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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 0-19281
THE AES CORPORATION
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(Exact name of registrant as specified in its charter)
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DELAWARE 54-1163725
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1001 NORTH 19TH STREET, ARLINGTON, VIRGINIA 22209
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (703) 522-1315
Securities registered pursuant to Section 12(b) of the Act:
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<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTER
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Common Stock, par value $0.01 per share New York Stock Exchange
$2.6875 Term Convertible Securities, Series A New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Warrants to Purchase Common Stock,
par value $.01 per share NASDAQ
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of Registrant's voting stock held by
non-affiliates of Registrant, at February 1, 1998, was $5,415,482,847. The
number of shares outstanding of Registrant's Common Stock, par value $0.01 per
share, at February 1, 1998, was 175,065,659.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders of the
Registrant to be held on April 21, 1998. Certain information therein is
incorporated by reference into Part III hereof.
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<PAGE>
PART I
ITEM 1. BUSINESS
(a) General development of business.
OVERVIEW
The AES Corporation and its subsidiaries and affiliates (collectively
"AES" or the "Company") are helping to meet the world's needs by providing
electricity to customers in many countries in a socially responsible way.
Until recently, the Company's sales of electricity were almost
exclusively made to customers (generally electric utilities or regional electric
companies) on a wholesale basis for further resale to end users. This is often
referred to as the electricity "generating" business. Sales by these generating
companies are usually made under long-term contracts from power plants owned by
the Company's subsidiaries and affiliates. The Company's ownership portfolio of
power facilities includes new plants constructed for such purposes ("greenfield"
plants) as well as existing power plants acquired through competitively bid
privatization initiatives and negotiated acquisitions.
AES now operates and owns (entirely or in part) a diverse portfolio of
electric power plants (including those within the integrated distribution
companies discussed below) with a total capacity of 17,636 megawatts (MW). Of
that total, 43% are fueled by coal or petroleum coke, 6% are fueled by natural
gas, 34% are hydroelectric facilities, 6 % are fueled by oil, and the remaining
11% are capable of using multiple fossil fuels. Of the total MW, 1,069 (six
plants) are located in the United States, 1,588 (four plants) are in China,
1,281 (three pants) are in Hungary, 5,856 (thirty-nine plants) are in Brazil,
5,384 (seven plants) are in Kazakhstan (including 4,000 MW attributable to
Ekibastuz which currently has a capacity factor of approximately 20%), 210 (one
plant) is in the Dominican Republic, 110 (one plant) is in Canada, and 695 (two
plants) are in Pakistan.
AES is also currently in the process of adding approximately 5,331 MW
to its operating portfolio by constructing several new plants. These include a
180 MW coal-fired plant in the United States, four coal-fired plants in China
totaling 2,314 MW, a 230 MW natural gas-fired plant in the UK, a 405 MW natural
gas-fired plant in the Netherlands, a 288 MW kerosene-fired plant in Australia,
an 830 MW natural gas-fired plant in Argentina, a 484 MW natural gas-fired plant
in Mexico and a 600 MW natural gas-fired plant in Brazil.
As a result, AES's total MW of 84 power plants in operation and under
construction is approximately 22,967 and net equity ownership (total MW adjusted
for the Company's ownership percentage) represents approximately 12,247 MW.
Beginning in 1996 and continuing through 1997, AES has also acquired
interests (both majority and minority) in companies that sell electricity
directly to commercial, industrial, governmental and residential customers. This
is often referred to as the electricity "distribution" business. Electricity
sales by AES's distribution businesses are generally made pursuant to the
provisions of long-term electricity sale concessions granted by the appropriate
governmental authority as part of the original privatization of each
distribution company. In certain cases, these distribution companies are
"integrated," in that they also own electric power plants for the purpose of
generating a portion of the electricity they sell. Each distribution company
also purchases, in varying proportions, electricity from third party wholesale
suppliers, including in certain cases, other subsidiaries of the Company.
AES has majority ownership in two distribution companies in Argentina,
one in Brazil and one in El Salvador (purchased in 1998), and less than majority
ownership in two additional distribution companies in Brazil. These six
companies serve a total of approximately 8 million customers with gigawatt hour
sales exceeding 63,000. On a net equity basis, AES's ownership represents
approximately 2 million customers and gigawatt hour sales exceeding 15,000.
<PAGE>
AES has been successful in growing its business and serving additional
customers by participating in competitive bidding under privatization
initiatives and has been particularly interested in acquiring existing
businesses or assets in electricity markets that are promoting competition and
eliminating rate of return regulation. In such privatizations, sellers generally
seek to complete competitive solicitations in less than one year, much quicker
than the time periods associated with greenfield development, and usually
require payment in full on transfer. AES believes that its experience in
competitive markets and its worldwide integrated group structure, with its
significant geographic coverage and presence, enable it to react quickly and
creatively in such situations.
