code of 1986, as amended (the "Code"), to holders of Preferred
Securities or to holders of common stock issued upon conversion thereof. See
"Certain Federal Tax Consequences -- Adjustment of Conversion Price."
No adjustment in the conversion price will be required unless the
adjustment would require a change of at least 1% in the conversion price then in
effect; provided, however, that any adjustment that would otherwise be required
to be made shall be carried forward and taken into account in any subsequent
adjustment.
S-22
<PAGE>
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Tax Event or an Investment Company Event (each as
hereinafter defined, and each a "Special Event") shall occur and be continuing,
the Trust shall, unless the Junior Subordinated Debentures are redeemed in the
limited circumstances described below, be dissolved with the result that, after
satisfaction of creditors of the Trust, Junior Subordinated Debentures with an
aggregate principal amount equal to the aggregate stated liquidation amount of
the Preferred Securities and the Common Securities would be distributed on a pro
rata basis to the holders of the Preferred Securities and the Common Securities
in liquidation of such holders' interests in the Trust, within 90 days following
the occurrence of such Special Event; provided, however, that in the case of the
occurrence of a Tax Event, as a condition of such dissolution and distribution,
the Regular Trustees shall have received an opinion of nationally recognized
independent tax counsel experienced in such matters (a "No Recognition
Opinion"), which opinion may rely on any then applicable published revenue
rulings of the Internal Revenue Service, to the effect that the holders of the
Preferred Securities will not recognize any gain or loss for United States
Federal income tax purposes as a result of such dissolution and distribution of
Junior Subordinated Debentures; and, provided, further, that, if at the time
there is available to the Trust the opportunity to eliminate, within such 90 day
period, the Special Event by taking some ministerial action, such as filing a
form or making an election, or pursuing some other similar reasonable measure,
which has no adverse effect on the Trust or the Company or the holders of the
Preferred Securities, the Trust will pursue such measure in lieu of dissolution.
Furthermore, if in the case of the occurrence of a Tax Event, (i) the Regular
Trustees have received an opinion (a "Redemption Tax Opinion") of nationally
recognized independent tax counsel experienced in such matters that, as a result
of a Tax Event, there is more than an insubstantial risk that the Company would
be precluded from deducting the interest on the Junior Subordinated Debentures
for United States federal income tax purposes even if the Junior Subordinated
Debentures were distributed to the holders of Preferred Securities and Common
Securities in liquidation of such holders' interests in the Trust as described
above or (ii) the Regular Trustees shall have been informed by such tax counsel
that a No Recognition Opinion cannot be delivered to the Trust, the Company
shall have the right, upon not less than 30 nor more than 60 days notice, to
redeem the Junior Subordinated Debentures in whole or in part for cash at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest thereon within 90 days following the occurrence of
such Tax Event, and promptly following such redemption Preferred Securities and
Common Securities with an aggregate liquidation amount equal to the aggregate
principal amount of the Junior Subordinated Debentures so redeemed will be
redeemed by the Trust at the Redemption Price on a pro rata basis; provided,
however, that if at the time there is available to the Company or the Regular
Trustees the opportunity to eliminate, within such 90 day period, the Tax Event
by taking some ministerial action, such as filing a form or making an election,
or pursuing some other similar reasonable measure, which has no adverse effect
on the Trust, the Company or the holders of the Preferred Securities, the
Company will pursue such measure in lieu of redemption and provided further that
the Company shall have no right to redeem the Junior Subordinated Debentures
while the Regular Trustees on behalf of the Trust are pursuing any such
ministerial action. The Common Securities will be redeemed on a pro rata basis
with the Preferred Securities, except that if an Event of Default under the
Declaration has occurred and is continuing, the Preferred Securities will have a
priority over the Common Securities with respect to payment of the Redemption
Price.
"Tax Event" means that the Regular Trustees shall have obtained an
opinion of a nationally recognized independent tax counsel experienced in such
matters (a "Dissolution Tax Opinion") to the effect that on or after the date of
this prospectus supplement as a result of (a) any amendment to, or change in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, (b) any amendment to, or
change in, an interpretation or application of any such laws or regulations by
any legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any judicial
decision or regulatory determination), (c) any
S-23
<PAGE>
interpretation or pronouncement that provides for a position with respect to
such laws or regulations that differs from the theretofore generally accepted
position or (d) any action taken by any governmental agency or regulatory
authority, which amendment or change is enacted, promulgated, issued or
effective or which interpretation or pronouncement is issued or announced or
which action is taken, in each case on or after the date of this prospectus
supplement, there is more than an insubstantial risk that (i) the Trust is, or
will be within 90 days of the date thereof, subject to United States federal
income tax with respect to income accrued or received on the Junior Subordinated
Debentures, (ii) the Trust is, or will be within 90 days of the date thereof,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges or (iii) interest payable by the Company to the Trust on
the Junior Subordinated Debentures is not, or within 90 days of the date thereof
will not be, deductible by the Company for United States federal income tax
purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940 Act"),
that as a result of the occurrence of a change in law or regulation or a change
in interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of this
prospectus supplement.
On the date fixed for any distribution of Junior Subordinated Debentures,
upon dissolution of the Trust, (i) the Preferred Securities and the Common
Securities will no longer be deemed to be outstanding, (ii) the depositary or
its nominee, as the record holder of the Preferred Securities, will receive a
registered global certificate or certificates representing the Junior
Subordinated Debentures to be delivered upon such distribution, and (iii) any
certificates representing Preferred Securities not held by the depositary or its
nominee will be deemed to represent Junior Subordinated Debentures having an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the distribution rate of, and accrued and
unpaid interest equal to accrued and unpaid distributions on, such Preferred
Securities, until such certificates are presented to the Company or its agent
for transfer or reissuance.
There can be no assurance as to the market price for the Junior
Subordinated Debentures which may be distributed in exchange for Preferred
Securities if a dissolution and liquidation of the Trust were to occur.
Accordingly, the Junior Subordinated Debentures which the investor may
subsequently receive on dissolution and liquidation of the Trust, may trade at a
discount to the price of the Preferred Securities exchanged. If the Junior
Subordinated Debentures are distributed to the holders of Preferred Securities
upon the dissolution of the Trust, the Company will use its best efforts to list
the Junior Subordinated Debentures on the NYSE or on such other exchange on
which the Preferred Securities are then listed.
MANDATORY REDEMPTION
Upon the repayment of the Junior Subordinated Debentures, whether at
maturity, upon redemption or otherwise, the proceeds from such repayment or
payment will be promptly applied to redeem Preferred Securities and common
securities having an aggregate liquidation amount equal to the Junior
Subordinated Debentures so repaid, upon not less than 30 nor more than 60 days'
notice, at the Redemption Price. The common securities will be entitled to be
redeemed on a pro rata basis with the Preferred Securities, except that if an
Event of Default under the Declaration has occurred and is continuing, the
Preferred Securities will have a priority over the common securities with
respect to payment of the Redemption Price. Subject to the foregoing, if fewer
than all outstanding Preferred Securities and Common Securities are to be
redeemed, the Preferred Securities and Common Securities will be redeemed on a
pro rata basis. In the event fewer than all outstanding Preferred Securities are
to be redeemed, Preferred Securities registered in the name of and held by DTC
or
S-24
<PAGE>
its nominee will be redeemed as described under "-- Redemption Procedures"
below.
REDEMPTION PROCEDURES
The Trust may not redeem any outstanding Preferred Securities unless all
accrued and unpaid distributions have been paid on all Preferred Securities for
all quarterly distribution periods terminating on or prior to the date of notice
of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable) then, by 12:00 noon, New York City
time, on the redemption date and provided that the Company has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Junior Subordinated Debentures, the Trust will
irrevocably deposit with the Depositary funds sufficient to pay the applicable
Redemption Price and will give the Depositary irrevocable instructions and
authority to pay the Redemption Price to the holders of the Preferred
Securities. See "Book-Entry Only Issuance -- The Depository Trust Company." If
notice of redemption shall have been given and funds deposited as required,
then, immediately prior to the close of business on the date of such deposit,
distributions will cease to accrue on the Preferred Securities called for
redemption, such Preferred Securities shall no longer be deemed to be
outstanding and all rights of holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price. Neither the Trustees nor the Trust shall be required to
register or cause to be registered the transfer of any Preferred Securities
which have been so called for redemption. If any date fixed for redemption of
Preferred Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay)
except that, if such Business Day falls in the next calendar year, such payment
will be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date fixed for redemption. If the
Company fails to repay Junior Subordinated Debentures on maturity or on the date
fixed for this redemption or if payment of the Redemption Price in respect of
Preferred Securities is improperly withheld or refused and not paid by the
Property Trustee or by the Company pursuant to the Preferred Securities
Guarantee described under "Description of the Preferred Securities Guarantees"
in the accompanying prospectus, distributions on such Preferred Securities will
continue to accrue, from the original redemption date of the Preferred
Securities to the date of payment, in which case the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed as described below
under "Book-Entry Only Issuance -- The Depository Trust Company."
If a partial redemption of the Preferred Securities would result in the
delisting of the Preferred Securities by any national securities exchange or
other organization on which the Preferred Securities are then listed, the
Company pursuant to the Indenture will only redeem Junior Subordinated
Debentures in whole and, as a result, the Trust may only redeem the Preferred
Securities in whole.
Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Company or any of its
subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution, liquidation,
winding-up or termination of the Trust, the holders of the Preferred Securities
and Common Securities at the date of dissolution, winding-up or termination of
the Trust will be entitled to receive on a pro rata basis solely out of the
assets of the Trust, after satisfaction of liabilities of creditors (to the
extent not satisfied by the Company as provided in the Declaration), an amount
equal to the aggregate of the stated liquidation amount of $50 per Trust
Security plus accrued and unpaid distributions thereon to the date of payment
(such amount being the
S-25
<PAGE>
"Liquidation Distribution"), unless, in connection with such dissolution,
liquidation, winding-up or termination, Junior Subordinated Debentures in an
aggregate principal amount equal to the aggregate stated liquidation amount of
such Trust Securities and bearing accrued and unpaid interest in an amount equal
to the accrued and unpaid distributions on such Trust Securities, shall be
distributed on a pro rata basis to the holders of the Preferred Securities and
Common Securities in exchange therefor.
If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities and the Common Securities shall be paid on a
pro rata basis. The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution on a pro rata basis with the holders of
the Preferred Securities, except that if an Event of Default under the
Declaration has occurred and is continuing, the Preferred Securities shall have
a priority over the Common Securities with respect to payment of the Liquidation
Distribution.
Pursuant to the Declaration, the Trust shall terminate: (1) on November
1, 2031, the expiration of the term of the Trust; (2) when all of the Trust
Securities shall have been called for redemption and the amounts necessary for
redemption thereof shall have been paid to the holders of Trust Securities in
accordance with the terms of the Trust Securities; or (3) when all of the Junior
Subordinated Debentures shall have been distributed to the holders of Trust
Securities in exchange for all of the Trust Securities in accordance with the
terms of the Trust Securities.
NO MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets to, any
corporation or other entity.
DECLARATION EVENTS OF DEFAULT
An Indenture Event of Default (as defined in the accompanying prospectus)
will constitute an event of default under the Declaration with respect to the
Trust Securities (an "Event of Default"); provided that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any such Event of Default with respect to the Common Securities until all Events
of Default with respect to the Preferred Securities have been cured or waived.
Until all such Events of Default with respect to the Preferred Securities have
been so cured or waived, the Property Trustee will be deemed to be acting solely
on behalf of the holders of the Preferred Securities, and only the holders of
the Preferred Securities will have the right to direct the Property Trustee with
respect to certain matters under the Declaration and consequently under the
Indenture. In the event that any Event of Default with respect to the Preferred
Securities is waived by the holders of the Preferred Securities as provided in
the Declaration, the holders of Common Securities pursuant to the Declaration
have agreed that such waiver also constitutes a waiver of such Event of Default
with respect to the Common Securities for all purposes under the Declaration
without any further act, vote or consent of the holders of the Common
Securities. See "Voting Rights" below.
Upon the occurrence of an Event of Default, the Property Trustee as the
holder of all of the Junior Subordinated Debentures will have the right under
the Indenture to declare the principal of and interest on the Junior
Subordinated Debentures to be immediately due and payable. In addition, the
Property Trustee will have the power to exercise all rights, powers and
privileges under the Indenture. See "Description of the Junior Subordinated
Debentures."
VOTING RIGHTS
Except as provided below, under "--Modification and Amendment of the
Declaration" below and "Description of the Preferred Securities Guarantees --
Amendments and Assignment" in the accompanying prospectus and as otherwise
required by the Business Trust Act, the Trust Indenture Act and the Declaration,
the holders of the Preferred Securities will have no voting rights.
Subject to the requirements of this paragraph, the holders of a majority
in aggregate liquidation amount of the Preferred Securities have the right (i)
on behalf of all
S-26
<PAGE>
holders of Preferred Securities, to waive any past default that is waivable
under the Declaration and (ii) to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee, or
exercising any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as the holder
of the Junior Subordinated Debentures, to (A) direct the time, method and place
of conducting any proceeding for any remedy available to the Indenture Trustee
(as defined herein), or executing any trust or power conferred on the Indenture
Trustee with respect to the Junior Subordinated Debentures, (B) waive any past
default that is waivable under Section 6.06 of the Indenture, or (C) exercise
any right to rescind or annul a declaration that the principal of all the Junior
Subordinated Debentures shall be due and payable; provided that where a consent
under the Indenture would require the consent of (a) holders of Junior
Subordinated Debentures representing a specified percentage greater than a
majority in principal amount of the Junior Subordinated Debentures or (b) each
holder of Junior Subordinated Debentures affected thereby, no such consent shall
be given by the Property Trustee without the prior consent of, in the case of
clause (a) above, holders of Preferred Securities representing such specified
percentage of the aggregate liquidation amount of the Preferred Securities or,
in the case of clause (b) above, each holder of all Preferred Securities
affected thereby. The Property Trustee shall not revoke any action previously
authorized or approved by a vote of the holders of Preferred Securities. The
Property Trustee shall notify all holders of record of Preferred Securities of
any notice of default received from the Indenture Trustee with respect to the
Junior Subordinated Debentures. Other than with respect to directing the time,
method and place of conducting any proceeding for any remedy available to the
Property Trustee or the Indenture Trustee as set forth above, the Property
Trustee shall be under no obligation to take any of the foregoing actions at the
direction of the holders of the Preferred Securities unless the Property Trustee
shall have obtained an opinion of nationally recognized independent tax counsel
recognized as expert in such matters to the effect that the Trust will not be
classified for United States federal income tax purposes as an association
taxable as a corporation or a partnership on account of such action and will be
treated as a grantor trust for United States federal income tax purposes
following such action. If the Property Trustee fails to enforce its rights under
the Declaration (including, without limitation, its rights, powers and
privileges as a holder of the Junior Subordinated Debentures under the
Indenture), any holder of Preferred Securities may, to the extent permitted by
applicable law, after a period of 30 days has elapsed from such holder's written
request to the Property Trustee to enforce such rights, institute a legal
proceeding directly against the Company to enforce the Property Trustee's rights
under the Declaration, without first instituting a legal proceeding against the
Property Trustee or any other Person. In addition, in case of an Event of
Default which is attributed to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures, a holder of Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of, or interest on, the Junior Subordinated
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder. See "The AES Trusts -- The Property
Trustee" in the accompanying prospectus.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of holders of the Preferred Securities will constitute a waiver of the
corresponding Event of Default under the Declaration in respect of the Trust
Securities.
In the event the consent of the Property Trustee as the holder of the
Junior Subordinated Debentures is required under the Trust Indenture with
respect to any amendment, modification or termination of the Trust Indenture or
the Junior Subordinated Debentures, the Property Trustee shall request the
direction of the holders of the Trust Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in liquidation amount of
the Trust Securities voting together as a single class; provided, however, that
where any such amendment, modification or termination under the Indenture would
require the consent of holders of Junior Subordinated Debentures representing a
S-27
<PAGE>
specified percentage greater than a majority in principal amount of the Junior
Subordinated Debentures, the Property Trustee may only give such consent at the
direction of the holders of Trust Securities representing such specified
percentage of the aggregate liquidation amount of the Trust Securities; and,
provided, further, that the Property Trustee shall be under no obligation to
take any such action in accordance with the directions of the holders of the
Trust Securities unless the Property Trustee has obtained an opinion of
nationally recognized independent tax counsel recognized as expert in such
matters to the effect that the Trust will not be classified for United States
federal income tax purposes as an association taxable as a corporation or a
partnership on account of such action and will be treated as a grantor trust for
United States Federal income tax purposes following such action.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken; (ii) a description of any resolution proposed
for adoption at such meeting on which such holders are entitled to vote or of
such matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the holders of Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or distribute
Junior Subordinated Debentures in accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities at such time that are owned by the Company or by any entity directly
or indirectly controlling or controlled by or under direct or indirect common
control with the Company shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
The procedures by which persons owning Preferred Securities registered in
the name of and held by DTC or its nominee may exercise their voting rights are
described under "Book-Entry Only Issuance -- The Depository Trust Company"
below. Holders of the Preferred Securities will have no rights to increase or
decrease the number of Trustees or to appoint, remove or replace a Trustee,
which rights are vested exclusively in the holders of the Common Securities.
MODIFICATION AND AMENDMENT OF THE DECLARATION
The Declaration may be modified and amended on approval of a majority of
the Regular Trustees, provided, that, if any proposed modification or amendment
provides for, or the Regular Trustees otherwise propose to effect, (a) any
action that would adversely affect the powers, preferences or special rights of
the Trust Securities, whether by way of amendment to the Declaration or
otherwise, or (b) the dissolution, winding-up or termination of the Trust other
than pursuant to the terms of the Declaration, then the holders of the
outstanding Trust Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in liquidation amount of the
Trust Securities, provided that if any amendment or proposal referred to above
would adversely affect only the Preferred Securities or the Common Securities,
then only the affected class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of a majority in liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, (i) no amendment or modification may be
made to the Declaration unless the Regular Trustees shall have obtained (a)
either a ruling from the Internal Revenue Service or a written unqualified
opinion of nationally recognized independent tax counsel experienced in such
matters to the effect that such amendment will not cause the Trust to be
classified for United States federal income tax purposes as an association
taxable as a corporation or a partnership and to the effect that
S-28
<PAGE>
the Trust will continue to be treated as a grantor trust for purposes of United
States federal income taxation and (b) a written unqualified opinion of
nationally recognized independent counsel experienced in such matters to the
effect that such amendment will not cause the Trust to be an "investment
company" which is required to be registered under the 1940 Act; (ii) certain
specified provisions of the Declaration may not be amended without the consent
of all of the holders of the Trust Securities; (iii) no amendment which
adversely affects the rights, powers and privileges of the Property Trustee
shall be made without the consent of the Property Trustee; (iv) Article IV of
the Declaration relating to the obligation of the Company to purchase the Common
Securities and to pay certain obligations and expenses of the Trust as described
under "The AES Trusts" in the accompanying prospectus may not be amended without
the consent of the Company; and (v) the rights of holders of Common Securities
under Article V of the Declaration to increase or decrease the number of, and to
appoint, replace or remove, Trustees shall not be amended without the consent of
each holder of Common Securities.
The Declaration further provides that it may be amended without the
consent of the holders of the Trust Securities to (i) cure any ambiguity; (ii)
correct or supplement any provision in the Declaration that may be defective or
inconsistent with any other provision of the Declaration; (iii) to add to the
covenants, restrictions or obligations of the Company; and (iv) to conform to
changes in, or a change in interpretation or application of certain 1940 Act
requirements by the Commission, which amendment does not adversely affect the
rights, preferences or privileges of the holders.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary
for the Preferred Securities. The Preferred Securities will be issued only as
fully registered securities registered in the name of DTC or its nominee. One or
more fully-registered global Preferred Securities certificates (each a
"Preferred Securities Global Certificate"), representing the total aggregate
number of Preferred Securities, will be issued and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a global Preferred
Securities.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the NYSE, the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Securities and Exchange Commission.
Upon issuance of a Preferred Securities Global Certificate, DTC will
credit on its book-entry registration and transfer system the number of
Preferred Securities represented by such Preferred Securities Global Certificate
to the accounts of institutions that have accounts with DTC. Ownership of
beneficial interests in a Preferred Securities Global Certificate will be
limited to Participants or persons that may hold interests through Participants.
The ownership interest of each actual purchaser of each Preferred Securities
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing
S-29
<PAGE>
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Preferred Securities. Transfers of ownership interests in the
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Preferred Securities are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers. So long as DTC, or its
nominee, is the owner of a Preferred Securities Global Certificate, DTC or such
nominee, as the case may be, will be considered the sole owner and holder of
record of the Preferred Securities represented by such Preferred Securities
Global Certificate for all purposes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce pro rata (subject to
adjustment to eliminate fractional Preferred Securities) the amount of interest
of each Direct Participant in the Preferred Securities to be redeemed.
