AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1998
Registration No. 333-46189
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE AES CORPORATION DELAWARE 54-1163725
AES TRUST II DELAWARE 54-1840550
(Exact name of Registrant as (State or other jurisdiction of (I.R.S. employer
specified in its charter) incorporation or organization) identification number)
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1001 NORTH 19TH STREET ARLINGTON, VIRGINIA 22209 (703) 522-1315
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
BARRY J. SHARP 1001 NORTH 19TH STREET ARLINGTON, VIRGINIA 22209 (703) 522-1315
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
RICHARD D. TRUESDELL, JR. DAVIS POLK & WARDWELL 450 LEXINGTON AVENUE NEW YORK,
NEW YORK 10017 (212) 450-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective.
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If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities being offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED MARCH 27, 1998
PROSPECTUS
MARCH 27, 1998
6,000,000 Securities
AES TRUST II
$2.75 Term Convertible Securities, Series B ("TECONS SM")
(Liquidation amount $50 per security) fully and unconditionally guaranteed as
set forth herein by and convertible into Common Stock of,
[GRAPHIC OMITTED] THE AES CORPORATION
The $2.75 Term Convertible Securities, Series B (the "TECONS" or "Preferred
Securities"), liquidation amount $50 per security, offered for resale hereby
were issued by AES Trust II, a statutory business trust formed under the laws of
the State of Delaware ("AES Trust" or the "Trust"). These TECONS represent
preferred undivided beneficial interests in the assets of the Trust. The TECONS
were issued and sold (the "Original Offering") on October 29, 1997 (the
"Original Offering Date") to certain initial purchasers (the "Initial
Purchasers") and were simultaneously sold by the Initial Purchasers in
transactions exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), in the United States to persons
reasonably believed by the Initial Purchasers to be qualified institutional
buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the
Securities Act or institutional accredited investors as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act ("Institutional Accredited
Investors") and outside the United States to non-U.S. persons in offshore
transactions in reliance on Regulation S under the Securities Act.
The AES Corporation, a Delaware corporation ("AES" or the "Company"), owns
directly or indirectly all the common securities (the "Common Securities" or the
"Trust Common Securities," and together with the TECONS, the "Trust
Securities"), representing undivided beneficial interests in the assets of AES
Trust. AES Trust exists for the sole purpose of issuing the TECONS and the Trust
Common Securities and investing the proceeds thereof in 5.50% Junior
Subordinated Convertible Debentures due 2012 (the "Junior Subordinated
Debentures") of AES in an aggregate principal amount equal to the aggregate
liquidation amount of the Trust Securities. The Junior Subordinated Debentures
and the TECONS in respect of which this Prospectus is being delivered are
referred to herein as the "Offered Securities." The Junior Subordinated
Debentures are unsecured obligations of AES subordinate and junior in right of
payment to certain other indebtedness of AES as described herein. Upon a
Declaration Event of Default (as defined herein), the holders of the TECONS will
have a preference over the holders of the Trust Common Securities with respect
to payment in respect of Distributions (as defined herein) and payments upon
redemption, liquidation and otherwise.
The TECONS (and the Junior Subordinated Debentures and the securities
issuable upon conversion) in respect of which this Prospectus is being delivered
(the "Offered Securities") may be offered and sold from time to time by the
holders thereof named herein or in a supplement hereto (collectively, the
"Selling Holders") pursuant to this Prospectus as supplemented. The Offered
Securities may be sold by the Selling Holders from time to time directly to
purchasers or through agents, underwriters or dealers. See "Plan of
Distribution" and "Selling Holders." If required, the names of any such agents
or underwriters involved in the sale of the Offered Securities and the
applicable agent's commission, dealer's purchase price or underwriter's
discount, if any, will be set forth in an accompanying supplement to this
Prospectus (the "Prospectus Supplement"). The Selling Holders will receive all
of the net proceeds from the sale of the Offered Securities and will pay all
underwriting discounts and selling commissions, if any, applicable to any such
sale. The Company is responsible for payment of all other expenses incident to
the offer and sale of the Offered Securities. The Selling Holders and any
broker-dealers, agents or underwriters which participate in the distribution of
the Offered Securities may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commission received by them and any profit on the
resale of the Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for a description of indemnification arrangements.
Holders of the TECONS are entitled to receive cumulative cash distributions
at an annual rate of $2.75 per TECONS, accruing from October 29, 1997 and
payable quarterly in arrears on the last day of each calendar quarter,
commencing on December 31, 1997. The term "Distributions" as used herein
includes such cash distributions and any interest payable thereon unless
otherwise stated. The Distribution rate and the Distribution and other payment
dates for the TECONS will correspond to the interest rate and the interest and
other payment dates on the Junior Subordinated Debentures deposited in the Trust
as trust
SEE "SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS" AND "RISK FACTORS"
FOR A DESCRIPTION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
assets. If principal or interest is not paid on the Junior Subordinated
Debentures, including as a result of the Company's election to extend the
interest payment period on the Junior Subordinated Debentures as described
below, the Trust will not make payments on the Trust Securities. The Junior
Subordinated Debentures provide that, 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 defer payments of interest on the Junior
Subordinated Debentures by extending the interest payment period from time to
time for a period not exceeding 20 consecutive quarterly interest periods (each,
an "Extension Period"). No interest shall be due and payable during an Extension
Period and, as a consequence, distributions on the Trust Securities will also be
deferred, but at the end of such Extension Period the Company shall pay all
interest then accrued and unpaid 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
("Compounded Interest"). All references herein to interest shall include
Compounded Interest unless otherwise stated. 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.
During any such Extension 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; provided that the
foregoing will not apply to any stock dividends paid by the Company in its
common stock, par value $.01 per share (the "AES Common Stock" or the "Common
Stock"). See "Description of the Junior Subordinated Debentures -- Interest" and
"-- Option to Extend Interest Payment Period" and "Risk Factors -- Option to
Extend Interest Payment Period; Tax Impact of Extension."
The payment of Distributions out of moneys held by AES Trust and payments
on liquidation of AES Trust and the redemption of TECONS, as set forth below,
are guaranteed by the Company on a subordinated basis (the "Guarantee") as and
to the extent described herein. The Guarantee is a full and unconditional
guarantee from the time of issuance of the TECONS, but the Guarantee covers
Distributions and other payments on the TECONS only if and to the extent that
AES Trust has funds available therefor, which will not be the case unless the
Company has made a payment to the Property Trustee (as defined herein) of
interest or principal on the Junior Subordinated Debentures deposited in the
Trust as trust assets. The obligations of the Company under the Guarantee are
subordinate and junior in right of payment to all other liabilities of the
Company, including Junior Subordinated Debentures, and will rank pari passu in
right of payment with the most senior preferred stock issued, from time to time,
if any, by AES. The obligations of the Company under the Junior Subordinated
Debentures are subordinate and junior in right of payment to all present and
future Senior and Subordinated Debt (as defined herein). Because the Company is
a holding company, the Junior Subordinated Debentures (and the Company's
obligations under the Guarantee) are also effectively subordinated to all
existing and future liabilities, including trade payables, of the Company's
subsidiaries, except to the extent that the Company is a creditor of the
subsidiaries and recognized as such.
Each TECONS is convertible in the manner described herein at the option of
the holder, at any time prior to the Conversion Expiration Date (as defined
herein), into AES Common Stock at the initial rate of 0.8914 shares of AES
Common Stock for each TECONS (equivalent to an initial conversion price of
$56.09 per share of AES Common Stock), subject to adjustment in certain
circumstances. See "Description of the TECONS -- Conversion Rights." The AES
Common Stock is listed n the NYSE under the symbol "AES." On March 25 , 1998
the reported last sale price of the AES Common Stock on the NYSE Composite Tape
was $52.63 per share.
The Junior Subordinated Debentures are redeemable by the Company (in whole
or in part) from time to time, on or after September 30, 2000 at the prices
specified herein or at any time in certain circumstances upon the occurrence of
a Tax Event (as defined herein) at 100% of the principal amount thereof plus
accrued and unpaid interest thereon to the date fixed for redemption (the
"Redemption Price"). If the Company redeems Junior Subordinated Debentures, the
Trust must redeem, at the Redemption Price, Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Junior
Subordinated Debentures so redeemed. See "Description of the TECONS -- Mandatory
Redemption." The TECONS will be redeemed upon maturity of the Junior
Subordinated Debentures. The Junior Subordinated Debentures mature on September
30, 2012. In addition, upon the occurrence of a Special Event (as defined
herein) arising from a change in law or a change in legal interpretation, unless
the Junior Subordinated Debentures are redeemed in the limited circumstances
described below, the Trust shall be dissolved with the result that the Junior
Subordinated Debentures will be distributed to the holders of the Trust
Securities, on a pro rata basis, in lieu of any cash distribution. In the case
of a Special Event that is a Tax Event, the Company will have the right in
certain circumstances to redeem the Junior Subordinated Debentures, which would
result in the redemption by the Trust of the Trust Securities in the same amount
on a pro rata basis. See "Description of the TECONS -- Special Event Redemption
or Distribution" and "Description of the Junior Subordinated Debentures."
In the event of the voluntary or involuntary dissolution, winding up or
termination of the Trust, the holders of the TECONS will be entitled to receive,
for each TECONS, a liquidation amount of $50 plus accrued and unpaid
distributions thereon (including interest thereon) to the date of payment,
unless in connection with such dissolution, the Junior Subordinated Debentures
are distributed to the holders of the TECONS. See "Description of the TECONS --
Liquidation Distribution Upon Dissolution."
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No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus (this "Prospectus") in connection with the offer made hereby and if
given or made such information or representation must not be relied upon as
having been authorized by the Company, the Trust or any other person. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company or the Trust since the date hereof or that the
information contained or incorporated by reference herein is correct as of any
time subsequent to its date. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
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TABLE OF CONTENTS
PAGE PAGE
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Available Information .......................... 3 Description of the Guarantee ................... 47
Incorporation of Certain Documents by Ref- Description of the Junior Subordinated De-
erence ...................................... 4 bentures .................................... 50
Special Note Regarding Forward Looking Relationship Between the TECONS, the Junior
Statements .................................. 4 Subordinated Debentures and the Guarantee. 59
Prospectus Summary ............................. 5 Certain Federal Tax Consequences ............... 60
Risk Factors ................................... 16 ERISA Considerations ........................... 65
Ratio of Earnings to Fixed Charges ............. 25 Selling Holders ................................ 67
Use of Proceeds ................................ 26 Plan of Distribution ........................... 68
Price Range of Common Stock and Dividend Legal Matters .................................. 69
Policy .......................................26 Experts ........................................ 69
AES Trust II ................................... 28 Notice of Transfer ............................. Appendix A
Description of the TECONS ...................... 30
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AVAILABLE INFORMATION
AES is subject to the informational requirements of the Exchange Act, and
in accordance therewith files reports, proxy and information statements and
other information with the Commission. These reports, proxy and information
statements and other information may be inspected without charge and copied at
the public reference facilities maintained by the Commission at its principal
offices at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials also can be
obtained at prescribed rates from the Public Reference Section of the Commission
at the principal offices of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material may also be inspected at the offices
of the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the TECONS remain
outstanding, it will furnish to the holders of the TECONS and file with the
Commission (i) all quarterly and annual financial information that would be
required to file such forms, including contained in a filing with the Commission
on Forms 10-Q and 10-K if the Company were required to be filed on such forms,
including a "Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent auditors and (ii) all reports that would
be required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, for so long as any of the TECONS
remain outstanding, the Company has agreed to make available to any prospective
purchaser of the TECONS or any beneficial owner of the TECONS in connection with
any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act.
3
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference thereto and
makes a part hereof the following documents, heretofore filed with the
Commission pursuant to the Exchange Act: (i) the Company's Annual Report on Form
10-K for the year ended December 31, 1996; (ii) the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997; (iii) the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997; (iv) the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997; (v) the
Company's Current Reports on Form 8-K filed on January 9, 1998, November 10,
1997, November 6, 1997, October 24, 1997, August 18, 1997, July 16, 1997, July
15, 1997, July 14, 1997, July 3, 1997, March 24, 1997, March 13, 1997, February
18, 1997 and January 30, 1997 and the Company's Current Reports on Form 8-K/A
filed on November 7, 1997 and August 3, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the Offering being made hereby shall be deemed to be incorporated
in this Prospectus by reference and to be a part hereof from the respective
dates of the filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is, or is deemed to be, incorporated by reference herein, modifies or
supersedes such earlier statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral request
of any such person, a copy of any and all of the documents referred to above
which have been or may be incorporated in this Prospectus by reference, other
than exhibits to such documents which are not specifically incorporated by
reference into such documents. Requests for such copies should be directed to
William R. Luraschi, General Counsel and Secretary, The AES Corporation, 1001
North 19th Street, Arlington, Virginia 22209, telephone (703) 522-1315.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary" and under the
caption "Risk Factors" in this Prospectus constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 ("Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance and achievements of AES, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following factors, as well as those factors discussed in
the section entitled "Risk Factors" and those discussed elsewhere in AES's
filings with the Commission, including its Current Report on Form 8-K dated
February 26, 1996; changes in company-wide operation and availability compared
to AES's historical performance; changes in AES's historical operating cost
structure, including changes in various costs and expenses; political and
economic considerations in certain non-U.S. countries where AES is conducting or
is seeking to conduct business; restrictions on foreign currency convertibility
and remittance abroad, exchange rate fluctuations and developing legal systems;
regulation and restrictions; legislation intended to promote competition in U.S.
and non-U.S. electricity markets; tariffs; governmental approval processes;
environmental matters; construction, operating and fuel risks; load growth,
dispatch and transmission constraints; conflict of interest of contracting
parties; and adherence to the AES principles; and other factors referenced in
this Prospectus. See "Risk Factors."
4
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in connection with, the more detailed information and consolidated financial
statements and the notes thereto included and incorporated by reference in this
Prospectus. References herein to "AES" or the "Company" include The AES
Corporation and its subsidiaries and affiliates unless the context requires
otherwise and references herein to "MW" are to megawatts.
THE COMPANY
AES is a global power company committed to supplying electricity to
customers world-wide in a socially responsible way. The Company was one of the
original entrants in the independent power market and today is one of the
world's largest global power companies, based on net equity ownership of
generating capacity (in megawatts) in operation or under construction. AES
markets power principally from electricity generating facilities that it
develops, acquires, owns and operates.
Over the last five years, the Company has experienced significant growth.
This growth has resulted primarily from the development and construction of new
plants ("greenfield development") and also from the acquisition of existing
generating plants and distribution companies, through competitively bid
privatization initiatives outside of the United States or negotiated
acquisitions. Since 1992, the Company's total generating capacity in megawatts
has grown from 1,829 MW to 16,938 MW (an increase of 826%), with the total
number of plants in operation increasing from eight to 73. Additionally, the
Company's total revenues have increased at a compound annual growth rate of 20%
from $401 million in 1992 to $835 million in 1996, while net income has
increased at a compound annual growth rate of 22% from $56 million to $125
million and Consolidated EBITDA (as defined herein) has increased from $45
million to $189 million over the same period.
AES operates and owns (entirely or in part), through subsidiaries and
affiliates, power plants in ten countries with a capacity of approximately
16,938 MW (including 4,000 MW attributable to Ekibastuz which currently has a
capacity factor of up to approximately 20%). AES is also constructing 9
additional power plants in seven countries with a capacity of approximately
4,921 MW. The Company's total ownership in plants in operation and under
construction aggregates approximately 21,859 MW and its net equity ownership in
such plants is approximately 11,379 MW. In addition, AES has numerous projects
in advanced stages of development, including seven projects with design capacity
of approximately 3,398 MW that have executed or been awarded power sales
agreements.
The Company is also engaged (entirely or in part) in electric power
distribution businesses in Latin America through its subsidiaries and
affiliates. These subsidiaries and affiliates (including CCODEE) (as defined
herein) serve approximately eight million commercial, industrial and residential
customers using approximately 63,000 gigawatt hours per year.
As a result of the Company's significant growth in recent years, the
Company's operations have become more diverse with regard to both geography and
fuel source and it has reduced its dependence upon any single project or
customer. During 1996, four of the Company's projects individually contributed
more than 10% of the Company's total revenues; Shady Point which represented
approximately 20%, San Nicolas which represented approximately 16%, Thames which
represented approximately 16% and Barbers Point which represented approximately
15%.
The Company, a corporation organized under the laws of Delaware, was formed
in 1981. The principal office of the Company is located at 1001 North 19th
Street, Suite 2000, Arlington, Virginia 22209, and its telephone number is (703)
522-1315.
5
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OUTLOOK
The global trend of electricity market restructuring has created
significant new business opportunities for companies like AES. Both domestic and
international electricity markets are being restructured and there is a trend
away from government-owned electricity systems toward deregulated, competitive
market structures. Many countries have rewritten their laws and regulations to
allow foreign investment and private ownership of electricity generation,
transmission or distribution systems. Some countries have or are in the process
of "privatizing" their electricity systems by selling all or part of such
systems to private investors. With 68 of its operating plants and distribution
companies having been acquired or commenced commercial operations since 1992,
AES has been an active participant in both the international privatization
process and the development process. The Company is currently pursuing over 90
projects including acquisitions, the expansion of existing plants and new
projects.
AES believes that there is significant demand for both new and more
efficiently operated electric generating capacity in many regions around the
world. In an effort to further grow and diversify the Company's portfolio of
electric generating plants, AES is pursuing, through its integrated divisions,
additional greenfield developments and acquisitions in many countries. Several
of these acquisitions, if consummated, would require the Company to obtain
substantial additional financing, in the form of both debt and equity financing,
in the short term.
STRATEGY
The Company's strategy in helping meet the world's need for electricity is
to participate in competitive power markets as they develop either by greenfield
development or by acquiring and operating existing facilities or distribution
systems in these markets. The Company generally operates electric generating
facilities that utilize natural gas, coal, oil, hydro power, or combinations
thereof. In addition, the Company participates in the electric power
distribution and retail supply businesses in certain limited instances, and will
continue to review opportunities in such markets in the future.
Other elements of the Company's strategy include:
o Supplying energy to customers at the lowest cost possible, taking into
account factors such as reliability and environmental performance;
o Constructing or acquiring projects of a relatively large size (generally
larger than 100 MW);
o When available, entering into power sales contracts with electric utilities
or other customers with significant credit strength; and
o Participating in electric power distribution and retail supply markets that
grant concessions with long-term pricing arrangements.
The Company also strives for operating excellence as a key element of its
strategy, which it believes it accomplishes by minimizing organizational layers
and maximizing company-wide participation in decision-making. AES has attempted
to create an operating environment that results in safe, clean and reliable
electricity generation. Because of this emphasis, the Company prefers to operate
all facilities which it develops or acquires; however, there can be no assurance
that the Company will have operating control of all of its facilities.
Where possible, AES attempts to sell electricity under long-term power
sales contracts. The Company attempts, whenever possible, to structure the
revenue provisions of such power sales contracts such that changes in the cost
components of a facility (primarily fuel costs) correspond, as effectively as
possible, to changes in the revenue components of the contract. The Company also
attempts to provide fuel for its operating plants generally under long-term
supply agreements, either through contractual arrangements with third parties
or, in some instances, through acquisition of a dependable source of fuel.
6
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As electricity markets become more competitive, it may be more difficult
for AES (and other power generation companies) to obtain long-term power sales
contracts. In markets where long-term contracts are not available, AES will
pursue methods to hedge costs and revenues to provide as much assurance as
possible of a project's profitability. In these situations, AES might choose to
purchase a project with a partial hedge or with no hedge, with the strategy that
its diverse portfolio of projects provides some hedge to the increased
volatility of the project's earnings and cash flow. Additionally, AES may choose
not to participate in these markets.