Because of this relatively quick process or other considerations, it
may not always be possible to arrange "project financing" (the Company's
historically preferred financing method, which is discussed further under Item
7, "Discussion and Analysis of Financial Condition and Results of Operations"
herein) for specific potential acquisitions. Additionally, as in the past,
certain acquisitions or the commencement of construction in several greenfield
developments would potentially require the Company to obtain substantial
additional financing including both debt and equity.
OUTLOOK
All over the world, electricity markets continue to be restructured and
there is a trend away from government-owned and government-regulated 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 companies.
Some countries (for example the UK, Brazil and some of those of the former
Soviet Union, among others) have or are in the process of "privatizing" their
electricity systems by selling all or part of such systems to private investors.
This global trend of electricity market restructuring provides significant new
business opportunities for companies like AES.
Several states in the United States are also beginning to follow this
trend. In particular, some regulated public utilities have begun to sell or
auction their generation capacity. Substantially all of the transmission and
distribution services in the United States continue, however, to be regulated
under a state and Federal regulatory framework. In addition, many states have
passed or are considering new legislation that would permit utility customers to
choose their electricity supplier in a competitive electricity market (so-called
"retail access" or "customer choice" laws). While each state's plan differs in
details, there are certain consistent elements, including allowing customers to
choose their electricity suppliers by a certain date (the dates in the existing
or proposed legislation vary between 1998 and 2003), allowing utilities to
recover "stranded assets" (the remaining costs of uneconomic generating or
regulatory assets) and a reaffirmation of the validity of contracts like the
Company's U.S. contracts.
AES's investments and involvement in the development of new projects
and the acquisition of existing power plants and distribution companies in
locations outside the United States is increasing. The financing, development
and operation of such businesses may entail significant political and financial
uncertainties and other structuring issues (including uncertainties associated
with the legal environments, with first-time privatization efforts in the
countries involved, currency exchange rate fluctuations, currency repatriation
restrictions, currency inconvertibility, political instability, civil unrest,
and in severe cases possible expropriation). Although AES attempts to minimize
these risks, these issues have the potential to cause substantial delays or
material impairment to the value of the project being developed or business
being operated.
The Company, a corporation organized under the laws of Delaware, was
formed in 1981. AES has its principal offices located at 1001 North 19th Street,
Suite 2000, Arlington, Virginia 22209, and its telephone number is (703)
522-1315.
CAUTIONARY STATEMENTS AND RISK FACTORS
The Company wishes to caution readers that the following important
factors, among others, indicate areas affecting the Company which involve risk
and uncertainty. These factors should be
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considered when reviewing the Company's business, and are relied upon by AES in
issuing any forward-looking statements. Such factors could affect AES's actual
results and cause such results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, AES. Some or all of these
factors may apply to the Company's businesses as currently maintained or to be
maintained.
o Changes in company-wide operation and availability (including wholly-
and partially-owned facilities) compared to the Company's historical
performance; changes in the Company's historical operating cost
structure, including but not limited to those costs associated with
fuel, operations, supplies, raw materials, maintenance and repair,
people, transmission of electricity and insurance.
o In certain non-U.S. countries where the Company is or is seeking to
conduct business: unexpected changes in electricity tariff rates or
tariff adjustments for increased expenses; the ability or inability of
AES to obtain, or hedge against, foreign currency; foreign exchange
rates and fluctuations in those rates; the economic, political and
military conditions affecting property damage, interruption of business
and expropriation risks; changes in trade, monetary and fiscal
policies, laws and regulations; other activities of governments,
agencies and similar organizations; social and economic conditions;
local inflation and monetary fluctuations; import and other charges or
taxes; conditions or restrictions impairing repatriation of earnings or
other cash flow; nationalizations and unstable governments and legal
systems, and intergovernmental disputes.
o Changes in the amount of and rate of growth in, AES's selling, general
and administrative expenses; the impact of AES's ongoing evaluation of
its development costs, business strategies and asset valuations,
including, but not limited to, the effect of a failure to successfully
complete certain development projects.
o Legislation intended to promote competition in U.S. and non-U.S.
electricity markets, such as those currently receiving serious
consideration in the United States Congress to repeal (i) the Public
Utility Regulatory Policies Act of 1978, as amended, or at least to
repeal the obligation of utilities to purchase electricity from
qualifying facilities, and (ii) the Public Utility Holding Company Act
of 1935, as amended; changes in regulatory rule-making by the Federal
Energy Regulatory Commission or other regulatory bodies; changes in
energy taxes; or new legislative or regulatory initiatives in non-U.S.
countries; changes in national, state or local environmental, safety,
tax and other laws and regulations applicable to the Company or its
operations.