Although voting with respect to the Preferred Securities is limited, in
those instances in which a vote is required, neither DTC nor Cede & Co. itself
will consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus proxy).
Distribution payments on the Preferred Securities represented by a
Preferred Series Global Certificate will be made by the Property Trustee to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices and will be the responsibility of
such Participants and not of DTC, the Trust or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions to DTC is the responsibility of the Trust, disbursement
of such payments to Direct Participants is the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners is the responsibility of
Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Securities certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, if a successor securities depository is not
obtained, Preferred Securities certificates will be required to be printed and
delivered. Additionally, the Trust may decide to discontinue use of the system
of book-entry transfers through DTC (or a successor depository). In that event,
certificates for the Preferred Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Trust and the Company believe to
be reliable, but the Trust and the Company take no responsibility for the
accuracy thereof.
CONVERSION AGENT, REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The Property Trustee will act as Conversion Agent. In addition, in the
event the Preferred Securities do not remain in book-entry only form, the
following provisions will apply:
Payment of distributions and payments on redemption of the Preferred
Securities will be payable, the transfer of the Preferred Securities
S-30
<PAGE>
will be registrable, and Preferred Securities will be exchangeable for Preferred
Securities of other denominations of a like aggregate liquidation amount, at the
corporate trust office of the Property Trustee in New York, New York; provided
that payment of distributions may be made at the option of the Regular Trustees
on behalf of the Trust by check mailed to the address of the persons entitled
thereto and that the payment on redemption of any Preferred Securities will be
made only upon surrender of such Preferred Securities to the Property Trustee.
or one of its affiliates will act as registrar and transfer agent for
the Preferred Securities. will also act as paying agent and, with the consent of
the Regular Trustees, may designate additional paying agents.
Registration of transfers of Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (with the giving
of such indemnity as the Trust or the Company may require) in respect of any tax
or other governmental charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to a default with respect to the Trust
Securities, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care as
a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provision, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The Property Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
the Property Trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
The Company and certain of its affiliates maintain a deposit account and
banking relationship with the Property Trustee.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to take such action as
they deem reasonable in order that the Trust will not be deemed to be an
"investment company" required to be registered under the 1940 Act or that the
Trust will not be classified for United States federal income tax purposes as an
association taxable as a corporation or a partnership and will be treated as a
grantor trust for United States federal income tax purposes. In this connection,
the Regular Trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust or the Declaration, that the Regular
Trustees determine in their discretion to be reasonable and necessary or
desirable for such purposes, as long as such action does not adversely affect
the interests of holders of the Trust Securities.
The Company and the Regular Trustees on behalf of the Trust will be
required to provide to the Property Trustee annually a certificate as to whether
or not the Company and the Trust, respectively, is in compliance with all the
conditions and covenants under the Declaration.
S-31
<PAGE>
DESCRIPTION OF THE GUARANTEE
Pursuant to the Preferred Securities Guarantee, AES will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full, to the
holders of the Preferred Securities issued by the Trust, the Guarantee Payments
(as defined in the accompanying prospectus) (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Preferred Securities or by causing the
Trust to pay such amounts to such holders. The Preferred Securities Guarantee
will be qualified as an indenture under the Trust Indenture Act. The Property
Trustee will act as indenture trustee under the Preferred Securities Guarantee
(the "Guarantee Trustee"). The terms of the Preferred Securities Guarantee will
be those set forth in such Preferred Securities Guarantee and those made part of
such Preferred Securities Guarantee by the Trustee Indenture Act. The Preferred
Securities Guarantee will be held by the Guarantee Trustee for the benefit of
the holders of the Preferred Securities. A summary description of the Preferred
Securities Guarantee appears in the accompanying prospectus under the caption
"Description of the Preferred Securities Guarantees."
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the Junior Subordinated Debentures in
which the Trust will invest the proceeds from the issuance and sale of the Trust
Securities and which will be deposited in the Trust as trust assets. The terms
of the Junior Subordinated Debentures include those stated in the Junior
Subordinated Debt Trust Securities Indenture dated as of between the Company and
, as trustee (the "Indenture Trustee"), as supplemented by the supplemental
indenture to be dated as of , 1999 between the Company and the Indenture Trustee
(as so supplemented, the "Indenture"), forms of which have been filed as
exhibits to the Registration Statement of which this prospectus supplement forms
a part, and those made part of the Indenture by the Trust Indenture Act. This
description supplements the description of the general terms and provisions of
the Junior Subordinated Debt Securities set forth in the accompanying prospectus
under the caption "Description of the Junior Subordinated Debt Trust
Securities." The following description does not purport to be complete and is
qualified in its entirety by reference to the Indenture and the Trust Indenture
Act. Whenever particular provisions or defined terms in the Indenture are
referred to herein, such provisions or defined terms are incorporated by
reference herein.
The Indenture does not limit the aggregate principal amount of
indebtedness which may be issued thereunder and provides that Junior
Subordinated Debentures may be issued thereunder from time to time in one or
more series (collectively, together with the Junior Subordinated Debentures, the
"Subordinated Debentures"). The Junior Subordinated Debentures constitute a
separate series under the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Junior Subordinated Debentures may
be distributed to the holders of the Trust Securities in liquidation of the
Trust. See "Description of the Preferred Securities -- Special Event Redemption
or Distribution."
GENERAL
The Junior Subordinated Debentures are unsecured, subordinated
obligations of the Company, limited in aggregate principal amount to an amount
equal to the sum of (1) the stated liquidation amount of the Preferred
Securities issued by the Trust and (2) the proceeds received by the Trust upon
issuance of the Common Securities to the Company (which proceeds will be used to
purchase an equal principal amount of Junior Subordinated Debentures).
S-32
<PAGE>
The entire principal amount of the Junior Subordinated Debentures will
become due and payable, together with any accrued and unpaid interest thereon,
on , 2029. The Junior Subordinated Debentures are not subject to any sinking
fund.
If Junior Subordinated Debentures are distributed to holders of Preferred
Securities in dissolution of the Trust, such Junior Subordinated Debentures will
initially be issued as a Global Security (as defined below). As described
herein, under certain limited circumstances, Junior Subordinated Debentures may
be issued in certificated form in exchange for a Global Security. See
"Book-Entry and Settlement" below. In the event that Junior Subordinated
Debentures are issued in certificated form, such Junior Subordinated Debentures
will be in denominations of $50 and integral multiples thereof and may be
transferred or exchanged at the offices described below. Payments on Junior
Subordinated Debentures issued as a Global Security will be made to DTC, a
successor depositary or, in the event that no depositary is used, to a paying
agent for the Junior Subordinated Debentures.
In the event that Junior Subordinated Debentures are issued in
certificated form, payments of principal and interest will be payable, the
transfer of the Junior Subordinated Debentures will be registrable, and Junior
Subordinated Debentures will be exchangeable for Junior Subordinated Debentures
of other denominations of a like aggregate principal amount, at the corporate
trust office of the Indenture Trustee in provided that payment of interest may
be made at the option of the Company by check mailed to the address of the
persons entitled thereto and that the payment of principal with respect to any
Junior Subordinated Debenture will be made only upon surrender of such Junior
Subordinated Debenture to the Indenture Trustee.
If the Junior Subordinated Debentures are distributed to the holders of
Preferred Securities upon the dissolution of the Trust, the Company will use its
best efforts to list the Junior Subordinated Debentures on the NYSE or on such
other exchange on which the Preferred Securities are then listed.
OPTIONAL REDEMPTION
Except as provided below, the Junior Subordinated Debentures may not be
redeemed prior to , 2002. AES shall have the right to redeem the Junior
Subordinated Debentures, in whole or in part, from time to time, on or after
, 2002, upon not less than 30 nor more than 60 days notice, at the
following prices (expressed as percentages of the principal amount of the
Junior Subordinated Debentures) together with accrued and unpaid interest,
including Compounded Interest to, but excluding, the redemption date, if
redeemed during the 12-month period beginning :
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------- -----------
<S> <C>
2002 ......... %
2003 ......... %
2004 ......... %
2005 ......... %
2006 ......... %
</TABLE>
and 100% if redeemed on or after , 2007.
If the Junior Subordinated Debentures are redeemed on any Interest
Payment Date (as defined below), accrued and unpaid interest shall be payable to
holders of record on the relevant record date.
So long as the corresponding Preferred Securities are outstanding, the
proceeds from the redemption of any Junior Subordinated Debentures will be used
to redeem Preferred Securities.
The Company will also have the right to redeem the Junior Subordinated
Debentures at any time upon the occurrence of a Tax Event if certain conditions
are met as described under "Description of the Preferred Securities -- Special
Event Redemption or Distribution."
The Company may not redeem any Junior Subordinated Debentures unless all
accrued and unpaid interest thereon, including Compounded Interest, has been
paid for all quarterly periods terminating on or prior to the date of notice of
redemption.
If the Company gives a notice of redemption in respect of Junior
Subordinated Debentures (which notice will be irrevocable), then, by 12:00
S-33
<PAGE>
noon, New York City time, on the redemption date, the Company will deposit
irrevocably with the Indenture Trustee funds sufficient to pay the applicable
Redemption Price and will give irrevocable instructions and authority to pay
such Redemption Price to the holders of the Junior Subordinated Debentures. If
notice of redemption shall have been given and funds deposited as required, then
upon the date of such deposit, interest will cease to accrue on the Junior
Subordinated Debentures called for redemption, such Junior Subordinated
Debentures will no longer be deemed to be outstanding and all rights of holders
of such Junior Subordinated Debentures so called for redemption will cease,
except the right of the holders of such Junior Subordinated Debentures to
receive the applicable Redemption Price, but without interest on such Redemption
Price. If any date fixed for redemption of Junior Subordinated Debentures is not
a Business Day, then payment of the Redemption Price payable on such date will
be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date fixed for redemption. If the Company fails to repay the
Junior Subordinated Debentures on maturity or the date fixed for this
redemption, or if payment of the Redemption Price in respect of Junior
Subordinated Debentures is improperly withheld or refused and not paid by the
Company, interest on such Junior Subordinated Debentures will continue to
accrue, from the original redemption date to the date of payment, in which case
the actual payment date will be considered the date fixed for redemption for
purposes of calculating the applicable Redemption Price. If fewer than all of
the Junior Subordinated Debentures are to be redeemed, the Junior Subordinated
Debentures to be redeemed shall be selected by lot or pro rata or in some other
equitable manner determined by the Indenture Trustee.
In the event of any redemption in part, the Company shall not be required
to (1) issue, register the transfer of or exchange any Junior Subordinated
Debentures during a period beginning at the opening of 15 business days before
any selection for redemption of Junior Subordinated Debentures and ending at the
close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of Junior Subordinated
Debentures to be redeemed and (2) register the transfer of or exchange any
Junior Subordinated Debentures so selected for redemption, in whole or in part,
except the unredeemed portion of any Junior Subordinated Debentures being
redeemed in part.
INTEREST
The Junior Subordinated Debentures will bear interest at the rate of
% per annum from , 1999. Interest will be payable on , , and
of each year (each, an "Interest Payment Date"), commencing on , 2000, to
the person in whose name such Junior Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the Business Day next
preceding such Interest Payment Date. In the event (i) the Preferred Securities
do not continue to remain in book-entry only form or (ii) if following
distribution of the Junior Subordinated Debentures to holders of Trust
Securities upon dissolution of the Trust as described under "Description of the
Preferred Securities" above, the Junior Subordinated Debentures shall not
continue to remain in book-entry only form, the relevant record date will be .
Interest payable on any Junior Subordinated Debenture that is not punctually
paid or duly provided for on any Interest Payment Date will forthwith cease to
be payable to the person in whose name such Junior Subordinated Debenture is
registered on the relevant record date, and such defaulted interest will instead
be payable to the person in whose name such Junior Subordinated Debenture is
registered on the special record date or other specified date determined in
accordance with the Indenture; provided, however, that interest shall not be
considered payable by the Company on any Interest Payment Date falling within an
Extension Period unless the Company has elected to make a full or partial
payment of interest accrued on the Junior Subordinated Debentures on such
Interest Payment Date.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30 day months. If any
S-34
<PAGE>
date on which interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as the Company shall not be in default in the payment of interest
on the Junior Subordinated Debentures, the Company shall have the right to
extend the interest payment period from time to time for a period not exceeding
20 consecutive quarters. The Company has no current intention of exercising its
right to extend an interest payment period. No interest shall be due and payable
during an Extension Period, except at the end thereof. During any Extension
Period, the Company shall not declare or pay any dividends on, or redeem,
purchase, acquire or make a distribution or liquidation payment with respect to,
any of its common stock or preferred stock or make any guarantee payments with
respect thereto; provided that the foregoing will not apply to stock dividends
payable in Common Stock paid by the Company. Prior to the termination of any
such Extension Period, the Company may further extend the interest payment
period; provided that such Extension Period together with all such previous and
further extensions thereof may not exceed 20 consecutive quarters or extend
beyond the maturity of the Junior Subordinated Debentures. On the Interest
Payment Date occurring at the end of each Extension Period, the Company shall
pay to the holders of Junior Subordinated Debentures of record on the record
date for such Interest Payment Date (regardless of who the holders of record may
have been on other dates during the Extension Period) all accrued and unpaid
interest on the Junior Subordinated Debentures, together with interest thereon
at the rate specified for the Junior Subordinated Debentures to the extent
permitted by applicable law, compounded quarterly. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. The Company
may also prepay at any time all or any portion of the interest accrued during an
Extension Period. Consequently, there could be multiple Extension Periods of
varying lengths throughout the term of the Junior Subordinated Debentures, not
to exceed 20 consecutive quarters; provided, that no such period may extend
beyond the stated maturity of the Junior Subordinated Debentures. The failure by
the Company to make interest payments during an Extension Period would not
constitute a default or an event of default under the Indenture or the Company's
currently outstanding indebtedness.
If the Property Trustee shall be the sole holder of the Junior
Subordinated Debentures, the Company shall give the Property Trustee notice of
its selection of such Extension Period one Business Day prior to the earlier of
(1) the date the distributions on the Preferred Securities are payable or (2)
the date the Trust is required to give notice to the NYSE or other applicable
self-regulatory organization or to holders of the Preferred Securities of the
record date or the date such distribution is payable. The Trust shall give
notice of the Company's selection of such Extension Period to the holders of the
Preferred Securities.
If Junior Subordinated Debentures have been distributed to holders of
Trust Securities, the Company shall give the holders of the Junior Subordinated
Debentures notice of its selection of such Extension Period ten Business Days
prior to the earlier of (1) the next succeeding Interest Payment Date or (2) the
date the Company is required to give notice to the NYSE (if the Junior
Subordinated Debentures are then listed thereon) or other applicable
self-regulatory organization or to holders of the Junior Subordinated Debentures
of the record or payment date of such related interest payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, AES will pay as additional interest ("Additional Interest") on the
Junior Subordinated Debentures such additional amounts as shall be required so
that the net amounts received and retained by the Trust
S-35
<PAGE>
after paying any such taxes, duties, assessments or other governmental charges
will be equal to the amounts the Trust would have received had no such taxes,
duties, assessments or other governmental charges been imposed.
CONVERSION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are convertible into common stock at
the option of the holders of the Junior Subordinated Debentures at any time
prior to the close of business on , 2029 (or, in the case of Junior Subordinated
Debentures called for redemption, the close of business on the Business Day
prior to the Redemption Date) at the Initial Conversion Price subject to the
conversion price adjustments described under "Description of the Preferred
Securities -- Conversion Rights." The Trust has agreed not to convert Junior
Subordinated Debentures held by it except pursuant to a notice of conversion
delivered to the Conversion Agent by a holder of Preferred Securities. Upon
surrender of a Preferred Securities to the Conversion Agent for conversion, the
Trust will distribute Junior Subordinated Debentures to the Conversion Agent on
behalf of the holder of the Preferred Securities so converted, whereupon the
Conversion Agent will convert such Junior Subordinated Debentures to common
stock on behalf of such holder. AES's delivery to the holders of the Junior
Subordinated Debentures (through the Conversion Agent) of the fixed number of
shares of common stock into which the Junior Subordinated Debentures are
convertible (together with the cash payment, if any, in lieu of fractional
shares) will be deemed to satisfy the obligation of AES to pay the principal
amount of the Junior Subordinated Debentures so converted, and the accrued and
unpaid interest thereon attributable to the period from the last date to which
interest has been paid or duly provided for; provided, however, that if any
Junior Subordinated Debenture is converted after a record date for payment of
interest, the interest payable on the related Interest Payment Date with respect
to such Junior Subordinated Debenture shall be paid to the Trust (which will
distribute such interest to the converting holder) or other holder of Junior
Subordinated Debentures, as the case may be, despite such conversion.
COMPOUNDED INTEREST
Payments of Compounded Interest on the Junior Subordinated Debentures
held by the Trust will make funds available to pay any interest on distributions
in arrears in respect of the Preferred Securities pursuant to the terms thereof.
BOOK-ENTRY AND SETTLEMENT
If any Junior Subordinated Debentures are distributed to holders of
Preferred Securities (see "Description of the Preferred Securities"), such
Junior Subordinated Debentures will be issued in the form of one or more global
certificates (each a "Global Security") registered in the name of the Depositary
or its nominee. Except under the limited circumstances described below, Junior
Subordinated Debentures represented by the Global Security will not be
exchangeable for, and will not otherwise be issuable as, Junior Subordinated
Debentures in definitive form. The Global Securities described above may not be
transferred except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or to a successor Depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Junior
Subordinated Debentures in definitive form and will not be considered the
holders (as defined in the Trust Indenture) thereof for any purpose under the
Indenture, and no Global Security representing Junior Subordinated Debentures
shall be exchangeable, except for another Global Security of like denomination
and tenor to be registered in the name of the Depositary or its nominee or to a
successor Depositary or its nominee. Accordingly, each Beneficial Owner must
rely on the procedures of the Depositary or if such person is not a Participant,
on the procedures of the Participant through which such person owns its interest
to exercise any rights of a holder under the Trust Indenture. If Junior
Subordinated Debentures are distributed to holder of Preferred Securities, DTC
will act as securities depositary for the Junior Subordinated Debentures.
For a description of DTC and DTC's book-entry system, see "Description of
the Preferred Securities -- Book-Entry Only Issuance
S-36
<PAGE>
- -- The Depository Trust Company." As of the date of this prospectus Supplement,
the description herein of DTC's book-entry system and DTC's practices as they
relate to purchases, transfers, notices and payments with respect to the
Preferred Securities apply in all material respects to any debt obligations
represented by one or more Global Securities held by DTC. The Company may
appoint a successor to DTC or any successor depositary in the event DTC or such
successor depositary is unable or unwilling to continue as a depository for the
Global Securities.
None of the Company, the Indenture Trustee, any paying agent and any
other agent of the Company or the Indenture Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a Global Security for such Junior
Subordinated Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Junior Subordinated
Debentures registered in the names of persons other than the depositary or its
nominee only if (1) the Depositary notifies the Company that it is unwilling or
unable to continue as a depositary for such Global Security and no successor
depositary shall have been appointed; (2) the Depositary, at any time, ceases to
be a clearing agency registered under the Exchange Act at which time the
Depositary is required to be so registered to act as such depositary and no
successor depositary shall have been appointed; (3) the Company, in its sole
discretion, determines that such Global Security shall be so exchangeable; or
(4) there shall have occurred an Indenture Event of Default with respect to such
Junior Subordinated Debentures. Any Global Security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for Junior Subordinated
Debentures registered in such names as the Depositary shall direct. It is
expected that such instructions will be based upon directions received by the
Depositary from its Participants with respect to ownership of beneficial
interests in such Global Security.
RELATIONSHIP BETWEEN THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Declaration, the Trust exists for the sole purpose of
(1) issuing the Trust Securities evidencing undivided beneficial interests in
the assets of the Trust, and investing the proceeds from such issuance and sale
in the Junior Subordinated Debentures and (2) engaging in such other activities
as are necessary and incidental thereto.
As long as payments of interest and other payments are made when due on
the Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and other payments due on the Preferred Securities primarily
because (1) the aggregate principal amount of Junior Subordinated Debentures
held as trust assets will be equal to the sum of the aggregate stated
liquidation amount of the Preferred Securities and the proceeds received by the
Trust upon issuance of the Common Securities to the Company; (2) the interest
rate and interest and other payment dates on the Junior Subordinated Debentures
will match the distribution rate and distribution and other payment dates for
the Preferred Securities; (3) the Declaration provides that the Company shall
pay for all debts and obligations (other than with respect to the Trust
Securities) and all costs and expenses of the Trust, including any taxes and all
costs and expenses with respect thereto, to which the Trust may become subject,
except for United States withholding taxes; and (4) the Declaration further
provides that the Trustees shall not cause or permit the Trust, among other
things, to engage in any activity that is not consistent with the limited
purposes of the Trust. With respect to clause (5) above, however, no assurance
can be given that the Company will have sufficient resources to enable it to pay
such debts, obligations, costs and expenses on behalf of the Trust.