The Company attempts to finance each domestic and foreign plant primarily
under loan agreements and related documents which, except as noted below,
require the loans to be repaid solely from the project's revenues and provide
that the repayment of the loans (and interest thereon) is secured solely by the
capital stock, physical assets, contracts and/or cash flow of that plant
subsidiary or affiliate. This type of financing is generally referred to as
"project financing." The lenders under these project financing structures cannot
look to AES or its other projects for repayment, unless such entity explicitly
agrees to undertake liability. AES has explicitly agreed to undertake certain
limited obligations and contingent liabilities, most of which by their terms
will only be effective or will be terminated upon the occurrence of future
events. In certain circumstances, the Company may incur indebtedness which is
recourse to the Company or to more than one project.
RECENT DEVELOPMENTS
Recent Acquisitions
On January 26, 1998, the Company announced that it was selected by the
Government of Bangladesh Ministry of Energy and Mineral Resources as the winning
bidder to build, own and operate a 360 MW (net) gas-fired combined cycle power
plant at a site near Dhaka, Bangladesh ("Haripur"). Haripur is expected to
commence commercial operations in the year 2000, and electricity will be sold to
the Bangladesh Power Development Board under the terms of a 22-year power
purchase agreement which is expected to be signed following the formal award.
Titus Gas Transmission and Distribution Company, a subsidiary of Petrobangla,
will supply natural gas to the facility from a nearby pipeline for the term of
the power purchase agreement.
On January 21, 1998, the Company announced that it won a bid to acquire for
$109 million the outstanding shares (79.78%) of Compa--a de Luz El-ctrica de
Santa Ana (CLESA), an electrical distribution company in El Salvador. These
shares will be purchased from Comisi-n Ejecutiva Hidroel-ctrica del R-o Lempa
(CEL), a government-owned utility company. Energ-a Global International, Ltd., a
Bermuda company, with activities in Central America, may purchase up to 20% of
CLESA from AES.
CLESA serves 188,000 customers and borders Guatemala and Honduras to the
north, with access to the Pacific Ocean. Three other distribution companies in
El Salvador were sold in the same auction to two other private companies.
Closing is expected to occur in mid-February 1998.
In November 1997, the Company announced that it won a bid to acquire three
natural gas-fired, electric generating stations from Southern California Edison
for approximately $781 million. The facilities were auctioned as part of
Edison's divestiture of all of its gas-fired generating facilities prior to the
restructuring of California's electricity industry.
The three plants, all located on the southern California coast, are
Alamitos (2083 MW), Redondo Beach (1310 MW) and Huntington Beach (563 MW). Each
of the plants has been designated a "must-run facility" because station output
is critical to maintaining the reliability of electric supply in the region.
Consequently, they initially will operate in part under agreements with the
Independent System Operator being established through electricity restructuring.
Pursuant to California's electricity restructuring law, Edison will remain under
contract to operate and maintain the facilities for two years.
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Completion of the acquisition is subject to a number of conditions,
including the receipt of California Public Utilities Commission approval and
successful implementation of the new California electric spot market, called the
Power Exchange.
On October 21, 1997, a subsidiary of AES was the winning bidder to acquire
approximately 90% of the common shares of Companhia Centro-Oeste de Distribuicao
de Energia Eletrica ("CCODEE"), the distribution company serving the central and
western sections of the State of Rio Grande do Sul in Brazil, for a total
purchase price of approximately $1.37 billion. The acquisition closed on October
27, 1997, at which time the Company financed the payment of the purchase price
with the proceeds of (i) $220 million of revolving credit borrowings under its
$425 million revolving credit facility (the "Revolver") (the commitments under
which had been temporarily increased from $425 million to $600 million), (ii)
$550 million of short term loans under a bridge loan facility (the "CEEE Bridge
Loan") to be provided by affiliates of J.P. Morgan Securities, Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc and Unterberg
Harris (each of which was an Initial Purchaser in one or both of the Initial
Offerings referred to below) and (iii) $600 million of non-recourse financing
under a $680 million facility to be provided by BankBoston and ANZ Investment
Bank as co-arrangers (the "CEEE Non-recourse Financing"). AES purchased the
shares of CCODEE from the State of Rio Grande do Sul in a partial privatization
of Companhia Estadual de Energia Eletrica ("CEEE"), the integrated utility of
Rio Grande do Sul. All of the remaining shares of CCODEE may be purchased by its
employees. CCODEE currently serves approximately 800,000 customers or
approximately 31.3% of the population of the State of Rio Grande do Sul on sales
of 5,772 gigawatt hours. The foregoing transaction and the financing described
therein and below are referred to herein as the "CEEE Acquisition". The
Borrowings under the Revolver and the CEEE Bridge Loan were refinanced with the
proceeds of the Initial Offerings. See "Use of Proceeds."
Also in October 1997, a joint venture named Tau Power that is 85% owned by
AES and 15% owned by Israel-based Suntree Power completed the acquisition and
takeover of two hydro-electric stations ("GES") and four combined heat and power
stations ("TETS") in the province of East Kazakhstan. The total electric
capacity of the stations included in the agreement is 1,384 MW, with additional
thermal capacity of over 1,000 MW electric equivalent. The transaction expands
AES's current global portfolio of electric generating facilities, which already
includes the 4,000 MW coal-fired Ekibastuz power station in Kazakhstan. The
power stations included in the agreement signed are: the 332 MW Ust-Kamenogorsk
GES, the 702 MW Shulbinsk GES, the 240 MW Ust-Kamenogorsk TETS, the 50 MW
Leninogorsk TETS, the 50 MW Sogrinsk TETS and the 10 MW Semipalatinsk TETS.
Included in the transaction, AES obtained ownership and control of the retail
sales department of the former utility and will assume the existing power supply
contracts with the 50 largest customers in East Kazakhstan, including the
distribution companies. Tau Power paid $20.7 million for the concession on the
GES, with an additional payment of $2.5 million for the shares of the TETS. The
Company will also repay back wages of approximately $4 million to the workers
during the first year of operation and provide for working capital to finance
the delivery of much needed coal prior to winter and complete winter preparation
plans.
In June 1997, AES together with The Southern Company and The Opportunity
Fund, a Brazilian investment fund, (collectively, the "AES Consortium"),
acquired 14.41% of Companhia Energ-tica de Minas Gerais ("CEMIG"), an integrated
electric utility serving the State of Minas Gerais in Brazil, for a total
purchase price of approximately $1.056 billion, $654 million of the financing
for which was in the form of non-recourse financing provided by Banco Nacional
de Desenvolvimento Economico e Social ("BNDES"). AES's portion of the purchase
price was approximately $364 million after consideration of the BNDES facility.
The shares of CEMIG, which represent approximately 33% of the voting interest,
have been purchased from the State of Minas Gerais in a partial privatization of
CEMIG. Initially, AES and The Opportunity Fund had a 90.6% and a 9.4% economic
interest in the AES Consortium, respectively. Subsequently, the Southern Company
exercised its option to purchase a 25% interest in the AES Consortium from AES.
Pursuant to a shareholders agreement between the AES Consortium and the State of
Minas Gerais,
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AES will have significant operating influence, including the right to appoint
the chief operating officer of CEMIG, and will otherwise share control of CEMIG
with the State of Minas Gerais. CEMIG owns approximately 5,000 MW of generating
plants and serves approximately 4 million customers. The foregoing transaction
and the financing therefor described below are referred to herein as the "CEMIG
Acquisition".
In June 1997, AES completed its acquisition of the international assets of
Destec Energy, Inc. ("Destec"), a large independent energy producer with
headquarters in Houston, Texas, at a total price to AES of approximately $439
million. Destec's international assets acquired by AES include ownership
interests in the following five electric generating plants (with ownership
percentages in parentheses): (i) a 110 MW gas-fired combined cycle plant in
Kingston, Canada (50%); (ii) a 405 MW gas-fired combined cycle plant in
Terneuzen, Netherlands (50%); (iii) a 140 MW gas-fired simple cycle plant in
Cornwall, England (100%); (iv) a 235 MW oil-fired simple cycle plant in Santo
Domingo, Dominican Republic (99%); and (v) a 1,600 MW coal-fired plant
("Hazelwood") in Victoria, Australia (20%). Each of such plants is currently in
operation, except for the plant in Terneuzen which is under construction. The
acquisition by AES of Destec's international assets also includes Destec's
non-U.S. developmental stage power projects, including projects in Taiwan, the
Philippines, Australia and Argentina. The foregoing transaction and the
financing therefor described below are referred to herein as the "Destec
Acquisition".
In May 1997, a subsidiary of AES, and its partner, Community Energy
Alternatives ("CEA"), acquired an aggregate of 90% (AES acquired 60% and CEA
acquired 30%) of two distribution companies of Empresa Social de Energia de
Buenos Aires S.A. ("ESEBA") serving certain portions of the Province of Buenos
Aires, Argentina for an aggregate purchase price of $565 million. AES's portion
of the purchase price after consideration of non-recourse debt was $244 million.
The remaining 10% is owned by the employees of each of the two acquired
companies. The foregoing transaction is referred to herein as the "ESEBA
Acquisition".
AES funded its acquisition of Destec through cash on hand and borrowings
under the Revolver. The net proceeds of approximately $387 million from the
Company's issuance and sale of its common stock, par value $.01 per share (the
"AES Common Stock"), and $2.6875 Term Convertible Securities, Series A ("Series
A TECONS") in March 1997 was temporarily applied to repay amounts outstanding
under the Revolver. AES financed its acquisitions of CEMIG and ESEBA through:
(i) $450 million in non-recourse bridge financing, comprised of a $250 million
bridge loan (the "CEMIG Bridge") to AES CEMIG Funding Corporation, a
wholly-owned subsidiary of AES, and a $200 million bridge loan (the "ESEBA
Bridge") to AESEBA Funding Corporation, a wholly-owned subsidiary of AES; (ii) a
$200 million subordinated bridge loan to AES (the "AES Bridge Loan"); (iii)
non-recourse project debt; (iv) borrowings under AES's Revolver and (v) cash on
hand.
These projects are subject to a number of risks including those related to
financing, construction and contract compliance, and there can be no assurance
that they will be completed successfully.
Other Events
On February 10, 1998, AES announced that it had sold its 20% interest in
Hazelwood Power Partners to National Power PLC for approximately A$205 million.
Hazelwood Power Partners operates a 1,600 MW coal-fired power plant in Victoria,
Australia. AES had acquired its interest in Hazelwood as part of its acquisition
of the international businesses of Destec Energy, Inc. in June 1997.
In February 1998, AES repaid the remaining balances on both the CEMIG
Bridge and ESEBA Bridge loans through the combination of: (i) the sale of AES's
interest in Hazelwood; (ii) the replacement of cash reserves with a letter of
credit at one of AES's projects and; (iii) borrowings under the Revolver.
On January 28, 1998, the Company announced that 1997 revenues were
approximately $1.4 billion, operating income was approximately $368 million, net
income was approximately $185 million, basic earnings per share was $1.11 and
dilluted earnings per share was $1.09.
On January 9, 1998, the Southern Company exercised its option for
approximately $114 million which was used entirely to partially pay down the
CEMIG Bridge to $106 million.
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In September 1997, AES began construction on the AES Parana project, an 830
MW gas-fired, combined cycle power plant. AES Parana will be located in San
Nicolas, Argentina, adjacent to Central Termica San Nicolas, in which AES owns a
controlling interest. AES Parana is in the final stages of arranging for project
financing for the facility. AES Parana has entered into a lump sum, turnkey
construction contract with Nichimen Corporation and Mitsubishi Heavy Industries
for the plant. A portion of the fuel will be supplied by Total Corporation under
a long term, risk management contract. Project output will be sold into the
Argentine electric market. Total capital cost is estimated at $440 million, and
the project is expected to commence commercial operation in 2000.
Also in September, AES's 100% owned subsidiary, AES Mt. Stuart, raised
A$103.50 million (approximately US$75.5 million) of non-recourse project
financing for its 288 MW kerosene-fired simple cycle power plant in Townsville,
Queensland, Australia. The project debt facility was solely under-written by
Societe Generale Australia Ltd. and is comprised of a 10-year term loan, a
letter of credit facility and a short-term revolving cash advance facility.
Low-cost peaking power from the plant will be sold to the Queensland
Transitional Power Trading Corporation under a 10-year power purchase agreement.
A turnkey construction agreement has been signed with Nichimen Corporation, and
the major equipment will be supplied by Mitsubishi Heavy Industries.
Construction of the plant started during the fourth quarter of 1997 and is
scheduled to be completed on January 1, 1999.
In July 1997, the Company announced a two for one stock split, in the form
of a stock dividend, for holders of record on July 28, 1997 of its Common Stock,
par value $.01 per share, which was paid on August 28, 1997.
In the same month, the Company issued approximately $325 million of senior
subordinated notes due 2007 with an 8 3/8% interest rate per annum in a private
placement. The Company used the net proceeds of approximately $315 million to
repay amounts outstanding under the AES Bridge Loan, to redeem the Company's $75
million 9 3/4% senior subordinated notes due 2000 and to repay pro rata a
portion of the amounts outstanding under the ESEBA Bridge and the CEMIG Bridge.
The ESEBA Bridge and the CEMIG Bridge have been refinanced and are currently
$180 million and $220 million, respectively.
Also in July, the Company sold 4.5 million shares of its common stock (on a
pre-split basis) for gross proceeds of approximately $359 million or $79.75 per
share. The Company used the net proceeds of approximately $350 million to repay
pro rata a portion of the amounts outstanding under the ESEBA Bridge and the
CEMIG Bridge.
Unless otherwise indicated, all share numbers and per share amounts in this
Prospectus have been restated to reflect the stock split.
The pro forma information incorporated by reference in this Prospectus has
been adjusted for the Company's issuance of $325 million aggregate principal
amount of 8 3/8% Senior Subordinated Notes due 2007 and 9 million shares of AES
Common Stock, the redemption of $75 million 9 3/4% Senior Subordinated Notes and
the repayment and reborrowing of the CEMIG Bridge and ESEBA Bridge, in each
case, during the third quarter of 1997 (collectively, the "Third Quarter
Financings"), the CEMIG Acquisition, the Destec Acquisition, the ESEBA
Acquisition, the CEEE Acquisition, and the Original Offering and the concurrent
offering by the Company of $375,000,000 of its Senior Subordinated Notes due
2007 and $125,000,000 of its Senior Subordinated Debentures due 2027
(collectively, the "Initial Offerings") and the application of the net proceeds
therefrom (collectively, the "Adjustments") but does not reflect the sale of the
Company's interest in Hazelwood, the repayment of the CEMIG Bridge and ESEBA
Bridge Loans or the borrowings under the Revolver in February 1998 as described
in "-- Other Events". Complete unaudited pro forma financial information giving
effect to the Adjustments is incorporated by reference to the Company's Current
Report on Form 8-K filed on January 9, 1998.
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TECONS OFFERING
SECURITIES OFFERED....... 6,000,000 $2.75 Term Convertible Securities,
Series B ("TECONS" or "Preferred Securities").
ISSUER................... AES Trust II, a Delaware business trust. The sole
assets of the Trust consist of the 5.50% Junior
Subordinated Convertible Debentures due 2012 (the
"Junior Subordinated Debentures") of AES.
GUARANTOR................ The AES Corporation, a Delaware corporation.
DISTRIBUTIONS............ Distributions on the TECONS will accrue from
October 29, 1997 and will be payable at an annual
rate of $2.75 per TECONS. Subject to the
Distribution deferral provisions described below,
Distributions will be payable quarterly in arrears
on the last day of each calendar quarter,
commencing December 31, 1997. Because
Distributions on the TECONS constitute 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 TECONS is solely dependent on the receipt of
interest payments from AES on the Junior
Subordinated Debentures. So long as AES shall not
be in 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 from time to time for
successive Extension Periods not exceeding 20
consecutive quarters for each such period;
provided that no such period may extend beyond the
stated maturity of the Junior Subordinated
Debentures. Quarterly Distributions on the TECONS
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 and upon such payment, the
Trust would be required to pay all accumulated and
unpaid Distributions. AES will give notice of its
deferral of an interest payment to the Trust no
later than ten business days prior to the related
record date (unless the Property Trustee shall be
the sole holder of the Junior Subordinated
Debentures, in which case notice will be given no
later than one business day prior to the earlier
of (i) the next succeeding Interest Payment Date
(as defined herein) or (ii) the date the Company
is required to give notice of the related record
date). See "Description of the TECONS --
Distributions" and "Description of the Junior
Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Risk Factors --
Option to Extend Interest Payment Period; Tax
Impact of Extension." If a deferral of an interest
payment occurs, the holders of the TECONS will
continue to accrue income for U.S. federal income
tax purposes in advance of any corresponding cash
Distribution. See "Certain Federal Tax
Consequences -- Accrual of Original Issue
Discount" and "Risk Factors -- Option to Extend
Interest Payment Period; Tax Impact of Extension."
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<PAGE>
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 (compounded quarterly) and quarterly
Distributions will continue to accumulate with
interest thereon (to the extent permitted by
applicable law) at the Distribution rate,
compounded quarterly. AES has agreed, among other
things, not to declare or pay any dividend on its
common stock or preferred stock or make any
guarantee payments with respect thereto during any
Extension Period, provided that the foregoing
shall not apply to any stock dividends payable in
AES Common Stock. See "Description of the Junior
Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Risk Factors --
Option to Extend Interest Payment Period; Tax
Impact of Extension."
CONVERSION RIGHTS........ Each TECONS is convertible at any time prior to
the close of business on September 30, 2012 (or,
in the case of TECONS 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 0.8914 shares of
AES Common Stock for each TECONS (equivalent to a
conversion price of $56.09 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
March 25 , 1998 was $52.63 per share. In
connection with any conversion of a TECONS, the
Conversion Agent (as defined herein) will exchange
such TECONS for the appropriate principal amount
of the Junior Subordinated Debentures held for the
Trust and immediately convert such Junior
Subordinated Debentures into AES Common Stock. No
fractional shares of AES Common Stock will be
issued as a result of conversion, but in lieu
thereof such fractional interest will be paid by
AES in cash. See "Description of the TECONS --
Conversion Rights."
LIQUIDATION AMOUNT....... In the event of any liquidation of the Trust,
holders will be entitled to receive $50 per TECONS
plus an amount equal to any accrued and unpaid
Distributions thereon to the date of payment,
unless Junior Subordinated Debentures are
distributed to such holders. See "Description of
the TECONS -- Liquidation Distribution Upon
Dissolution."
REDEMPTION............... The Junior Subordinated Debentures will be
redeemable for cash, at the option of the Company,
in whole or in part, from time to time on or after
September 30, 2000 at the prices specified herein
or at any time in certain circumstances upon the
occurrence of a Tax Event at a redemption price
equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest
thereon, including Compounded Interest, if any, to
the date of redemption. If the Company redeems
Junior Subordinated Debentures, the Trust must
redeem, at the Redemption Price, Trust Securities
having an aggregate liquidation amount equal to
the aggregate principal amount of the
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<PAGE>
Junior Subordinated Debentures so redeemed. The
TECONS 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
(September 30, 2012), upon acceleration, earlier
redemption or otherwise. See "Description of the
TECONS -- Mandatory Redemption" and "Description
of the Junior Subordinated Debentures -- Optional
Redemption."
GUARANTEE................ AES will irrevocably and unconditionally
guarantee, on a subordinated basis and to the
extent set forth herein, the payment in full of
(i) any accrued and unpaid Distributions and the
amount payable upon redemption of the TECONS to
the extent AES has made a payment to the Property
Trustee of interest or principal on the Junior
Subordinated Debentures and (ii) generally, the
liquidation amount of the TECONS to the extent the
Trust has assets available for distribution to
holders of TECONS. The 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,
if any, by AES. See "Description of the
Guarantee."