o The prolonged failure by any customer of the Company or any of its
subsidiaries to fulfill its contractual payment obligations presently
or in the future, either because such customer is financially unable to
fulfill such contractual obligation or otherwise refuses to do so.
o Successful and timely completion of (i) the respective construction for
each of the Company's electric generating projects now under
construction and those projects yet-to-begin construction or (ii)
capital improvements to its existing facilities.
o Changes in inflation, fuel, electricity and other commodity prices in
U.S. and non-U.S. markets; conditions in financial markets, including
fluctuations in interest rates and the availability of capital; and
changes in the economic and electricity consumption growth rates in
U.S. and non-U.S. countries.
o Unusual weather conditions and the specific needs of each plant to
perform unanticipated facility maintenance or outages (including annual
or multi-year).
o The costs and other effects of legal and administrative cases and
proceedings, settlements and investigations, claims, and changes in
those items, developments or assertions by or against AES; the effect
of new, or changes in, accounting policies and practices and the
application of such policies and practices.
o Changes or increases in taxes on property, plant, equipment, emissions,
gross receipts, income or other aspects of the Company's business or
operations.
(b) Financial information about industry segments.
The Company operates in only one industry segment: electric power
supply.
(c) Narrative description of business.
<PAGE>
The Company attempts to participate in competitive power markets as
they develop either by greenfield development or by acquiring and operating
existing facilities or 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 electricity
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 megawatts);
o When available, entering into power sales contracts with electric
utilities or other customers with significant credit strength; and
o Where possible, participating in 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 and distribution. 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.
The Company's historical and significant focus has been and continues
to be the wholesale generation and supply of electricity. More recently AES has
acquired four electricity distribution businesses and has invested in two
integrated utilities in Central and South America. Asset composition, operating
margins and a variety of other business characteristics differ significantly
from one type of business to another. References to power sales agreements, fuel
supply agreements and plants generally mean those related to the generation
business. Concession (or service) contracts, supply contracts, and networks are
generally associated with the distribution businesses. Integrated utilities have
characteristics of both businesses. In addition, integrated utilities may
generate more or less of their own electricity. For example, Light generates a
comparatively low percentage of its own electricity (approximately 16 percent)
while CEMIG generates almost all of its own electricity needs.
Most of AES's electric generation plants sell electricity under
long-term power sales contracts. The Company attempts, whenever possible, to
structure the revenue provisions of its plants' power sales contracts such that
changes in the revenue components of these contracts correspond, as closely as
possible, to fluctuations in the cost components of the plant (primarily fuel
costs). A plant's revenues from a power sales contract usually consists of two
components, energy payments and capacity payments. Energy payments are based on
a plant's net electrical output, with payment rates usually indexed to the fuel
costs of the contracting utility or to general inflation indices. Capacity
payments are based on either a plant's net electrical output (the amount of
electricity delivered on a kilowatt-hour basis) or its available capacity (the
ratio of kilowatt hours the plant delivers to the total kilowatt hours requested
by the customer). Capacity payment rates vary over the term of a power sales
contract according to various schedules.
To the extent possible, the Company attempts to structure an electric
generation plant's fuel supply contract so that fuel costs are indexed in a
manner similar to the energy payments a project receives under the power sales
contract. In this way, project revenues are partially hedged against
fluctuations in fuel costs.
As with fuel prices, AES has hedged a substantial portion of its
projects against the risk of fluctuations in interest rates. In each project
with fixed capacity payments, AES has attempted to hedge all or a significant
portion of its risk of interest rate fluctuations by arranging for fixed-rate
financing or variable-rate financing with interest rate swaps or other hedging
mechanisms. Those projects with fluctuating capacity payments are hedged by
arranging for floating rate financing.
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The Company attempts to finance each domestic and foreign project
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 cash flow of that project
subsidiary or affiliate. This type of financing is usually referred to as
"project financing." The lenders under these project financing structures
generally 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. These obligations and liabilities take the form of guarantees,
letter of credit reimbursement agreements, and agreements to pay, in certain
circumstances, to project lenders or other parties amounts up to the amounts of
distributions previously made by the applicable subsidiary or affiliate to AES.
To the extent AES becomes liable under guarantees and letter of credit
reimbursement agreements, distributions received by AES from other projects are
subject to the possibility of being utilized by AES to satisfy these
obligations. To the extent of these obligations, the lenders to a project
effectively have recourse to AES and to the distributions to AES from other
projects. The aggregate contractual liability of AES is, in each case, usually a
small portion of the aggregate project debt, and thus the project financing
structures are generally described herein as being "substantially non-recourse"
to AES and its other projects.