Payments of distributions and other payments due on the Preferred
Securities are guaranteed by the Company on a subordinated basis as and to the
extent set forth under "Description of the Preferred Securities Guarantees" in
the accompanying prospectus. If the Company does not make interest or other
payments on the Junior Subordinated
S-37
<PAGE>
Debentures, the Trust will not make distributions or other payments on the
Preferred Securities. Under the Declaration, if and to the extent the Company
does make interest or other payments on the Junior Subordinated Debentures, the
Property Trustee is obligated to make distributions or other payments on the
Preferred Securities. The Preferred Securities Guarantee is a full and
unconditional guarantee from the time of issuance of the Preferred Securities,
but the Preferred Securities Guarantee covers distributions and other payments
on the Preferred Securities only if and to the extent that the Company has made
a payment to the Property Trustee of interest or principal on the Junior
Subordinated Debentures deposited in the Trust as trust assets.
The Property Trustee will have the Power to exercise all rights, powers
and privileges under the Indenture with respect to the Junior Subordinated
Debentures, including its rights as the holder of the Junior Subordinated
Debentures to enforce the Company's obligations under the Junior Subordinated
Debentures upon the occurrence of an Indenture Event of Default, and will also
have the right to enforce the Preferred Securities Guarantee on behalf of the
holders of the Preferred Securities. In addition, the holders of at least a
majority in liquidation amount of the Preferred Securities will have the right
to direct the Property Trustee with respect to certain matters under the
Declaration and the Preferred Securities Guarantee. If the Property Trustee
fails to enforce its rights under the Trust Indenture any holder of Preferred
Securities may, after a period of 30 days has elapsed from such holder's written
request to the Property Trustee to enforce such rights, institute a legal
proceeding against the Company to enforce such rights. If the Property Trustee
fails to enforce the Preferred Securities Guarantee, to the extent permitted by
applicable law, any holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce the Property Trustee's rights
under the Preferred Securities Guarantee. Notwithstanding the foregoing, if the
Company has failed to make a guarantee payment, a holder of Preferred Securities
may directly institute a proceeding against the Company for enforcement of the
Preferred Securities Guarantee for such payment. See "Description of the
Preferred Securities" and "Description of the Guarantee" herein and "Description
of the Preferred Securities Guarantees -- Status of the Preferred Securities
Guarantees" in the accompanying prospectus.
The above mechanisms and obligations, taken together, provide a full and
unconditional guarantee by the Company of payments due on the Preferred
Securities.
CERTAIN FEDERAL TAX CONSEQUENCES
In the opinion of Davis Polk & Wardwell, counsel to the Company and the Trust,
the following are the material United States federal income tax consequences of
the ownership and disposition of Preferred Securities. Unless otherwise stated,
this summary deals only with Preferred Securities held as capital assets by
holders who acquire the Preferred Securities upon original issuance at the price
indicated on the cover of this prospectus supplement. It does not deal with
special classes of holders, such as dealers in securities or currencies, life
insurance companies, persons holding Preferred Securities as part of a straddle
or as part of a hedging or conversion transaction, or persons whose functional
currency is not the United States dollar. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations thereunder
and administrative and judicial interpretations thereof as of the date hereof,
all of which are subject to change (possibly on a retroactive basis).
Investors are advised to consult their tax advisors as to the United States
federal income tax consequences of the ownership and disposition of preferred
securities in light of their particular circumstances, as well as the effect of
any state, local or other tax laws.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company intends to take the position that the Junior Subordinated Debentures
will be classified for United States federal income tax purposes as indebtedness
under current law. No assurance can be given, however, that this position will
not be challenged by the Internal Revenue Service ("IRS"). The remainder of this
S-38
<PAGE>
discussion assumes that the Junior Subordinated Debentures will be classified
for United States federal income tax purposes as indebtedness of the Company,
and, by acceptance of a Preferred Security, each holder covenants to treat the
Junior Subordinated Debentures as indebtedness and the Preferred Securities as
evidence of an indirect beneficial ownership interest in the Junior Subordinated
Debentures.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Davis Polk &
Wardwell, counsel to the Company and the Trust, will render its opinion
generally to the effect that, assuming full compliance with the terms of the
Declaration, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, each holder of Preferred Securities will be considered the owner of
a pro rata portion of the Junior Subordinated Debentures held by the Trust and
will be required to include in gross income its pro rata share of income accrued
on the Junior Subordinated Debentures.
ACCRUAL OF ORIGINAL ISSUE DISCOUNT
Because we have the right to extend the interest payment period on the Junior
Subordinated Debentures, all of the stated interest payments on the Junior
Subordinated Debentures will be treated as "original issue discount" ("OID").
Accordingly, each holder of Preferred Securities, including a taxpayer who
otherwise uses the cash method of accounting, will be required to include its
pro rata share of OID on the Junior Subordinated Debentures in income as it
accrues, in accordance with a constant yield method based on a compounding of
interest, before the receipt of cash distributions on the Preferred Securities.
Generally, all of a holder's taxable interest income with respect to the Junior
Subordinated Debentures will be accounted for as OID and actual distributions of
stated interest will not be separately reported as taxable income. So long as
the interest payment period is not extended, cash distributions received by a
holder for any quarterly interest period (assuming no disposition prior to the
record date for such distribution) will generally equal the sum of the daily
accruals of income for such quarterly interest period.
The total amount of "original issue discount" on the Junior Subordinated
Debentures will equal the difference between the "issue price" of the Junior
Subordinated Debentures and their "stated redemption price at maturity." All of
the stated interest payments on the Junior Subordinated Debentures will be
includable in determining their "stated redemption price at maturity." The
"issue price" of each $50 principal amount of Junior Subordinated Debentures
will be equal to the first price to the public at which a substantial amount of
the Preferred Securities is sold for cash, which is expected to be $50.
A holder's initial tax basis for its pro rata share of the Junior Subordinated
Debentures will be equal to its pro rata share of their "issue price," as
defined above, and will be increased by OID accrued with respect to its pro rata
share of the Junior Subordinated Debentures, and reduced by the amount of cash
distributions with respect thereto. No portion of the amounts received on the
Preferred Securities will be eligible for the dividends received deduction.
POTENTIAL EXTENSION OF PAYMENT PERIOD ON THE JUNIOR SUBORDINATED DEBENTURES
Holders of Preferred Securities will continue to accrue OID with respect to
their pro rata share of the Junior Subordinated Debentures during an extended
interest payment period. A holder who disposes of the Preferred Securities
during an extended interest period may suffer a loss because the market value of
the Preferred Securities will likely fall if AES exercises its option to defer
payments of interest on the Junior Subordinated Debentures. See "Disposition of
the Preferred Securities" below. Furthermore, the market value of the Preferred
Securities may not reflect the accumulated distributions that will be paid at
the end of the extended interest period, and a holder who sells the Preferred
Securities during the extended interest period will not receive from AES any
cash related to the interest income the holder accrued and included in its
taxable income under the OID rule (because that cash will be paid to the holder
of record at the end of the extended interest period).
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES
Under current law, a distribution by the Trust of the Junior Subordinated
Debentures as
S-39
<PAGE>
described under the caption "Description of the Preferred Securities -- Special
Event Redemption or Distribution" will be non-taxable and will result in the
holder receiving directly its pro rata share of the Junior Subordinated
Debentures previously held indirectly through the Trust, with a holding period
and tax basis equal to the holding period and adjusted tax basis such holder was
considered to have had in his pro rata share of the underlying Junior
Subordinated Debentures prior to such distribution.
DISPOSITION OF THE PREFERRED SECURITIES
Upon a sale, exchange or other disposition of the Preferred Securities
(including a distribution of cash in redemption of a holder's Preferred
Securities upon redemption or repayment of the underlying Junior Subordinated
Debentures, but excluding the distribution of Junior Subordinated Debentures), a
holder will be considered to have disposed of all or part of its pro rata share
of the Junior Subordinated Debentures, and will recognize gain or loss equal to
the difference between the amount realized and the holder's adjusted tax basis
in its pro rata share of the underlying Junior Subordinated Debentures deemed
disposed of. Such gain or loss will be capital gain or loss. Holders are advised
to consult their tax advisers regarding the taxation of capital gains and
losses.
The Preferred Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder who disposes of its Preferred Securities
between record dates for payments of distributions thereon will nevertheless be
required to include accrued but unpaid interest on the Junior Subordinated
Debentures through the date of disposition in income as OID, and to add such
amount to its adjusted tax basis in its pro rata share of the underlying Junior
Subordinated Debentures deemed disposed of. Accordingly, such a holder will
recognize a capital loss to the extent the selling price (which may not fully
reflect the value of accrued but unpaid interest) is less than the holder's
adjusted tax basis (which will include accrued but unpaid interest). Subject to
certain limited exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes.
CONVERSION OF PREFERRED SECURITIES TO AES COMMON STOCK
A holder of Preferred Securities will not recognize income, gain or loss upon
the conversion through the Conversion Agent, of Junior Subordinated Debentures
into AES common stock. A holder of Preferred Securities will recognize gain upon
the receipt of cash in lieu of a fractional share of AES common stock equal to
the amount of cash received less such holder's tax basis in such fractional
share. Such holder's tax basis in the AES common stock received upon conversion
will generally be equal to such holder's tax basis in the Preferred Securities
delivered to the Conversion Agent for exchange, less the basis allocated to any
fractional share for which cash is received. Such holder's holding period in the
AES common stock received upon conversion will generally include the holder's
holding period of the Preferred Securities delivered to the Conversion Agent for
exchange, except possibly with respect to AES common stock received in respect
of any accrued but unpaid OID.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from AES in certain events pursuant to which the conversion rate of the Junior
Subordinated Debentures were adjusted. Thus, under certain circumstances, a
reduction in the conversion price for the Junior Subordinated Debentures may
result in deemed dividend income to holders of Preferred Securities to the
extent of the current or accumulated earnings and profits of AES. Holders of
Preferred Securities are advised to consult their tax advisors as to the income
tax consequences of adjustments in the conversion rate of Preferred Securities.
INFORMATION REPORTING TO HOLDERS
The Trust will report the OID that accrued during the year with respect to the
Junior Subordinated Debentures, and any gross proceeds received by the Trust
from the retirement or redemption of the Junior Subordinated Debentures,
annually to the holders of record of the Preferred Securities and the IRS. The
Trust currently intends to deliver such reports to holders of record prior to
S-40
<PAGE>
January 31 following each calendar year. It is anticipated that persons who hold
Preferred Securities as nominees for beneficial holders will report the required
tax information to beneficial holders on Form 1099.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of Preferred Securities may be
subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amounts will generally be
allowed as a credit against the holder's federal income tax, provided the
required information is timely filed with the IRS.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, for U.S. federal
income tax purposes, a foreign corporation, a nonresident alien individual, a
foreign partnership, or a non-resident fiduciary of a foreign estate or trust.
Payments on Preferred Securities. As discussed above, the Company intends to
take the position that the Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of AES under current
law. No assurance can be given, however, that this position of the Company will
not be challenged by the IRS.
Assuming that the Junior Subordinated Debentures are classified for U.S. federal
income tax purposes as indebtedness of AES, under present United States federal
income tax law, payments by the Trust or any of its paying agents to any holder
of a Preferred Security that is a United States Alien Holder would not be
subject to United States federal withholding tax; provided, that, (a) the
beneficial owner of the Preferred Securities does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock of
AES entitled to vote, (b) the beneficial owner of the Preferred Securities is
not a controlled foreign corporation that is related to AES through stock
ownership, and (c) either (1) the beneficial owner of the Preferred Securities
certifies on IRS form W-8 (or any successor form) to the Trust or its agent,
under penalties of perjury, that it is not a U.S. person and provides its name
and address or (2) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "Financial Institution"), and holds the Preferred Securities in
such capacity, certifies to the Trust or its agent, under penalties of perjury,
that such statement has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and furnishes the
Trust or its agent with a copy thereof.
No withholding will apply to AES common stock received by a United States Alien
Holder of Preferred Securities upon the conversion of Junior Subordinated
Debentures into AES common stock. Under current Treasury Regulations, backup
withholding at a rate of 31% will not apply to distributions on the Preferred
Securities if the certifications discussed above are made to the Trust or its
agent, provided in each case that the Trust or its agent does not have actual
knowledge the payee is a U.S. person.
If the Junior Subordinated Debentures were not classified for United States
federal income tax purposes as indebtedness of AES, payments by the Trust or any
of its paying agents to any holder of a Preferred Securities that is a United
States Alien Holder would be subject to United States withholding tax at a 30%
rate (or a lower rate prescribed by an applicable tax treaty). Prospective
investors that would be United States Alien Holders should consult their tax
advisors concerning the possible application of these rules.
As discussed above under "-- Adjustment of Conversion Price", under certain
circumstances a reduction in the conversion price for the Junior Subordinated
Debentures may result in deemed dividend income to holders of Preferred
Securities to the extent of the current or accumulated earnings and profits of
AES. Any such deemed dividend income that arises after December 31, 2000 with
respect to a United States Alien Holder of Preferred Securities generally will
be subject to withholding tax at a 30% rate or at a reduced rate as specified by
an applicable tax treaty. For additional information respecting the treatment of
such deemed dividend income, please see the discussion relating to dividends
paid after December 31,
S-41
<PAGE>
2000 below, under "-- United States Alien Holders -- Dividends on AES Common
Stock."
Dividends on AES Common Stock. Subject to the discussion below, dividends paid
to a United States Alien Holder of AES common stock generally will be subject to
withholding tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. For purposes of determining whether tax is to be
withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, the Company ordinarily will presume that dividends paid before December
31, 2000 to an address in a foreign country are paid to a resident of such
country, absent knowledge that such presumption is not warranted.
Under the Treasury Regulations applicable to dividends paid after December 31,
2000 (the "Final Regulations"), to obtain a reduced rate of withholding under a
treaty, a United States Alien Holder is generally be required to provide an IRS
form W-8 (or any successor form) certifying such United States Alien Holder's
entitlement to benefits under a treaty. The Final Regulations also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a United States Alien Holder
that is an entity should be treated as paid to the entity or those holding an
interest in that entity.
Generally, the Company must report to the IRS the amount of dividends paid, the
name and address of the recipient, and the amount, if any, of tax withheld. A
similar report is sent to the holder. Pursuant to tax treaties or certain other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Sale or Exchange of Preferred Securities or AES Common Stock. A United States
Alien Holder (other than certain U.S. expatriates) will not be subject to U.S.
federal income tax on gain realized on a sale, exchange or other disposition of
the Preferred Securities or AES common stock unless (i) the United States Alien
Holder is an individual who is present in the U.S. for 183 days or more in the
taxable year of disposition, and certain other conditions are satisfied; or (ii)
AES is or has been a "United States real property holding corporation" within
the meaning of section 897(c)(2) of the Code during the shorter of the United
States Alien Holder's holding period or the five year period ending on the date
of the sale, exchange or other disposition and certain other conditions are
satisfied.
The Company believes that it is unlikely that it is or will be treated as a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code. Even if AES is treated as a United States real property
holding corporation, gain realized by a United States Alien Holder on a
disposition of Preferred Securities or AES Common Stock will not be subject to
U.S. federal income tax so long as (i) the United States Alien Holder is deemed
to have beneficially owned, in the case of a disposition of AES Common Stock,
less than or equal to 5% of the AES Common Stock or, in the case of a
disposition of Preferred Securities, less than or equal to 5% of the Preferred
Securities, and (ii) the AES common stock and the Preferred Securities are
currently and will be, at the time of disposition, "regularly traded" on an
established securities market (within the meaning of Section 897(c)(3) of the
Code and the temporary Treasury Regulations thereunder. There can be no
assurance that AES Common Stock or the Preferred Securities qualify or will
continue to qualify as "regularly traded" on an established securities market.
Effectively Connected Income. If a United States Alien Holder of Preferred
Securities or AES common stock is engaged in a trade or business in the United
States, and if original issue discount accrued on the Preferred Securities or
dividends on the common stock is effectively connected with the conduct of such
trade or business, the United States Alien Holder, although exempt from the
withholding tax on distributions on Preferred Securities and dividends on AES
common stock, will generally be subject to regular United States income tax on
the original issue discount and dividends and on any gain realized on the sale,
exchange or other disposition of Preferred Securities or AES common stock in the
same manner as if it were a United States person. Such a holder will be required
to provide to the Company with a properly executed IRS Form 4224 (or a successor
form) in order to claim an exemption from withholding tax. On or after December
31, 2000, to comply with this requirement, the United States Alien Holder needs
to also provide a valid United States taxpayer indentification
S-42
<PAGE>
number. In addition, if such United States Alien Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or a lower
rate prescribed by an applicable treaty) of its effectively connected earnings
and profits for the taxable year.
Backup Withholding on Disposition of Preferred Securities. Under current
United States federal income tax law, information reporting and backup
withholding imposed at a rate of 31% will apply to the proceeds of a disposition
of Preferred Securities effected by or through a U.S. office of a broker unless
the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the U.S. through a non-U.S. office of a non-U.S.
broker. However, U.S. information reporting requirements (but not backup
withholding) will apply to a payment of disposition proceeds where the
transaction is effected outside the U.S. by or through an office outside the
U.S. of a broker that is either (i) a U.S. person, (ii) a foreign person which
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the U.S., (iii) a "controlled foreign corporation" for
U.S. federal income tax purposes, or (iv) in the case of payments made after
December 31, 2000, a foreign partnership with certain connections to the United
States, in each case unless the holder has documentary evidence that the holder
is a Non-U.S. Holder and that certain conditions are met or that the holder
otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
ERISA CONSIDERATIONS
GENERAL
A fiduciary of an employee benefit plan subject of Title I of ERISA should
consider fiduciary standards under ERISA in the context of the particular
circumstances of such plan before authorizing an investment in the Preferred
Securities. Such fiduciary should consider whether the investment satisfies
ERISA's diversification and prudence requirements, whether the investment
constitutes unauthorized delegation of fiduciary authority and whether the
investment is in accordance with the documents and instruments governing the
plan. In addition, ERISA and the Code prohibit a wide range of transactions
("Prohibited Transactions") involving the assets of a plan subject to ERISA or
the assets of an individual retirement account or plan subject to Section 4975
of the Code (hereinafter an "ERISA Plan") and persons who have certain specified
relationships to the ERISA Plan ("parties in interest," within the meaning of
ERISA, and "disqualified persons," within the meaning of the Code). Such
transactions may require "correction" and may cause the ERISA Plan fiduciary to
incur certain liabilities and the parties in interest or disqualified persons to
be subject to excise taxes.
The acquisition of Preferred Securities by any person who is using for such
acquisition the assets of an ERISA Plan shall constitute a representation by
such person to AES that (1) if AES is a "party in interest" or a "disqualified
person" with respect to such ERISA Plan, then such security is being acquired
pursuant to an exemption from the Prohibited Transaction rules under ERISA and
the Code, and (2) AES is not a "fiduciary," within the meaning of Section 3(21)
of ERISA and the regulations thereunder, with respect to such person's interest
in the Preferred Securities or the Junior Subordinated Debentures.
Governmental plans and certain church plans (each as defined under ERISA) are
not subject to the Prohibited Transaction rules. Such plans may, however, be
subject to federal, state or local laws or regulations which may affect their
investment in the Preferred Securities. Any fiduciary of such a governmental or
church plan considering an investment in the Preferred Securities should
determine the need for, and the availability, if necessary, of any exemptive
relief under such laws or regulations.
The discussion herein of ERISA is general in nature and is not intended to be
all inclusive. Any fiduciary of an ERISA Plan, governmental
S-43
<PAGE>
plan or church plan considering an investment in the Preferred Securities should
consult with its legal advisors regarding the consequences of such investment.
PROHIBITED TRANSACTIONS
AES may be a party in interest or a disqualified person with respect to an ERISA
Plan investing in the Preferred Securities, and, therefore, such investments by
an ERISA Plan may give rise to a Prohibited Transaction. Consequently, before
investing in the Preferred Securities, any person who is, or who in acquiring
such securities is using the assets of, an ERISA Plan should determine that
either a statutory or an administrative exemption from the Prohibited
Transaction rules discussed below or otherwise available is applicable to such
person's investment in the Preferred Securities, or that its investment in such
securities will not result in a Prohibited Transaction.
Certain statutory or administrative exemptions from the Prohibited Transaction
rules under ERISA and the Code may be available to an ERISA Plan which is
investing in the Preferred Securities. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 91-38, regarding investments by
bank collective investment funds; PTCE 84-14, regarding transactions effected by
qualified professional asset managers; PTCE 96-23, regarding transactions
effected by in-house asset managers; or PTCE 95-60, regarding investments by
insurance company general accounts.