VOTING RIGHTS............ Generally, holders of the TECONS will not have any
voting rights. If (i) the Property Trustee fails
to enforce its rights under the Junior
Subordinated Debentures or (ii) the Guarantee
Trustee (as defined herein) fails to enforce its
rights under the Guarantee, a record holder of the
TECONS may institute a legal proceeding directly
against AES to enforce such rights without first
instituting any legal proceeding against any other
person or entity. Notwithstanding the foregoing,
if an Indenture Event of Default (as defined
herein) occurs and is continuing and is
attributable to the failure of AES to pay interest
or principal on the Junior Subordinated Debentures
or AES has failed to make a Guarantee Payment (as
defined herein), a holder of the TECONS may
directly institute a proceeding against AES for
enforcement of such payment. See "Description of
the TECONS -- Voting Rights" and "-- Declaration
Events of Default."
SPECIAL EVENT DISTRIBUTION;
TAX EVENT REDEMPTION...... Upon the occurrence of a Special Event (as defined
herein), 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 TECONS. In the
case of a Tax Event (as defined herein), AES may
also elect to cause the TECONS to remain
outstanding and pay Additional Interest (as
defined herein), 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. See "Description of
the TECONS -- Special Event Redemption or
Distribution."
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<PAGE>
JUNIOR SUBORDINATED DEBEN-
TURES OF AES............. The Junior Subordinated Debentures will mature on
September 30, 2012 and will bear interest at the
rate of 5.50% per annum, payable quarterly in
arrears. So long as AES shall not be in 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
from time to time for successive periods not
exceeding 20 consecutive quarters for each such
period; provided that no such period may extend
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 shall be
due, but such interest shall 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
that the foregoing shall not apply to any stock
dividends payable in Common Stock. The payment of
principal and interest on the Junior Subordinated
Debentures will be subordinated in right of
payment to all present and future Senior and
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
September 30, 1997, on a pro forma basis after
giving effect to the Adjustments, the Company had
$1.3 billion of Senior and Subordinated Debt
(which includes letters of credit) outstanding. In
addition, on a pro forma basis after given effect
to the Adjustments, the Company's subsidiaries had
debt of $4.0 billion, to which the Junior
Subordinated Debentures are effectively
subordinated. The Indenture (as defined herein),
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 the Company's 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 or analogous to those
of the TECONS. See "Description of the Junior
Subordinated Debentures" and "Risk Factors --
Leverage and Subordination."
USE OF PROCEEDS.......... There will be no proceeds to the Company or the
Trust from the sale of TECONS pursuant to this
Prospectus.
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<PAGE>
BOOK-ENTRY; DELIVERY AND
FORM.................... TECONS sold in reliance on Rule 144A are
represented by a single permanent global TECONS
certificate registered in the name of a nominee of
DTC. TECONS sold in offshore transactions in
reliance on Regulation S under the Securities Act
are represented by a single, permanent global
TECONS in definitive, fully registered form
deposited with the Property Trustee, as custodian
for, and registered in the name of, DTC for the
accounts of Morgan Guaranty Trust Company of New
York, Brussels office, as operator of the
Euroclear System ("Euroclear"), and Cedel Bank,
S.A. ("Cedel"). TECONS resold under this
Prospectus will be represented by a single
permanent global TECONS certificate registered in
the name of a nominee of DTC. See "Description of
the TECONS -- Book Entry; Delivery and Form" and
"-- The Global TECONS." Institutional Accredited
Investors who are not Qualified Institutional
Buyers and who do not purchase TECONS under this
Prospectus will receive certificates for the
TECONS owned by them, which cannot thereby be
traded through the facilities of DTC, except in
connection with a transfer to a Qualified
Institutional Buyer or a transfer pursuant to
Regulation S.
RISK FACTORS
Prospective purchasers of the TECONS should carefully consider the specific
matters set forth under "Risk Factors" as well as the other information and data
included, or incorporated by reference, in this Prospectus prior to making an
investment in the TECONS.
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<PAGE>
RISK FACTORS
Prospective purchasers of the TECONS should read this entire Prospectus
carefully. The following factors should be considered carefully in evaluating
AES and its business before purchasing the TECONS offered by this Prospectus.
LEVERAGE AND SUBORDINATION
The Company and its subsidiaries had approximately $3.9 billion of
outstanding indebtedness at September 30, 1997. As a result of the Company's
level of debt, the Company might be significantly limited in its ability to meet
its 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 September 30, 1997, the Company had a
consolidated ratio of total debt to total book capitalization (including current
debt) of approximately 70%.
The Junior Subordinated Debentures will be subordinated to all Senior and
Subordinated Debt including, but not limited to, the Company's $600 million
Revolver. The obligations of AES under the Guarantee are subordinate and junior
in right of payment to all liabilities of AES and pari passu in right of payment
with the most senior preferred stock issued, from time to time, if any, by AES.
As of September 30, 1997, on a pro forma basis after giving effect to the
Adjustments, the Company had approximately $1.3 billion in aggregate principal
amount of Senior and Subordinated Debt.
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 the Company, the holders of
Senior and Senior Subordinated Debt will first be entitled to receive payment in
full of all amounts due or to become due under all Senior and Subordinated Debt
before the holders of the Junior Subordinated Debentures will be entitled to
receive any payment in respect of the principal of, premium, if any, or interest
on such Junior Subordinated Debentures. No payments on account of principal,
premium, if any, or interest in respect of the Junior Subordinated Debentures
may be made if there shall have occurred and be continuing a default in any
payment under any Senior and Senior Subordinated Debt or during certain periods
when an event of default under certain Senior and Subordinated Debt permits the
lenders thereunder to accelerate the maturing of such Senior and Senior
Subordinated Debt. See "Description of Junior Subordinated Debentures --
Subordination." The Guarantee will rank (i) subordinate and junior in right of
payment to all other liabilities of the Company, including the Junior
Subordinated Debentures, except those made pari passu or subordinate by their
terms and (ii) pari passu in right of payment with the most senior preferred
stock issued, from time to time, if any, by the Company. See "Description of the
Guarantee."
The Junior Subordinated Debentures will be effectively subordinated to the
indebtedness and other obligations (including trade payables) of the Company's
subsidiaries. At September 30, 1997, on a pro forma basis after giving effect to
the Adjustments, the indebtedness and obligations of the Company's subsidiaries
aggregated approximately $4.0 billion. The ability of the Company to pay
principal of, premium, if any, and interest on the Junior Subordinated
Debentures will be dependent upon the receipt of funds from its subsidiaries by
way of dividends, fees, interest, loans or otherwise. There are no terms in the
Junior Subordinated Debentures, the TECONS or the Guarantee that limit the
Company's or its subsidiaries' ability to incur additional indebtedness. Most of
the Company's subsidiaries with interests in power generation facilities
currently have in place arrangements that restrict their ability to make
distributions to the Company by way of dividends, fees, interest, loans or
otherwise. The Company's subsidiaries are separate and distinct legal entities
and have no obligation, contingent or otherwise, to pay any amounts due pursuant
to the Junior Subordinated Debentures or the TECONS 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
Debentures or the TECONS. Any right of the Company to receive any assets of any
of its 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 of the
Company (and the consequent right of the holders of the Junior Subordinated
Debentures and the TECONS to participate in the distribution
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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). The Company currently conducts
substantially all of its operations through its subsidiaries. See "Description
of the Guarantee" and "Description of the Junior Subordinated Debentures --
Subordination."
DOING BUSINESS OUTSIDE THE UNITED STATES
The Company's involvement in the development of new projects and the
acquisition of existing plants in locations outside the United States is
increasing and most of the Company's current development and acquisition
activities are for projects and plants outside the United States. The Company,
through subsidiaries, affiliates and joint ventures, has ownership interests in
75 power plants outside the United States in operation or under construction.
Thirty-nine of such power plants are located in Brazil; nine in the People's
Republic of China; seven in Kazakhstan; six in Argentina; five in the United
Kingdom; three in Hungary; two in Pakistan; and one in each of the Netherlands,
Canada, Australia and the Dominican Republic.
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
structural 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 AES 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 higher investments by the Company 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 the
Company, its subsidiaries and its affiliates are or in the future may be
developing, constructing or operating could make it more difficult for the
Company to enforce its respective rights under agreements relating to such
projects. In addition, the laws and regulations of certain countries may limit
the Company's ability to hold a majority interest in some of the projects that
it may develop or acquire. International projects owned by the Company may, in
certain cases, be expropriated by applicable governments. Although AES may have
legal recourse in enforcing its rights under agreements and recovering damages
for breaches thereof, there can be no assurance that any such legal proceedings
will be successful.
COMPETITION
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 the Company.
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 the Company sells or intends to sell
power. There can be no assurance that the foregoing competitive factors will not
have a material adverse effect on the Company.
DEVELOPMENT UNCERTAINTIES
The majority of the projects that AES develops are large and complex and
the completion of any such project is subject to substantial risks. Development
can require the Company to expend significant sums for preliminary engineering,
permitting, legal and other expenses in preparation for competitive
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bids which the Company 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 on terms satisfactory to the Company of 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 AES 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 its projects. There can be no assurance that
development efforts on any particular project, or the Company's efforts
generally, will be successful. If these development efforts are not successful,
the Company may abandon a project under development. At the time of abandonment,
the Company would expense all capitalized development costs incurred in
connection therewith and could incur additional losses associated with any
related contingent liabilities. The future growth of the Company is dependent,
in part, upon the demand for significant amounts of additional electrical
generating capacity and its ability to obtain contracts to supply portions of
this capacity. Any material unremedied delay in, or unsatisfactory completion
of, construction of the Company's projects could, under certain circumstances,
have an adverse effect on the Company's ability to meet its obligations,
including the payment of principal of, premium, if any and interest on the
Notes. The Company also is faced with certain development uncertainties arising
out of doing business outside of the United States. See "-- Doing Business
Outside the United States."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has achieved a significant portion of its growth through
acquisitions and expects that it will continue to grow, in part, through
acquisitions. During 1997 alone the Company consummated the ESEBA Acquisition,
the Destec Acquisition, the CEMIG Acquisition and the CEEE Acquisition in which
the Company invested an aggregate of approximately $1.9 billion (excluding
non-recourse debt). Although each of the acquired businesses had a significant
operating history at the time of its acquisition by the Company, the Company has
a limited history of owning and operating 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 by the Company. There can
be no assurances that the Company 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.
UNCERTAINTY OF ACCESS TO CAPITAL FOR FUTURE PROJECTS
Each of AES's projects under development and those independent power supply
businesses it may seek to acquire may require substantial capital investment.
Continued access to capital with acceptable terms is necessary to assure the
success of future projects and acquisitions. AES has substantially utilized
project financing loans to fund the capital expenditures associated with
constructing and acquiring its electric power plants and related assets. Project
financing borrowings have been substantially non-recourse to other subsidiaries
and affiliates and to AES 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. The Company intends to continue to seek, where
possible, such non-recourse project financing in connection with the assets
which the Company or its affiliates may develop, construct or acquire. However,
depending on market conditions and the unique characteristics of individual
projects, such financing may not be available or the Company's 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, the Company, in such locations, has and will
continue to seek 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 re-
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quire 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, AES may determine that sufficient financing will
ultimately not be available to fund the related project.
In addition to the project financing loans, if available, AES provides 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 the short-term credit facilities and issuances of senior
subordinated notes, convertible debentures and common stock of the Company.
The Company's 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 in the Company,
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, AES 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 AES on its
currently operating facilities or facilities under construction, such a decision
would affect the future growth of AES.
DEPENDENCE ON UTILITY CUSTOMERS AND CERTAIN PROJECTS
The nature of most of AES's 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.
During 1996, five customers, including CL&P, a subsidiary of Northeast
Utilities, accounted for 73% of the Company's consolidated total revenues. The
prolonged failure of any one utility customer to fulfill its contractual
obligations could have a substantial negative impact on AES's primary source of
revenues. AES has 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.
Four of the Company's plants collectively represented approximately 39% of
AES's consolidated total assets at December 31, 1996 and generated approximately
67% of AES's consolidated total revenues for the year ended December 31, 1996.
Sales to Connecticut Light & Power Company ("CL&P") represented 16% of the
Company's total revenues in 1996. Moody's Investor Service Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") have recently downgraded CL&P's senior
secured long-term debt from Baa3/BBB- to Ba2/ BB, and S&P has placed CL&P on
watch for possible downgrade. As a result of regulatory action by the Public
Service Commission of New Hampshire, Moody's and S&P recently downgraded the
senior unsecured debt of Northeast Utilities, the parent of CL&P, from Ba2/BB to
B1/B+ and S&P has placed Northeast Utilities on watch for possible downgrade.
REGULATORY UNCERTAINTY
AES's 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 of 1935, 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. AES is not and will not be
subject to regulation as a holding company under PUHCA as long as the domestic
power plants it owns 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. The Company believes that, upon the occurrence of an event that would
threaten the QF status of one of its domestic plants, it would be able to react
in a manner that would avoid the loss of QF status (such as by replacing the
steam customer). In the event the Company were unable to avoid the loss of such
status for one of its plants, to avoid public utility holding company status,
AES could apply to the Federal Energy Regula-
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tory 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 the consolidated income tax group or the consolidated financial
statements of the Company, or an increase or decrease in the results of
operations of the Company.
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 independents 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 and/or
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 the Company.
ELECTRIC UTILITY INDUSTRY RESTRUCTURING PROPOSALS
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 of any such restructuring on the Company
cannot be predicted, although any such restructuring could have a material
adverse effect on the Company.
LITIGATION AND REGULATORY PROCEEDINGS
From time to time, the Company and its affiliates are parties to litigation
and regulatory proceedings. Investors should review the descriptions of such
matters contained in the Company's 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 the Company.
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BUSINESS SUBJECT TO STRINGENT ENVIRONMENTAL REGULATIONS
AES's activities are subject to stringent environmental regulation by
federal, state, local and foreign governmental authorities. For example, the
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 AES's power plants. There can
be no assurance that AES would be able to recover all or any increased costs
from its customers or that its 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. The Company has 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 the Company's financial
statements.
CONTROL BY EXISTING STOCKHOLDERS
As of September 30, 1997, AES's two founders, Roger W. Sant and Dennis W.
Bakke, and their immediate families together owned beneficially approximately
22.1% of the outstanding AES Common Stock. As a result of their ownership
interests, Messrs. Sant and Bakke may be able to significantly influence or
exert control over the affairs of AES, including the election of the Company's
directors. As of September 30, 1997, all of AES's officers and directors and
their immediate families together owned beneficially approximately 29.2% of the
outstanding AES Common Stock. To the extent that they decide to vote together,
these stockholders would be able to significantly influence or control the
election of AES's directors, the management and policies of AES and any action
requiring stockholder approval, including significant corporate transactions.
ADHERENCE TO AES'S PRINCIPLES -- POSSIBLE IMPACT ON RESULTS OF OPERATIONS
A core part of AES's corporate culture is a commitment to "shared
principles": to act with integrity, to be fair, to have fun and to be socially
responsible. The Company seeks 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 the Company perceives a conflict between these principles
and profits, the Company will try to adhere to its principles -- even though
doing so might result in diminished or foregone opportunities or financial
benefits.
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 AES's creditors in a lawsuit to subordinate or avoid the
Junior Subordinated Debentures in favor of other existing or future creditors of
AES. Under applicable provisions of the U.S. Bankruptcy code or comparable
provisions of state fraudulent transfer or conveyance laws, if AES at the time
of issuance of the Junior Subordinated Debentures, (i) incurred such
indebtedness with intent to hinder, delay or defraud any present or future
creditor of AES or contemplated insolvency with a design to prefer one or more
creditors to the exclusion in whole or in part of others or (ii) received less
than reasonably equivalent value or fair consideration for issuing the Junior
Subordinated Debentures and AES (a) was insolvent, (b) was rendered insolvent by
reason of the issuance of the Junior Subordinated Debentures, (c) was engaged or
about to engage in business or a transaction for which the remaining assets of
AES constitute unreasonably small capital to carry on its business or (d)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they mature, then, in 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 AES as a result of the issuance by AES 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, AES would be considered
insolvent if the sum of its debts, including contingent liabilities, were
greater than all of its assets at fair valuation or if the present fair market
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value of its assets were less than the amount that would be required to pay the
probable liability on its 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 AES after the issuance of the
Junior Subordinated Debentures will be solvent, will have sufficient capital for
carrying on its business and will be able to pay its debts as they mature. There
can be no assurance, however, that a court passing on such questions would agree
with management's view.
ABILITY OF AES TRUST TO MAKE DISTRIBUTIONS
The ability of AES Trust to make distributions and other payments on the
TECONS is solely dependent upon the Company making interest and other payments
on the Junior Subordinated Debentures deposited as trust assets as and when
required. If the Company were not to make distributions or other payments on the
Junior Subordinated Debentures for any reason, including as a result of the
Company's election to defer the payment of interest on the Junior Subordinated
Debentures by extending the interest period on the Junior Subordinated
Debentures, AES Trust will not make payments on the Trust Securities. In such an
event, holders of the TECONS would not be able to rely on the Guarantee since
distributions and other payments on the TECONS are subject to the Guarantee 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. Instead, holders of TECONS would rely on the enforcement
by the Property Trustee of its rights as registered holder of the Junior
Subordinated Debentures against the Company pursuant to the terms of the
Indenture (as defined herein). However, if the Trust's failure to make
distributions on the TECONS is a consequence of the Company's exercise of its
right to extend the interest payment period for the Junior Subordinated
Debentures, the Property Trustee will have no right to enforce the payment of
distributions on the TECONS until an Event of Default (as defined herein) under
the Declaration (as defined herein) shall have occurred.
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 AES 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. 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.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX IMPACT OF EXTENSION
So long as the Company shall not be in default in the payment of interest
on the Junior Subordinated Debentures, the Company has the right under the
Indenture to defer payments of interest on the Junior Subordinated Debentures by
extending the interest payment period from time to time on the Junior
Subordinated Debentures for an extension period not exceeding 20 consecutive
quarterly interest periods (an "Extension Period"), during which no interest
shall be due and payable. In such an event, quarterly distributions on the
TECONS would not be made by the Trust during any such Extension Period. If the
Company exercises the right to extend an interest payment period, the Company
may not during such 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 (i) the Company will
be permitted to pay accrued dividends upon the exchange or redemption of any
series of preferred stock of the Company as may be outstanding from time to
time, in accordance with the terms of such stock and (ii) the foregoing will not
apply to stock dividends paid by the Company. Under the Amended and Restated
Certificate of Incorporation the Company is authorized to issue up to 50,000,000
shares of preferred stock. As of September 30, 1997, no shares of the Company's
preferred stock were outstanding. The Company may from time to time offer shares
of its preferred stock to the public.
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Prior to the termination of any 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.
Because the Company has 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 Debentures will be treated as issued
with "original issue discount" for United States federal income tax purposes. As
a result, holders of TECONS 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
Debentures will be accounted for as "original issue discount" and actual
distributions of stated interest will not be separately reported as taxable
income.
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 Trust shall, unless the Junior Subordinated Debentures are redeemed in the
limited circumstances described below, be dissolved with the result that Junior
Subordinated Debentures having an aggregate principal amount equal to the
aggregate stated liquidation amount of, and bearing accrued and unpaid
distributions on, the TECONS and Common Securities would be distributed on a Pro
Rata Basis (as defined herein) to the holders of the TECONS and Common
Securities in liquidation of such Trust. In the case of a Tax Event, in certain
circumstances, the Company shall have the right to redeem at any time the Junior
Subordinated Debentures in whole or in part, in which event the Trust will
redeem TECONS and Common Securities on a Pro Rata Basis to the same extent as
the Junior Subordinated Debentures are redeemed. There can be no assurance as to
the market prices for TECONS or the Junior Subordinated Debentures which may be
distributed in exchange for TECONS if a dissolution and liquidation of the Trust
were to occur. Accordingly, the TECONS that an investor may purchase, or the
Junior Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the TECONS offered hereby. Because holders of TECONS may
receive Junior Subordinated Debentures upon the occurrence of a Special Event
(as defined herein), prospective purchasers of TECONS are also making an
investment decision with regard to the Junior Subordinated Debentures and should
carefully review all the information regarding the Junior Subordinated
Debentures.