Year 2000. The Company is reviewing and assessing the anticipated
costs, problems and uncertainties associated with the so-called Year 2000 issues
in accordance with Securities and Exchange Commission Staff Legal Bulletin No.
5, dated October 8, 1997. In connection therewith, and with its ongoing
evaluation of technological developments and information systems' needs, the
Company's facilities have begun implementation of a Year 2000 review whereby
each facility is in the process of identifying systems requiring modification or
conversion. Within the context of risks identified in the SEC Bulletin noted
above and the ongoing review the Company is conducting, the Registrant believes
that Year 2000 issues will not materially affect its facilities, services, or
competitive conditions, and that the costs of addressing the Year 2000 issues
will not materially impact future consolidated operating results, financial
condition or cash flows.
PRINCIPLES AND PRACTICES
A core part of AES's corporate culture is a commitment to "shared
principles." These principles describe how AES people endeavor to behave,
recognizing that they don't always live up to these standards. The principles
are:
Integrity - AES strives to act with integrity, or "wholeness." The
Company seeks to honor its commitments. The goal is that the things AES
people say and do in all parts of the Company should fit together with
truth and consistency.
Fairness - AES wants to treat fairly its people, its customers, its
suppliers, its stockholders, governments and the communities in which
it operates. Defining what is fair is often difficult, but the Company
believes it is helpful to routinely question the relative fairness of
alternative courses of action.
Fun - AES desires that people employed by the Company and those people
with whom the Company interacts have fun in their work. AES's goal has
been to create and maintain an environment in which each person can
flourish in the use of his or her gifts and skills and thereby enjoy
the time spent at AES.
Social Responsibility - The Company believes that it has a
responsibility to be involved in projects that provide social benefits,
such as lower costs to customers, a high degree of safety and
reliability, increased employment and a cleaner environment.
AES recognizes that most companies have standards and ethics by which
they operate and that business decisions are based, at least in part, on such
principles. The Company believes that an explicit commitment to a particular set
of standards is a useful way to encourage ownership of those values among its
people. While the people at AES acknowledge that they won't always live up to
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these standards, they believe that being held accountable to these shared values
will help them behave more consistently with such principles.
AES makes an effort to support these principles in ways that
acknowledge a strong corporate commitment and encourage people to act
accordingly. For example, AES conducts annual surveys, both company-wide and at
each location, designed to measure how well its people are doing in supporting
these principles -- through interactions within the Company and with people
outside the Company. These surveys are perhaps most useful in revealing
failures, and helping to deal with those failures. AES's principles are relevant
because they help explain how AES people approach the Company's business. 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.
In order to create a fun working environment for its people and
implement its strategy of operational excellence, AES has adopted decentralized
organizational principles and practices. For example, AES works to minimize the
number of supervisory layers in its organization. Most of the Company's plants
operate without shift supervisors. The project subsidiaries are responsible for
all major facility-specific business functions, including financing and capital
expenditures. Criteria for hiring new AES people include a person's willingness
to accept responsibility and AES's principles as well as a person's experience
and expertise. The Company has generally organized itself into multi-skilled
teams to develop projects, rather than forming "staff" groups (such as a human
resources department or an engineering staff) to carry out specialized
functions.
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FACILITIES
The following tables set forth relevant information regarding the
Company's generation facilities that are currently in operation by geographic
region or currently under construction and the distribution companies in which
AES has an ownership interest. For a description of risk factors and additional
factors that may apply to the Company's businesses, see also the information
contained under the caption "Cautionary Statements and Risk Factors" in Item 1
above, and Item 7, "Discussion and Analysis of Financial Condition and Results
of Operations" herein.