TRUST ASSETS AS "PLAN ASSETS"
The Department of Labor has issued final regulations (the "Labor Regulations")
as to what constitutes assets of an employee benefit plan ("plan asset") under
ERISA. The Labor Regulations provide that, as a general rule, when an ERISA Plan
acquires an equity interest in an entity and such interest does not represent a
"publicly offered security" nor a security issued by an investment company
registered under the Investment Company Act of 1940, the ERISA Plan's assets
include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the entity
in an operating company or that equity participation in the entity by "benefit
plan investors" is not "significant." For purposes of the Labor Regulations, the
Trust will not be an investment company nor an operating company and the
Preferred Securities will not constitute a "publicly offered security." As
discussed below, after resales pursuant to the shelf registration statement, the
Preferred Securities may qualify as "publicly offered securities" for purposes
of the Labor Regulations, but such result cannot be assured.
Under the Labor Regulations, equity participation by benefit plan investors will
not be considered "significant" on any date only if, immediately after the most
recent acquisition of Preferred Securities, the aggregate interest in the
Preferred Securities held by benefit plan investors will be less than 25% of the
value of the Preferred Securities. Although it is possible that the equity
participation by benefit plan investors on any date will not be "significant"
for purposes of the Labor Regulations, such result cannot be assured.
Consequently, if ERISA Plans or investors using plan assets of ERISA plans
purchase the Preferred Securities, the Trust's assets could be deemed to be
"plan assets" of such ERISA Plan for purposes of the fiduciary responsibility
provisions of ERISA and the Code. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets of
an ERISA Plan is considered to be a fiduciary of such ERISA Plan. For example,
the Property Trustee could therefore become a fiduciary of the ERISA Plans that
invest in the Preferred Securities and be subject to the general fiduciary
requirements of ERISA in exercising its authority with respect to the management
of the assets of the Trust. However, the Property Trustee will have only limited
discretionary authority with respect to the Trust's assets and the remaining
functions and the responsibilities performed by the Property Trustee will be for
the most part custodial and ministerial in nature. Inasmuch as the Property
Trustee or another person with authority or control respecting the management or
disposition of the Trust assets may become a fiduciary with respect to the ERISA
Plans that will purchase the Preferred Securities, there may be an improper
delegation by such ERISA Plans of the responsibility to manage plan assets.
It is expected that Preferred Securities will be distributed pursuant to an
effective registration
S-44
<PAGE>
statement under the Securities Act and they may subsequently be registered under
the Exchange Act. Preferred Securities may qualify as "publicly offered
securities" under the Labor Regulations if, in addition to such distribution and
registration, they are also "widely held" and "freely transferable." Under the
Labor Regulations, a class of securities is "widely held" only if it is a class
of securities that is owned by 100 or more investors independent of the issuer
and of one another. Although it is possible that after distribution pursuant to
the shelf registration statement the Preferred Securities will be "widely held,"
such result cannot be assured. Whether a security is "freely transferable" for
purposes of the Labor Regulations is a factual question to be determined on the
basis of all relevant facts and circumstances. If after the distribution
pursuant to the shelf registration statement, the Preferred Securities do not
qualify as "publicly offered securities," the "plan asset" considerations
discussed in the immediately preceding paragraph could continue to be applicable
in connection with the investment by ERISA Plans or investors' using plan assets
of ERISA Plans.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, the underwriters named below have severally agreed to purchase, and
AES and the Trust have agreed that the Trust will sell to each underwriter, the
number of Preferred Securities set forth opposite their name below:
<TABLE>
<CAPTION>
NUMBER
OF PREFERRED
SECURITIES
-------------
<S> <C>
J.P. Morgan Securities Inc. .........
Goldman, Sachs & Co. ................
Salomon Smith Barney Inc. ...........
Donaldson, Lufkin & Jenrette
Securities Corporation ...........
Total ............................. 6,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase the Preferred Securities included in this offering are
subject to approval of certain legal matters by counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the
Preferred Securities (other than those covered by the overallotment option
described below) if any are taken.
The underwriters have advised us that they propose initially to offer
such Preferred Securities to the public at the price to public set forth on the
cover page of this prospectus supplement. After the initial public offering, the
public offering price may be changed.
AES has granted to the underwriters an option, exercisable for 30 days
from the date hereof, to purchase up to an additional 900,000 Preferred
Securities at the price to public on the terms set forth on the cover page less
the underwriting discount set forth on the cover page of this prospectus
supplement. The underwriters may exercise such option to purchase solely for the
purpose of covering overallotments, if any, made in connection with the
offering.
AES and certain of its directors and executive officers are agreeing
that, with certain exceptions (including issuances by AES as consideration for
acquisitions), without the prior written consent of J.P. Morgan Securities Inc.
and Goldman, Sachs & Co., they will not, directly or indirectly, offer to sell,
contract to sell, sell or otherwise dispose of, or announce the offering of any
shares of common stock or securities convertible into or exchangeable or
exercisable for shares of common stock, for a period of 90 days after the date
of the underwriting agreement, provided that beginning 30 days after the date of
the underwriting agreement such officers and directors may sell limited amounts
of shares per day up to a total of 500,000 shares (taken in the aggregate and as
a group).
AES and the Trust have each agreed to indemnify the underwriters against,
or contribute to payments that the underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
The underwriters may engage in stabilizing transactions, syndicate
covering transactions and penalty bids in accordance with Rule 104 under the
Securities Exchange Act of 1934, as amended, in connection with the offering.
Stabilizing transactions permit bids to purchase the Preferred Securities and
common stock so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Preferred Securities in
the open
S-45
<PAGE>
market following completion of the offering to cover all or a portion of a
syndicate short position created by the underwriters selling more Preferred
Securities in connection with the offering than they are committed to purchase
from us. In addition, the underwriters may impose "penalty bids" under
contractual arrangements between the underwriters and dealers participating in
the offering whereby they may reclaim from a dealer participating in the
offering the selling concession with respect to Preferred Securities are
distributed in the offering but subsequently purchased for the account of the
underwriters in the open market. Such stabilizing transactions, syndicate
covering transactions and penalty bids may result in the maintenance of the
price of the Preferred Securities and common stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required and, if any are undertaken, they may be
discontinued at any time.
Certain of the underwriters in this offering are acting as underwriters
in the offering of the common stock. In the ordinary course of the underwriters'
respective businesses, the underwriters and their affiliates have engaged and
may engage in commercial and investment banking transactions with us and our
affiliates.
An affiliate of Salomon Smith Barney Inc. is the agent and a lender
under the Texas Bridge which may be repaid with proceeds of the offering. The
rules of the National Association of Securities Dealers, Inc. (the "NASD")
provide that no NASD member shall participate in the offering of an issuer's
securities where more than 10% of the net proceeds are intended to be paid to
members participating in the distribution of the offering, or persons
associated or affiliated with such participating members, unless a "qualified
independent underwriter" shall have been engaged on the terms provided in such
rules. In accordance with this requirement, J.P. Morgan Securities Inc. and
Goldman, Sachs & Co. have each performed due diligence investigations and
reviewed and participated in the preparation of this prospectus supplement.
J.P. Morgan Securities Inc. and Goldman, Sachs & Co. will not receive
compensation in connection with their services as qualified independent
underwriters.
Frank Jungers, an Advisory Director for an affiliate of Donaldson, Lufkin
& Jenrette Securities Corporation, one of the underwriters, is also a director
and stockholder of AES. Mr. Jungers beneficially owns 1,117,591 shares of the
common stock.
LEGAL MATTERS
The validity of the Junior Subordinated Debentures, the common stock
issuance upon conversion of the Preferred Securities and the guarantee and
certain matters relating thereto and certain U.S. federal income taxation
matters will be passed upon for us by Davis Polk & Wardwell, New York, New York
and the validity of the Preferred Securities will be passed upon for AES and the
Trust by Richards, Layton & Finger, Wilmington, Delaware, special Delaware
counsel to AES and the Trust. Certain legal matters will be passed upon for the
underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York.
EXPERTS
See "Experts" in the accompanying prospectus.
S-46
<PAGE>
P R O S P E C T U S
$2,500,000,000
[GRAPHIC OMITTED]
THE AES CORPORATION
Junior Subordinated Debt Trust Securities
AES Trust III
AES Trust IV
AES Trust V
------------------
We may offer unsecured junior subordinated trust debt securities from time
to time. Specific terms of these securities will be provided in supplements to
this prospectus.
AES Trust III, AES Trust IV and AES Trust V may offer preferred securities
representing individual beneficial interests in the assets of the respective AES
Trust. Specific terms of these preferred securities will be provided in
supplements to this prospectus.
You should read this prospectus and any supplement carefully before you
invest.
------------------
Our common stock trades on the New York Stock Exchange under the symbol
"AES".
------------------
INVESTING IN THESE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------
The date of this prospectus is July 13, 1999.
<PAGE>
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of this prospectus.
--------------------------------------
TABLE OF CONTENTS
--------------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
About this Prospectus ............................ 2
Summary Information .............................. 3
Risk Factors ..................................... 5
Where You Can Find More Information .............. 15
Incorporation of Documents by Reference .......... 16
Special Note on Forward-Looking
Statements .................................... 16
Use of Proceeds .................................. 17
Ratio of Earnings to Fixed Charges ............... 17
The Company ...................................... 17
The AES Trusts ................................... 18
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Description of the Preferred Securities .......... 23
Description of the Preferred Securities
Guarantees .................................... 24
Description of the Junior Subordinated
Debt Trust Securities ......................... 27
Certain Covenants of AES Applicable to
the Junior Subordinated Debt Trust
Securities .................................... 29
Plan of Distribution ............................. 33
Legal Matters .................................... 34
Experts .......................................... 34
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total dollar
amount of $2,500,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may also add, update
or change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement together with additional information
described under the heading WHERE YOU CAN FIND MORE INFORMATION.
2
<PAGE>
SUMMARY INFORMATION
QUESTIONS AND ANSWERS
This summary provides a brief overview of the key aspects of the
preferred securities. You should carefully read this prospectus to understand
fully the terms of the preferred securities as well as the tax and other
considerations that are important to you in making a decision about whether to
invest in the preferred securities. You should pay special attention to the
"Risk Factors" section beginning on page 5 of this prospectus to determine
whether an investment in the preferred securities is appropriate for you.
WHAT ARE THE PREFERRED SECURITIES?
Each preferred security represents an undivided beneficial interest in
the assets of the applicable AES Trust. Each preferred security will entitle the
holder to receive cash distributions as described in the applicable prospectus
supplement.
WHO ARE AES TRUSTS?
The AES Trusts are Delaware business trusts. Their principal place of
business is c/o The AES Corporation, 1001 North 19th Street, Arlington, Virginia
22209, and its telephone number is (703) 522-1315. All of the common securities
of the AES Trusts will be owned by the AES Corporation. The AES Trusts will use
the proceeds from the sale of the preferred securities and the common securities
to buy a series of junior subordinated deferrable interest debentures from AES
with the same financial terms as the preferred securities.
WHO IS THE AES CORPORATION?
We are a global power company, with 104 power plants in operation or
under construction, 87 of which are located outside of the United States. The
mailing address of our principal executive office is 1001 North 19th Street,
Arlington, Virginia 22209 and our telephone number is (703) 522-1315. Our
Internet address is http:www.aesc.com.
WHEN WILL YOU RECEIVE DISTRIBUTIONS ON THE PREFERRED SECURITIES?
The AES Trusts' only source of cash to make payments on the preferred
securities are payments on the junior subordinated debt trust securities it
purchases from AES. If you purchase the preferred securities, you are entitled
to receive cumulative cash distributions at an annual rate which will be set
forth in the applicable prospectus supplement. Distributions will accumulate
from the date the AES Trusts issue the preferred securities and will be paid in
arrears.
WHEN WILL PAYMENT OF YOUR DISTRIBUTIONS BE DEFERRED?
If AES defers interest payments on the junior subordinated debt trust
securities, the AES Trust generally will defer distributions on the preferred
securities as described in the applicable prospectus supplement. During any
deferral period, with certain exceptions, AES will not be permitted to:
o pay a dividend or make any distributions on its capital stock or
redeem, purchase, acquire or make a liquidation payment on any of its
capital stock, or make any guarantee payments relating to the
foregoing; or
o make an interest, principal or premium payment on, or repurchase or
redeem, any of its debt securities that rank equal with or junior to
the junior subordinated debt trust securities.
WHEN CAN THE AES TRUSTS REDEEM THE PREFERRED SECURITIES?
The AES Trusts must redeem all of the outstanding trust securities on a
date that will be specified in the applicable prospectus supplement. Some or all
of the preferred securities may be redeemed on further dates which will also be
specifed in the applicable prospectus supplement. Also, the preferred securities
may be redeemed, in whole or in part, at any time if certain changes in tax,
investment company or bank regulatory law occur and certain other conditions are
satisfied. See "Description of the Preferred Securities" on page 22.
WHAT IS AES' GUARANTEE OF THE PREFERRED SECURITIES?
AES' guarantee of the preferred securities consists of:
3
<PAGE>
o its obligations to make payments on the junior subordinated debt trust
securities;
o its obligations under the preferred trust securities guarantee; and
o its obligations under the amended and restated declarations of trust
of the AES Trusts, which sets forth the terms of the AES Trusts. AES
has irrevocably guaranteed that if a payment on the junior
subordinated debt trust securities is made to the AES Trusts but, for
any reason, the AES Trusts do not make the corresponding distribution
or redemption payment to the holders of the preferred securities, then
AES will make the payments directly to the holders of the preferred
securities. The guarantee does not cover payments when the AES Trusts
do not have sufficient funds to make payments on the preferred
securities. AES' obligations under the guarantee are subordinated as
described on page 26.
WHEN COULD THE JUNIOR SUBORDINATED TRUST SECURITIES BE DISTRIBUTED TO YOU?
AES has the right to dissolve the AES Trusts at any time. If AES
terminates the AES Trusts, the AES Trusts will redeem the preferred securities
by distributing the junior subordinated debt securities to holders of the
preferred securities and the common securities on a ratable basis. If the junior
subordinated debt trust securities are distributed, AES will use it best efforts
to list the junior subordinated debt trust securities on any exchange on which
the preferred securities are then listed.
WILL THE PREFERRED SECURITIES BE LISTED ON A STOCK EXCHANGE?
Application will be made to list the preferred securities on the NYSE, or
if AES common stock is not then listed on the NYSE, on such other exchange on
which the AES common stock is then listed. If approved for listing, the AES
Trusts expect the preferred securities will begin trading within 30 days after
they are first issued.
WILL HOLDERS OF THE PREFERRED SECURITIES HAVE ANY VOTING RIGHTS?
Generally, the holders of the preferred securities will not have any
voting rights. See "Description of the Preferred Securities."
IN WHAT FORM WILL THE PREFERRED SECURITIES BE ISSUED?
The preferred securities will be represented by one or more global
securities that will be deposited with and registered in the name of The
Depository Trust Company or its nominee. This means that you will not receive a
certificate for your preferred securities and that your broker will maintain
your position in the preferred securities.
4
<PAGE>
RISK FACTORS
Purchasers of the securities should read this entire prospectus
carefully. Ownership of the securities involves certain risks. The following
factors and the other information in this prospectus should be considered
carefully in evaluating AES and our business before purchasing the securities
offered by this prospectus.
Our high degree of leverage could affect our ability to fulfill our
obligations under our securities. We had approximately $6,800 million of
outstanding indebtedness at March 31, 1999. As a result, we might be
significantly limited in our ability to meet our debt service obligations, to
finance the acquisition and development of additional projects, to compete
effectively or to operate successfully under adverse economic conditions. As of
March 31, 1999, we had a consolidated ratio of total debt to total book
capitalization (including current debt) of approximately 74%.
We are not required to pay you under the guarantee and the junior
subordinated debt trust securities unless we first make other required payments.
Our obligations under the junior subordinated debt trust securities will rank
junior to all of our senior and senior subordinated indebtedness, including, but
not limited to, the amounts outstanding under our current $600 million revolving
credit facility. As of March 31, 1999, we had approximately $617 million in
aggregate principal amount of senior debt and $1,686 million in aggregate
principal amount of senior and senior subordinated debt. This means that we
cannot make any payments on the junior subordinated debt trust securities if we
default on a payment of senior indebtedness or senior subordinated indebtedness
and do not cure the default within the applicable grace period or if the senior
indebtedness or senior subordinated indebtedness becomes immediately due because
of a default and has not yet been paid in full. In addition, our obligations
under the junior subordinated debt trust securities will be effectively
subordinated to all existing and future liabilities of our subsidiaries.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency, or similar proceedings, the holders of senior and senior
subordinated debt will be entitled to receive payment in full of all amounts due
under all senior and senior subordinated debt before the holders of the junior
subordinated debt trust securities will be entitled to receive any payment on
the junior subordinated debt trust securities.
No payments in respect of the junior subordinated debt trust securities
may be made if
o a default has occurred and is continuing in a payment under the senior
and senior subordinated debt or
o during certain periods when an event of default under certain senior
and senior subordinated debt, respectively, permits the respective
lenders thereunder to accelerate the maturity thereof.
The preferred securities will rank
o subordinate and junior in right of payment to all our other
liabilities, including the junior subordinated debt trust securities,
except those made pari passu by their terms and
o senior to all capital stock now or hereafter issued by us and to any
guarantee now or hereafter entered into by us in respect of any of our
capital stock.
See "Description of the Preferred Securities Guarantees -- Status of the
Preferred Securities Guarantees."
The junior subordinated debt trust securities will be effectively
subordinated to the indebtedness and other obligations (including trade
payables) of our subsidiaries. At March 31, 1999, the indebtedness and
obligations of our subsidiaries aggregated approximately $5,213 million. Our
ability to pay principal of, premium, if any, and interest on the junior
subordinated debt trust securities will be dependent upon the receipt of funds
from our subsidiaries by way of dividends, fees, interest, loans or otherwise.
There are no terms in the junior subordinated debt trust securities, the
preferred securities or the preferred securities guarantee that limit our or our
subsidiaries' ability to incur additional indebtedness. Most of our subsidiaries
with
5
<PAGE>
interests in power generation facilities currently have in place arrangements
that restrict their ability to make distributions to us by way of dividends,
fees, interest, loans or otherwise. Our subsidiaries are separate and distinct
legal entities and have no obligation, contingent or otherwise, to pay any
amounts due pursuant to the junior subordinated debt trust securities or the
preferred securities or to make any funds available therefor, whether by
dividends, loans or other payments, and do not guarantee the payment of interest
on or principal of the junior subordinated debt trust securities or the
preferred securities. Any right we have to receive any assets of any of our
subsidiaries upon any liquidation, dissolution, winding up, receivership,
reorganization, assignment for the benefit of creditors, marshaling of assets
and liabilities or any bankruptcy, insolvency or similar proceedings (and the
consequent right of the holders of the junior subordinated debt trust securities
and preferred securities to participate in the distribution of, or to realize
proceeds from, those assets) will be effectively subordinated to the claims of
any such subsidiary's creditors (including trade creditors and holders of debt
issued by such subsidiary).
We are not required to pay you under the guarantee if the applicable AES
Trusts do not have cash available. The ability of the applicable AES Trust to
make payments on the preferred securities is solely dependent upon us making the
related payments on the junior subordinated debt trust securities when due. If
we default on our obligations to make payments on the junior subordinated debt
trust securities, the applicable AES Trust will not have sufficient funds to
make payments on the preferred securities. In those circumstances, you will not
be able to rely upon the guarantee for payment of these amounts.
Our ability to make distributions. The ability of the AES Trusts to make
distributions and other payments on the preferred securities is solely dependent
upon us making interest and other payments on the junior subordinated debt trust
securities deposited as trust assets as and when required. If we were not to
make distributions or other payments on the junior subordinated debt trust
securities for any reason, including as a result of our election to defer the
payment of interest on the junior subordinated debt trust securities by
extending the interest period on the junior subordinated debt trust securities,
the AES Trusts will not make payments on the preferred securities. In such an
event, holders of the preferred securities would not be able to rely on the
preferred securities guarantee since distributions and other payments on the
preferred securities are subject to this guarantee only if and to the extent
that we have made a payment to the Property Trustee (as defined herein) of
interest or principal on the junior subordinated debt trust securities deposited
in the trust as trust assets. Instead, holders of preferred securities would
rely on the enforcement by the Property Trustee of its rights as registered
holder of the junior subordinated debt trust securities against us pursuant to
the terms of the Indenture (as defined herein). However, if the Trust's failure
to make distributions on the preferred securities is a consequence of the
exercise by us of our right to extend the interest payment period for the junior
subordinated debt trust securities, the Property Trustee will have no right to
enforce the payment of distributions on the preferred securities until an Event
of Default (as defined herein) under the Declaration (as defined herein) shall
have occurred.
The Declaration provides that we shall pay for all debts and obligations
(other than with respect to the Trust Securities) and all costs and expenses of
the AES Trusts, including any taxes and all costs and expenses with respect
thereto, to which the AES Trusts may become subject, except for United States
withholding taxes. No assurance can be given that we will have sufficient
resources to enable it to pay these debts, obligations, costs and expenses on
behalf of the AES Trusts.