There can be no assurance that future federal legislation will not prevent
the Company from deducting interest on the Junior Subordinated Debentures. This
would constitute a Tax Event and could result in the distribution of any Junior
Subordinated Debentures to holders of the TECONS or, in certain circumstances,
the redemption of such securities by the Company and the distribution of the
resulting cash in redemption of the TECONS.
"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 October 23, 1997 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 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
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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 October 23, 1997, 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 October 23, 1997
"Special Event" means a Tax Event or an Investment Company Event.
LIMITED VOTING RIGHTS
Holders of TECONS 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.
TRADING PRICES OF TECONS
The TECONS 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 his TECONS between record dates for
payments of distributions thereon will be required to include accrued but unpaid
interest on the Junior Subordinated Debentures 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 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 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.
POTENTIAL MARKET VOLATILITY DURING EXTENSION PERIOD
As described above, the Company has the right to extend an interest payment
period on the Junior Subordinated Debentures from time to time for a period not
exceeding 20 consecutive quarterly interest periods. If the Company determines
to extend an interest payment period, or if the Company thereafter extends an
Extension Period or prepays interest accrued during an Extension Period as
described above, the market price of the TECONS is likely to be affected. In
addition, as a result of such rights, the market price of the TECONS (which
represent an undivided interest in Junior Subordinated Debentures) 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 TECONS during an Extension
Period, therefore, may not receive the same return on its investment as a holder
that continues to hold its TECONS.
POSSIBLE PRICE VOLATILITY OF THE TECONS AND LACK OF PUBLIC MARKET
There can be no assurance that an active trading market for the TECONS will
develop or be sustained. If such a market were to develop, the TECONS could
trade at prices that may be higher or lower than their offering price depending
upon many factors, including prevailing interest rates, the Company's operating
results and the markets for similar securities. Historically, the market for
non-
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<PAGE>
investment grade debt has demonstrated substantial volatility in the prices of
securities similar to the TECONS. There can be no assurance that the future
market for the TECONS will not be subject to similar volatility. According, no
assurance can given as to the liquidity of the TECONS.
The Initial Purchasers, other than Unterburg Harris, have informed the
Company that they currently intend to make a market in the TECONS. However, they
are not obligated to do so, and any such market making may be discontinued at
any time without notice. See "Plan of Distribution."
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
------------------------------------------------- ENDED
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
--------- --------- --------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges ......... 1.37 1.62 2.08 2.18 1.83 1.45
</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 the Company believes to be representative of an interest
factor. A statement setting forth the computation of the above ratios is on file
as an exhibit to the Registration Statement of which this Prospectus is a part.
During the period from January 1, 1992 until September 30, 1997, no shares
of Preferred Stock were issued or outstanding, and during that period the
Company did not pay any Preferred Stock dividends.
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<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company or the Trust from the sale of
TECONS pursuant to this Prospectus.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
AES Common Stock began trading on the NYSE on October 16, 1996 under the
symbol "AES." Prior to that date, AES Common Stock had been quoted on the NASDAQ
National Market System ("NASDAQ/NMS") under the symbol "AESC." The following
table sets forth for the periods indicated the high and low sale prices for the
Common Stock as reported on the NYSE Composite Tape and by NASDAQ/NMS. In July
1997, AES announced a two-for-one stock split, in the form of a stock dividend,
for holders of record on July 28, 1997 of its Common Stock, paid on August 28,
1997. The prices set forth below reflect adjustment for such stock split.
HIGH LOW
---------- ----------
1995
- ----
First Quarter ............................... $ 9.88 $ 8.00
Second Quarter .............................. 9.63 8.00
Third Quarter ............................... 10.81 9.25
Fourth Quarter .............................. 12.00 9.38
1996
- ----
First Quarter ............................... $ 12.63 $ 10.50
Second Quarter .............................. 14.81 11.13
Third Quarter ............................... 20.25 13.94
Fourth Quarter .............................. 25.06 19.63
1997
- ----
First Quarter ............................... $ 34.13 $ 22.63
Second Quarter .............................. 37.75 27.50
Third Quarter ............................... 45.25 34.63
Fourth Quarter .............................. 49.63 35.00
1998
- ----
First Quarter (through March 25 ) ......... $ 54.00 $ 33.87
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<PAGE>
No cash dividends have been paid on AES Common Stock since December 22,
1993 in order to provide capital for the Company's equity investments in
projects.
The Company's ability to declare and pay dividends (and to make payments
with respect to the Junior Subordinated Debentures) is dependent, among other
things, on the ability of its project subsidiaries to declare and pay dividends
(and otherwise distribute cash) to it, the Company's ability to service its
parent company debt and the Company's ability to meet certain criteria for
paying dividends under the Revolver and under certain outstanding indebtedness.
The ability of the Company's subsidiaries to declare and pay dividends and
otherwise distribute cash to the Company is subject to certain limitations in
the project loans and other documents entered into by such project subsidiaries.
Such limitations permit the payment of dividends out of current cash flow for
quarterly, semi-annual or annual periods only at the end of such periods and
only after payment of principal and interest on project loans due at the end of
such periods.
Cash dividend payments on AES Common Stock are limited under the Revolver
to a certain percentage of cash flow. The indentures relating to the Company's
existing senior subordinated notes preclude the payment of cash dividends if at
the time of such payment or after giving effect thereto an event of default (as
defined), or an event that, after the giving of notice or lapse of time or both,
would become an event of default, shall have occurred and be continuing, if
certain fixed charge coverage ratios are not met or if the payment of such
dividends, together with other restricted payments, would exceed certain limits.
27
<PAGE>
AES TRUST II
AES Trust II is a statutory business trust under the Delaware Business
Trust Act (the "Business Trust Act") formed pursuant to an amended and restated
declaration of trust dated as of October 29, 1997 (the "Declaration") among the
Trustees and the Company and a certificate of trust filed with the Secretary of
State of the State of Delaware, copies of which have been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. The Declaration
is qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
TRUST SECURITIES
Upon issuance of the TECONS, the holders thereof will own all of the issued
and outstanding TECONS. 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 (a) issuing its Trust Securities for cash and
investing the proceeds thereof in an equivalent amount of Junior Subordinated
Debentures and (b) 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, the Company 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.
POWERS AND DUTIES AND TRUSTEES
The number of trustees (the "Trustees") of AES Trust shall initially be
five. Three of such Trustees (the "Regular Trustees") are individuals who are
employees or officers of the Company. The fourth such trustee will be The First
National Bank of Chicago, which is unaffiliated with the Company 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 such trustee is First
Chicago Delaware Inc. that has its principal place of business in the State of
Delaware (the "Delaware Trustee"). Pursuant to the Declaration, legal title to
the Junior Subordinated Debentures purchased by the Trust will be held by the
Property Trustee for the benefit of the holders of the Trust Securities, and the
Property Trustee will have the power to exercise all rights, powers and
privileges under the Indenture with respect to the Junior Subordinated
Debentures. 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 Debentures purchased by the
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 Guarantee is 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 TECONS. As used in this Prospectus the term
"Property Trustee" with respect to the Trust refers to The First National Bank
of Chicago acting either in its capacity as a Trustee under the Declaration and
the holder of legal title to the Junior Subordinated Debentures purchased by the
Trust or in its capacity as indenture trustee under, and the holder of, the
Guarantee, as the context may require. The Company, as the direct or indirect
owner of all of the Common Securities of the Trust, will 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, 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 term of the Trust
set forth in this Prospectus may terminate earlier as provided in the
Declaration.
The duties and obligations of the Trustees of the Trust shall be governed
by the Declaration of the Trust, the Business Trust Act and the Trust Indenture
Act. Under its Declaration, the Trust shall not, and the Trustees shall cause
the Trust not to, engage in any activity other than in connection with the
purposes of
28
<PAGE>
the Trust or other than as required or authorized by the related Declaration. In
particular, the Trust shall not and the Trustees shall cause the Trust not to
(a) invest any proceeds received by the Trust from holding the Junior
Subordinated Debentures purchased by the 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;
(b) acquire any assets other than as expressly provided in the related
Declaration; (c) possess Trust property for other than a Trust purpose; (d) make
any loans, other than loans represented by the Junior Subordinated Debentures;
(e) possess any power or otherwise act in such a way as to vary the assets of
the Trust or the terms of its Trust Securities in any way whatsoever; (f) issue
any securities or other evidences of beneficial ownership of, or beneficial
interests in, the Trust other than its Trust Securities; (g) incur any
indebtedness for borrowed money or (h)(i) 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 Debentures") with respect to the
Junior Subordinated Debentures deposited in the Trust as trust assets or upon
the Property Trustee with respect to the TECONS, (ii) waive any past default
that is waivable under the Indenture or the Declaration, (iii) exercise any
right to rescind or annul any declaration that the principal of all of the
Junior Subordinated Debentures deposited in the Trust as trust assets shall be
due and payable or (iv) consent to any amendment, modification or termination of
the Indenture or such Junior Subordinated Debentures, in each case where such
consent shall be required, unless in the case of this clause (h) 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 the Trust to be classified for United States federal
income tax purposes as an association taxable as a corporation or a partnership
and that the 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 AES Trust will be maintained at the principal
office of the Trust and will be open for inspection by a holder of TECONS or his
representative for any purpose reasonably related to his interest in AES Trust
during normal business hours.
THE PROPERTY TRUSTEE
The Property Trustee, for the benefit of the holders of the Trust
Securities of the Trust, is authorized under the Declaration to exercise all
rights under the Indenture with respect to the Junior Subordinated Debentures
deposited in AES Trust as trust assets, including its rights as the holder of
such Junior Subordinated Debentures to enforce the Company's obligations under
such Junior Subordinated Debentures upon the occurrence of an Indenture Event of
Default.
The Property Trustee shall also be authorized to enforce the rights of
holders of TECONS under the Guarantee. If the Trust's failure to make
distributions on the TECONS is a consequence of the Company's exercise of any
right under the terms of the Junior Subordinated Debentures deposited in the
Trust as trust assets to extend the interest payment period for such Junior
Subordinated Debentures, the Property Trustee will have no right to enforce the
payment of distributions on such TECONS until an event of default under the
Declaration with respect to the Trust Securities (an "Event of Default" or
"Declaration Event of Default") shall have occurred. Holders of at least a
majority in liquidation amount of the TECONS held by the Trust will have the
right to direct the Property Trustee with respect to certain matters under the
Declaration and the Guarantee. If the Property Trustee fails to enforce its
rights under the Indenture or fails to enforce the Guarantee, to the extent
permitted by applicable law, any holder of TECONS 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 or the Guarantee, as the case may be. In addition, the holders of at
least 25% in aggregate liquidation preference of the outstanding TECONS 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 Debentures having a principal amount equal to the aggregate
liquidation preference of the TECONS of such holders (a "Direct Action"). In
connection with such Direct Action, the Company will be subrogated to the rights
of such holder of TECONS under the Declaration to the extent of any payment made
by the Company to such holders of TECONS in such Direct Action.
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<PAGE>
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the applicable series of Junior Subordinated Debentures
on the date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a holder of TECONS may directly
institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the applicable series of Junior Subordinated
Debentures having a principal amount equal to the aggregate liquidation amount
of the TECONS of such holder (a "Holder Direct Action") on or after the
respective due date specified in the applicable series of Junior Subordinated
Debentures. In connection with such Holder Direct Action, the Company will be
subrogated to the rights of such holder of TECONS under the Declaration to the
extent of any payment made by the Company to such holder of TECONS in such
Holder Direct Action.
DESCRIPTION OF THE TECONS
The TECONS were issued pursuant to the terms of the Declaration which is
qualified under the Trust Indenture Act. The Property Trustee, The First
National Bank of Chicago, 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
TECONS 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 TECONS
and is qualified in its entirety by reference to, the Declaration, the Business
Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Trust to issue the TECONS, 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 the Company. The Common Securities and the TECONS rank pari passu
with each other and will have equivalent terms except that (i) 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 TECONS and (ii) 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
TECONS 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 TECONS and the Common Securities. The payment
of Distributions out of moneys held by the Property Trustee and payments on
redemption of the TECONS or liquidation of the Trust are guaranteed by the
Company on a subordinated basis as and to the extent described under
"Description of the Guarantee." The Property Trustee will hold the Guarantee for
the benefit of holders of the TECONS. The Guarantee is a full and unconditional
guarantee from the time of issuance of the TECONS, but the Guarantee covers
Distributions and other payments on the TECONS 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.
See "-- Voting Rights."
DISTRIBUTIONS
Distributions on the TECONS will be fixed at an annual rate of $2.75 per
TECONS. Distributions in arrears for more than one calendar quarter will bear
interest thereon at the rate per annum of 5.50% (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.
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<PAGE>
Distributions on the TECONS will be cumulative, will accrue from October
29, 1997 and, except as otherwise described below, will be payable quarterly in
arrears on the last day of each quarter, commencing on December 31, 1997, 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 the Company shall not be in default in the payment of interest
on the Junior Subordinated Debentures, the Company has the right under the Trust
Indenture to defer payments of interest on the Junior Subordinated Debentures by
extending the interest payment 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 TECONS (though such Distributions would continue to accrue
with interest thereon at the rate of 5.50% 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 AES 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" and "Risk Factors -- Option to
Extend Interest Payment Period; Tax Impact of Extension." Payments of accrued
distributions will be payable to holders of TECONS 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 TECONS 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 TECONS
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 TECONS. 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. As
used in this Prospectus the term "Pro Rata Basis" shall mean pro rata to each
holder of TECONS according to the aggregate liquidation amount of the Trust
Securities of AES Trust held by the relevant holder in relation to the aggregate
liquidation amount of all Trust Securities of AES Trust outstanding unless, in
relation to a payment, a Declaration Event of Default has occurred and is
continuing, in which case any funds available to make such payment shall be paid
first to each holder of the TECONS pro rata according to the aggregate
liquidation amount of the TECONS held by the relevant holder in relation to the
aggregate liquidation amount of all the TECONS outstanding, and only after
satisfaction of all amounts owed to the holders of TECONS, to each holder of
Common Securities of AES Trust pro rata according to the aggregate liquidation
amount of all Common Securities outstanding.
The payment of distributions on the TECONS is guaranteed by the Company on
a subordinated basis as and to the extent set forth under "Description of the
Guarantee." The Guarantee is a full and unconditional guarantee from the time of
issuance of the TECONS but the Guarantee covers distributions and other payments
on the TECONS 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 TECONS
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 TECONS remain in
book-entry form, will be
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<PAGE>
one Business Day (as defined herein) prior to the relevant Distribution payment
date. Distributions payable on any TECONS 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 TECONS is
registered on the relevant record date, and such defaulted Distribution will
instead be payable to the person in whose name such TECONS 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, 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 TECONS 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; Delivery and Form" and "-- The Global
TECONS" below. In the event that the TECONS 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 TECONS 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 TECONS 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 TECONS will be convertible at any time prior to the close of business
on September 30, 2012 (or in the case of the TECONS 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 AES Common Stock at an initial
conversion rate of 0.8914 share of AES Common Stock for each TECONS (equivalent
to a conversion price of $56.09 per share of AES Common Stock (the "Initial
Conversion Price"), subject to adjustment as described under "-- Conversion
Price Adjustments -- General" and "-- Conversion Price Adjustments --
Fundamental Change" below. If a TECONS 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
TECONS is registered at the close of business on such record date, and (other
than a TECONS or a portion of a TECONS called for redemption on a redemption
date occurring after such record date and on or prior to such Distribution
payment date) when so surrendered for conversion, the TECONS must be accompanied
by payment of an amount equal to the Distribution payable on such Distribution
payment date.
The terms of the TECONS provide that a holder of a TECONS wishing to
exercise its conversion right shall surrender such TECONS, 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 TECONS
for an equivalent amount of Junior Subordinated Debentures and immediately
convert such Junior Subordinated Debentures into AES 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 TECONS is in effect, however,
procedures for converting the TECONS into shares of AES Common Stock will
differ, as described under "Book-Entry -- Delivery and Form" and "-- The Global
TECONS."
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<PAGE>
No fractional shares of AES Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by AES in
cash based on the market price of AES Common Stock on the date such TECONS are
surrendered for conversion.
Conversion Price Adjustments -- General
The Initial Conversion Price is subject to adjustment (under formulae set
forth in the Trust Indenture) in certain events, including:
(i) the issuance of AES Common Stock as a dividend or distribution on
AES Common Stock;
(ii) certain subdivisions and combinations of AES Common Stock;
(iii) the issuance to all holders of AES Common Stock of certain rights
or warrants to purchase AES Common Stock at less than the then current
market price;
(iv) the distribution to all holders of AES Common Stock of (A) equity
securities of the Company (other than AES 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 AES Common Stock, consisting of
cash, excluding (a) any cash dividends on AES Common Stock to the extent
that the aggregate cash dividends per share of AES Common Stock in any
consecutive 12-month period do not exceed the greater of (x) the amount per
share of AES Common Stock of the cash dividends paid on AES 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 AES Common Stock), and (y) 15%
of the average of the daily Closing Price (as defined in the Trust
Indenture) of AES Common Stock for the ten consecutive Trading Days (as
defined in the Trust 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 AES Common Stock to the extent that the
cash and value of any other consideration included in such payment per
share of AES 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 AES Common Stock on the Trading Day next
succeeding the Expiration Time (as defined in the Trust 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 AES Common Stock acquired in the tender
or exchange offer exceeds 110% of the value of such shares based on the
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first reported sale price of AES 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 TECONS the holder converting such TECONS will receive, in
addition to the AES 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 TECONS into AES Common Stock.
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 Trust 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 AES 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 AES Common Stock
(other than a change in par value or as a result of a subdivision or combination
of AES Common Stock); (ii) any consolidation or merger of the Company with or
into another corporation as a result of which holders of AES Common Stock shall
be entitled to receive securities or other property or assets (including cash)
with respect to or in exchange for AES Common Stock (other than a merger which
does not result in a reclassification, conversion, exchange or cancellation of
the outstanding AES 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 AES 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 TECONS then outstanding shall have the
right thereafter to convert such TECONS 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 AES
Common Stock issuable upon conversion of such TECONS 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 AES 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 AES Common
Stock, as the case may be, shall enter into a supplemental indenture with the
Indenture Trustee (as defined herein), 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 AES 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
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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 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 October 29, 1997, the denominator will be 105.50, and the
denominator will decrease by 0.6875 during each successive 12-month period;
provided, that the denominator shall in no event be less than 100.0.
(ii) in the case of a Common Stock Fundamental Change, the conversion
price per share of AES 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 AES 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 AES 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
AES 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 AES 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 AES Common Stock is
converted into securities, cash, or property and not more than 50% of the value
received by the holders of AES 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 TECONS is convertible.
In a Non-Stock Fundamental Change transaction where the initial value
received per share of AES Common Stock (measured as described in the definition
of Applicable Price below) is lower than the then applicable conversion price of
the TECONS but greater than or equal to the Reference Market Price (as defined
herein), the conversion price will be adjusted as described above with the
effect that each TECONS will be convertible into securities, cash or property of
the same type received by the holders of AES Common Stock in such transaction
but in an amount per TECONS equal to the amount indicated as the denominator as
of the date of such transaction as set forth in clause (i) above with respect to
conversion prices for Non-Stock Fundamental Changes.
In a Non-Stock Fundamental Change transaction where the initial value
received per share of AES Common Stock (measured as described in the definition
of Applicable Price below) is lower than both the conversion price of a TECONS
and the Reference Market Price, the conversion price will be adjusted as
described above but calculated as though such initial value had been the
Reference Market Price.