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<CAPTION>
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YEAR OF
ACQUISITION OR APPROXIMATE
COMMENCEMENT CAPACITY IN AES EQUITY
GENERATION OF COMMERCIAL MEGAWATTS GEOGRAPHIC INTEREST
FACILITIES IN OPERATION FUEL OPERATIONS (MWS) LOCATION (PERCENT)
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North America
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Deepwater Pet coke 1986(1) 143 Texas 100
Beaver Valley Coal 1987 125 Pennsylvania 80
Placerita Gas 1989 120 California 100
Thames Coal 1990 181 Connecticut 100
Shady Point Coal 1991 320 Oklahoma 100
Hawaii (Barbers Point) Coal 1992 180 Hawaii 100
Kingston Gas 1997 110 Canada 50
Latin America
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San Nicolas Multiple 1993 650 Argentina 69
Rio Juramento (2 plants) Hydro 1995 112 Argentina 98
San Juan (2 plants) Hydro/Gas 1996 78 Argentina 98
Light (4 plants) Hydro 1996 788 Brazil 14
CEMIG (35 plants) Hydro(3) 1997 5,068 Brazil 9
Los Mina Oil 1997 210 Dominican Republic 100
Asia and the Pacific
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Cili Misty Mountain Hydro 1994 26 China 51
Yangchun Sun Spring Oil 1995 15 China 25
Wuxi Tin Hill Oil 1996 63 China 55
Wuhu Grassy Lake Coal 1996 250 China 25
Ekibastuz Coal 1996 4,000(2) Kazakhstan 70
Chengdu Lotus City Gas 1997 48 China 35
Tau Power (6 plants) Coal/Hydro 1997 1,384 Kazakhstan 85
Hefei Prosperity Lake Oil 1997 76(4) China 70
Jiaozuo Aluminum Power Coal 1997 125(4) China 70
Lal Pir Oil 1997 344 Pakistan 90
Pak Gen Oil 1998 351 Pakistan 90
Europe
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Kilroot (NIGEN) Coal/Oil 1992 520 United Kingdom 47
Belfast West (NIGEN) Coal 1992 240 United Kingdom 47
Medway Gas 1995 688 United Kingdom 25
Borsod (Tiszai) Coal 1996 171 Hungary 63
Tisza II (Tiszai) Oil/Gas 1996 860 Hungary 96
Tiszapalkonya (Tiszai) Coal 1996 250 Hungary 96
Indian Queens Gas 1997 140 United Kingdom 100
- ------------- ---
TOTAL IN OPERATION 17,636
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(1) Plant operations commenced in 1986, but control was acquired in 1995.
(2) Due to poor historical maintenance over the ten years prior to the Company's
purchase, the facility's capacity factor is approximately 20%.
(3) Total capacity of CEMIG includes 125 MW of thermal generation. Six hydro
plants represent approximately 90% of CEMIG's total generation capacity.
(4) Seventy-six and 125 MW of Hefei Prosperity Lake and Jiaozuo Aluminum Power,
respectively, are currently in operation. The remaining portions are under
construction.
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<CAPTION>
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YEAR OF
ACQUISITION OR APPROXIMATE
COMMENCEMENT CAPACITY IN AES EQUITY
GENERATION OF COMMERCIAL MEGAWATTS GEOGRAPHIC INTEREST
FACILITIES UNDER CONSTRUCTION FUEL OPERATIONS(1) (MWS) LOCATION (PERCENT)
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Elsta Gas 1998 405 Netherlands 50
Jiaozuo Aluminum Power Coal 1998 125(3) China 70
Aixi Heart River Coal 1998 50 China 70
Hefei Prosperity Lake Oil 1998 39(3) China 70
Barry Gas 1998 230 United Kingdom 100
Warrior Run Coal 1999 180 Maryland 100
Mt. Stuart Oil 1999 288 Australia 100
Parana Gas 2000 830 Argentina 67
Yangcheng Sun City Coal 2000(2) 2,100 China 25
Uruguaiana Gas 2000 600 Brazil 100
Merida III Gas 2000 484 Mexico 55
- ---------- ---
TOTAL UNDER CONSTRUCTION 5,331
TOTAL IN OPERATION AND UNDER CONSTRUCTION 22,967
</TABLE>
(1) Dates for commencement of commercial operation of facilities under
construction are projections only and may be subject to change.
(2) Yangcheng Sun City is being constructed over a sixty-month period that began
in 1997. The first of the six 350 MW units is estimated to be completed in
2000.
(3) Seventy-six and 125 MW of Hefei Prosperity Lake and Jiaozuo Aluminum Power,
respectively, are currently in operation. The remaining portions are under
construction.
<PAGE>
The table below sets forth information regarding the Company's
distribution facilities.
<TABLE>
<CAPTION>
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APPROXIMATE NUMBER AES EQUITY
DISTRIBUTION OF CUSTOMERS APPROXIMATE GEOGRAPHIC INTEREST
FACILITIES SERVED GIGAWATT HOURS LOCATION (PERCENT)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Light 2,700,000 19,981 Rio de Janeiro, Brazil 14
EDEN 270,000 3,572 Buenos Aires, Argentina 60
EDES 129,000 1,182 Buenos Aires, Argentina 60
CEMIG 4,143,000 32,179 Minas Gerais, Brazil 9
Sul 804,000 5,772 Rio Grande do Sul, Brazil 91
CLESA 188,000 561 Santa Ana, El Salvador 64
- ----- ------- ---
TOTALS FOR DISTRIBUTION FACILITIES 8,234,000 63,247
- ---------------------------------- --------- ------
</TABLE>
NORTH AMERICA
AES currently owns and operates, through subsidiaries and affiliates,
seven generation facilities in the United States and Canada representing
approximately 1,179 MW.