Option to extend interest payment period; tax impact of extension. So
long as we are not in default in the payment of interest on the junior
subordinated debt trust securities, we have the right under the indenture to
defer payments of interest on the junior subordinated debt trust securities by
extending the interest payment period from time to time on the junior
subordinated debt trust securities for an extension period not exceeding 20
consecutive quarterly interest periods (an "Extension Period"), during which no
interest shall be due and payable. In this event, quarterly distributions on the
preferred securities would not be made by the applicable AES Trust during any
Extension Period. If we exercise the right to extend an
6
<PAGE>
interest payment period, we may not during the Extension Period declare or pay
dividends on, or redeem, purchase, acquire or make a distribution or liquidation
payment with respect to, any of its common stock or preferred stock; provided
that:
o we will be permitted to pay accrued dividends upon the exchange or
redemption of any series of preferred stock of AES as may be
outstanding from time to time, in accordance with the terms of that
stock and
o the foregoing will not apply to stock dividends paid by us.
Under our certificate of incorporation, we are authorized to issue up to
50,000,000 shares of preferred stock. As of June 29, 1999, no shares of our
preferred stock were outstanding. We may from time to time offer shares of our
preferred stock to the public.
Prior to the termination of any Extension Period, we may further extend
that Extension Period; provided that such Extension Period together with all
such previous and further extensions thereof may not exceed 20 consecutive
quarterly interest periods. Upon the termination of any Extension Period and the
payment of all amounts then due, we may commence a new Extension Period, subject
to the above requirements. We may also prepay at any time all or any portion of
the interest accrued during an Extension Period. Consequently, there could be
multiple Extension Periods of varying lengths throughout the term of the junior
subordinated debt trust securities, not to exceed 20 consecutive quarters or to
cause any extension beyond the maturity of the junior subordinated debt trust
securities. See any accompanying prospectus supplement relating to junior
subordinated debt trust securities.
Because we have the right to extend the interest payment period for an
Extension Period of up to 20 consecutive quarterly interest periods on various
occasions, the junior subordinated debt trust securities will be treated as
issued with "original issue discount" for United States federal income tax
purposes. As a result, holders of preferred securities will be required to
include their pro rata share of original issue discount in gross income as it
accrues for United States federal income tax purposes in advance of the receipt
of cash. Generally, all of a securityholder's taxable interest income with
respect to the junior subordinated debt trust securities will be accounted for
as "original issue discount" and actual distributions of stated interest will
not be separately reported as taxable income. See any accompanying prospectus
supplement relating to junior subordinated debt trust securities.
Deferral of distributions would have adverse tax consequences for you and
may adversely affect the trading price of the preferred securities. If
distributions on the preferred securities are deferred, you will be required to
recognize interest income for United States federal income tax purposes in
respect of your ratable share of the interest on the junior subordinated debt
trust securities held by the applicable AES Trust before you receive any cash
distributions relating to this interest. In addition, you will not receive this
cash if you sold the preferred securities before the end of any deferral period
or before the record date relating to distributions which are paid. We have no
current intention of deferring interest payments on the junior subordinated debt
trust securities. However, if we exercise our right in the future, the preferred
securities may trade at a price that does not fully reflect the value of accrued
but unpaid interest on the junior subordinated debt trust securities. If you
sell the preferred securities during an interest deferral period, you may not
receive the same return on investment as someone else who continues to hold the
preferred securities. In addition, the existence of our right to defer payments
of interest on the junior subordinated debt trust securities may mean that the
market price for the preferred securities, which represent an undivided
beneficial interest in the junior subordinated debt trust securities, may be
more volatile than other securities that do not have these rights.
You should not rely on the distributions from the preferred securities
through their maturity date -- they may be redeemed at any time if certain
changes in tax, or regulatory law occur. If certain changes, which are more
fully described below, in tax law occur and are continuing, and certain other
conditions which are more fully described below are satisfied, the preferred
securities could be redeemed by the AES Trusts within 90 days of the event at a
redemption price set forth in the applicable prospectus supplement plus any
accrued and unpaid distributions. See "Description of the Preferred Securities".
7
<PAGE>
You should not rely on the distributions from the preferred securities
through their maturity date -- they may be redeemed at the option of AES. The
preferred securities may be redeemed, in whole, at any time, or in part, from
time to time, on or after the date specified in the applicable prospectus
supplement at a redemption price set forth in the applicable prospectus
supplement plus any accrued and unpaid distributions to the redemption date. You
should assume that this redemption option will be exercised if we are able to
refinance at a lower interest rate or it is otherwise in our interest to redeem
the junior subordinated debt securities. If the junior subordinated debt trust
securities are redeemed, the AES Trusts must redeem the preferred securities and
the common securities having an aggregate liquidation amount equal to the
aggregate principal amount of junior subordinated debt trust securities to be
redeemed. See "Description of the Preferred Securities" and "Description of the
Junior Subordinated Debt Trust Securities" on pages 23 and 27, respectively.
There can be no assurance as to the market prices for the preferred
securities or the junior subordinated debt trust securities; therefore, you may
suffer a loss. The AES Trusts and AES cannot give you any assurance as to the
market prices for the preferred securities or the junior subordinated debt trust
securities that may be distributed in exchange for preferred securities.
Accordingly, the preferred securities that an investor may purchase, whether
pursuant to the offer made by this prospectus or in the secondary market, or the
junior subordinated debt trust securities that a holder of preferred securities
may receive in exchange for preferred securities, may trade at a discount to the
price that the investor paid to purchase the preferred securities. As a result
of the right to defer payments on the preferred securities, the market price of
the preferred securities may be more volatile than the market prices of other
securities to which such optional deferrals do not apply.
There could be an adverse tax consequence to you if we terminate the AES
Trusts and distribute junior subordinated debt trust securities to holders,
resulting in possible tax and liquidity consequences to you. We have the right
to terminate the AES Trusts at any time, so long as it obtains any required
regulatory approval. If we decide to exercise our right to terminate the AES
Trusts, they will redeem the preferred securities and common securities by
distributing the junior subordinated debt trust securities to holders of the
preferred securities and common securities on a ratable basis. Under current
United States federal income tax law, a distribution of junior subordinated debt
trust securities to you on the dissolution of an AES Trust should not be a
taxable event to you. However, if the AES Trusts are characterized for United
States federal income tax purposes as an association taxable as a corporation at
the time it is dissolved or if there is a change in law, the distribution of
junior subordinated debt trust securities to you may be a taxable event to you.
There may be no trading market for the junior subordinated debt trust
securities if the AES Trusts distribute them to you. Although we will use our
best efforts to list the junior subordinated debt trust securities on the
exchange on which the preferred securities are then listed, if they are
distributed, we cannot assure you that the junior subordinated debt trust
securities will be approved for listing or that a trading market will exist for
those securities.
Since you have limited voting rights, you cannot prevent the AES Trust
trustees from taking actions you may not agree with. You will have limited
voting rights. In particular, except for the limited exceptions described below,
only AES can elect or remove any of the AES Trusts' trustees.
Special Event Redemption or Distribution. Upon the occurrence and during
the continuation of a Tax Event or Investment Company Event (each as defined
herein), which may occur at any time, the applicable AES Trust shall, unless the
junior subordinated debt trust securities are redeemed in the limited
circumstances described below, be dissolved with the result that junior
subordinated debt trust securities having an aggregate principal amount equal to
the aggregate stated liquidation amount of, and bearing accrued and unpaid
distributions on, the preferred securities and common securities would be
distributed on a Pro Rata Basis (as defined herein under "The AES Trusts --
Distributions") to the holders of the preferred securities and common securities
in liquidation of that trust. In the case of a Tax Event, in certain
circumstances, we shall have the right to redeem at any time the junior
subordinated debt trust securities in whole or in part, in which event the
8
<PAGE>
applicable AES Trust will redeem preferred securities and common securities on a
Pro Rata Basis to the same extent as the junior subordinated debt trust
securities are redeemed. There can be no assurance as to the market prices for
preferred securities or the junior subordinated debt trust securities which may
be distributed in exchange for preferred securities if a dissolution and
liquidation of the applicable AES Trust were to occur. Accordingly, the
preferred securities that an investor may purchase, or the junior subordinated
debt trust securities that the investor may receive on dissolution and
liquidation of the applicable AES Trust, may trade at a discount to the price
that the investor paid to purchase the preferred securities offered hereby.
Because holders of preferred securities may receive junior subordinated debt
trust securities upon the occurrence of a Special Event (as defined herein),
prospective purchasers of preferred securities are also making an investment
decision with regard to the junior subordinated debt trust securities and should
carefully review all the information regarding the junior subordinated debt
trust securities contained in any accompanying prospectus supplement relating to
junior subordinated debt trust securities.
There can be no assurance that future federal legislative proposals will
not prevent us from deducting interest on the junior subordinated debt trust
securities. This would constitute a Tax Event and could result in the
distribution of any junior subordinated debt trust securities to holders of the
preferred securities or, in certain circumstances, the redemption of these
securities by us and the distribution of the resulting cash in redemption of the
preferred securities. See any accompanying prospectus supplement relating to
junior subordinated debt trust securities.
"Tax Event" means that the Regular Trustees (as defined herein) shall
have obtained an opinion of a nationally recognized independent tax counsel
experienced in such matters (a "Dissolution Tax Opinion") to the effect that on
or after the date of any accompanying prospectus supplement relating to junior
subordinated debt trust securities as a result of
o any amendment to, or change in, the laws (or any regulations
thereunder) of the United States or any political subdivision or
taxing authority thereof or therein,
o any amendment to, or change in, an interpretation or application of
any such laws or regulations by any legislative body, court,
governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial
decision or regulatory determination),
o any interpretation or pronouncement that provides for a position
with respect to such laws or regulations that differs from the
theretofore generally accepted position or
o any action taken by any governmental agency or regulatory
authority, which amendment or change is enacted, promulgated,
issued or effective or which interpretation or pronouncement is
issued or announced or which action is taken, in each case on or
after the date of such prospectus supplement, where there is more
than an insubstantial risk that
o the applicable AES Trust is, or will be within 90 days of the date
thereof, subject to United States federal income tax with respect
to income accrued or received on the junior subordinated debt trust
securities, the applicable AES Trust is, or will be within 90 days
of the date thereof, subject to more than a de minimis amount of
other taxes, duties or other governmental charges or
o interest payable by us to the applicable AES Trust on the junior
subordinated debt trust securities is not, or within 90 days of the
date thereof will not be, deductible by us for United States
federal income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940 Act"),
that as a result of the occurrence of a change in law or regulation or a change
in interpretation or application of law or regulation by any legislative body,
court,
9
<PAGE>
governmental agency or regulatory authority (a "Change in 1940 Act Law"), there
is more than an insubstantial risk that an AES Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of any
accompanying prospectus supplement relating to junior subordinated debt trust
securities.
"Special Event" means a Tax Event or an Investment Company Event.
The preferred securities constitute a new issue of securities with no
established trading market. The preferred securities may trade at a price that
does not fully reflect the value of accrued but unpaid interest with respect to
the underlying junior subordinated debt trust securities. A holder who disposes
of his preferred securities between record dates for payments of distributions
thereon will be required to include accrued but unpaid interest on the junior
subordinated debt trust securities through the date of disposition in income as
ordinary income, and to add such amount to his adjusted tax basis in his pro
rata share of the underlying junior subordinated debt trust securities deemed
disposed of. Accordingly, such a holder will recognize a capital loss to the
extent the selling price (which may not fully reflect the value of accrued but
unpaid interest) is less than the holders adjusted tax basis (which will include
accrued but unpaid interest). Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes. See any accompanying prospectus supplement relating to
junior subordinated debt trust securities.
Potential market volatility during Extension Period. As described above,
we have the right to extend an interest payment period on the junior
subordinated debt trust securities from time to time for a period not exceeding
20 consecutive quarterly interest periods. If we determine to extend an interest
payment period, or if we thereafter extend an Extension Period or prepay
interest accrued during an Extension Period as described above, the market price
of the preferred securities is likely to be affected. In addition, as a result
of these rights, the market price of the preferred securities (which represent
an undivided interest in junior subordinated debt trust securities) may be more
volatile than other securities on which original issue discount accrues that do
not have such rights. A holder that disposes of its preferred securities during
an Extension Period, therefore, may not receive the same return on its
investment as a holder that continues to hold its preferred securities. See any
accompanying prospectus supplement relating to junior subordinated debt trust
securities.
We do a significant amount of our business outside the United States
which presents significant risks. Our involvement in the development of new
projects and the acquisition of existing plants in locations outside the United
States is increasing and most of our current development and acquisition
activities are for projects and plants outside the United States. We have
ownership interests in 104 power plants in operation or under construction, 87
of these are outside of the United States.
The financing, development and operation of projects outside the United
States entail significant political and financial uncertainties (including,
without limitation, uncertainties associated with first-time privatization
efforts in the countries involved, currency exchange rate fluctuations, currency
repatriation restrictions, currency inconvertibility, political instability,
civil unrest, and expropriation) and other credit quality, liquidity or
structuring issues that have the potential to cause substantial delays in
respect of or material impairment of the value of the project being developed or
operated, which we may not be capable of fully insuring or hedging against. The
ability to obtain financing on a commercially acceptable non-recourse basis in
developing nations may also require us to make higher investments than
historically have been the case. In addition, financing in countries with less
than investment grade sovereign credit ratings may also require substantial
participation by multilateral financing agencies. There can be no assurance that
such financing can be obtained when needed.
The uncertainty of the legal environment in certain countries in which we
are or in the future may be developing, constructing or operating could make it
more difficult for us to enforce our respective rights under agreements relating
to such projects. In addition, the laws and regulations of certain countries may
limit our ability to hold a majority interest in some of the projects that we
may develop or acquire. International projects we own may, in certain cases, be
expropriated by applicable
10
<PAGE>
governments. Although we may have legal recourse in enforcing our rights under
agreements and recovering damages for breaches thereof, there can be no
assurance that any such legal proceedings will be successful.
Global competition is increasing and could adversely affect us. The
global power production market is characterized by numerous strong and capable
competitors, many of whom may have extensive and diversified developmental or
operating experience (including both domestic and international experience) and
financial resources similar to or greater than ours. Further, in recent years,
the power production industry has been characterized by strong and increasing
competition with respect to both obtaining power sales agreements and acquiring
existing power generation assets. In certain markets, these factors have caused
reductions in prices contained in new power sales agreements and, in many cases,
have caused higher acquisition prices for existing assets through competitive
bidding practices. The evolution of competitive electricity markets and the
development of highly efficient gas-fired power plants have also caused, or are
anticipated to cause, price pressure in certain power markets where we sell or
intend to sell power. There can be no assurance that the foregoing competitive
factors will not have a material adverse effect on us.
Development Uncertainties. The majority of the projects that we develop
are large and complex and the completion of any such project is subject to
substantial risks. Development can require us to expend significant sums for
preliminary engineering, permitting, legal and other expenses in preparation for
competitive bids which we may not win or before it can be determined whether a
project is feasible, economically attractive or capable of being financed.
Successful development and construction is contingent upon, among other things,
negotiation of satisfactory engineering, construction, fuel supply and power
sales contracts with other project participants, receipt of required
governmental permits and consents and timely implementation and satisfactory
completion of construction. There can be no assurance that we will be able to
obtain new power sales contracts, overcome local opposition, if any, obtain the
necessary site agreements, fuel supply and ash disposal agreements, construction
contracts, steam sales contracts, licenses and certifications, environmental and
other permits and financing commitments necessary for the successful development
of our projects. There can be no assurance that development efforts on any
particular project, or our efforts generally, will be successful. If these
development efforts are not successful, we may abandon a project under
development. At the time of abandonment, we would expense all capitalized
development costs incurred in connection therewith and could incur additional
losses associated with any related contingent liabilities. Our future growth is
dependent, in part, upon the demand for significant amounts of additional
electrical generating capacity and our ability to obtain contracts to supply
portions of this capacity. Any material unremedied delay in, or unsatisfactory
completion of, construction of our projects could, under certain circumstances,
have an adverse effect on our ability to meet our obligations, including the
payment of principal of, premium, if any, and interest on Debt trust securities.
We may also be faced with certain development uncertainties arising out of doing
business outside of the United States. See "We do a significant amount of our
business outside the United States which presents significant risks."
Our acquisitions may not perform as expected. We have achieved a majority
of our growth through acquisitions and expect that we will continue to grow, in
part, through acquisitions. Although each of the acquired businesses had a
significant operating history at the time we acquired them, we have a limited
history of owning and operating many of these businesses. In addition, most of
these businesses were government owned and some were operated as part of a
larger integrated utility prior to their acquisition. There can be no assurance
that we will be successful in transitioning these to private ownership, that
such businesses will perform as expected or that the returns from such
businesses will support the indebtedness incurred to acquire them or the capital
expenditures needed to develop them.
We may not be able to raise sufficient capital to fund future
acquisitions and projects. Each of our projects under development and those
independent power facilities we may seek to acquire may require substantial
capital investment. Continued access to capital with acceptable terms is
necessary to assure the
11
<PAGE>
success of future projects and acquisitions. We have utilized project financing
loans to fund the capital expenditures associated with constructing and
acquiring our electric power plants and related assets to the extent possible.
Project financing borrowings have been substantially non-recourse to our other
subsidiaries and affiliates and to us as the parent company and are generally
secured by the capital stock, physical assets, contracts and cash flow of the
related project subsidiary or affiliate. We intend to continue to seek, where
possible, such non-recourse project financing. However, depending on market
conditions and the unique characteristics of individual projects, such financing
may not be available or our traditional providers of project financing,
particularly multinational commercial banks, may seek higher borrowing spreads
and increased equity contributions.
Furthermore, because of the reluctance of commercial lending institutions
to provide non-recourse project financing (including financial guarantees) in
certain less developed economies, we have sought and will continue to seek, in
such locations, direct or indirect (through credit support or guarantees)
project financing from a limited number of multilateral or bilateral
international financial institutions or agencies. As a precondition to making
such project financing available, these institutions may also require
governmental guarantees of certain project and sovereign related risks.
Depending on the policies of specific governments, such guarantees may not be
offered and as a result, we may determine that sufficient financing will
ultimately not be available to fund the related project.
In addition to the project financing loans, if available, we provide a
portion, or in certain instances all, of the remaining long-term financing
required to fund development, construction, or acquisition. These investments
have generally taken the form of equity investments or loans, which are
subordinated to the project financing loans. The funds for these investments
have been provided by cash flows from operations and by the proceeds from
borrowings under our short-term credit facilities and issuances of senior
subordinated notes, convertible debentures and common stock.
Our ability to arrange for financing on either a fully recourse or a
substantially non-recourse basis and the costs of such capital are dependent on
numerous factors, including general economic and capital market conditions, the
availability of bank credit, investor confidence, the continued success of
current projects and provisions of tax and securities laws which are conducive
to raising capital in this manner. Should future access to capital not be
available, we may decide not to build new plants or acquire existing facilities.
While a decision not to build new plants or acquire existing facilities would
not affect the results of operations of our currently operating facilities or
facilities under construction, such a decision would affect our future growth.
Our performance is dependent to a large degree on certain of our larger
projects and their utility customers. The nature of most of our power projects
is such that each facility generally relies on one power sales contract with a
single customer for the majority, if not all, of its revenues over the life of
the power sales contract. The prolonged failure of any one utility customer to
fulfill its contractual obligations could have a substantial negative impact on
our primary source of revenues. We have sought to reduce this risk in part by
entering into power sales contracts with utilities or other customers of strong
credit quality and by locating its plants in different geographic areas in order
to mitigate the effects of regional economic downturns.
We are subject to significant government regulation. Our cogeneration
operations in the United States are subject to the provisions of various laws
and regulations, including the Public Utility Regulatory Policies Act of 1978,
as amended ("PURPA") and the Public Utility Holding Company Act, as amended
("PUHCA"). PURPA provides to qualifying facilities ("QFs") certain exemptions
from substantial federal and state legislation, including regulation as public
utilities. PUHCA regulates public utility holding companies and their
subsidiaries. We are not and will not be subject to regulation as a holding
company under PUHCA as long as the domestic power plants we own are QFs under
PURPA. QF status is conditioned on meeting certain criteria, and would be
jeopardized, for example, by the loss of a steam customer. We believe that, upon
the occurrence of an event that would threaten the QF status of one of our
domestic plants, we would be able to react in a manner that would avoid the loss
of QF status (such as by replacing
12
<PAGE>
the steam customer). In the event we were unable to avoid the loss of such
status for one of our plants, to avoid public utility holding company status, we
could apply to the Federal Energy Regulatory Commission ("FERC") to obtain
status as an Exempt Wholesale Generator ("EWG"), or could restructure the
ownership of the project subsidiary. EWGs, however, are subject to broader
regulation by FERC and may be subject to state public utility commissions
regulation regarding non-rate matters. In addition, any restructuring of a
project subsidiary could result in, among other things, a reduced financial
interest in such subsidiary, which could result in a gain or loss on the sale of
the interest in such subsidiary, the removal of such subsidiary from our
consolidated income tax group or our consolidated financial statements, or an
increase or decrease in our results of operations.