In a Fundamental Change transaction where all or substantially all the AES
Common Stock is converted into securities, cash, or property and more than 50%
of the value received by the holders of AES 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 AES Common Stock is
converted partly into such common stock and partly into other securities, cash,
or property, each TECONS 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 AES Common
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Stock into which such TECONS was convertible immediately before the transaction
(measured as aforesaid) and (b) where AES Common Stock is converted solely into
such common stock, each TECONS will be convertible into the same number of
shares of such common stock receivable by a holder of the number of shares of
AES Common Stock into which such TECONS was convertible immediately before such
transaction. In determining the amount and type of consideration received by a
holder of AES Common Stock in the event of a Fundamental Change, consideration
received by a holder of AES 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 AES Common Stock receive only cash, the amount of cash
receivable by a holder of one share of AES Common Stock and (ii) in the event of
any other Fundamental Change, the average of the Closing Prices (as defined in
the First Supplemental Indenture) for one share of AES Common Stock during the
ten Trading Days immediately prior to the record date for the determination of
the holders of AES Common Stock entitled to receive cash, securities, property
or other assets in connection with such Fundamental Change or, if there is no
such record date, prior to the date on which the holders of the AES 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 AES 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 TECONS continue to exist as outstanding TECONS or (ii) the
outstanding TECONS continue to exist as TECONS 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 AES 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 AES 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 AES Common Stock received in the transaction or event as a result of which
more than 50% of the AES 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 AES 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 AES 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 AES Common Stock shall have the right to receive such shares of
common stock.
"Reference Market Price" will initially mean $29.92 (which represents
662/3% of the last reported sale price per share of AES's Common Stock on the
NYSE on October 23, 1997) 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 TECONS.
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Conversions of the TECONS 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 TECONS or to
holders of AES 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.
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 TECONS and the Common Securities would be distributed on a Pro Rata Basis to
the holders of the TECONS 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 TECONS 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 TECONS, 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
TECONS 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 within 90 days following the occurrence of such Tax Event, and promptly
following such redemption TECONS 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 TECONS, 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 TECONS, except that if an Event of
Default under the Declaration has occurred and is continuing, the TECONS 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
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that on or after October 23, 1997 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 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 October 23, 1997, 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 October 23, 1997.
On the date fixed for any distribution of Junior Subordinated Debentures,
upon dissolution of the Trust, (i) the TECONS and the Common Securities will no
longer be deemed to be outstanding, (ii) the depositary or its nominee, as the
record holder of the TECONS, will receive a registered global certificate or
certificates representing the Junior Subordinated Debentures to be delivered
upon such distribution, and (iii) any certificates representing TECONS 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 TECONS, 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 TECONS 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 TECONS exchanged.
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 TECONS 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 TECONS, except that if an Event of Default under the Declaration has
occurred and is continuing, the TECONS 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 TECONS and Common Securities are to be
redeemed, the TECONS and Common Securities will be redeemed on a Pro Rata Basis.
In the event fewer than all outstanding TECONS are to be redeemed, TECONS
registered in the name of and held by DTC or its nominee will be redeemed as
described under "-- Redemption Procedures" below.
REDEMPTION PROCEDURES
The Trust may not redeem any outstanding TECONS unless all accrued and
unpaid distributions have been paid on all TECONS for all quarterly distribution
periods terminating on or prior to the date of notice of redemption.
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If the Trust gives a notice of redemption in respect of TECONS (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 TECONS. See "-- The Global TECONS." 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 TECONS called for redemption, such
TECONS shall no longer be deemed to be outstanding and all rights of holders of
such TECONS so called for redemption will cease, except the right of the holders
of such TECONS 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 TECONS which have been so
called for redemption. If any date fixed for redemption of TECONS 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 TECONS is improperly withheld
or refused and not paid by the Property Trustee or by the Company pursuant to
the Guarantee described under "Description of the Guarantee," distributions on
such TECONS will continue to accrue, from the original redemption date of the
TECONS 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 TECONS are to be
redeemed, the TECONS will be redeemed as described below under "-- Book-Entry;
Delivery and Form" and "-- The Global TECONS."
If a partial redemption of the TECONS would result in the delisting of the
TECONS by any national securities exchange or other organization on which the
TECONS 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 TECONS 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 TECONS 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 TECONS 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 "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
TECONS 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 TECONS 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 TECONS,
except that if an Event of Default under the Declaration has occurred and is
continuing, the TECONS shall have a priority over the Common Securities with
respect to payment of the Liquidation Distribution.
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Pursuant to the Declaration, the Trust shall terminate: (i) on November 1,
2031, the expiration of the term of the Trust; (ii) 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 (iii) 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 event of default under the Indenture (an "Indenture Event of Default")
constitutes an Event of Default under the Declaration with respect to the Trust
Securities; 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 TECONS
have been cured or waived. Until all such Events of Default with respect to the
TECONS have been so cured or waived, the Property Trustee will be deemed to be
acting solely on behalf of the holders of the TECONS, and only the holders of
the TECONS 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 TECONS is waived by the
holders of the TECONS 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."
REGISTRATION RIGHTS
In connection with the Original Offering, the Trust and the Company agreed
with the Initial Purchasers, for the benefit of the holders of the TECONS, that
the Company will use its reasonable best efforts, and at its cost, to file on or
before the 90th day following the date of original issuance of the TECONS a
shelf registration statement (the "Shelf Registration Statement") with respect
to resales of the TECONS, the Guarantee, the Junior Subordinated Debentures and
the shares of AES Common Stock issuable upon conversion (the "Registrable
Securities") and to keep such registration statement effective until the earlier
of (i) the sale pursuant to such registration statement or Rule 144 under the
Securities Act of all the Registrable Securities and (ii) two years after the
date of the original issuance of the TECONS. Holders will be required to provide
certain information to the Company to be included in the registration statement
in order to use the prospectus for resales. The Company shall provide to each
holder copies of the prospectus, notify each holder when such registration
statement has become effective and take certain other actions as are required to
permit resales. In the event that (i) the Shelf Registration Statement is not
declared effective on or prior to the 180th day following the date of original
issuance of the TECONS or (ii) if use of the Shelf Registration Statement for
resales is suspended for any time during the two-year period after the date of
original issuance of the TECONS for a period in excess of 30 days during any
three-month period or 60 days during any 12-month period (each, a "permitted
black-out period"), then additional cumulative cash distributions (in addition
to amounts otherwise due on the TECONS) will accrue at an annual rate of $0.25
per TECONS for the first 90 days and increasing to $0.50 per TECONS thereafter
if clause (i) applies from April 28, 1998 until such
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registration statement is declared effective and if clause (ii) applies, then
during the period, other than any permitted black-out period, use is so
suspended. The Registration Statement of which this Prospectus is a part
constitutes the Shelf Registration Statement.
VOTING RIGHTS
Except as provided below, under "Modification and Amendment of the
Declaration" and "Description of the Guarantee" and as otherwise required by the
Business Trust Act, the Trust Indenture Act and the Declaration, the holders of
the TECONS will have no voting rights.
Subject to the requirements of this paragraph, the holders of a majority in
aggregate liquidation amount of the TECONS have the right (i) on behalf of all
holders of TECONS, 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 TECONS representing such specified percentage of the aggregate
liquidation amount of the TECONS or, in the case of clause (b) above, each
holder of all TECONS affected thereby. The Property Trustee shall not revoke any
action previously authorized or approved by a vote of the holders of TECONS. The
Property Trustee shall notify all holders of record of TECONS 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 TECONS 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 TECONS 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
TECONS 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
TECONS of such holder. See "-- Declaration Events of Default."
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of holders of the TECONS 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
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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
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 TECONS may be given at a
separate meeting of holders of TECONS 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 TECONS
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 TECONS.
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 TECONS will be required for the Trust
to redeem and cancel TECONS or distribute Junior Subordinated Debentures in
accordance with the Declaration.
Notwithstanding that holders of TECONS are entitled to vote or consent
under any of the circumstances described above, any of the TECONS 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 TECONS registered in the name of and
held by DTC or its nominee may exercise their voting rights are described under
"-- The Global TECONS" below. Holders of the TECONS 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 TECONS 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 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
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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 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 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.
DEBTS AND OBLIGATIONS
In the Declaration, the Company has agreed to pay for all debts and
obligations (other than with respect to the Trust Securities) and all costs and
expenses of AES Trust, including the fees and expenses of its Trustees and any
taxes and all costs and expenses with respect thereto, to which AES Trust may
become subject, except for United States withholding taxes. The foregoing
obligations of the Company 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 such Creditor has
received notice thereof. Any such Creditor may enforce such obligations of the
Company directly against the Company and the Company has irrevocably waived any
right or remedy to require that any such Creditor take any action against AES
Trust or any other person before proceeding against the Company. The Company has
agreed in each Declaration to execute such additional agreements as may be
necessary or desirable in order to give full effect to the foregoing.
BOOK-ENTRY; DELIVERY AND FORM
The following describes the delivery and order of TECONS in connection with the
Originial Offering and transactions in TECONS which are not being or have not
been resold under this Prospectus.
The certificates representing the TECONS have been issued in fully
registered form. TECONS resold in offshore transactions in reliance on
Regulation S under the Securities Act are represented by a single, permanent
global TECONS in definitive, fully registered form (the "Regulation S Global
TECONS") deposited with the Property Trustee as custodian for DTC and registered
in the name of a nominee of DTC for the accounts of Euroclear and Cedel.
TECONS resold in reliance on Rule 144A are represented by a single,
permanent global TECONS in definitive, fully registered form (the "Restricted
Global TECONS") deposited with the Trustee as custodian for DTC and registered
in the name of a nominee of DTC. The Restricted Global TECONS (and any TECONS
issued in exchange therefor) are subject to certain restrictions on transfer set
forth therein and will bear a legend regarding such restrictions. Beneficial
interests in the Restricted Global TECONS may be transferred to a person who
takes delivery in the form of an interest in the Regulation S Global TECONS only
upon receipt by the Trustee of a written certification to the effect that such
transfer is being made in accordance with Regulation S under the Securities Act.
After the TECONS have been registered and resold under the Securities Act, all
certification requirements with respect to the TECONS will cease.
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Resales Under this Prospectus
TECONS resold under the Registration Statement of which this Prospectus
forms a part will be represented by a single, permanent global TECONS in
definitive, fully registered form (the "Unrestricted Global TECONS" and with the
Regulation S Global TECONS and the Restricted Global TECONS, the "Global
TECONS"), which is deposited with the Property Trustee as custodian for DTC and
registered in the name of a nominee of DTC.
Upon each sale by a Selling Holder of TECONS (or the Junior Subordinated
Debentures or shares of AES Common Stock into which the TECONS or Junior
Subordinated Debentures, as the case may be, may be converted) offered hereby,
such Selling Holder will be required to deliver a notice (the "Notice") of such
sale to the Property Trustee and the Company. The Notice will, among other
things, identify the sale as a sale pursuant to the Registration Statement of
which this Prospectus forms a part, certify that the prospectus delivery
requirements, if any, of the Securities Act have been satisfied, and certify
that the Selling Holder and the number of TECONS (or Junior Subordinated
Debentures or shares of AES Common Stock, as the case may be) are identified in
the Prospectus in accordance with the applicable rules and regulations under the
Securities Act. A copy of the Notice is included herein in Appendix A.
Additional copies may be requested form the Company, Attention: William R.
Luraschi, General Counsel and Secretary, 1001 North 19th Street, Arlington,
Virginia 22209, telephone number (703) 522-1315.
Upon receipt by the Property Trustee of the Notice relating to a sale of
TECONS, an appropriate adjustment will be made to reflect a decrease in the
principal amount of the Restricted Global TECONS or the Regulation S Global
TECONS, as the case may be, or the cancellation of a TECONS in certificated form
upon the transfer thereof, and a corresponding increase in the principal amount
of the Unrestricted Global TECONS.
Transfers between Global Securities
Any beneficial interest in one of the Global TECONS that is transferred to
a person who takes delivery in the form of an interest in the other Global
TECONS, will, upon transfer, cease to be an interest in such Global TECONS and
become an interest in the other Global TECONS, and, accordingly, will thereafter
be subject to all transfer restrictions, if any, and other procedures applicable
to beneficial interest in such other Global TECONS for as long as it remains
such interest. Except in the limited circumstances described under "The Global
TECONS," owners of beneficial interests in Global TECONS will not be entitled to
receive physical delivery of Certificated TECONS (as defined below). The TECONS
are not issuable in bearer form.
Resales to Institutional Accredited Investors
TECONS which are not resold under this Prospectus and which are transferred
to Institutional Accredited Investors who are not qualified institutional buyers
("Non-Global Purchaser") will be issued in registered form ("Certificated
TECONS"). Upon the transfer of Certificated TECONS initially issued to a
Non-Global Purchaser either to a qualified institutional buyer or in accordance
with Regulation S, such Certificated TECONS will, unless the relevant Global
TECONS has previously been exchanged in whole for Certificated TECONS, be
exchanged for an interest in a Global TECONS.
THE GLOBAL TECONS
Upon the issuance of the Global TECONS, DTC or its custodian have credited
or will credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global TECONS to the
accounts of persons who have accounts with such depository. Such accounts were
initially designated by or on behalf of the Initial Purchasers. Ownership of
beneficial interests in the Global TECONS will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global TECONS will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by, DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to
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interest of persons other than participants). Investors may hold their interest
in the Global TECONS directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
Investors may hold their interests in the Regulation S Global TECONS
directly through Cedel or Euroclear, if they are participants in such systems,
or indirectly through organizations that are participants in such systems.
Investors may also hold such interests through organizations other than Cedel or
Euroclear that are participants in the DTC system. Cedel and Euroclear will hold
interests in the Regulation S Global TECONS on behalf of their participants
through DTC.
So long as DTC, or its nominee, is the registered owner or holder of the
Global TECONS, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the TECONS represented by such Global TECONS for all
purposes under the Trust Agreement and the TECONS. No beneficial owner of an
interest in the Global TECONS will be able to transfer that interest except in
accordance with the procedures provided for under "Book Entry; Delivery and
Form," as well as DTC's applicable procedures and, if applicable, those of
Euroclear and Cedel.
Payments of the principal of, and interest on, the Global TECONS will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
None of the Company, the Trust or any paying agent will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global TECONS or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global TECONS will credit participants'
accounts with payments in accounts proportionate to their respective beneficial
interests in the principal amount of the Global TECONS as shown on the records
of DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in the Global TECONS held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the name of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of a Certificated TECONS for any reason, including to
sell TECONS to persons in states which require such delivery of such TECONS or
to pledge such TECONS, such holder must transfer its interest in the Global
TECONS in accordance with the normal procedures of DTC and the procedures set
forth in "Book Entry; Delivery and Form." Transfers between participants in
Euroclear and Cedel will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of TECONS (including the presentation of TECONS for exchange
as described below) only at the direction of one or more participants to whose
accounts the DTC interests in the Global TECONS is credited and only in respect
of such portion of the aggregate liquidation amount of TECONS as to which such
participant or participants has or have given such direction.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definite form. Such laws may
impair the ability to transfer beneficial interests in the Global TECONS as
represented by a global certificate.
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 Securities Exchange
Act of 1934, as amended (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 without electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certification.
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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
Nasdaq National Market, 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 transaction through or maintain a direct or indirect
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.
Conversion and redemption notices shall be sent to DTC or its nominee. If
less than all of the TECONS of a Direct Participant are being converted or
redeemed, DTC or such nominee will reduce the amount of the interest of each
Direct Participant in such TECONS in accordance with its normal procedures.
Although voting with respect to the TECONS is limited, in those cases where
a vote is required, neither DTC nor its nominee will itself consent or vote with
respect to TECONS. 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 consenting or voting rights to those Direct Participants to whose
accounts the TECONS are credited on the record date (identified in a listing
attached to the Omnibus Proxy). AES and the Trust believe that the arrangements
among DTC, Direct and Indirect Participants, and Beneficial Owners will enable
the Beneficial Owners to exercise rights equivalent in substance to the rights
that can be directly exercised by a holder of a beneficial interest in the
Trust.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
in order to facilitate transfers of interest in the Global TECONS among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Property Trustee will have
any responsibility for the performance by DTC, Euroclear or Cedel or their
respective obligations under the rules and procedures governing their
operations. IF DTC discontinues being the Depositary and a successor Depositary
is not obtained, certificates for the TECONS are required to be printed and
delivered. Additionally, the Regular Trustees (with the consent of AES) may
decide to discontinue use of the system of book-entry transfers through DTC (or
any successor Depositary) with respect to the TECONS. In that event,
certificates for the TECONS will be printed and delivered.
The information in this section concerning DTC, Euroclear and Cedel and
DTC's book-entry system has been obtained from sources that AES and the Trust
believe to be reliable, but neither AES nor the Trust takes 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 TECONS do not remain in book-entry only form, the following provisions
will apply:
Payment of distributions and payments on redemption of the TECONS will be
payable, the transfer of the TECONS will be registrable, and TECONS will be
exchangeable for TECONS 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 TECONS will
be made only upon surrender of such TECONS to the Property Trustee.
The First National Bank of Chicago or one of its affiliates will act as
registrar and transfer agent for the TECONS. The First National Bank of Chicago
will also act as paying agent and, with the consent of the Regular Trustees, may
designate additional paying agents.
Registration of transfers of TECONS 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.
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The Trust will not be required to register or cause to be registered the
transfer of TECONS after such TECONS 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 TECONS, 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 TECONS are governed by, and will be 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.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee
executed and delivered by the Company for the benefit of the holders from time
to time of TECONS. The Guarantee has been separately qualified under the Trust
Indenture Act and is held by The First National Bank of Chicago, acting in its
capacity as indenture trustee with respect thereto, for the benefit of holders
of the TECONS. The terms of the Guarantee are those set forth in the Guarantee
and those made part of such Guarantee by the Trust Indenture Act. This
description summarizes the material terms of the Guarantee and is qualified in
its entirety by reference to the Guarantee (a copy of which has been included as
an exhibit to the Registration Statement of which this Prospectus Offering is a
part) and the Trust Indenture Act. Section and Article references used herein
are references to the provisions of the Guarantee.
GENERAL
Pursuant to the Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full, to the holders of the
TECONS, the Guarantee Payments (as defined herein) (without duplication of
amounts theretofore paid by AES Trust), to the extent not paid by AES Trust,
regardless of any defense, right of set-off or counterclaim that AES Trust may
have or assert. The following payments or distributions with respect to TECONS
to the extent not paid or made by AES
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Trust (the "Guarantee Payments"), will be subject to the Guarantee (without
duplication): (i) any accrued and unpaid distributions on TECONS, and the
redemption price, including all accrued and unpaid distributions to the date of
redemption, with respect to any TECONS called for redemption by AES Trust but if
and only to the extent that in each case the Company has made a payment to the
Property Trustee of interest or principal on the Junior Subordinated Debentures
deposited in AES Trust as trust assets and (ii) upon a voluntary or involuntary
dissolution, winding-up or termination of AES Trust (other than in connection
with the distribution of such Junior Subordinated Debentures to the holders of
TECONS or the redemption of all of the TECONS upon the maturity or redemption of
such Junior Subordinated Debentures) the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on the TECONS to the
date of payment, to the extent AES Trust has funds available therefor or (b) the
amount of assets of AES Trust remaining available for distribution to holders of
the TECONS in liquidation of AES Trust. 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 TECONS or by causing AES Trust to pay such amounts
to such holders.
The Guarantee is a guarantee from the time of issuance of the TECONS, but
the Guarantee covers distributions and other payments on the TECONS 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 AES
Trust as trust assets. If the Company does not make interest or principal
payments on the Junior Subordinated Debentures deposited in AES Trust as trust
assets, the Property Trustee will not make distributions of the TECONS and AES
Trust will not have funds available therefor.