Deepwater is a 143 MW petroleum coke-fired cogeneration facility
located near Houston, Texas. The facility sells electricity to Houston Lighting
and Power Company under a power sales contract which expires in 1998. Deepwater,
under a contract which also expires in 1998, produces and delivers process steam
to an ARCO Petroleum Products Company refinery adjacent to the cogeneration
facility. Deepwater currently is in negotiations with various parties to provide
for the continued sale of its electricity and steam generation upon the
expiration of the two mentioned contracts.
Beaver Valley is a 125 MW pulverized coal-fired cogeneration facility
located in Monaca, Pennsylvania. AES is the managing partner and operator of
Beaver Valley. West Penn Power Company purchases electricity produced by the
plant under a power sales contract with a remaining term of approximately 19
years. The facility sells steam to NOVA Chemicals Inc. for use in its chemical
processing activities under a requirements contract with a remaining term of
approximately four years.
Placerita is a 120 MW natural gas-fired, combined-cycle cogeneration
facility near Los Angeles, California. The plant sells electricity to Southern
California Edison Company under a contract with a remaining term of
approximately 16 years. Placerita sells steam to Hillside Oil Partners, which is
engaged in oil recovery operations, and ARCO Oil and Gas Company.
Thames is a 181 MW coal-fired, circulating fluidized bed ("CFB")
cogeneration plant located in Montville, Connecticut. Power generated by Thames
is sold to Connecticut Light and Power Company ("CL&P") under a contract with a
remaining term of approximately 17 years. Thames also sells steam to Stone
Container Paperboard Corporation for use in its recycled paperboard plant
located adjacent to the plant. 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.
Shady Point is a 320 MW coal-fired, CFB cogeneration plant in LeFlore
County, Oklahoma. The Shady Point facility includes a 240-ton per day food
grade, liquid CO2 plant, which utilizes in its CO2 production processes
approximately 65,000 pounds per hour of process steam produced by the plant.
Shady Point sells electricity to Oklahoma Gas and Electric Company under a
contract with a remaining term of approximately 10 years.
Hawaii is a 180 MW coal-fired, CFB cogeneration plant located in
Kapolei, Oahu, Hawaii. Hawaii sells electricity to Hawaiian Electric Company,
Inc. under a contract with a remaining term of 25 years. Steam generated by the
plant is sold to Chevron USA Inc. for use in its oil refining operations under a
steam sales agreement with a remaining term of 15 years.
<PAGE>
Kingston is a 110 MW gas-fired, combined-cycle cogeneration facility
located in Ernestown Township, Ontario. Kingston is owned by a partnership
comprised of AES and two partners, each owning 25 percent. AES acquired its
interest in Kingston in June 1997 upon completion of its acquisition of the
international assets of Destec Energy, Inc. The plant began commercial
operations in February 1997 and is expected to operate as a baseload facility.
The Company operates the business through an operation and maintenance agreement
entered at the time of its acquisition of its interest in the facility.
LATIN AMERICA
AES currently owns and operates, through subsidiaries and affiliates,
forty-five operating plants in Latin America representing approximately 6,906
MW. In addition, AES has majority ownership in two distribution companies in
Argentina, one in Brazil and one in El Salvador (purchased in 1998), and less
than majority ownership in two additional integrated distribution companies in
Brazil. These six facilities serve a total of approximately 8 million customers
with gigawatt hour sales exceeding 63,000.
San Nicolas is a 650 MW power plant in San Nicolas, Argentina. San
Nicolas sells a total of 345 MW of electricity (approximately 53 percent of the
plant's output capability) under two power sales contracts, each with a
remaining term of three years. Under one of the contracts that runs through
2001, the three recently privatized distribution companies of Empresa Social de
Energia de Buenos Aires S.A. ("ESEBA"), two of which are controlled by AES
through its ownership interest in Empresa Distribuidora de Energia Norte S.A.
("EDEN") and Empresa Distribuidora de Energia Sur S.A. ("EDES") (described
below), purchase 285 MW (except during the month of April of each year, when the
amount purchased is 57 MW). Under the other contract, EDELAP, S.A., a privatized
Argentine distribution company, purchases 60 MW of electricity. The plant sells
additional electricity, when it is profitable to do so, into the Argentine spot
market.
Rio Juramento is a 112 MW hydroelectric station in the province of
Salta, Argentina. The station consists of a 102 MW facility with a large storage
reservoir capable of inter-year storage, and a 10 MW facility capable of
inter-seasonal storage. Rio Juramento has exclusive rights to operate the
facility under a 30-year concession agreement, and sells electricity in the
Argentine spot market.
Hidrotermica San Juan, S.A. ("San Juan") is the owner and operator of
two power generating facilities totaling 78 MW in the province of San Juan,
Argentina. The facility includes a 45 MW hydroelectric power plant and a 33 MW
gas combustion power plant.