The United States Congress is considering proposed legislation which
would repeal PURPA entirely, or at least repeal the obligation of utilities to
purchase from QFs. There is strong support for grandfathering existing QF
contracts if such legislation is passed, and also support for requiring
utilities to conduct competitive bidding for new electric generation if the
PURPA purchase obligation is eliminated. Various bills have also proposed repeal
of PUHCA. Repeal of PUHCA would allow both independent power producers and
vertically integrated utilities to acquire retail utilities in the United States
that are geographically widespread, as opposed to the current limitations of
PUHCA which require that retail electric systems be capable of physical
integration. In addition, registered holding companies would be free to acquire
non-utility businesses, which they may not do now, with certain limited
exceptions. In the event of a PUHCA repeal, competition for independent power
generators from vertically integrated utilities would likely increase. Repeal of
PURPA andor PUHCA may or may not be part of comprehensive legislation to
restructure the electric utility industry, allow retail competition, and
deregulate most electric rates. The effect of any such repeal cannot be
predicted, although any such repeal could have a material adverse effect on us.
Pending electric utility industry restructuring proposals could have an
adverse effect on us. The FERC and many state utility commissions are currently
studying a number of proposals to restructure the electric utility industry in
the United States. Such restructuring would permit utility customers to choose
their utility supplier in a competitive electric energy market. The FERC issued
a final rule in April 1996 which requires utilities to offer wholesale customers
and suppliers open access on utility transmission lines, on a comparable basis
to the utilities' own use of the lines. The final rule is subject to rehearing
and may become the subject of court litigation. Many utilities have already
filed "open access" tariffs. The utilities contend that they should recover from
departing customers their fixed costs that will be "stranded" by the ability of
their wholesale customers (and perhaps eventually, their retail customers) to
choose new electric power suppliers. The FERC final rule endorses the recovery
of legitimate and verifiable "stranded costs." These may include the costs
utilities are required to pay under many QF contracts which the utilities view
as excessive when compared with current market prices. Many utilities are
therefore seeking ways to lower these contract prices or rescind the contracts
altogether, out of concern that their shareholders will be required to bear all
or part of such "stranded" costs. Some utilities have engaged in litigation
against QFs to achieve these ends.
In addition, future United States electric rates may be deregulated in a
restructured United States electric utility industry and increased competition
may result in lower rates and less profit for United States electricity sellers.
Falling electricity prices and uncertainty as to the future structure of the
industry is inhibiting United States utilities from entering into long-term
power purchase contracts. The effect on us of any such restructuring cannot be
predicted, although any such restructuring could have a material adverse effect
on us.
From time to time we are subject to material litigation and regulatory
proceedings. From time to time, we and our affiliates are parties to litigation
and regulatory proceedings. Investors should review the descriptions of such
matters contained in our Annual, Quarterly and Current Reports filed with the
Commission and incorporated by reference herein. There can be no assurances that
the outcome of such matters will not have a material adverse effect on our
consolidated financial position.
13
<PAGE>
Our business is subject to stringent environmental regulations. Our
activities are subject to stringent environmental regulation by federal, state,
local and foreign governmental authorities. For example, the United States Clean
Air Act Amendments of 1990 impose more stringent standards than those previously
in effect, and require states to impose permit fees on certain emissions.
Congress and other foreign governmental authorities also may consider proposals
to restrict or tax certain emissions. These proposals, if adopted, could impose
additional costs on the operation of our power plants. There can be no assurance
that we would be able to recover all or any increased costs from our customers
or that our business, financial condition or results of operations would not be
materially and adversely affected by future changes in domestic or foreign
environmental laws and regulations. We have made and will continue to make
capital and other expenditures to comply with environmental laws and
regulations. There can be no assurance that such expenditures will not have a
material adverse effect on our financial condition or results of operations.
Our directors and officers have significant ownership interests in us and
can exert significant influence or control over matters requiring stockholder
approval. As of February 2, 1999, our two founders, Roger W. Sant and Dennis W.
Bakke, and their immediate families together owned beneficially approximately
21.7% of our outstanding Common Stock. As a result of their ownership interests,
Messrs. Sant and Bakke may be able to significantly influence or exert control
over our affairs, including the election of our directors. As of February 2,
1999, all of our officers and directors and their immediate families together
owned beneficially approximately 29.1% of our outstanding Common Stock. To the
extent that they decide to vote together, these stockholders would be able to
significantly influence or control the election of our directors, our management
and policies and any action requiring stockholder approval, including
significant corporate transactions.
Our adherence to our "shared principles" could have an adverse impact on
our results of operations. A core part of our corporate culture is a commitment
to "shared principles": to act with integrity, to be fair, to have fun and to be
socially responsible. We seek to adhere to these principles not as a means to
achieve economic success, but because adherence is a worthwhile goal in and of
itself. However, if we perceive a conflict between these principles and profits,
we will try to adhere to our principles -- even though doing so might result in
diminished or foregone opportunities or financial benefits.
Shares eligible for future sale. From time to time, our subsidiaries
incur indebtedness that is secured by a pledge of shares of our common stock
held by that subsidiary. The sale of a substantial number of such shares in the
public market upon any foreclosure or otherwise could have an adverse effect on
the market price of our common stock.
Risk of fraudulent transfer. Various fraudulent conveyance laws have been
enacted for the protection of creditors and may be applied by a court on behalf
of any unpaid creditor or a representative of our creditors in a lawsuit to
subordinate or avoid the junior subordinated debentures in favor of our other
existing or future creditors. Under applicable provisions of the U.S. Bankruptcy
code or comparable provisions of state fraudulent transfer or conveyance laws,
if we at the time of issuance of junior subordinated debentures,
o incurred such indebtedness with intent to hinder, delay or defraud
any of our present or future creditors or contemplated insolvency
with a design to prefer one or more creditors to the exclusion in
whole or in part of others or
o received less than reasonably equivalent value or fair
consideration for issuing junior subordinated debentures and we
o were insolvent,
o were rendered insolvent by reason of the issuance of the junior
subordinated debentures,
o were engaged or about to engage in business or a transaction for
which our remaining assets constitute unreasonably small capital to
carry on our business or
o intended to incur, or believed that we would incur, debts beyond
our ability to pay such debts as they mature, then, in
14
<PAGE>
each case, a court of competent jurisdiction could void, in whole
or in part, the junior subordinated debentures.
Among other things, a legal challenge of the junior subordinated
debentures on fraudulent conveyance grounds may focus on the benefits, if any,
realized by us as a result of our issuance of the junior subordinated
debentures.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, we would be
considered insolvent if the sum of our debts, including contingent liabilities,
were greater than all of our assets at fair valuation or if the present fair
market value of our assets were less than the amount that would be required to
pay the probable liability on our existing debts, including contingent
liabilities, as they become absolute and mature. There can be no assurance that,
after providing for all prior claims, there will be sufficient assets to satisfy
the claims of the holders of the junior subordinated debentures.
Management believes that, for purposes of all such insolvency, bankruptcy
and fraudulent transfer or conveyance laws, the junior subordinated debentures
are being incurred without the intent to hinder, delay or defraud creditors and
for proper purposes and in good faith, and that we after the issuance of the
junior subordinated debentures will be solvent, will have sufficient capital for
carrying on our business and will be able to pay our debts as they mature. There
can be no assurance, however, that a court passing on such questions would agree
with management's view.
There is no prior public market for the securities that may be offered
pursuant to this prospectus -- as a result there could be significant price
volatility for such securities. Prior to the offering, there has been no public
market for the securities that may be offered pursuant to this prospectus. There
can be no assurance that an active trading market for any of these securities
will develop or be sustained. If such a market were to develop, such securities
could trade at prices that may be higher or lower than their initial offering
price depending upon many factors, including prevailing interest rates, our
operating results and the markets for similar securities. Historically, the
market for non-investment grade debt has demonstrated substantial volatility in
prices of securities similar to the securities offered pursuant to this
prospectus. There can be no assurance that the future market for these
securities will not be subject to similar volatility. Accordingly, no assurance
can be given as to the liquidity of the securities offered by this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at the
public reference rooms of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. You may obtain information
on the operation of the public reference rooms by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site at http:www.sec.gov,
from where you can access our filings. Our Internet address is
http:www.aesc.com.
This prospectus constitutes part of a Registration Statement on Form S-3
filed with the Commission under the Securities Act of 1933 (the "Securities
Act"). It omits some of the information contained in the Registration Statement,
and reference is made to the Registration Statement for further information on
our company and the securities offered hereby. Any statement contained in this
prospectus concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission is not necessarily
complete, and in each instance reference is made to the copy of the document
filed.
15
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities:
(a) Annual Report on Form 10-K for the year ended December 31,
1998;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1999;
(c) Current Reports on Form 8-K filed on March 18, 1999, April 12,
1999, April 20, 1999, June 8, 1999 and June 11, 1999.
You may request a copy of these filings at no cost, by writing or
telephoning the office of William R. Luraschi, General Counsel and Secretary,
The AES Corporation, 1001 North 19th Street, Arlington, Virginia, telephone
number (703) 522-1315.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about AES, including, among other things:
o changes in company-wide operation and plan availability compared to
our historical performance; changes in our historical operating cost
structure, including changes in various costs and expenses;
o political and economic considerations in certain non-U.S. countries
where we are conducting or seeking to conduct business;
o restrictions on foreign currency convertibility and remittance abroad,
exchange rate fluctuations and developing legal systems;
o regulation and restrictions;
o legislation intended to promote competition in U.S. and non-U.S.
electricity markets;
o tariffs;
o governmental approval processes;
o environmental matters;
o construction, operating and fuel risks;
o load growth, dispatch and transmission constraints;
o impact of the Year 2000 issue;
o conflict of interest of contacting parties; and
o adherence to our principles.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
16
<PAGE>
USE OF PROCEEDS
Unless otherwise indicated in a prospectus supplement, proceeds from the
sale of the securities will be used by the Company for general corporate
purposes and may be temporarily invested in short-term securities.
Each AES Trust will use all proceeds received from the sale of its Trust
Securities to purchase junior subordinated debt trust securities from us.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges is as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31
--------------------------------------------------------- ---------
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges ......... 2.10 2.20 1.88 1.46 1.65 1.61
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
minority interest, plus fixed charges, less capitalized interest, less excess of
earnings over dividends of less-than-fifty-percent-owned companies. Fixed
charges consist of interest (including capitalized interest) on all
indebtedness, amortization of debt discount and expense and that portion of
rental expense which we believe to be representative of an interest factor.
During the period from January 1, 1994 until March 31, 1999, no shares of
preferred stock were issued or outstanding, and during that period the Company
did not pay any preferred stock dividends.
THE COMPANY
We help to meet the world's needs by supplying electricity to customers
in many countries in a socially responsible way.
We have been successful in growing our business and serving additional
customers by participating in competitive bidding under privatization
initiatives. We have been particularly interested in acquiring existing
businesses or assets in electricity markets that are promoting competition and
eliminating rate of return regulation. In such privatizations, sellers generally
seek to complete competitive solicitations in less than one year, much quicker
than the time periods associated with greenfield development, and usually
require payment in full on transfer. We believe that our experience in
competitive markets and our worldwide integrated group structure, with our
significant geographic coverage and presence, enable us to react quickly and
creatively in these situations. Since 1994, our total generating capacity in
megawatts or MW has grown from 2,479 MW to 24,076 MW at March 31, 1999 (an
increase of 871%), with the total number of plants in operation increasing from
9 to 89. Additionally, our total revenues have increased at a compound annual
growth rate of 46% from $533 million in 1994 to $2,398 million in 1998, while
net income has increased at a compound annual growth rate of 33% from $100
million to $311 million over the same period.
A majority of our sales of electricity are made to customers (generally
electric utilities or regional electric companies), on a wholesale basis for
further resale to end users. This is referred to as the electricity "generation"
business. Sales by these generation companies are usually made under long-term
contracts from power plants owned by our subsidiaries and affiliates, although
we do, in certain circumstances, make sales into regional electricity markets
without contracts. Our ownership portfolio of power facilities includes new
plants constructed for such purposes, so-called greenfield plants, as well as
existing power plants acquired through competitively bid privatization
initiatives and negotiated acquisitions. In the electricity generation business,
we now own and operate
17
<PAGE>
(entirely or in part) a diverse portfolio of electric power plants (including
those within integrated distribution companies) with a total capacity of 24,076
MW. Of that total, 29% are fueled by coal or petroleum coke, 24% are fueled by
natural gas, 33% are hydroelectric facilities, 6% are fueled by oil, and the
remaining 8% are capable of using multiple fossil fuels.
THE AES TRUSTS
Each of AES Trust III, AES Trust IV and AES Trust V is a statutory
business trust formed, in the case of AES Trust III, on November 13, 1996, and
in the case of AES Trust IV and AES Trust V, on November 5, 1997, in each case
under the Delaware Business Trust Act (the "Business Trust Act") pursuant to a
separate declaration of trust among the Trustees (as defined herein) of that AES
Trust and us and the filing of a certificate of trust with the Secretary of
State of the State of Delaware. This declaration will be amended and restated in
its entirety (as so amended and restated, the "Declaration") substantially in
the form filed as an exhibit to the Registration Statement of which this
prospectus forms a part, as of the date the Preferred Securities of the AES
Trust are initially issued. Each Declaration will be qualified under the Trust
Indenture Act of 1939, (the "Trust Indenture Act").
This description summarizes the material terms of the Declarations and is
qualified in its entirety by reference to the form of Declaration, which has
been filed as an exhibit to the Registration Statement of which this prospectus
is a part, and the Trust Indenture Act.
TRUST SECURITIES
Upon issuance of any preferred securities by an AES Trust, the holders
thereof will own all of the issued and outstanding preferred securities of that
AES Trust. We will acquire securities representing common undivided beneficial
interests in the assets of each AES Trust (the "common securities" and, together
with the preferred securities, the "Trust Securities") in an amount equal to at
least 3% of the total capital of that AES Trust and will own, directly or
indirectly, all of the issued and outstanding common securities of each AES
Trust. The preferred securities and the common securities will rank pari passu
with each other and will have equivalent terms; provided that
o if a Declaration Event of Default (as defined herein under "--Events
of Default") under the Declaration of an AES Trust occurs and is
continuing, the holders of preferred securities of that AES Trust will
have a priority over holders of the common securities of that AES
Trust with respect to payments in respect of distributions and
payments upon liquidation, redemption and maturity and
o holders of common securities have the exclusive right (subject to the
terms of the Declaration) to appoint, remove or replace the trustees
and to increase or decrease the number of trustees.
Each AES Trust exists for the purpose of
o issuing its preferred securities,
o issuing its common securities to AES,
o investing the gross proceeds from the sale of the Trust Securities in
junior subordinated debt trust securities of AES and
o engaging in only such other activities as are necessary, convenient or
incidental thereto. The rights of the holders of the preferred
securities, including economic rights, rights to information and
voting rights, are set forth in the applicable Declaration, the
Business Trust Act and the Trust Indenture Act.
POWERS AND DUTIES OF TRUSTEES
The number of trustees of each AES Trust shall initially be five. Three
of these Trustees (the "Regulator Trustees") are individuals who are employees
or officers of AES. The fourth trustee will be The First National Bank of
Chicago, which is unaffiliated with AES and which will serve as the property
trustee (the "Property Trustee") and act as the indenture trustee for purposes
of the Trust Indenture Act. The fifth trustee is First Chicago Delaware Inc.
that has its principal place of business in the State of Delaware (the "Delaware
Trustee"). Pursuant to each Declaration, legal title to the junior subordinated
debt trust securities purchased by an AES Trust will be held by the
18
<PAGE>
Property Trustee for the benefit of the holders of the Trust Securities of such
AES Trust, and the Property Trustee will have the power to exercise all rights,
powers and privileges under the Indenture (as defined under "Description of the
Junior Subordinated Debt Trust Securities") with respect to the junior
subordinated debt trust securities. In addition, the Property Trustee will
maintain exclusive control of a segregated non-interest bearing bank account
(the "Property Account") to hold all payments in respect of the junior
subordinated debt trust securities purchased by an AES Trust for the benefit of
the holders of Trust Securities. The Property Trustee will promptly make
distributions to the holders of the Trust Securities out of funds from the
Property Account. The preferred securities guarantees are separately qualified
under the Trust Indenture Act and will be held by The First National Bank of
Chicago, acting in its capacity as indenture trustee with respect thereto, for
the benefit of the holders of the applicable preferred securities. As used in
this prospectus and any accompanying prospectus supplement, the term "Property
Trustee" with respect to an AES Trust refers to The First National Bank of
Chicago acting either in its capacity as a trustee under the relevant
Declaration and the holder of legal title to the junior subordinated debt trust
securities purchased by that trust or in its capacity as indenture trustee
under, and the holder of, the applicable preferred securities guarantee, as the
context may require. AES, as the direct or indirect owner of all of the common
securities of each AES Trust, will have the exclusive right (subject to the
terms of the related Declaration) to appoint, remove or replace Trustees and to
increase or decrease the number of trustees, provided that the number of
trustees shall be, except under certain circumstances, at least five and the
majority of trustees shall be Regular Trustees. The terms of the AES Trusts will
be set forth in the prospectus supplement, but may terminate earlier as provided
in such Declaration.
The duties and obligations of the Trustees of an AES Trust shall be
governed by the Declaration of that AES Trust, the Business Trust Act and the
Trust Indenture Act. Under its Declaration, each AES Trust shall not, and the
Trustees shall cause such AES Trust not to, engage in any activity other than in
connection with the purposes of that AES Trust or other than as required or
authorized by the related Declaration. In particular, each AES Trust shall not
and the Trustees shall cause each AES Trust not to
o invest any proceeds received by that AES Trust from holding the junior
subordinated debt trust securities purchased by that AES Trust but
shall promptly distribute from the Property Account all such proceeds
to holders of Trust Securities pursuant to the terms of the related
Declaration and of the Trust Securities;
o acquire any assets other than as expressly provided in the related
Declaration;
o possess Trust property for other than a Trust purpose;
o make any loans, other than loans represented by the junior
subordinated debt trust securities;
o possess any power or otherwise act in such a way as to vary the assets
of such AES Trust or the terms of its Trust Securities in any way
whatsoever;
o issue any securities or other evidences of beneficial ownership of, or
beneficial interests in, such AES Trust other than its Trust
Securities;
o incur any indebtedness for borrowed money or
o or
-- direct the time, method and place of exercising any trust or
power conferred upon the Indenture Trustee (as defined under
"Description of the Junior Subordinated Debt Trust
Securities") with respect to the junior subordinated debt
trust securities deposited in that AES Trust as trust assets
or upon the Property Trustee of that AES Trust with respect
to its preferred securities,
-- waive any past default that is waivable under the Indenture
or the Declaration,
-- exercise any right to rescind or annul any declaration that
the principal of all of the junior subordinated debt trust
securities deposited in that AES Trust as trust assets shall
be due and payable or
19
<PAGE>
-- consent to any amendment, modification or termination of the
Indenture or such junior subordinated debt trust securities,
in each case where such consent shall be required, unless in
the case described in this bullet point the Property Trustee
shall have received an unqualified opinion of nationally
recognized independent tax counsel recognized as expert in
such matters to the effect that such action will not cause
such AES Trust to be classified for United States federal
income tax purposes as an association taxable as a
corporation or a partnership and that such AES Trust will
continue to be classified as a grantor trust for United
States federal income tax purposes.
BOOKS AND RECORDS
The books and records of each AES Trust will be maintained at the
principal office of such AES Trust and will be open for inspection by a holder
of preferred securities of that AES Trust or his representative for any purpose
reasonably related to his interest in such AES Trust during normal business
hours. Each holder of preferred securities will be furnished annually with
unaudited financial statements of the applicable AES Trust as soon as available
after the end of such AES Trust's fiscal year.
VOTING
Holders of preferred securities will have limited voting rights, but will
not be able to appoint, remove or replace, or to increase or decrease the number
of, Trustees, which rights are vested exclusively in the common securities.
THE PROPERTY TRUSTEE
The Property Trustee, for the benefit of the holders of the Trust
Securities of an AES Trust, is authorized under each Declaration to exercise all
rights under the Indenture with respect to the junior subordinated debt trust
securities deposited in that AES Trust as trust assets, including its rights as
the holder of those junior subordinated debt trust securities to enforce our
obligations under the junior subordinated debt trust securities upon the
occurrence of an Indenture Event of Default (as defined herein under
"Description of the Junior Subordinated Debt Trust Securities--Indenture Events
of Default"). The Property Trustee shall also be authorized to enforce the
rights of holders of preferred securities of an AES Trust under the related
preferred securities guarantee. If any AES Trust's failure to make distributions
on the preferred securities of an AES Trust is a consequence of our exercise of
any right under the terms of the junior subordinated debt trust securities
deposited in that AES Trust as trust assets to extend the interest payment
period for those junior subordinated debt trust securities, the Property Trustee
will have no right to enforce the payment of distributions on those preferred
securities until a Declaration Event of Default shall have occurred.