The Company's obligations under the Declaration, the Guarantee issued with
respect to TECONS, the Junior Subordinated Debentures purchased by the Trust and
the Indenture in the aggregate will provide a full and unconditional guarantee
on a subordinated basis by the Company of payments due on the TECONS.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, has covenanted that, so long as any TECONS issued by AES
Trust remain outstanding, the Company will not (A) 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 thereto or (B) make any payment of interest,
premium (if any) or principal on any debt securities issued by the Company which
rank pari passu with or junior to the Junior Subordinated Debentures, if at such
time (i) the Company shall be in default with respect to its Guarantee Payments
or other payment obligations under the Guarantee, (ii) there shall have occurred
any Declaration Event of Default under the Declaration or (iii) in the event
that Junior Subordinated Debentures are issued to AES Trust in connection with
the issuance of Trust Securities, the Company shall have given notice of its
election to defer payments of interest on such Junior Subordinated Debentures by
extending the interest payment period as provided in the terms of the Junior
Subordinated Debentures and such period, or any extension thereof, is
continuing: provided that the foregoing will not apply to stock dividends paid
by the Company in its Common Stock. In addition, so long as any TECONS remain
outstanding, the Company has agreed (i) to remain the sole direct or indirect
owner of all of the outstanding Common Securities issued by 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
the Company under the Indenture may succeed to the Company's ownership of the
Common Securities issued by the applicable AES Trust and (ii) to use reasonable
efforts to cause such 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 Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of TECONS (in which case no consent will be required), the Guarantee
may be amended only with the prior approval of the holders of not less than a
majority in liquidation amount of the outstanding TECONS issued by AES Trust.
All guarantees and agreements contained in the Guarantee shall bind the succes-
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sors, assignees, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the TECONS then outstanding. Except
in connection with a consolidation, merger or sale involving the Company that is
permitted under the Indenture, the Company may not assign its obligations under
the Guarantee.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect as to
the TECONS upon full payment of the redemption price of all the TECONS, or upon
distribution of the Junior Subordinated Debentures to the holders of the TECONS
in exchange for all of the TECONS, or upon full payment of the amounts payable
upon liquidation of AES Trust. Notwithstanding the foregoing, the Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of TECONS must restore payment of any sums paid under the TECONS
or the Guarantee.
The Company's obligations under the Guarantee to make the Guarantee
Payments will constitute an unsecured obligation of the Company and will rank
subordinate and junior in right of payment to all other liabilities of the
Company, including the Junior Subordinated Debentures, except those made pari
passu or subordinate by their terms, and pari passu in right of payment with the
most senior preferred stock issued, from time to time, if any, by the Company.
The Company's obligations under the Guarantee will rank pari passu with other
Preferred Securities Guarantees of the Company. Because the Company is a holding
company, the Company's obligations under the Guarantee are also effectively
subordinated to all existing and future liabilities, including trade payables,
of the Company's subsidiaries, except to the extent that the Company is a
creditor of the subsidiaries recognized as such. The Declaration provides that
each TECONS holder's acceptance thereof agrees to the subordination provisions
and other terms of the Guarantee.
STATUS OF THE GUARANTEE
The 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). The
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 TECONS
issued by AES Trust. The First National Bank of Chicago shall enforce the
Guarantee on behalf of the holders of the TECONS. The holders of not less than a
majority in aggregate liquidation amount of the TECONS have the right to direct
the time, method and place of conducting any proceeding for any remedy available
in respect of the Guarantee, including the giving of directions to The First
National Bank of Chicago. If The First National Bank of Chicago fails to enforce
the Guarantee as above provided, any holder of TECONS may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee, without first instituting a legal proceeding against AES Trust or any
other person or entity. Notwithstanding the foregoing, if the Company has failed
to make a guarantee payment, a holder of TECONS may directly institute a
proceeding against the Company for enforcement of the Guarantee for such
payment.
MISCELLANEOUS
The Company will be required to provide annually to The First National Bank
of Chicago a statement as to the performance by the Company of certain of its
obligations under the Guarantee and as to any default in such performance. The
Company is required to file annually with The First National Bank of Chicago an
officer's certificate as to the Company's compliance with all conditions under
the Guarantee.
The First National Bank of Chicago, prior to the occurrence of a default,
undertakes to perform only such duties as are specifically set forth in the
Guarantee and, after default with respect to the 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 the
Guarantee at the request of any holder of TECONS unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
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GOVERNING LAW
The Guarantee is governed by, and will be construed in accordance with, the
laws of the State of New York.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the Junior Subordinated Debentures in
which the Trust has invested the proceeds from the issuance and sale of the
Trust Securities and which have been deposited in the Trust as trust assets. The
terms of the Junior Subordinated Debentures include those stated in the
Indenture dated as of March 1, 1997 between the Company and The First National
Bank of Chicago, as trustee (the "Indenture Trustee"), as supplemented by the
Second Supplemental Indenture dated as of October 29, 1997 between the Company
and the Indenture Trustee (as so supplemented, the "Trust Indenture" or the
"Indenture") copies of which have been included as exhibits to the Registration
Statement of which this Prospectus forms a part. 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 TECONS -- 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 (i) the stated liquidation amount of the TECONS issued by the Trust and
(ii) 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). Since the Company is a holding
company, the Company's rights and the rights of its creditors, including the
holders of Junior Subordinated Debentures 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 the
Company may itself be a creditor with recognized claims against the subsidiary.
The entire principal amount of the Junior Subordinated Debentures will
become due and payable, together with any accrued and unpaid interest thereon,
on September 30, 2012. The Junior Subordinated Debentures are not subject to any
sinking fund.
If Junior Subordinated Debentures are distributed to holders of TECONS 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.
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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 New York, New York; 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.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Junior
Subordinated Debentures 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 the Company.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshalling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings of the Company, 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 Debentures will be entitled to receive any payment in respect of
the principal of, premium, if any, or interest on the Junior Subordinated
Debentures.
No payments on account of principal, premium, if any, or interest in
respect of the Junior Subordinated Debentures may be made by the Company 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 Debentures may be made by the Company during a period (the "Payment
Blockage Period") commencing on the date of delivery of such notice and ending
179 days thereafter (unless such Payment Blockage Period shall be terminated by
written notice to the Trustee from the holders of such 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 Debentures 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 such subordination, in the event of insolvency, funds that
would otherwise be payable to holders of Junior Subordinated Debentures will be
paid to the holders of Senior and Subordinated Debt of the Company to the extent
necessary to pay such Debt in full, and the Company may be unable to meet fully
its obligations with respect to the Junior Subordinated Debentures.
"Debt" is defined to mean, with respect to any person at any date of
determination (without duplication), (i) all indebtedness of such person for
borrowed money, (ii) all obligations of such person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
person in respect of letters of credit or bankers' acceptance or other similar
instruments (or reimbursement obligations with respect thereto), (iv) all
obligations of such person to pay the deferred purchase price of property or
services, except trade payables, (v) all obligations of such person as lessee
under capitalized leases, (vi) all Debt of others secured by a lien on any asset
of such person, whether or not such Debt is
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assumed by such person; provided that, for purposes of determining the amount of
any Debt of the type described in this clause, if recourse with respect to such
Debt is limited to such asset, the amount of such Debt shall be limited to the
lesser of the fair market value of such asset or the amount of such Debt, (vii)
all Debt of others guaranteed by such person to the extent such Debt is
guaranteed by such person, (viii) all redeemable stock valued at the greater of
its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends and (ix) to the extent not otherwise included in this definition, all
obligations of such person under currency agreements and interest rate
agreements.
"Designated Senior and Subordinated Debt" is defined to mean (i) Debt under
the Credit Agreement dated as of May 20, 1996 (the "Credit Agreement") among the
Company, 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 (ii) Debt constituting Senior and Subordinated Debt which, at the
time of its determination, (A) has an aggregate principal amount of at least $30
million and (B) is specifically designated in the instrument evidencing such
Senior and Subordinated Debt as "Designated Senior and Subordinated Debt" by the
Company.
"Senior and Subordinated Debt" is defined to mean the principal of (and
premium, if any) and interest on all Debt of the Company whether created,
incurred or assumed before, on or after the date of the Indenture; provided that
such Senior and Subordinated Debt shall not include (i) Debt of the Company to
any Affiliate, (ii) Debt of the Company that, when incurred and without respect
to any election under Section 1111(b) of Title 11, U.S. Code, was without
recourse, (iii) any other Debt of the Company 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 Debentures, and in
particular the Junior Subordinated Debentures shall rank pari passu with all
other debt securities and guarantees issued to any trust, partnership or other
entity affiliated with the Company which is a financing vehicle of the Company
in connection with an issuance of preferred securities by such financing entity,
and (iv) redeemable stock of the Company.
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OPTIONAL REDEMPTION
Except as provided below, the Junior Subordinated Debentures may not be
redeemed prior to September 30, 2000. AES shall have the right to redeem the
Junior Subordinated Debentures, in whole or in part, from time to time, on or
after September 30, 2000, 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 Compound Interest to, but excluding, the redemption date, if redeemed
during the 12-month period beginning September 30:
YEAR REDEMPTION PRICE
- ---- -----------------
2000 ............... 103.438%
2001 ............... 102.750%
2002 ............... 102.063%
2003 ............... 101.375%
2004 ............... 100.688%
and 100% if redeemed on or after September 30, 2005.
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 TECONS are outstanding, the proceeds from the
redemption of any Junior Subordinated Debentures will be used to redeem TECONS.
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 TECONS -- 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 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 (i) issue, register the transfer of or exchange any Junior Subordinated
Debentures during a period beginning at the opening of business 15 days before
any selection for redemption of Junior Subordinated Debentures and ending
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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 (ii) 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 5.50%
per annum from October 29, 1997. Interest will be payable quarterly in arrears
on the last day of each calendar quarter (each, an "Interest Payment Date"),
commencing on December 31, 1997, 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 TECONS shall 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 TECONS", the Junior Subordinated Debentures shall not
continue to remain in book-entry only form, the relevant record date will be the
fifteenth day of the month in which the relevant Interest Payment Date occurs.
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 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 AES 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
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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 (i) the date
the distributions on the TECONS are payable or (ii) the date the Trust is
required to give notice to the NYSE or other applicable self-regulatory
organization or to holders of the TECONS 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 TECONS.
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 (i) the next succeeding Interest Payment Date or (ii)
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 U.S., 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 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 AES Common Stock at
the option of the holders of the Junior Subordinated Debentures at any time
prior to the close of business on September 30, 2012 (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
TECONS -- 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 TECONS. Upon surrender of a
TECONS to the Conversion Agent for conversion, the Trust will distribute Junior
Subordinated Debentures to the Conversion Agent on behalf of the holder of the
TECONS so converted, whereupon the Conversion Agent will convert such Junior
Subordinated Debentures to AES 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 AES 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 TECONS pursuant to the terms thereof.
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CERTAIN COVENANTS OF THE COMPANY APPLICABLE TO THE JUNIOR SUBORDINATED
DEBENTURES
If Junior Subordinated Debentures are issued to AES Trust in connection
with the issuance of Trust Securities by AES Trust, the Company will covenant in
the Indenture that, so long as the TECONS issued by AES Trust remain
outstanding, the Company 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 such time (i) the Company shall be in default
with respect to its Guarantee Payments or other payment obligations under the
Guarantee, (ii) there shall have occurred any Indenture Event of Default with
respect to the Junior Subordinated Debentures or (iii) in the event that Junior
Subordinated Debentures are issued to AES Trust in connection with the issuance
of Trust Securities by AES Trust, the Company shall have given notice of its
election to defer payments of interest on such Junior Subordinated Debentures by
extending the interest payment period as provided in the terms of such Junior
Subordinated Debentures and such period, or any extension thereof, is
continuing; provided that (x) the Company will be permitted to pay accrued
dividends (and cash in lieu of fractional shares) upon the conversion of any
preferred stock of the Company as may be outstanding from time to time, in each
case in accordance with the terms of such stock and (y) the foregoing will not
apply to any stock dividends paid by the Company. In addition, if Junior
Subordinated Debentures are issued to AES Trust in connection with the issuance
of Trust Securities by AES Trust, for so long as TECONS remain outstanding, the
Company has agreed (i) to remain the sole direct or indirect owner of all of the
outstanding Common Securities issued by AES Trust and not to cause or permit the
Common Securities to be transferred except to the extent permitted by the
Declaration; provided that any permitted successor of the Company under the
Indenture may succeed to the Company's ownership of the Common Securities issued
by AES Trust, (ii) to comply fully with all of its obligations and agreements
contained in the related Declaration and (iii) not to take any action which
would cause 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 Debentures.
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 Debentures:
(a) failure for 30 days to pay interest on the Junior Subordinated
Debentures of such series when due; provided that a valid extension
of the interest payment period by the Company shall not constitute a
default in the payment of interest for this purpose;
(b) failure to pay principal of or premium, if any, on the Junior
Subordinated Debentures of such series when due whether at maturity,
upon redemption, by declaration or otherwise;
(c) failure to observe or perform any other covenant contained in the
Indenture with respect to such series for 90 days after written
notice to the Company from the Indenture Trustee or the holders of
at least 25% in principal amount of the outstanding Junior
Subordinated Debentures of such series; or
(d) certain events in bankruptcy, insolvency or reorganization of the
Company.
In each and every such case, unless the principal of all the Junior
Subordinated Debentures 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 Debentures of that series
then outstanding, by notice in writing to the Company (and to the Indenture
Trustee if given by such holders), may declare the principal of all the Junior
Subordinated Debentures 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. (Section 6.01)
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The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures 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. (Section 6.06) The Indenture Trustee or the holders of not
less than 25% in aggregate outstanding principal amount of the Junior
Subordinated Debentures 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 Debentures 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. (Sections 6.01 and 6.06)
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures of that series may, on behalf of the holders of
all the Junior Subordinated Debentures 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 Debentures. (Section 6.06) The Company is required to
file annually with the Indenture Trustee a certificate as to whether or not the
Company is in compliance with all the conditions and covenants under the
Indenture. (Section 5.03)
If Junior Subordinated Debentures are issued to AES Trust in connection
with the issuance of Trust Securities, then under the applicable Declaration an
Indenture Event of Default with respect to such series of Junior Subordinated
Debentures will constitute a Declaration Event of Default.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the outstanding Junior Subordinated Debentures of each
series affected, to modify the Indenture or any supplemental indenture affecting
the rights of the holders of such Junior Subordinated Debentures; provided that
no such modification may, without the consent of the holder of each outstanding
Junior Subordinated Debenture affected thereby, (i) extend the fixed maturity of
any Junior Subordinated Debentures of any series, reduce the principal amount
thereof, reduce the rate or extent 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 Debenture so affected or (ii) reduce the
percentage of Junior Subordinated Debentures, the holders of which are required
to consent to any such modification, without the consent of the holders of each
Junior Subordinated Debenture then outstanding and affected thereby. (Section
9.02)
CONSOLIDATION, MERGER AND SALE
The Indenture will provide that the Company 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 the Company unless (i) either the Company 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 the
Company's obligations under the Indenture and (ii) immediately after giving
effect to the transaction no Event of Default shall have occurred and be
continuing. (Section 10.01)
DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, the Company will be discharged from any
and all obligations in respect of the Junior Subordinated Debentures of a series
(except in each case for certain obligations to register the transfer or
exchange of such Junior Subordinated Debentures, replace stolen, lost or
mutilated Junior Subordinated Debentures of that series, maintain paying
agencies and hold moneys for payment in trust) if (i) the Company irrevocably
deposits with the Indenture Trustee cash or U.S.
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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 Debentures of such series; (ii)
such deposit will not result in a breach or violation of, or constitute a
default under, any agreement or instrument to which the Company is a party or by
which it is bound; (iii) the Company delivers to the Indenture Trustee an
opinion of counsel to the effect that the holders of the Junior Subordinated
Debentures of such series will not recognize income, gain or loss for United
States federal income tax purposes as a result of such defeasance and that
defeasance will not otherwise alter holders' United States federal income tax
treatment of principal, premium and interest payments on such Junior
Subordinated Debentures of such 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 the Indenture, since such a result would not
occur under current tax law); (iv) the Company has 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 (v) no event or condition shall
exist that, pursuant to the subordination provisions applicable to such series,
would prevent the Company from making payments of principal of, premium, if any,
and interest on the Junior Subordinated Debentures of such series at the date of
the irrevocable deposit referred to above. (Section 11.01)
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures are governed by the
laws of the State of New York. (Section 13.05)
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. (Section 7.01) Subject to such provision, the
Indenture Trustee is under no obligation to exercise any of the powers vested in
it by the Indenture at the request of any holder of Junior Subordinated
Debentures, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities that might be incurred thereby. (Section 7.02)
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. (Section 7.01)
The Company and its subsidiaries maintain ordinary banking and trust
relationships with The First National Bank of Chicago and its affiliates.
MISCELLANEOUS
The Company will have the right at all times to assign any of its rights or
obligations under the Indenture to a direct or indirect wholly-owned subsidiary
of the Company; provided that, in the event of any such assignment, the Company
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 the Company to a successor or purchaser pursuant to a consolidation, merger
or sale permitted by the Indenture. (Section 13.11)
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of TECONS in connection with the involuntary or
voluntary dissolution, winding-up or liquidation of the Trust as a result of the
occurrence of a Special Event, the Junior Subordinated Debentures will be issued
(i) if to owners of beneficial interests in the Global TECONS, in the form of
one or more global certificates (each, a "Global Security") registered in the
name of the Depositary or its nominee or (ii) if to holders of certificated
TECONS, in registered form (each, a "Certificated Security"). Except under the
limited circumstances described below, Junior Subordinated
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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 or
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 herein, 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 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.
Accordingly, each beneficial owner of an interest in a Global Security 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 Indenture.
THE DEPOSITARY
If Junior Subordinated Debentures are distributed to holders of TECONS in
liquidation of such holders' interests in the Trust, DTC will act as Depositary
for the Junior Subordinated Debentures. For a description of DTC and the
specific terms of the Depositary arrangements, see "Description of the TECONS --
The Global TECONS." As of the date of this Prospectus, the description therein
of DTC's book-entry system and DTC's and Euroclear's and Cedel's practices as
they relate to purchases, transfers, notices and payments with respect to the
TECONS apply in all material respects to any debt obligations represented by one
or more Global Securities held by the Company. 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 Depositary for the Global
Securities.
None of the Company, the Trust, the Property 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.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
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 (i) 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, (ii) 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, (iii) the Company, in its sole discretion,
determines that such Global Security shall be so exchangeable or (iv) there
shall have occurred an 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 TECONS, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the Trust exists for the sole purpose of
(a) 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 (b) engaging in such other activities
as are necessary and incidental thereto.
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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 TECONS primarily because (i) 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 TECONS and the proceeds received by the Trust upon issuance of the Common
Securities to the Company; (ii) 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 TECONS; (iii) 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
(iv) 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 (iii)
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 TECONS are
guaranteed by the Company on a subordinated basis as and to the extent set forth
under "Description of the Guarantee." If the Company does not make interest or
other payments on the Junior Subordinated Debentures, the Trust will not make
distributions or other payments on the TECONS. 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 TECONS. The Guarantee is a full and unconditional
guarantee from the time of issuance of the TECONS, but the Guarantee covers
distributions and other payments on the TECONS 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 Guarantee on behalf of the holders of the TECONS.
In addition, the holders of at least a majority in liquidation amount of the
TECONS will have the right to direct the Property Trustee with respect to
certain matters under the Declaration and the Guarantee. If the Property Trustee
fails to enforce its rights under the Trust Indenture any holder of TECONS 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
Guarantee, to the extent permitted by applicable law, any holder of TECONS may
institute a legal proceeding directly against the Company to enforce the
Property Trustee's rights under the Guarantee. Notwithstanding the foregoing, if
the Company has failed to make a guarantee payment, a holder of TECONS may
directly institute a proceeding against the Company for enforcement of the
Guarantee for such payment. See "Description of the TECONS" and "Description of
the Guarantee."
The above mechanisms and obligations, taken together, provide a full and
unconditional guarantee by the Company of payments due on the TECONS.
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 TECONS. Unless otherwise
stated, this summary deals only with TECONS held as capital assets by holders
who acquire the TECONS upon original issuance at the price indicated on the
cover of this Prospectus. It does not deal with special classes of holders, such
as dealers in securities or currencies, life insurance companies, persons
holding TECONS 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
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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 TECONS 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. However, no assurance can be given, that this characterization
will not be challenged by the Internal Revenue Service or the courts. The
remainder of this discussion assumes that the characterization of the Junior
Subordinated Debentures as indebtedness of the Company will be respected.