Los Mina is an oil-fired, simple-cycle power plant located in Santo
Domingo, Dominican Republic that AES acquired through its purchase of the
international assets of Destec in June 1997. The 210 MW plant operates two
simple-cycle combustion turbine generators on land adjacent to a government
owned electricity substation. Los Mina is the second largest generator on the
island and supplies power to the capital city of Santo Domingo. The facility
burns fuel oil that is piped to the plant from a nearby barge dock. The facility
began operations in May 1996. Due to recurring turbine blade failure, Los Mina
has been out of service and unable to provide electricity in several instances
during the period prior to and after the date of AES's acquisition of the
facility. Los Mina is reviewing steps with the facility's equipment supplier to
increase the reliability of the plant's output and has begun processing claims
to recover costs of the repairs and outages against the contractor and with its
insurer. Although no assurance can be given that Los Mina will be able to
collect on any of these claims, the Company believes that the outcome of this
matter will not have a material adverse effect on its consolidated financial
position, results of operation or cash flows.
DISTRIBUTION FACILITIES IN LATIN AMERICA
Light Servicos de Electricidade, S.A. ("Light") is a Brazilian electric
power generation, transmission and distribution system serving 28 municipalities
in the state of Rio de Janeiro, Brazil that is controlled by a consortium
comprised of AES, Electricite de France, Houston Industries, Companhia
Siderurgica Nacional and Banco Nacional de Desenvolvimento Economico E Social
(the
<PAGE>
"Light Consortium"). In connection with the purchase of the controlling interest
by the Light Consortium in 1996, the Ministry of Mines and Energy of Brazil
granted a 30-year concession to Light pursuant to the terms of a concession
agreement which obligates Light to provide electric services to all customers
within its concession. Light generates about 16 percent of the total electricity
it distributes through four hydroelectric complexes having an aggregate
installed generating capacity of approximately 788 MW. Of the remaining
electricity distributed by Light (approximately 84 percent of the total), 53
percent is purchased from Furnas Centrais Electricas S.A., a power generation
and transmission company owned by Eletrobras, and the remaining 31 percent is
purchased from Itaipu Binacional, a power generation company owned by the
Republic of Brazil and the Republic of Paraguay ("Itaipu"). AES has principal
responsibility for all matters relating to generation and purchasing of
electricity by Light through its participation in the Light Consortium.
Companhia Energetica de Minas Gerais ("CEMIG") is an integrated
electric utility serving the State of Minas Gerais in Brazil. Through a
consortium consisting of AES and two partners (the "CEMIG Consortium"), AES has
significant operating influence over CEMIG, including the right to appoint its
chief operating officer, and otherwise shares control of CEMIG with the State of
Minas Gerais. As it did with Light, the Ministry of Mines and Energy of Brazil
granted concessions to CEMIG pursuant to the terms of six concession agreements
which obligate CEMIG to provide electric services to all customers within its
concession, and authorizes CEMIG to charge its customers a tariff for electric
services. CEMIG transmits and distributes electricity, generated or purchased by
it, to substantially all areas in Minas Gerais. In addition to the approximately
5,068 MW of electricity it generates, CEMIG purchases approximately 33 percent
of its electricity sales from Itaipu.
EDEN and EDES are two of the three privatized former distribution
companies of ESEBA and are controlled by AES through the purchase of its
ownership interest in 1997. EDEN and EDES have 95-year territorial exclusive
franchise concessions and serve approximately 400,000 customers in the northern
and southern portions of the Argentine Province of Buenos Aires. EDEN and EDES
source their electric power requirements using both spot market purchases in the
wholesale electricity market and contract purchases from San Nicolas, which is
also controlled by AES. The contract, which was signed in May 1993 for a term of
8 years, provides for purchases of approximately 2,332 gigawatt hours of
electricity per year.
Companhia Centro-Oeste de Distibuicao de Energia Eletrica ("Sul") is a
distribution company recently privatized by Companhia Estadual de Energia
Eletrica ("CEEE"). AES purchased Sul in October 1997. Prior to privatization
CEEE was a vertically-integrated electric utility that provided approximately 98
percent of the electricity in the Brazilian State of Rio Grande do Sul. Sul
serves the central and western portion of the state. Sul has a 30 year exclusive
concession to distribute electricity in the territory it currently serves. Sul's
location in the State of Rio Grande do Sul borders Argentina which may allow AES
to integrate its Brazilian and Argentine operations. Sul, along with the other
two distribution companies formerly part of CEEE, will be AES Uruguaiana's
customers (described below in "Projects under Construction").