Holders of at least a majority in liquidation amount of the preferred
securities held by an AES Trust will have the right to direct the Property
Trustee for that AES Trust with respect to certain matters under the Declaration
for that AES Trust and the related preferred securities guarantee. If the
Property Trustee fails to enforce its rights under the Indenture or fails to
enforce the preferred securities guarantee, to the extent permitted by
applicable law, any holder of preferred securities may, after a period of 30
days has elapsed from such Holder's written request to the Property Trustee to
enforce such rights, institute a legal proceeding against us to enforce such
rights or the preferred securities guarantee, as the case may be. In addition,
the holders of at least 25% in aggregate liquidation preference of the
outstanding preferred securities would have the right to directly institute
proceedings for enforcement of payments to such holders of principal of, or
premium, if any, or interest on the junior subordinated debt trust securities
having a principal amount equal to the aggregate liquidation preference of the
preferred securities of such holders (a "Direct Action"). In connection with
such Direct Action, we will be subrogated to the rights of that holder of
preferred securities under the Declaration to the extent of any payment made by
us to that holder of preferred securities in the Direct Action. Notwithstanding
the foregoing, if an Event of Default under the applicable Declaration has
occurred and is continuing and such event is attributable to the failure of us
to pay interest or principal on the applicable series of junior subordinated
debt trust securities on the date such interest or principal is otherwise
payable (or
20
<PAGE>
in the case of redemption, on the redemption date), then a holder of preferred
securities of that AES Trust may directly institute a proceeding for enforcement
of payment to that holder of the principal of or interest on the applicable
series of junior subordinated debt trust securities having a principal amount
equal to the aggregate liquidation amount of the preferred securities of that
holder (a "Holder Direct Action") on or after the respective due date specified
in the applicable series of junior subordinated debt trust securities. In
connection with that Holder Direct Action, we will be subrogated to the rights
of that holder of preferred securities under the applicable Declaration to the
extent of any payment made by us to that holder of preferred securities in the
Holder Direct Action.
DISTRIBUTIONS
Pursuant to each Declaration, distributions on the preferred securities
of an AES Trust must be paid on the dates payable to the extent that the
Property Trustee for that AES Trust has cash on hand in the applicable Property
Account to permit the payment. The funds available for distribution to the
holders of the preferred securities of an AES Trust will be limited to payments
received by the Property Trustee in respect of the junior subordinated debt
trust securities that are deposited in the AES Trust as trust assets. If we do
not make interest payments on the junior subordinated debt trust securities
deposited in an AES Trust as trust assets, the Property Trustee will not make
distributions on the preferred securities of that AES Trust. Under the
Declaration, if and to the extent we make interest payments on the junior
subordinated debt trust securities deposited in an AES Trust as trust assets,
the Property Trustee is obligated to make distributions on the Trust Securities
of that AES Trust on a Pro Rata Basis (as defined below). The payment of
distributions on the preferred securities of an AES Trust is guaranteed by AES
on a subordinated basis as and to the extent set forth under "Description of the
Preferred Securities Guarantee." A preferred securities guarantee is a guarantee
from the time of issuance of the applicable preferred securities, but the
preferred securities guarantee covers distributions and other payments on the
applicable preferred securities only if and to the extent that we have made a
payment to the Property Trustee of interest or principal on the junior
subordinated debt trust securities deposited in the AES Trust as trust assets.
As used in this prospectus, the term "Pro Rata Basis" shall mean pro rata to
each holder of Trust Securities of an AES Trust according to the aggregate
liquidation amount of the Trust Securities of that AES Trust held by the
relevant holder in relation to the aggregate liquidation amount of all Trust
Securities of that AES Trust outstanding unless, in relation to a payment, a
Declaration Event of Default under the Declaration has occurred and is
continuing, in which case any funds available to make the payment shall be paid
first to each holder of the preferred securities of that AES Trust pro rata
according to the aggregate liquidation amount of the preferred securities held
by the relevant holder in relation to the aggregate liquidation amount of all
the preferred securities of that AES Trust outstanding, and only after
satisfaction of all amounts owed to the holders of such preferred securities, to
each holder of common securities of that AES Trust pro rata according to the
aggregate liquidation amount of those common securities held by the relevant
holder in relation to the aggregate liquidation amount of all common securities
of that AES Trust outstanding.
EVENTS OF DEFAULT
If an Indenture Event of Default occurs and is continuing with respect to
junior subordinated debt trust securities deposited in an AES Trust as trust
assets, an Event of Default under the Declaration (a "Declaration Event of
Default") of that AES Trust will occur and be continuing with respect to any
outstanding Trust Securities of that AES Trust. In such event, each Declaration
provides that the holders of common securities of that AES Trust will be deemed
to have waived any Declaration Event of Default with respect to the common
securities until all Declaration Events of Default with respect to the preferred
securities of that AES Trust have been cured or waived. Until all Declaration
Events of Default with respect to the preferred securities of that AES Trust
have been so cured or waived, the Property Trustee will be deemed to be acting
solely on behalf of the holders of the preferred securities of that AES Trust
and only the holders of such preferred securities will have the right to direct
the Property Trustee with respect to certain matters under such Declaration and
consequently under the Indenture. In the event
21
<PAGE>
that any Declaration Event of Default with respect to the preferred securities
of such AES Trust is waived by the holders of the preferred securities of that
AES Trust as provided in the Declaration, the holders of common securities
pursuant to the Declaration have agreed that the waiver also constitutes a
waiver of the Declaration Event of Default with respect to the common securities
for all purposes under the Declaration without any further act, vote or consent
of the holders of the common securities.
RECORD HOLDERS
Each Declaration provides that the trustees of an AES Trust may treat the
person in whose name a certificate representing its preferred securities is
registered on the books and records of an AES Trust as the sole holder thereof
and of the preferred securities represented thereby for purposes of receiving
distributions and for all other purposes and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such certificate or in
the preferred securities represented thereby on the part of any person, whether
or not that AES Trust shall have actual or other notice thereof. Preferred
securities will be issued in fully registered form. Unless otherwise specified
in a prospectus supplement, preferred securities will be represented by a global
certificate registered on the books and records of such AES Trust in the name of
a depositary named in an accompanying prospectus supplement or its nominee.
Under each Declaration:
o that AES Trust and the trustees thereof shall be entitled to deal with
the depositary (or any successor depositary) for all purposes,
including the payment of distributions and receiving approvals, votes
or consents under the related Declaration, and except as set forth in
the related Declaration with respect to the Property Trustee, shall
have no obligation to persons owning a beneficial interest in
preferred securities ("Preferred Security Beneficial Owners")
registered in the name of and held by the depositary or its nominee;
and
o the rights of Preferred Security Beneficial Owners shall be exercised
only through the depositary (or any successor depositary) and shall be
limited to those established by law and agreements between those
Preferred Security Beneficial Owners and the depositary andor its
participants. With respect to preferred securities registered in the
name of and held by the depositary or its nominee, all notices and
other communications required under each Declaration shall be given
to, and all distributions on those preferred securities shall be given
or made to, the depositary (or its successor).
The specific terms of the depositary arrangement with respect to the
preferred securities will be disclosed in the applicable prospectus supplement.
DEBTS AND OBLIGATIONS
In each Declaration, we have agreed to pay for all debts and obligations
(other than with respect to the Trust Securities) and all costs and expenses of
the applicable AES Trust, including the fees and expenses of its trustees and
any taxes and all costs and expenses with respect thereto, to which that AES
Trust may become subject, except for United States withholding taxes. The
foregoing obligations under each Declaration are for the benefit of, and shall
be enforceable by, any person to whom any such debts, obligations, costs,
expenses and taxes are owed (a "Creditor") whether or not that Creditor has
received notice thereof. Any Creditor may enforce these obligations of ours
directly against us and we have irrevocably waived any right or remedy to
require that any Creditor take any action against any AES Trust or any other
person before proceeding against AES. We have agreed in each Declaration to
execute additional agreements as may be necessary or desirable in order to give
full effect to the foregoing.
22
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
Each AES Trust may issue, from time to time, only one series of preferred
securities having terms described in the prospectus supplement relating thereto.
The Declaration of each AES Trust authorizes the Regular Trustees of that AES
Trust to issue on behalf of that AES Trust one series of preferred securities.
Each Declaration will be qualified as an indenture under the Trust Indenture
Act. The preferred securities will have terms, including distributions,
redemption, voting, liquidation rights and such other preferred, deferred or
other special rights or restrictions as shall be set forth in the related
Declaration or made part of that Declaration by the Trust Indenture Act.
Reference is made to the prospectus supplement relating to the preferred
securities of an AES Trust for specific terms, including
o the specific designation of the preferred securities,
o the number of preferred securities issued by the AES Trust,
o the annual distribution rate (or method of calculation thereof) for
preferred securities issued by such AES Trust, the date or dates upon
which such distributions shall be payable and the record date or dates
for the payment of such distributions,
o whether distributions on preferred securities issued by the AES Trust
shall be cumulative, and, in the case of preferred securities having
cumulative distribution rights, the date or dates or method of
determining the date or dates from which distribution on preferred
securities issued by that AES Trust shall be cumulative,
o the amount or amounts which shall be paid out of the assets of the AES
Trust to the holders of preferred securities of that AES Trust upon
voluntary or involuntary dissolution, winding-up or termination of
that AES Trust,
o the obligation or right, if any, of the AES Trust to purchase or
redeem preferred securities issued by that AES Trust and the price or
prices at which, the period or periods within which and the terms and
conditions upon which preferred securities issued by the AES Trust
shall or may be purchased or redeemed, in whole or in part, pursuant
to that obligation or right,
o the voting rights, if any, of preferred securities issued by the AES
Trust in addition to those required by law, including the number of
votes per Preferred Security and any requirement for the approval by
the holders of preferred securities, or of preferred securities issued
by one or more AES Trusts, or of both, as a condition to specified
actions or amendments to the Declaration of that AES Trust,
o terms for any conversion or exchange into other securities and
o any other relevant rights, preferences, privileges, limitations or
restrictions of preferred securities issued by the AES Trust
consistent with the Declaration of that AES Trust or with applicable
law.
All preferred securities offered hereby will be guaranteed by us as and
to the extent set forth below under "Description of the Preferred Securities
Guarantees." Certain United States federal income tax considerations applicable
to any offering of preferred securities will be described in the prospectus
supplement relating thereto.
In connection with the issuance of preferred securities, each AES Trust
will issue one series of common securities. The Declaration of each AES Trust
authorizes the Regular Trustees of that trust to issue on behalf of that AES
Trust one series of common securities having such terms including distributions,
redemption, voting, liquidation rights or such restrictions as shall be set
forth therein. The terms of the common securities issued by an AES Trust will be
substantially identical to the terms of the preferred securities issued by that
AES Trust and the common securities will rank pari passu, and payments will be
made thereon on a Pro Rata Basis with the preferred securities except that if a
Declaration Event of Default occurs and is continuing, the rights of the holders
of such common securities to payment in respect of distributions and payments
upon liquidation, redemption and maturity will be subordinated to
23
<PAGE>
the rights of the holders of those preferred securities. Except in certain
limited circumstances, the common securities issued by an AES Trust will also
carry the right to vote and to appoint, remove or replace any of the trustees of
that AES Trust. All of the common securities of an AES Trust will be directly or
indirectly owned by AES.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Below is a summary of information concerning the preferred securities
guarantees that will be executed and delivered by us for the benefit of the
holders from time to time of preferred securities. Each preferred security
guarantee will be separately qualified under the Trust Indenture Act and will be
held by The First National Bank of Chicago (or such other trustee as may be
designated by the Company), acting in its capacity as indenture trustee with
respect thereto, for the benefit of holders of the preferred securities of the
applicable AES Trust. The terms of each preferred securities guarantee will be
those set forth in each preferred securities guarantee and those made part of
that guarantee by the Trust Indenture Act. This description summarizes the
material terms of the preferred securities guarantees and is qualified in its
entirety by reference to the form of preferred securities guarantee, which is
filed as an exhibit to the registration statement of which this prospectus forms
a part, and the Trust Indenture Act. Section and Article references used herein
are references to the provisions of the form of preferred securities guarantee.
GENERAL
Pursuant to each preferred securities guarantee, we will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full, to the
holders of the preferred securities issued by an AES Trust, the Guarantee
Payments (as defined herein) (without duplication of amounts theretofore paid by
that AES Trust), to the extent not paid by that AES Trust, regardless of any
defense, right of set-off or counterclaim that the AES Trust may have or assert.
The following payments or distributions with respect to preferred securities
issued by an AES Trust to the extent not paid or made by that AES Trust (the
"Guarantee Payments"), will be subject to the preferred securities guarantee
(without duplication):
o any accrued and unpaid distributions on those preferred securities,
and the redemption price, including all accrued and unpaid
distributions to the date of redemption, with respect to any preferred
securities called for redemption by that AES Trust but if and only to
the extent that in each case we have made a payment to the related
Property Trustee of interest or principal on the junior subordinated
debt trust securities deposited in that AES Trust as trust assets and
o upon a voluntary or involuntary dissolution, winding-up or termination
of that AES Trust (other than in connection with the distribution of
that junior subordinated debt trust securities to the holders of
preferred securities or the redemption of all of the preferred
securities upon the maturity or redemption of such junior subordinated
debt trust securities) the lesser of
o the aggregate of the liquidation amount and all accrued and unpaid
distributions on that preferred securities to the date of payment,
to the extent that AES Trust has funds available therefor or
o the amount of assets of that AES Trust remaining available for
distribution to holders of such Preferred Securities in liquidation
of that AES Trust.
Our obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by us to the holders of preferred securities or
by causing the applicable AES Trust to pay those amounts to those holders.
The preferred securities guarantee is a guarantee from the time of
issuance of the applicable preferred securities, but the preferred securities
guarantee covers distributions and other payments on those preferred securities
only if and to the extent that we have made a payment to the Property Trustee of
interest or principal on the junior subordinated debt trust securities deposited
in the applicable AES Trust as trust assets. If we do not make interest or
24
<PAGE>
principal payments on the junior subordinated debt trust securities deposited in
the applicable AES Trust as trust assets, the Property Trustee will not make
distributions of the preferred securities of that AES Trust and the AES Trust
will not have funds available therefor.
Our obligations under the Declaration for each Trust, the preferred
securities guarantee issued with respect to preferred securities issued by that
Trust, the junior subordinated debt trust securities purchased by that Trust and
the related Indenture (as defined below) in the aggregate will provide a full
and unconditional guarantee on a subordinated basis by us of payments due on the
preferred securities issued by that Trust.
CERTAIN COVENANTS OF AES
In each preferred securities guarantee, we will covenant that, so long as
any preferred securities issued by the applicable AES Trust remain outstanding,
we will not
o declare or pay any dividends on, or redeem, purchase, acquire or make
a distribution or liquidation payment with respect to, any of our
common stock or preferred stock or make any guarantee payment with
respect thereto or
o make any payment of interest, premium (if any) or principal on any
debt trust securities issued by us which rank pari passu with or
junior to the junior subordinated debt trust securities, if at such
time
o we are in default with respect to our Guarantee Payments or other
payment obligations under the preferred securities guarantee,
o there shall have occurred any Declaration Event of Default under the
related Declaration or
o in the event that junior subordinated debt trust securities are issued
to an AES Trust in connection with the issuance of Trust Securities by
that AES Trust, we shall have given notice of our election to defer
payments of interest on these junior subordinated debt trust
securities by extending the interest payment period as provided in the
terms of the junior subordinated debt trust securities and such
period, or any extension thereof, is continuing: provided that
-- we will be permitted to pay accrued dividends (and
cash in lieu of fractional shares) upon the
conversion of Preferred Stock as may be outstanding
from time to time, in each case in accordance with
the terms of such stock and
-- the foregoing will not apply to stock dividends paid
by us.
In addition, so long as any preferred securities remain outstanding, we
have agreed
o to remain the sole direct or indirect owner of all of the outstanding
common securities issued by the applicable AES Trust and shall not
cause or permit the common securities to be transferred except to the
extent permitted by the related Declaration; provided that any
permitted successor of ours under the Indenture may succeed to our
ownership of the common securities issued by the applicable AES Trust
and
o to use reasonable efforts to cause that AES Trust to continue to be
treated as a grantor trust for United States federal income tax
purposes except in connection with a distribution of junior
subordinated debt trust securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the
rights of holders of preferred securities (in which case no consent will be
required), each preferred securities guarantee may be amended only with the
prior approval of the holders of not less than 66 23% in liquidation amount of
the outstanding preferred securities issued by the applicable AES Trust. The
manner of obtaining an approval of holders of the preferred securities will be
described in an accompanying prospectus supplement. All guarantees and
agreements contained in a preferred securities guarantee shall bind the
successors, assignees, receivers, trustees and representatives of AES and shall
inure to the benefit of the holders of the preferred securities of the
applicable AES Trust
25
<PAGE>
then outstanding. Except in connection with a consolidation, merger or sale
involving AES that is permitted under the Indenture, we may not assign its
obligations under any preferred securities guarantee.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEES
Each preferred securities guarantee will terminate and be of no further
force and effect as to the preferred securities issued by the applicable AES
Trust upon full payment of the redemption price of all preferred securities of
that AES Trust, or upon distribution of the junior subordinated debt trust
securities to the holders of the preferred securities of that AES Trust in
exchange for all of the preferred securities issued by that AES Trust, or upon
full payment of the amounts payable upon liquidation of that AES Trust.
Notwithstanding the foregoing, each preferred securities guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
holder of preferred securities issued by the applicable AES Trust must restore
payment of any sums paid under such preferred securities or such guarantee.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
Our obligations under each preferred securities guarantee to make the
Guarantee Payments will constitute an unsecured obligation of ours and will rank
o subordinate and junior in right of payment to all of our other
liabilities, including the junior subordinated debt trust securities,
except those made pari passu or subordinate by their terms, and
o senior to all capital stock now or hereafter issued by us and to any
guarantee nor or hereafter entered into by us in respect of any of our
capital stock. Our obligations under each preferred securities
guarantee will rank pari passu with each other preferred securities
guarantee. Because we are a holding company, our obligations under
each preferred securities guarantee are also effectively subordinated
to all existing and future liabilities, including trade payables, of
our subsidiaries, except to the extent that we are a creditor of the
subsidiaries recognized as such. Each Declaration provides that each
holder of preferred securities issued by the applicable AES Trust by
acceptance thereof agrees to the subordination provisions and other
terms of the related preferred securities guarantee.
Each preferred securities guarantee will constitute a guarantee of
payment and not of collection (that is, the guaranteed party may institute a
legal proceeding directly against the guarantor to enforce its rights under the
guarantee without first instituting a legal proceeding against any other person
or entity). Each preferred securities guarantee will be deposited with The First
National Bank of Chicago, as indenture trustee, to be held for the benefit of
the holders of the preferred securities issued by the applicable AES Trust. The
First National Bank of Chicago shall enforce the preferred securities guarantee
on behalf of the holders of the preferred securities issued by the applicable
AES Trust. The holders of not less than a majority in aggregate liquidation
amount of the preferred securities issued by the applicable AES Trust have the
right to direct the time, method and place of conducting any proceeding for any
remedy available in respect of the related preferred securities guarantee,
including the giving of directions to The First National Bank of Chicago . If
The First National Bank of Chicago fails to enforce such preferred securities
guarantee as above provided, any holder of preferred securities issued by the
applicable AES Trust may institute a legal proceeding directly against us to
enforce its rights under such preferred securities guarantee, without first
instituting a legal proceeding against the applicable AES Trust or any other
person or entity. Notwithstanding the foregoing, if we have failed to make a
guarantee payment, a holder of preferred securities may directly institute a
proceeding against us for enforcement of the preferred securities guarantee for
that payment.
26
<PAGE>
MISCELLANEOUS
We will be required to provide annually to The First National Bank of
Chicago a statement as to the performance by us of certain of our obligations
under the preferred securities guarantees and as to any default in such
performance. We are required to file annually with The First National Bank of
Chicago an officer's certificate as to our compliance with all conditions under
the preferred securities guarantees.
The First National Bank of Chicago, prior to the occurrence of a default,
undertakes to perform only those duties as are specifically set forth in the
applicable preferred securities guarantee and, after default with respect to a
preferred securities guarantee, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provision, The First National Bank of Chicago is under no
obligation to exercise any of the powers vested in it by a preferred securities
guarantee at the request of any holder of preferred securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
GOVERNING LAW
The Guarantees will be governed by, and construed in accordance with, the
laws of the State of New York.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBT TRUST SECURITIES
Junior subordinated debt trust securities may be issued from time to time
in one or more series under an Indenture (the "Indenture") between us and The
First National Bank of Chicago, as trustee (the "Indenture Trustee"). The form
of junior subordinated debt trust securities indenture has been filed as an
exhibit to the Registration Statement of which this prospectus forms a part. The
following description summarizes the material terms of the Indenture, and is
qualified in its entirety by reference to the Indenture and the Trust Indenture
Act. Whenever particular provisions or defined terms in the Indenture are
referred to in this prospectus, those provisions or defined terms are
incorporated by reference in this prospectus. Section and article references are
references to provisions of the Indenture.