CLASSIFICATION OF THE TRUST
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 TECONS 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
The Junior Subordinated Debentures will be considered to have been issued
with "original issue discount" ("OID"). Accordingly, each holder of TECONS,
including a taxpayer who otherwise uses the cash method of accounting, will be
required to include its pro rata share of original issue discount 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 TECONS. Generally, all of a holder's taxable interest
income with respect to the Junior Subordinated Debentures will be accounted for
as "original issue discount" 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." Because
the Company has the right to extend the interest payment period of the Junior
Subordinated Debentures, 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 TECONS 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 original issue discount
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 TECONS will be eligible for
the dividends received deduction.
POTENTIAL EXTENSION OF PAYMENT PERIOD ON THE JUNIOR SUBORDINATED DEBENTURES
Holders of TECONS will continue to accrue original issue discount with
respect to their pro rata share of the Junior Subordinated Debentures during an
extended interest payment period ever though cash distributions on TECONS are
deferred. A holder who disposes of the TECONS during an ex-
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tended interest period may suffer a loss because the market will likely fall if
AES exercises its option to defer payments of interest on the Junior
Subordinated Debentures. See "Disposition of the TECONS" below. Furthermore, the
market value of the TECONS may not reflect the accumulated distributions that
will be paid at the end of the extended interest period, and a holder who sells
the TECONS during the extended interest period will not receive from AES any
cash related to the interest income the holder already 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 TECONS
A distribution by the Trust of the Junior Subordinated Debentures as
described under the caption "Description of the TECONS -- 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 its pro rata share of the underlying Junior
Subordinated Debentures prior to such distribution.
DISPOSITION OF THE TECONS
Upon a sale, exchange or other disposition of the TECONS (including a
distribution of cash in redemption of a holder's TECONS 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 capital 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.
Holders are advised to consult their tax advisers regarding the taxation of
capital gains and losses.
The TECONS 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 TECONS between record dates for
payments of distributions thereon will nevertheless be required to include, as
OID income, the amount of any accrued but unpaid interest on the Junior
Subordinated Debentures through the date of disposition in income, 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 such 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 (including any previously included OID income) for United
States federal income tax purposes.
CONVERSION OF TECONS TO AES COMMON STOCK
A holder of TECONS 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 TECONS 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 TECONS 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 TECONS 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 TECONS as having received a constructive distribution from AES in
certain events pursuant to which the conversion rate of the Junior Subordinated
Debentures were adjusted. Therefore, under certain circumstances,
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a reduction in the conversion price for the Junior Subordinated Debentures may
result in deemed dividend income to holders of TECONS to the extent of the
current or accumulated earnings and profits of AES. Holders of TECONS are
advised to consult their tax advisors as to the income tax consequences of
adjustments in the conversion rate of TECONS.
INFORMATION REPORTING TO HOLDERS
The Trust will report the original issue discount 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 TECONS and the
Internal Revenue Service. The Trust currently intends to deliver such reports to
holders of record prior to January 31 following each calendar year. It is
anticipated that persons who hold TECONS 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 TECONS may be subject to a
"backup" withholding tax at a rate of 31% unless the holder complies with
certain identification requirements. Backup withholding is not an additional tax
and may be refunded or allowed as a credit against the holder's federal income
tax, provided the required information is timely filed with the Internal Revenue
Service.
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 TECONS. As discussed above, the Company intends to take the
position that the Junior Subordinated Debentures will be classified for U.S.
federal income tax purposes as indebtedness of AES under current law; no
assurance can be given, however, that such position of the Company will not be
challenged by the Internal Revenue Service.
Assuming that the Junior Subordinated Debentures are classified for U.S.
federal income tax purposes as indebtedness of AES, under present U.S. federal
income tax law, payments by the Trust or any of its paying agents to any holder
of a TECONS who or which is a United States Alien Holder would not be subject to
U.S. federal withholding tax; provided, that, (a) the beneficial owner of the
TECONS 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 TECONS is not a controlled foreign corporation that is related to
AES through stock ownership, and (c) either (A) the beneficial owner of the
TECONS certifies 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 (B) 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 TECONS 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.
If the Junior Subordinated Debentures were not classified for U.S. federal
income tax purposes as indebtedness of AES, payments by the Trust or any of its
paying agents to any holder of a TECONS who or which is a United States Alien
Holder would be subject to U.S. 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.
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
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Company ordinarily will presume that dividends paid before December 31, 1998 to
an address in a foreign country are paid to a resident of such country, unless
the Company has knowledge that such a presumption is not warranted.
Under the recently finalized Treasury Regulations applicable to dividends
paid after December 31, 1998 (the "Final Regulations"), to obtain a reduced rate
of withholding under a treaty, a United States Alien Holder will generally be
required to provide an Internal Revenue Service form W-8 certifying its
entitlement to benefits under a treaty. The 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
will be treated as having been paid to the entity or to those holding an
interest in that entity.
Generally, the Company must report to the U.S. Internal Revenue Service 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 U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.
Sale or Exchange of TECONS 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
TECONS 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 TECONS 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
TECONS, less than or equal to 5% of the TECONS, and (ii) the AES Common Stock
and the TECONS 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 (the "Temporary
Regulations")). There can be no assurance that AES Common Stock or the TECONS
qualify or will continue to qualify as "regularly traded" on an established
securities market.
Effectively Connected Income. If a United States Alien Holder of TECONS or
AES Common Stock is engaged in a trade or business in the United States, and if
original issue discount accrued on the TECONS or dividends on such 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 TECONS 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 TECONS 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
Internal Revenue Service Form 4224 (or a successor form) in order to claim an
exemption from withholding tax. On or after December 31, 1998, to comply with
this requirement, the United States Alien Holder needs to also provide a valid
United States taxpayer identification 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.
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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 TECONS. 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 TECONS 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 (i) 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
(ii) 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 TECONS
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 TECONS. Any fiduciary of such a governmental or church plan
considering an investment in the TECONS 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 PLAN OR CHURCH
PLAN CONSIDERING AN INVESTMENT IN THE TECONS 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 TECONS, and, therefore, such investments by an ERISA
Plan may give rise to a Prohibited Transaction. Consequently, before investing
in the TECONS, 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 TECONS,
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 TECONS. 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
65
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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 TECONS will not constitute a "publicly offered security." As
discussed below, after resales pursuant to the shelf registration statement, the
TECONS 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 TECONS, the aggregate interest in the TECONS held by
benefit plan investors will be less than 25% of the value of the TECONS.
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 TECONS, 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 TECONS 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 TECONS, there may be an improper delegation by such
ERISA Plans of the responsibility to manage plan assets.
It is expected that TECONS will be distributed pursuant to an effective
registration statement under the Securities Act and they may subsequently be
registered under the Exchange Act. TECONS 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 TECONS 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 TECONS 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.
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SELLING HOLDERS
The holders listed below and the beneficial owners of the TECONS and their
transferees, pledgees, donees or other successors, if not identified hereunder
then so identified in supplements to this Prospectus, are the Selling Holders
under this Prospectus. The following table sets forth, as of a recent
practicable date prior to the effectiveness of the Registration Statement of
which this Prospectus forms a part, certain information with respect to the
Selling Holders named below and the respective number of TECONS owned by each
Selling Holder that may be offered pursuant to this Prospectus. Such information
has been obtained from the Selling Holders, DTC and/or the Property Trustee.
<TABLE>
<CAPTION>
NUMBER OF
SELLING HOLDER TECONS
- ---------------------------------------------------------------------------- ----------
<S> <C>
Aim V.I. Global Utilities .................................................. 2,100
Aim Blue Chip Fund ......................................................... 111,700
Alpine Associates .......................................................... 250,000
American Travellers Life Insurance Co -- Convertible ....................... 9,600
Argent Classic Convertible Arbitrage Fund (Bermuda) L.P. ................... 250,000
Argent Classic Convertible Arbitrage Fund L.P. ............................. 206,000
Associated Electric & Gas Insurance Services Limited ....................... 7,000
Bankers Life and Casualty Insurance Co -- Convertible ...................... 18,800
Baptist Health of So. Florida .............................................. 3,200
Beneficial Standard Life Insurance Company -- Convertible .................. 23,200
Black Diamond Ltd. ......................................................... 42,060
Black Diamond Partners, L.P. ............................................... 42,760
Boston Museum of Fine Arts ................................................. 1,400
CALAMOS Convertible Fund ................................................... 25,600
CALAMOS Growth and Income Fund ............................................. 4,400
California Public Employees' Retirement System ............................. 50,000
Capitol American Life Insurance Company -- Convertible ..................... 9,600
Champion International Corporation Master Retirement Trust ................. 27,200
Chrysler Corporation Master Retirement Trust ............................... 51,300
Combined Insurance Company of America ...................................... 14,200
Conseco Series Trust -- Asset Allocation ................................... 14,000
Conseco Fund Group -- Asset Allocation ..................................... 6,000
Delta Air Lines Master Trust ............................................... 41,200
Delta Airlines Master Trust ................................................ 29,700
Donaldson, Lufkin & Jenrette Securities Corporation ........................ 325,000
Double Black Diamond Offshore, LDC ......................................... 7,970
Dunham & Associates Fund II ................................................ 900
Dunham & Associates Fund III ............................................... 400
Engineers Joint Pension Fund ............................................... 5,100
Goldman, Sachs & Co. ....................................................... 117,600
Great American Reserve Insurance Company -- Convertible .................... 18,800
Highbridge Capital Corporation ............................................. 65,820
Kettering Medical Center Funded Depreciation Account ....................... 1,450
J.P. Morgan Securities Inc. ................................................ 449,800
LB Series Fund, Inc., High Yield Portfolio ................................. 54,000
LB Series Fund, Inc. - Income Portfolio .................................... 10,000
Lincoln National Convertible Securities Fund ............................... 51,280
Lipper Convertibles, L.P. .................................................. 270,000
LLT Limited ................................................................ 20,000
Lutheran Brotherhood High Yield Fund ....................................... 36,000
Lutheran Brotherhood Income Fund ........................................... 5,000
McMahan Securities Company, L.P. ........................................... 15,900
NationsBank, N.A. Trustee under Irrevocable Trust Agreement with Roger W.
Sant dated 4/9/90 ......................................................... 160,000
NationsBank, N.A. Trustee under Irrevocable Trust Agreement with Victoria P.
Sant dated 4/9/90 ......................................................... 400,000
Nicholas -- Applegate Income & Growth Fund ................................. 47,000
</TABLE>
67
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<TABLE>
<CAPTION>
NUMBER OF
SELLING HOLDER TECONS
- --------------------------------------------------------------------------- ------------
<S> <C>
OCM Convertible Limited Partnership ....................................... 2,600
OCM Convertible Trust ..................................................... 74,600
Paloma Securities L.L.C ................................................... 300,000
Paloma Strategic Fund L.P. ................................................ 65,200
Phoenix Capital Offshore Fund Ltd. ........................................ 10,000
Port Authority of Allegheny County Retirement and Disability Allowance Plan
for the Employees Represented by Local 85 of the Amalgamated Transit Union 32,900
R2 Investments, LDC ....................................................... 42,000
Raytheon Company Master Pension Trust ..................................... 26,700
RJR Nabisco, Inc. Defined Benefit Master Trust ............................ 25,100
San Diego City Retirement ................................................. 13,600
San Diego County Convertible .............................................. 41,800
Sound Shore Partners L.P. ................................................. 5,800
Southport Management Partners L.P. ........................................ 30,000
Southport Partners International Ltd. ..................................... 45,000
Susquehanna Capital Group ................................................. 35,000
State Employees' Retirement Fund of the State of Delaware ................. 18,400
State of Connecticut Combined Investment Funds ............................ 64,900
The Concordia Retirement Plan of the Lutheran Church -- Missouri Synod .... 25,000
The Dow Chemical Company Employees' Retirement Plan ....................... 46,300
The Foundren Foundation ................................................... 2,500
Unifi, Inc. Profit Sharing Plan and Trust ................................. 2,550
United Food and Commercial Workers Local 1262 and Employers Pension Fund. 16,000
ValueLine Income Fund, Inc. ............................................... 60,000
Van Kampen American Capital Harbor Fund ................................... 50,000
Vanguard Convertible Securities Fund, Inc. ................................ 47,100
Wake Forest University .................................................... 10,300
Walker Art Center ......................................................... 5,925
Weirton Trust ............................................................. 15,360
Worldwide Transactions Limited ............................................ 3,850
All other beneficial holders .............................................. 1,763,875
---------
Total ..................................................................... 6,000,000
=========
</TABLE>
None of the Selling Holders has, or within the past three years has had,
any position, office or other material relationship with the Trust or the
Company or any of their predecessors or affiliates except as set forth below.
NationsBank, N.A. holds 560,000 TECONS under trust agreements with Roger W. Sant
and Victoria P. Sant. Roger W. Sant is the Chairman of the Board of Directors of
the Company. J.P. Morgan Securities Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") were Initial Purchasers in connection with the
Initial Offering and have, along with certain of their affiliates, engaged and
may engage in investment banking transactions with the Company. Frank Jungers,
an Advisory Director for an affiliate of DLJ, is also a director and stockholder
of AES.
Because the Selling Holders may, pursuant to this Prospectus, offer all or
some portion of the TECONS, the Junior Subordinated Debentures or the AES Common
Stock issuable upon conversion of the TECONS, no estimate can be given as to the
amount of the TECONS, the Junior Subordinated Debentures or the AES Common Stock
issuable upon conversion of the TECONS that will be held by the Selling Holders
upon termination of any such sales. In addition, the Selling Holders identified
above may have sold, transferred or otherwise disposed of all or a portion of
their TECONS, since the date on which they provided the information regarding
their TECONS, in transactions exempt from the registration requirements of the
Securities Act. See "Plan of Distribution."
Only Selling Holders identified above who beneficially own the Offered
Securities set forth opposite each such Selling Holder's name in the foregoing
table on the effective date of the Registration State-
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ment of which this Prospectus forms a part may sell such Offered Securities
pursuant to the Registration Statement. Prior to any use of this Prospectus in
connection with an offering of the TECONS and/or the Junior Subordinated
Debentures or AES Common Stock issuable upon conversion of the TECONS by any
holder not identified above, this Prospectus will be supplemented to set forth
the name and number of shares beneficially owned by the Selling Securityholder
intending to sell such TECONS and/or Common Stock, and the number of TECONS
and/or shares of Common Stock to be offered. The Prospectus Supplement will also
disclose whether any Selling Securityholder selling in connection with such
Prospectus Supplement has held any position or office with, been employed by or
otherwise has had a material relationship with, the Company or any of its
affiliates during the three years prior to the date of the Prospectus Supplement
if such information has not been disclosed herein.
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at the prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The sale of Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Securities by the
Selling Holders. The foregoing may affect the marketability of such securities.
The costs of the registration of the Offered Securities will be paid by the
Company, including, without limitation, Commission filing fees and expenses of
compliance with state securities or "blue sky" laws; provided, however, that the
Selling Holders will pay all underwriting discounts and selling commissions, if
any. The Selling Holders will be indemnified by the Company and the Trust,
jointly and severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith. The Company and the Trust will be indemnified by the
Selling Holders severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
The Trust does not intend to list the TECONS on any securities exchange.
The Trust has been advised by the Initial Purchasers, other than Unterburg
Harris, that they intend to make a market in them as permitted by applicable
laws and regulations. The Initial Purchasers are not obligated, however,
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<PAGE>
to make a market in the TECONS and any such market-making may be discontinued at
any time at the sole discretion of the Initial Purchasers. Accordingly, no
assurance can be given as to the liquidity of, or trading markets for, the
TECONS.
LEGAL MATTERS
The validity of the Junior Subordinated Debentures, the Common Stock
issuable upon conversion of the TECONS, the Guarantee and certain matters
relating thereto and certain U.S. federal income taxation matters will be passed
upon for AES and AES Trust by Davis Polk & Wardwell, and the validity of the
TECONS will be passed upon for the Company and AES Trust by Richards, Layton &
Finger, Wilmington, Delaware, special Delaware counsel to the Company and AES
Trust.
EXPERTS
The financial statements as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996 incorporated by reference
in this Prospectus from the Company's Current Report on Form 8-K, filed November
6, 1997, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and has been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Companhia Energetica de Minas Gerais -- CEMIG
for the years ended December 31, 1996 and 1995, prepared in accordance with
accounting principles generally accepted in Brazil, incorporated by reference in
this Prospectus from Item 7 of the Current Report on Form 8-K of The AES
Corporation filed July 16, 1997, have been audited by Price Waterhouse Auditores
Independentes, Belo Horizonte, Brazil, independent accountants, as stated in
their report, which is incorporated herein by reference, and has been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The financial statements of Companhia Centro-Oeste de Distribui-ao de
Energia Electrica -- CEEE D2 (formerly Midwest Division of Companhia Estadual de
Energia Eletrica -- CEEE) as at and for the nine-month period ended September
30, 1997, prepared in accordance with accounting practices originating in
Brazil's Corporation Law, incorporated by reference in this Prospectus from Item
7 of the Current Report on Form 8-K of The AES Corporation, filed January 9,
1998, have been audited by Ernst & Young Auditores Independentes S.C., Porto
Alegre, Brazil, independent accountants, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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APPENDIX A
NOTICE OF TRANSFER
PURSUANT TO REGISTRATION STATEMENT
The First National Bank of Chicago
153 West 51st Street
5th Floor
New York, New York
Attention: Corporate Trust Services Divisions
The AES Corporation
1001 N. 19th Street
Arlington, Virginia 22209
Attention: General Counsel
Re: AES TRUST II (the "Trust") TECONS
THE AES CORPORATION (the "Company")
Dear Sirs:
Please be advised that has transferred TECONS, (or 5.50% Junior
Subordinated Debt Securities of the Company or shares of Common Stock of the
Company, issued in exchange for or upon conversion of the TECONS) pursuant to an
effective Registration Statement on Form S-3 (File No. 333-46189) filed by the
Company and the Trust.
We hereby certify that the prospectus delivery requirements, if any, of the
Securities Act of 1933, as amended, have been satisfied and that the above-named
beneficial owner of the transferred securities is named as a "Selling Holder" in
the Prospectus dated March 25, 1998 or in supplements thereto, and that the
aggregate amount of the securities transferred are (or are included in) the
securities listed in such Prospectus opposite such owner's name.
Dated: Very truly yours,
-------------------------
Name:
By: ---------------------
(Authorized Signature)
A-1
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered, other than underwriting
discounts and commissions. All of the amounts shown are estimates, except the
SEC registration fee.
SEC Registration filing fee ............................ $ 88,500
Printing and engraving expenses ........................ $ 50,000
Blue sky fees and expenses (including counsel) ......... $ 20,000
Legal fees and expenses ................................ $100,000
Fees of accountants .................................... $ 30,000
Fees of trustee ........................................ $ 5,000
-------
Total ............................................... $293,500
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
Under the Company's By-Laws, and in accordance with Section 145 of the
Delaware General Corporation Law ("GCL"), the Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than any action or suit by or in the
right of the Company to procure a judgment in its favor, which is hereinafter
referred to as a "derivative action") by reason of the fact that such person is
or was a director, officer or employee of the Company, or is or was serving in
such capacity or as an agent at the request of the Company for another entity,
to the full extent authorized by Delaware law, against expenses (including, but
not limited to, attorneys' fees), judgments, fines and amounts actually and
reasonably incurred in connection with the defense or settlement of such action,
suit or proceeding if such person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe was unlawful. Agents of the Company may be similarly
indemnified, at the discretion of the Board of Directors.
Under Section 145 of the GCL, a similar standard of care is applicable in
the case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense or
settlement of such an action and then, where the person is adjudged to be liable
to the Company, only if and to the extent that the Court of Chancery of the
State of Delaware or the court in which such action was brought determines that
such person is fairly and reasonably entitled to such indemnity and only for
such expenses as the court shall deem proper.
Pursuant to Company's By-Laws, a person eligible for indemnification may
have the expenses incurred in connection with any matter described above paid in
advance of a final disposition by the Company. However, such advances will only
be made upon the delivery of an undertaking by or on behalf of the indemnified
person to repay all amounts so advanced if it is ultimately determined that such
person is not entitled to indemnification.
In addition, under the Company's By-Laws, the Company may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Company or of another corporation against any liability
asserted against and incurred by such person in such capacity, or arising out of
the person's status as such whether or not the Company would have the power or
the obligation to indemnify such person against such liability under the
provisions of the Company's By-Laws.
II-1
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE TRUST
The Declaration provides that no Trustee, affiliate of any Trustee, paying
agent, or conversion agent, or any officer, director, shareholder, member,
partner, employee, representative or agent of any Trustee, paying agent, or
conversion agent (each an "Indemnified Person") shall be liable, responsible, or
accountable in damages or otherwise to the Trust or any (i) officer, director,
shareholder, partner, representative, employee or agent of the Trust or its
Affiliates, (ii) any officer, director, shareholder, employees, representatives
or agents of the Company and its affiliates or (iii) the holders from to time of
Trust's Common Securities and Preferred Securities (the persons referred to in
(i)-(iii) collectively, the "Covered Persons") for any loss, damage, or claim
incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of authority
conferred on such Indemnified Person by the Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage, or claim
incurred by reason of such Indemnified Person's gross negligence (but, in the
case of the Property Trustee, subject to the Trust Indenture Act) or willful
misconduct with respect to such acts or omissions.
The Declaration also provides that, to the full extent permitted by law,
the Company shall indemnify and hold harmless each Indemnified Person from and
against, any loss, damage or claim incurred by such Indemnified Person by reason
of any act or omission performed or omitted by such Indemnified Person in good
faith on behalf of the Trust and in a manner such Indemnified Person reasonably
believed to be within the scope of authority conferred on such Indemnified
Person by the Declaration, except that no Indemnified Person shall be entitled
to be indemnified in respect of any loss, damage or claim incurred by such
Indemnified Person by reason of gross negligence (but, in the case of the
Property Trustee, subject to the Trust Indenture Act) or willful misconduct with
respect to such acts or omissions.
The Declaration further provides that, to the full extent permitted by law,
expenses (including legal fees) incurred by an Indemnified Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Company of an undertaking by or
on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized by the Declaration.
ITEM 16. EXHIBITS.
EXHIBITS DESCRIPTION OF EXHIBIT
- ---------- -------------------------------------------------------------------
4.1 Junior Subordinated Debt Trust Securities Indenture dated as of March
1, 1997 between the Company and The First National Bank of Chicago*
4.1.1 Second Supplemental Indenture dated as of October 29, 1997 between the
Company and The First National Bank of Chicago*
4.2 Registration Rights Agreement dated as of October 29, 1997 between The
AES Corporation and J.P. Morgan Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Unterberg Harris, L.P.*
4.3 Amended and Restated Declaration of Trust of AES Trust II*
4.4 Restated Certificate of Trust of AES Trust II (included in Exhibit
4.2)*
4.5 Form of Preferred Security (included in Exhibit 4.3)*
4.6 Form of Junior Subordinated Debt Trust Security (included in Exhibit
4.1.1)*
4.7 Preferred Securities Guarantee with respect to Preferred Securities*
5.1 Opinion of Davis Polk & Wardwell
5.2 Opinion of Delaware counsel
8.1 Opinion of Davis Polk & Wardell re tax matters
II-2
<PAGE>
EXHIBITS DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------
12.1 Statement re: Computation of ratio of earnings to fixed charges
(incorporated by reference to Amendment No. 1 to Registration Statement
No. 333-39857 of The AES Corporation filed November 19, 1997)*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Price Waterhouse
23.3 Consent of Ernst & Young
23.4 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.5 Consent of Delaware counsel (included in Exhibit 5.2)
24.1 Powers of Attorney for the Company*
24.2 Powers of Attorney for the Company as sponsor, to sign the Registration
Statement on behalf of AES Trust II (included in Exhibit 4.3)*
25.1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Junior Subordinated Debt Trust Securities Indenture
(incorporated by reference to Registration Statement No. 333-15487 of
The AES Corporation filed November 4, 1996)*
25.2 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Preferred Securities of AES Trust II (incorporated by
reference to Registration Statement No. 333-15487 of The AES
Corporation filed November 4, 1996)*
25.3 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Preferred Securities Guarantee of the Company with
respect to the Preferred Securities of AES Trust II (incorporated by
reference to Registration Statement No. 333-15487 of The AES
Corporation filed November 4, 1996)*
- ----------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and
(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions described under Item 15 above,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrar of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that is has reasonable grounds to believe that it meets all of the
requirements for filing on Forms S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Arlington, State of Virginia on March 25, 1998.
THE AES CORPORATION
By: /s/ Dennis W. Bakke
------------------------------------
Dennis W. Bakke
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on March 25, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------- ---------------------------------------- ---------------
<S> <C> <C>
* Chairman of the Board March 25, 1998
- -----------------------
Roger W. Sant
/s/ Dennis W. Bakke President, Chief Executive Officer and March 25, 1998
- ----------------------- Director (Principal Executive Officer)
Dennis W. Bakke
* Director March 25, 1998
- -----------------------
Vicki-Ann Assevero
* Director March 25, 1998
- -----------------------
Dr. Alice F. Emerson
* Director March 25, 1998
- -----------------------
Robert F. Hemphill, Jr.
* Director March 25, 1998
- -----------------------
Frank Jungers
* Director March 25, 1998
- -----------------------
Dr. Henry R. Linden
* Director March 25, 1998
- -----------------------
John H. McArthur
* Director March 25, 1998
- -----------------------
Hazel O'Leary
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ -------------------------------------------- ---------------
<S> <C> <C>
* Director March 25, 1998
- -----------------------
Thomas I. Unterberg
* Director March 25, 1998
- -----------------------
Robert H. Waterman, Jr.
* Vice President and Chief Financial Officer March 25, 1998
- ----------------------- (Principal Financial and Accounting
Barry J. Sharp Officer)
By: /s/ William R. Luraschi March 25, 1998
-------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AES Trust II
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Forms S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Arlington, State of Virginia on March 25, 1998.
AES TRUST II
By: The AES Corporation, as Sponsor
By: /s/ William R. Luraschi
------------------------------------
Name: William R. Luraschi
Title: General Counsel and Secretary
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERED
EXHIBITS DESCRIPTION OF EXHIBITS PAGE
- ---------- -------------------------------------------------------------------
<S> <C> <C>
4.1 Junior Subordinated Debt Trust Securities Indenture dated as of March
1, 1997 between the Company and The First National Bank of Chicago*
4.1.1 Second Supplemental Indenture dated as of October 29, 1997 between the
Company and The First National Bank of Chicago*
4.2 Registration Rights Agreement dated as of October 29, 1997 between The
AES Corporation and J.P. Morgan Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Unterberg Harris, L.P.*
4.3 Amended and Restated Declaration of Trust of AES Trust II*
4.4 Restated Certificate of Trust of AES Trust II (included in Exhibit
4.2)*
4.5 Form of Preferred Security (included in Exhibit 4.3)*
4.6 Form of Junior Subordinated Debt Trust Security (included in Exhibit
4.1.1)*
4.7 Preferred Securities Guarantee with respect to Preferred Securities*
5.1 Opinion of Davis Polk & Wardwell
5.2 Opinion of Delaware counsel
8.1 Opinion of Davis Polk & Wardell re tax matters
12.1 Statement re: Computation of ratio of earnings to fixed charges
(incorporated by reference to Amendment No. 1 to Registration Statement
No. 333-39857 of The AES Corporation filed November 19, 1997)*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Price Waterhouse
23.3 Consent of Ernst & Young
23.4 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.5 Consent of Delaware counsel (included in Exhibit 5.2)
24.1 Powers of Attorney for the Company*
24.2 Powers of Attorney for the Company as sponsor, to sign the Registration
Statement on behalf of AES Trust II (included in Exhibit 4.3)*
25.1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Junior Subordinated Debt Trust Securities Indenture
(incorporated by reference to Registration Statement No. 333-15487 of
The AES Corporation filed November 4, 1996)*
25.2 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Preferred Securities of AES Trust II (incorporated by
reference to Registration Statement No. 333-15487 of The AES
Corporation filed November 4, 1996)*
25.3 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Preferred Securities Guarantee of the Company with
respect to the Preferred Securities of AES Trust II (incorporated by
reference to Registration Statement No. 333-15487 of The AES
Corporation filed November 4, 1996)*
</TABLE>
- ----------
* Previously filed.
EXHIBIT 5.1
[LETTERHEAD OF DAVIS POLK & WARDWELL]
March 25, 1998
The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
AES Trust II
c/o The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
Dear Ladies and Gentlemen:
We have acted as counsel for The AES Corporation (the "Company") and
AES Trust II (the "Trust") in connection with the Registration Statement on Form
S-3 (the "Registration Statement") filed by the Company and the Trust with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act"), relating to the registration of the Trust's $2.75 Term
Convertible Securities, series B, liquidation amount $50 per security (the
"TECONS") to be sold by certain holders of such TECONS. The TECONS were issued
pursuant to the provisions of the Amended and Restated Declaration of Trust
dated as of October 29, 1997 (the "Declaration") among the Company, as sponsor,
First Chicago Delaware Inc., The First National Bank of Chicago, sponsor, First
Chicago Delaware Inc., the First National Bank of Chicago, William R. Luraschi,
Barry J. Sharp and Willard Hoagland as trustees, and are guaranteed by the
Company to the extent described in the Preferred Securities Guarantee Agreement
dated as of October 29, 1997 (the Guarantee"). The Trust has acquired
$309,278,400 aggregate principal amount of 5.50% Junior Subordinated Convertible
Debentures (the "Debentures") with the proceeds from the sale of the TECONS and
the sale to the Company of the common securities of the Trust. The Debentures
were issued pursuant to the provisions of the Subordinated indenture dated as of
March 1, 1997 between the Company and the First National Bank of Chicago, as
trustee, as supplemented by a Second
<PAGE>
The AES Corporation 2 March 25, 1998
Supplemental Indenture dated as of October 29, 1997 (the Indenture as so
supplemented is hereinafter referred to as the "Indenture").
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments as we have deemed necessary or advisable
for the purpose of rendering this opinion.
Based upon the foregoing, we are of the opinion that:
(i) the Debentures have been duly authorized and, assuming that
they have been executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Trust,
are valid and binding obligations of the Company, entitled to the
benefits of the Indenture, enforceable against the Company in
accordance with their terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of
equity, regardless of whether enforcement is sought in a proceeding at
law or in equity;
(ii) the Guarantee has been duly authorized, executed and
delivered by the Company and (assuming) due authorization, execution
and delivery threre of by the Guarantee Trustee), constitutes a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, except that the enforcement thereof may be
subject to (bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of
equity, regardless of whether enforcement is sought in a proceeding at
law or in equity; and
(iii) the shares of Common Stock issuable upon conversion of the
Securities have been duly authorized by the company and validly
reserved for issuance by the Company upon such conversion by all
necessary corporate action and such Common Stock, when duly issued upon
such conversion, will be validly issued and fully paid and
non-assessable; no holder thereof is subject to personal liability
solely by reason of being
<PAGE>
The AES Corporation 3 March 25, 1998
such a holder; and the issuance of such Common Stock upon such
conversion is not subject to preemptive rights.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In addition, we consent to the reference to us under the
caption "Legal Matters" in the Prospectus constituting a part of the
Registration Statement.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by or furnished to any other person without our prior written
consent.
Very truly yours,
/s/ Davis Polk & Wardwell
---------------------------
EXHIBIT 5.2
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
March 26, 1998
AES Trust II
c/o The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
Re: AES Trust II
Ladies and Gentlemen:
We have acted as special Delaware counsel for The AES Corporation, a
Delawere corporation ("AES"), and AES Trust II, a Delaware business trust (the
"Trust"), in connection with the matters set forth herein. At your request, this
opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following.
(a) The Certificate of Trust, dated as of November 1, 1996, as filed
with the office of the Secretary of State of the State of Delaware (the
"Secretary of State") on November 1, 1996, as amended and restated by an Amended
and Restated Certificate of Trust of the Trust, dated as of December 5, 1996,
as filed with the Secretary of State on December 6, 1996, and as restated by a
Restated Certificate of Trust of the Trust, dated as of March 26, 1997, (the
"Certificate of Trust"), as filed with the Secretary of State on March 27, 1997;
(b) The Declaration of Trust of the Trust, dated as of November 1,
1996, between AES and the trustees of Trust I named therein;
(c) The Amended and Restated Declaration of Trust of the Trust, dated
as of October 29, 1997, among AES, the trustees of the Trust named therein, and
the holders; from time to time, of the undivided beneficial interests in the
assets of the Trust (including the exhibits thereto) (the "Declaration");
(d) The Registration Statement (the "Registration Statement") on Form
S-3, including a preliminary prospectus (the "Prospectus"), relating to the
$2.75 Term Convertible Securities, Series B of the Trust representing preferred
undivided beneficial interests in the assets of the Trust (each, a "Preferred
Security" and collectively, the "Preferred Securities"),
<PAGE>
AES Trust II
March 26, 1998
Page 2
filed by AES and the Trust with the Securities and Exchange Commission on or
about March 27, 1998; and
(e) A Certificate of Good Standing for the Trust, dated March 26, 1998,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Declaration.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (e) above. In particular, we
have not reviewed any document (other than the documents listed in paragraphs
(a) through (e) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our own
but rather have relied solely upon the foregoing documents, the statements and
information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Declaration
constitutes the entire agreement among the parties thereto with respect to the
subject matter thereof, including with respect to the creation, operation and
termination of the Trust, and that the Declaration and the Certificate of Trust
are in full force and effect and have not been amended, (ii) except to the
extent provided in paragraph 1 below, the due organization or due formation, as
the case may be, and valid existence in good standing of each party to the
documents examined by us under the laws of the jurisdiction governing its
organization or formation, (iii) the legal capacity of natural persons who are
parties to the documents examined by us, (iv) that each of the parties to the
documents examined by us has the power and authority to execute and deliver, and
to perform its obligations under, such documents, (v) the due authorization,
execution and delivery by all parties thereto of all documents examined by us,
(vi) the receipt by each Person to whom a Preferred Security Certificate for
such Preferred Security and the payment for such Preferred Security, in
accordance with the Declaration and the Registration Statement, and (vii) that
the Preferred Securities are issued and sol to the Preferred Security Holders in
accordance with the Declaration and the Registration Statement. We have not
participated in the preparation of the Registration Statement and assume no
responsibility for its contents.
<PAGE>
AES Trust II
March 26, 1998
Page 3
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Business Trust Act.
2. The Preferred Securities will represent valid and, subject to the
qualifications set forth in paragraph 3 below, fully paid and nonassessable
undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the Trust,
will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated pursuant to the Declaration, to (i) provide indemnity
and security in connection with and pay taxes or governmental charges arising
from transfers of Preferred Security Certificates and the issuance of
replacement Preferred Security Certificates, (ii) provide security and indemnity
in connection with requests of or directions to the Property Trustee to exercise
its rights and remedies under the Declaration, and (iii) undertake as a party
litigant to pay costs in any suit for the enforcement of any right or remedy
under the Declaration or against the Property Trustee, to the extent provided in
the Declaration.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We hereby
consent to the use of our name under the heading "Legal Matters" in the
Prospectus. In giving the foregoing consents, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. Except as stated above, without
our prior written consent, this opinion may not be furnished or quoted to, or
relied upon by, any other person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
------------------------------------------------
CDK
EXHIBIT 8.1
[Letterhead of Davis Polk & Wardwell]
March 26, 1998
The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
AES Trust II
c/o The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
Dear Ladies and Gentlemen:
We have acted as counsel for The AES Corporation (the "Company") and AES
Trust II (the "Trust") in connection with the Registration Statement on Form S-3
(the "Registration Statement") filed by the Company and the Trust with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act"), relating to the registration of the Trust's $2.75 Term
Convertible Securities, Series B, liquidation amount $50 per security (the
"TECONS") to be sold by certain holders of such TECONS. The TECONS were issued
pursuant to the provisions of the Amended and Restated Declaration of Trust
dated as of October 29, 1997 (the "Declaration") among the Company, as sponsor,
First Chicago Delaware Inc., The First National Bank of Chicago, William R.
Luraschi, Barry J. Sharp and Willard Hoagland, as trustees, and are guaranteed
by the Company to the extent described in the Preferred Securities Guarantee
Agreement dated as of October 29, 1997 (the "Guarantee"). The Trust has acquired
$309,278,400 aggregate principal amount of 5.50% Junior Subordinated Convertible
Debentures (the "Debentures") with the proceeds from the sale of the TECONS and
the sale to the Company of the common securities of the Trust. The Debentures
were issued pursuant to the provisions of the Subordinated Indenture dated as of
March 1, 1997 between the Company and The First National Bank of Chicago, as
trustee, as supplemented by a Second Supplemental Indenture dated as of October
29, 1997 (the Indenture as so supplemented is hereinafter referred to as the
"Indenture"). (The preceding documents to be collectively referred to as the
"Offering Document")
<PAGE>
The AES Corporation March 26, 1998
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary or advisable for the
purpose of rendering this opinion. In rendering our opinion, we have assumed the
accuracy of the Offering Documents and that the issuance of the TECONS will be
consummated in accordance with the terms therein.
Our opinion is based on the Internal Revenue Code of 1986, as amended,
administrative pronouncements, judicial decisions, and existing and proposed
Treasury Regulations, all as currently in effect, any of which may be changed
subsequent to the date of this letter, thereby potentially affecting the tax
consequences opined on herein. Based on the Foregoing, and assuming that the
Trustees will conduct the affairs of the Trust in accordance with the
Declaration, we hereby confirm our opinion that 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.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In addition, we consent to the reference to us under the
caption "Legal Matters" in the Prospectus constituting a part of the
Registration Statement.
This opinion is rendered solely to you in connection with the above matter.
This opinion may not be relied upon by you for any other purpose or relied upon
by or furnished to any other person without our prior written consent.
Very truly yours,
/s/ Davis Polk & Wardwell
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-46189 of The AES Corporation on Form S-3 of our
report dated January 30, 1997, except for the penultimate paragraph of Note 6,
as to which the date is March 13, 1997, the pre-penultimate paragraph of Note 6,
as to which the date is August 8, 1997, the subsequent event paragraph of Note
7, as to which the date is July 15, 1997, and Note 13, as to which the date is
October 27, 1997, appearing in the Company's Current Report on Form 8-K, dated
November 6, 1997, and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
Washington, DC
March 25, 1998
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We herby consent to the incorporation by reference in the Registration Statement
of The AES Corporation on Form S-3 of our report dated March 28, 1997 relating
to the financial statements of Companhia Energetica de Minas Gerais - CEMIG as
at and for the years ended December 31, 1996 and 1995 prepared in accordance
with accounting principles generally accepted in Brazil, which appears in Item 7
of the Current Report on Form 8-K of The AES Corporation dated July 16, 1997 and
to the reference to us under the heading "Experts" in the Prospectus which is
part of such Registration Statement.
/s/ Price Waterhouse
- --------------------
Auditores Independentes
Belo Horizonte, MG-Brazil
March 25, 1998
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" and to
incorporation by reference in this Amendment No. 1 to Registration Statement
(No. 333-46189) of The AES Corporation on Form S-3 of our report dated December
30, 1997 relating to the financial statements of Companhia Centro-Oeste de
Distribuicao de Energia Eletrica-CEEE D2 as at and for the nine months ended
September 30, 1997 prepared in accordance with accounting practices originating
in Brazil's Corporation Law, which appears in Item 7 of the Current Report on
Form 8-K of The AES Corporation dated January 9, 1998.
/s/ Ernst & Young
- -----------------
Auditores Independentes
Porto Alegre, Brazil
March 27, 1998