GENERAL
The junior subordinated debt trust securities will be unsecured, junior
subordinated obligation of AES. The Indenture does not limit the amount of
additional indebtedness we or any of our subsidiaries may incur. Since we are a
holding company, our rights and the rights of our creditors, including the
holders of junior subordinated debt trust securities, to participate in the
assets of any subsidiary upon the latter's liquidation or recapitalization will
be subject to the prior claims of the subsidiary's creditors, except to the
extent that we may ourselves be a creditor with recognized claims against the
subsidiary.
The Indenture does not limit the aggregate principal amount of
indebtedness which may be issued thereunder and provides that junior
subordinated debt trust securities may be issued thereunder from time to time in
one or more series. The junior subordinated debt trust securities are issuable
in one or more series pursuant to an indenture supplemental to the Indenture.
In the event junior subordinated debt trust securities are issued to an
AES Trust or a Trustee of such trust in connection with the issuance of Trust
Securities by that AES Trust, those junior subordinated debt trust securities
subsequently may be distributed pro rata to the holders of these Trust
Securities in connection with the dissolution of such AES Trust upon the
occurrence of certain events described in the prospectus supplement relating to
such Trust Securities. Only one series of junior subordinated debt trust
securities will be issued to an AES Trust or a trustee of such trust in
connection with the issuance of Trust Securities by such AES Trust.
Reference is made to the prospectus supplement which will accompany this
prospectus for the following terms of the series of junior subordinated debt
trust securities being offered thereby (to the extent such terms are applicable
to the junior subordinated debt trust securities):
o the specific designation of the junior subordinated debt trust
securities,
27
<PAGE>
aggregate principal amount, purchase price and premium, if any;
o any limit on the aggregate principal amount of the junior subordinated
debt trust securities;
o the date or dates on which the principal of the junior subordinated
debt trust securities is payable and the right, to extend or defer
such date or dates;
o the rate or rates at which the junior subordinated debt trust
securities will bear interest or the method of calculating such rate
or rates, if any;
o the date or dates from which interest shall accrue, the interest
payment dates on which interest will be payable or the manner of
determination of the interest payment dates and the record dates for
the determination of holders to whom interest is payable on any
interest payment dates;
o the right, if any, to extend the interest payment periods and the
duration of the extension;
o the period or periods within which, the price or prices at which, and
the terms and conditions upon which, the junior subordinated debt
trust securities may be redeemed, in whole or in part, at the option
of AES;
o our obligation, if any, to redeem or purchase junior subordinated debt
trust securities pursuant to any sinking fund or analogous provisions
or at the option of the holder thereof and the period or periods for
which, the price or prices at which, and the terms and conditions upon
which, the junior subordinated debt trust securities shall be redeemed
or purchased, in whole or part, pursuant to that obligation;
o any exchangeability, conversion or prepayment provisions of the junior
subordinated debt trust securities;
o any applicable United States federal income tax consequences,
including whether and under what circumstances we will pay additional
amounts on the junior subordinated debt trust securities held by a
person who is not a U.S. person in respect of any tax, assessment or
governmental charge withheld or deducted and, if so, whether we will
have the option to redeem those junior subordinated debt trust
securities rather than pay these additional amounts;
o the form of the junior subordinated debt trust securities;
o if other than denominations of $25 or any integral multiple thereof,
the denominations in which the junior subordinated debt trust
securities shall be issuable;
o any and all other terms with respect to that series, including any
modification of or additions to the events of default or covenants
provided for with respect to such series, including any modification
of or additions to the events of default or covenants provided for
with respect to the junior subordinated debt trust securities, and any
terms which may be required by or advisable under applicable laws or
regulations not inconsistent with the Indenture; and
o whether the junior subordinated debt trust securities are issuable as
a global security, and in such case, the identity of the depositary.
Unless otherwise indicated in the prospectus supplement relating thereto,
the junior subordinated debt trust securities will be issued in United States
dollars in fully registered form without coupons in denominations of $25 or
integral multiples thereof. Junior subordinated debt trust securities may be
presented for exchange and junior subordinated debt trust securities in
registered form may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the junior subordinated debt trust
securities and the prospectus supplement. These services will be provided
without charge, other than any tax or other governmental charge payable in
connection therewith, but subject to the limitations provided in the junior
subordinated debt trust securities. Junior subordinated debt trust securities in
bearer form and the coupons, if any, appertaining thereto will be transferable
by delivery.
Junior subordinated debt trust securities may bear interest at a fixed
rate or a floating rate.
28
<PAGE>
Junior subordinated debt trust securities bearing no interest or interest at a
rate that at the time of issuance is below the prevailing market rate will be
sold at a discount below their stated principal amount. Special United States
federal income tax considerations applicable to any discounted junior
subordinated debt trust securities or to certain junior subordinated debt trust
securities issued at par which are treated as having been issued at a discount
for United States federal income tax purposes will be described in the relevant
prospectus supplement.
CERTAIN COVENANTS OF AES APPLICABLE TO
THE JUNIOR SUBORDINATED DEBT TRUST SECURITIES
If junior subordinated debt trust securities are issued to an AES Trust
in connection with the issuance of Trust Securities by that AES Trust, we will
covenant in the Indenture that, so long as the preferred securities issued by
the applicable AES Trust remain outstanding, we will not declare or pay any
dividends on, or redeem, purchase, acquire or make a distribution or liquidation
payment with respect to, any of its common stock or preferred stock or make any
guarantee payment with respect to, any of its common stock or preferred stock or
make any guarantee payment with respect thereto if at that time
o we are in default with respect to our Guarantee Payments or other
payment obligations under the related preferred securities guarantee,
o there shall have occurred any Indenture Event of Default with respect
to the junior subordinated debt trust securities or
o in the event that junior subordinated debt trust securities are issued
to an AES Trust in connection with the issuance of Trust Securities by
that AES Trust, we shall have given notice of our election to defer
payments of interest on those junior subordinated debt trust
securities by extending the interest payment period as provided in the
terms of those junior subordinated debt trust securities and that
period, or any extension thereof, is continuing; provided that
o we will be permitted to pay accrued dividends (and cash in lieu of
fractional shares) upon the conversion of any of our preferred stock
as may be outstanding from time to time, in each case in accordance
with the terms of such stock and
o the foregoing will not apply to any stock dividends paid by us.
In addition, if junior subordinated debt trust securities are issued to
an AES Trust in connection with the issuance of Trust Securities by that AES
Trust, for so long as the preferred securities issued by the applicable AES
Trust remain outstanding, we have agreed
o to remain the sole direct or indirect owner of all of the outstanding
common securities issued by the applicable AES Trust and not to cause
or permit the common securities to be transferred except to the extent
permitted by the related Declaration; provided that any permitted
successor of AES under the Indenture may succeed to our ownership of
the common securities issued by the applicable AES Trust,
o to comply fully with all of its obligations and agreements contained
in the related Declaration and
o not to take any action which would cause the applicable AES Trust to
cease to be treated as a grantor trust for United States federal
income tax purposes, except in connection with a distribution of
junior subordinated debt trust securities.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the junior
subordinated debt trust securities will, to the extent and in the manner set
forth in the Indenture, be subordinated in right of payment to the prior payment
in full, in cash or cash equivalents, of all senior and subordinated debt of
AES.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings of
29
<PAGE>
us, the holders of all senior and subordinated debt will first be entitled to
receive payment in full of all amounts due or to become due thereon before the
holders of the junior subordinated debt trust securities will be entitled to
receive any payment in respect of the principal of, premium, if any, or interest
on the junior subordinated debt trust securities.
No payments on account of principal, premium, if any, or interest in
respect of the junior subordinated debt trust securities may be made by us if
there shall have occurred and be continuing a default in any payment with
respect to senior and subordinated debt or during certain periods when an event
of default under certain senior and subordinated debt permits the lenders
thereunder to accelerate the maturity of such senior and subordinated debt. In
addition, during the continuance of any other event of default (other than a
payment default) with respect to Designated senior and subordinated debt
pursuant to which the maturity thereof may be accelerated, from and after the
date of receipt by the Trustee of written notice from holders of such designated
senior and subordinated debt or from an agent of such holders, no payments on
account of principal, premium, if any, or interest in respect of the junior
subordinated debt trust securities may be made by us during a period (the
"Payment Blockage Period") commencing on the date of delivery of such notice and
ending 179 days thereafter (unless the Payment Blockage Period shall be
terminated by written notice to the Trustee from the holders of the designated
senior and subordinated debt or from an agent of such holders, or such event of
default has been cured or waived or has ceased to exist). Only one payment
blockage period may be commenced with respect to the junior subordinated debt
trust securities during any period of 360 consecutive days. No event of default
which existed or was continuing on the date of the commencement of any payment
blockage period with respect to the designated senior and subordinated debt
initiating such payment blockage period shall be or be made the basis for the
commencement of any subsequent payment blockage period by the holders of such
designated senior and subordinated debt, unless such event of default shall have
been cured or waived for a period of not less than 90 consecutive days.
By reason of this subordination, in the event of insolvency, funds that
would otherwise be payable to holders of junior subordinated debt trust
securities will be paid to the holders of our senior and subordinated debt to
the extent necessary to pay that debt in full, and we may be unable to meet
fully our obligations with respect to the junior subordinated debt trust
securities.
"Debt" is defined to mean, with respect to any person at any date of
determination (without duplication):
o all indebtedness for borrowed money;
o all obligations evidenced by bonds, debentures, notes or other similar
instruments;
o all obligations in respect of letters of credit or bankers' acceptance
or other similar instruments (or reimbursement obligations with
respect thereto);
o all obligations to pay the deferred purchase price of property or
services, except trade payables;
o all obligations as lessee under capitalized leases;
o all Debt of others secured by a lien on any asset of the person,
whether or not the Debt is assumed by that person; provided that, for
purposes of determining the amount of any Debt of the type described
in this clause, if recourse with respect to that Debt is limited to
that asset, the amount of that Debt shall be limited to the lesser of
the fair market value of the asset or the amount of the Debt;
o all Debt of others guaranteed by that person to the extent that Debt
is guaranteed by such person;
o all redeemable stock valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends;
and,
o to the extent not otherwise included in this definition, all
obligations under currency agreements and interest rate agreements.
"Designated Senior Debt" is defined to mean:
o Debt under the Credit Agreement dated as of August 2, 1996 (the
"Credit Agreement") among The AES
30
<PAGE>
Corporation, the banks named on the signature pages thereof and the
Morgan Guaranty Trust Company of New York, as agent for the banks, as
such Credit Agreement has been and may be amended, restated,
supplemented or otherwise modified from time to time; and
o Debt constituting Senior Debt which, at the time of its determination
o has an aggregate principal amount of at least $30 million; and
o is specifically designated by us as "Designated Senior Debt."
"Senior and Subordinated Debt" is defined to mean the principal of (and
premium, if any) and interest on all our Debt whether created, incurred or
assumed before, on or after the date of the Indenture; provided that such Senior
and Subordinated Debt shall not include
o Debt to any Affiliate,
o Debt that, when incurred and without respect to any election under
Section 1111(b) of Title 11, U.S. Code, was without recourse,
o any other Debt which by the terms of the instrument creating or
evidencing the same are specifically designated as not being senior in
right of payment to the junior subordinated debt trust securities, and
in particular the junior subordinated debt trust securities shall rank
pari passu with all other debt trust securities and guarantees issued
to any trust, partnership or other entity affiliated with us which is
a financing vehicle of us in connection with an issuance of preferred
securities by such financing entity, and
o our redeemable stock.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Indenture Event of
Default" with respect to each series of junior subordinated debt trust
securities:
o failure for 30 days to pay interest on the junior subordinated debt
trust securities of that series when due; provided that a valid
extension of the interest payment period by us shall not constitute a
default in the payment of interest for this purpose;
o failure to pay principal of or premium, if any, on the junior
subordinated debt trust securities of such series when due whether at
maturity, upon redemption, by declaration or otherwise;
o failure to observe or perform any other covenant contained in the
Indenture with respect to such series for 90 days after written notice
to us from the Indenture Trustee or the holders of at least 25% in
principal amount of the outstanding junior subordinated debt trust
securities of such series; or
o certain events in bankruptcy, insolvency or reorganization of AES.
In each and every such case, unless the principal of all the junior
subordinated debt trust securities of that series shall have already become due
and payable, either the Indenture Trustee or the holders of not less than 25% in
aggregate principal amount of the junior subordinated debt trust securities of
that series then outstanding, by notice in writing to us (and to the Indenture
Trustee if given by such holders), may declare the principal of all the junior
subordinated debt trust securities of that series to be due and payable
immediately, and upon any such declaration the same shall become and shall be
immediately due and payable.
The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debt trust securities of that series have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee. The Indenture Trustee or the holders of not
less than 25% in aggregate outstanding principal amount of the junior
subordinated debt trust securities of that series may declare the principal due
and payable immediately upon an Indenture Event of Default with respect to such
series, but the holders of a majority in aggregate outstanding principal amount
of junior subordinated debt trust securities of such series may annul such
declaration and waive the default if the default has been cured and a sum
sufficient to pay all matured installments of interest and principal otherwise
than by acceleration and any premium has been deposited with the Indenture
Trustee.
31
<PAGE>
The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debt trust securities of that series may, on behalf of
the holders of all the junior subordinated debt trust securities of that series,
waive any past default, except a default in the payment of principal, premium,
if any, or interest (unless such default has been cured and a sum sufficient to
pay all matured installments of interest and principal otherwise than by
acceleration and any premium has been deposited with the Indenture Trustee) or a
call for redemption of junior subordinated debt trust securities. We are
required to file annually with the Indenture Trustee a certificate as to whether
or not we are in compliance with all the conditions and covenants under the
Indenture.
If junior subordinated debt trust securities are issued to an AES Trust
in connection with the issuance of Trust Securities of such AES Trust, then
under the applicable Declaration an Indenture Event of Default with respect to
such series of junior subordinated debt trust securities will constitute a
Declaration Event of Default.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting us and the Indenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the outstanding junior subordinated debt trust securities of
each series affected, to modify the Indenture or any supplemental indenture
affecting the rights of the holders of such junior subordinated debt trust
securities; provided that no such modification may, without the consent of the
holder of each outstanding junior subordinated debt trust security affected
thereby,
o extend the fixed maturity of any junior subordinated debt trust
securities of any series, reduce the principal amount thereof, reduce
the rate or extend the time of payment of interest thereon, reduce any
premium payable upon the redemption thereof, without the consent of
the holder of each junior subordinated debt trust security so affected
or
o reduce the percentage of junior subordinated debt trust securities,
the holders of which are required to consent to any such modification,
without the consent of the holders of each junior subordinated debt
trust security then outstanding and affected thereby.
BOOK-ENTRY AND SETTLEMENT
If any junior subordinated debt preferred securities of a series are
represented by one or more global securities (each, a "Global Security"), the
applicable prospectus supplement will describe the circumstances, if any, under
which beneficial owners of interests in any such Global Security may exchange
such interests for junior subordinated debt trust securities of such series and
of like tenor and principal amount in any authorized form and denomination.
Principal of and any premium and interest on a Global Security will be payable
in the manner described in the applicable prospectus supplement.
The specific terms of the depositary arrangement with respect to any
portion of a series of junior subordinated debt trust securities to be
represented by a Global Security will be described in the applicable prospectus
supplement.
CONSOLIDATION, MERGER AND SALE
The Indenture will provide that we may not consolidate with or merge into
any other person or transfer or lease its properties and assets substantially as
an entirety to any person and may not permit any person to merge into or
consolidate with us unless
o either AES will be the resulting or surviving entity or any successor
or purchaser is a corporation organized under the laws of the United
States of America, any State or the District of Columbia, and any such
successor or purchaser expressly assumes our obligations under the
Indenture and
o immediately after giving effect to the transaction no Event of Default
shall have occurred and be continuing.
DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, we will be discharged from any and all
obligations in respect of the junior subordinated debt trust securities of a
series (except in each case for certain obligations to register the transfer or
exchange of such junior subordinated debt trust securities,
32
<PAGE>
replace stolen, lost or mutilated junior subordinated debt trust securities of
that series, maintain paying agencies and hold moneys for payment in trust) if
o we irrevocably deposit with the Indenture Trustee cash or U.S.
Government Obligations, as trust funds in an amount certified to be
sufficient to pay at maturity (or upon redemption) the principal of,
premium, if any, and interest on all outstanding junior subordinated
debt trust securities of such series;
o this deposit will not result in a breach or violation of, or
constitute a default under, any agreement or instrument to which we
are a party or by which we are bound;
o we deliver to the Indenture Trustee an opinion of counsel to the
effect that the holders of the junior subordinated debt trust
securities of that series will not recognize income, gain or loss for
United States federal income tax purposes as a result of that
defeasance and that defeasance will not otherwise alter holders'
United States federal income tax treatment of principal, premium and
interest payments on those junior subordinated debt trust securities
of that series (such opinion must be based on a ruling of the Internal
Revenue Service or a change in United States federal income tax law
occurring after the date of that junior subordinated debt trust
securities indenture, since such a result would not occur under
current tax law);
o we have delivered to the Indenture Trustee an Officer's Certificate
and an opinion of counsel, each stating that all conditions precedent
provided for relating to the defeasance contemplated by such provision
have been complied with; and
o no event or condition shall exist that, pursuant to the subordination
provisions applicable to such series, would prevent us from making
payments of principal of, premium, if any, and interest on the junior
subordinated debt trust securities of such series at the date of the
irrevocable deposit referred to above.
GOVERNING LAW
The Indenture and the junior subordinated debt trust securities will be
governed by the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
junior subordinated debt trust securities indenture at the request of any holder
of junior subordinated debt trust securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities that might
be incurred thereby. The Indenture Trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if the Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
AES and our subsidiaries maintain ordinary banking and trust
relationships with The First National Bank of Chicago and its affiliates.
MISCELLANEOUS
We will have the right at all times to assign any of our rights or
obligations under the Indenture to a direct or indirect wholly-owned subsidiary
of ours; provided that, in the event of any such assignment, we will remain
jointly and severally liable for all such obligations. Subject to the foregoing,
the Indenture will be binding upon and inure to the benefit of the parties
thereto and their respective successors and assigns. The Indenture provides that
it may not otherwise be assigned by the parties thereto other than by us to a
successor or purchaser pursuant to a consolidation, merger or sale permitted by
the Indenture.
PLAN OF DISTRIBUTION
We may sell any series of junior subordinated debt trust securities and
the AES Trusts may sell the preferred securities being offered hereby in any of
three ways (or in any combination thereof):
o through underwriters or dealers;
33
<PAGE>
o directly to a limited number of purchasers or to a single purchaser;
or
o through agents.
The prospectus supplement with respect to any offered securities will set
forth the terms of the offering of such offered securities, including the name
or names of any underwriters, dealers or agents and the respective amounts of
such offered securities underwritten or purchased by each of them, the initial
public offering price of such offered securities and the proceeds to us from
such sale, any discounts, commissions or other items constituting compensation
from us and any discounts, commissions or concessions allowed or reallowed or
paid to dealers and any securities exchanges on which these offered securities
may be listed. Any public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
If underwriters are used in the sale of any offered securities, such
offered securities will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. These offered securities may be either offered
to the public through underwriting syndicates represented by managing
underwriters, or directly by underwriters. Unless otherwise set forth in the
prospectus supplement, the obligations of the underwriters to purchase these
offered securities will be subject to certain conditions precedent and the
underwriters will be obligated to purchase all of such offered securities if any
are purchased.
Offered securities may be sold directly by us or through agents
designated by us from time to time. Any agent involved in the offer or sale of
offered securities in respect of which this prospectus is delivered will be
named, and any commissions payable by us to such agent will be set forth, in the
prospectus supplement. Unless otherwise indicated in the prospectus supplement,
any such agent will be acting on a best efforts basis for the period of its
appointment.
If so indicated in the prospectus supplement, we will authorize
underwriters, dealers or agents to solicit offers by certain purchasers to
purchase offered securities from us at the public offering price set forth in
the prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. These contracts will be
subject only to those conditions set forth in the prospectus supplement, and the
prospectus supplement will set forth the commission payable for solicitation of
such contracts.
Agents and underwriters may be entitled under agreements entered into
with us to indemnification by us against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments which the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be customers of, engage in transactions
with, or perform services for us in the ordinary course of business.
LEGAL MATTERS
The legality of the junior subordinated debt trust securities and the
preferred securities offered hereby will be passed upon for us by Davis Polk &
Wardwell, New York, New York.
Unless otherwise indicated in the applicable prospectus supplement,
certain matters of Delaware law relating to the validity of the preferred
securities will be passed upon by Richards, Layton & Finger, Wilmington,
Delaware.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998, incorporated in this
prospectus by reference from The AES Corporation's Current Report on Form 8-K
dated March 18, 1999, and the related financial statement schedules incorporated
in this prospectus by reference from The AES Corporation's Annual Report on Form
10-K for the year ended December 31, 1998, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
34
<PAGE>
[GRAPHIC OMITTED]