Compania de Luz Electrica de Santa Ana ("CLESA") is an electricity
distribution company serving the city and surrounding areas of Santa Ana, El
Salvador. AES acquired control of CLESA in February 1998, through its payment of
$109 million for 79.78% of the outstanding shares of CLESA. Comision Ejecutiva
Hidroelectrica del Rio Lempa ("CEL"), the El Salvador government-owned utility,
sold CLESA, along with three other Salvadoran distribution companies, in an
auction held in January 1998. Energia Global International, Ltd., a Bermuda
company with activities in Central America, has the right to purchase up to 20%
of AES's interest in CLESA. CLESA's service area borders Guatemala and Honduras
to the north, with access to the Pacific Ocean. CLESA purchases its electricity
in the local spot market and from CEL under an annual contract.
For a further description of the tariff rate structures, the tariff
rate adjustment escalators and the currency exchange rate adjustments that may
affect the tariff structures in future years for AES's distribution facilities,
please see the information contained in Item 7, "Discussion and Analysis of
Financial Condition and Results of Operations" herein.
<PAGE>
ASIA AND THE PACIFIC
In Asia and the Pacific, AES currently operates and owns (entirely or
in part), through subsidiaries and affiliates, interests in nineteen generation
facilities representing approximately 6,682 MW of generating capacity.
The Company founded AES China Generating Co. Ltd. ("AES Chigen") in
December 1993 to develop, acquire, finance, construct, own and operate electric
power generation facilities in the People's Republic of China (the "PRC").
Initially a public company in its own right, AES now owns all of the outstanding
shares of AES Chigen through the completion of its amalgamation with AES Chigen
in May 1997 wherein AES issued approximately 2.4 million shares of AES Common
Stock, par value $.01 per share, in exchange for all of the issued and
outstanding shares of the publicly held, Class A Common Stock of AES Chigen. The
total purchase price was valued at approximately $157 million. AES Chigen has
developed nine power projects which are currently in operation or under
construction in the PRC.
Cili Misty Mountain, located in Cili County, Hunan Province, PRC,
consists of three hydroelectric generating units amounting to 26 MW, the third
unit of which commenced commercial operation in 1997. Cili Misty Mountain is
owned by Xiangci-AES, a 25-year joint venture formed by Hunan Cili Electric
Power Company and AES Chigen. Power is purchased by Hunan Cili Electric Power
Company.
Yangchun Sun Spring, located in Yangchun, Guangdong Province, consists
of one existing 8.6 MW diesel engine generating facility which was constructed
prior to the Company's involvement, and another 6.5 MW diesel engine generating
facility which commenced commercial operation in April 1996. The facility is
owned by Yangchun Fuyang, a 12.5-year cooperative joint venture formed by
Yangchun Municipal Power Supply, Shenzhen Futian Gas Turbine Power Co., Ltd. and
a wholly-owned subsidiary of AES Chigen. Yangchun Municipal Power Supply Bureau
purchases the plant's electricity and Yangchun Municipal Power Supply provides
fuel, both in accordance with 12.5-year agreements.
Wuxi Tin Hill is an oil-fired, combined cycle power plant which
consists of a 48 MW gas turbine generating facility and a 15 MW heat recovery
steam turbine generating facility located in Xishan (previously known as Wuxi
County), Jiangsu Province, PRC. The gas turbine generating plant commenced
commercial operation in March 1996. The heat recovery steam turbine generating
plant commenced commercial operation in the first quarter of 1997. Wuxi Tin Hill
is owned by Wuxi-AES-CAREC and Wuxi-AES-Zhonghang, two 16-year cooperative joint
ventures formed among AES Chigen and China National Aero-Engine Corporation
("CAREC") and Wuxi Power Industry Company ("Wuxi Power"). Xishan Electricity
Management Office purchases the power and steam generated by the plant in
accordance with a 16-year purchase contract. Fuel to the plant is supplied via
two local State-owned oil companies under 16-year contracts.
Wuhu Grassy Lake is a 250 MW coal-fired power plant located near Wuhu,
Anhui Province, PRC. It is the phase IV expansion of an existing 325 MW
coal-fired power station. Both units of the power plant have now commenced
commercial operations. Wuhu Grassy Lake is owned by Wuhu Shaoda, a 20-year
equity joint venture owned by an AES Chigen subsidiary, China Power
International Holdings Limited, Anhui Liyuan Electric Power Development Company
Limited, and Wuhu Energy Development Company Limited. Power is purchased
pursuant to a 20-year operation and off-take contract with Anhui Provincial
Electric Power Corporation.
Chengdu Lotus City is a 48 MW natural gas-fired power plant located in
Chengdu, Sichuan Province, PRC. Construction of the power plant commenced in
September 1996 and commenced commercial operation during 1997. Chengdu Lotus
City is owned by Chengdu AES-Kaihua, a 16-year cooperative joint venture formed
by AES Chigen, Huaxi Electric Power Shareholding Company Ltd. ("Huaxi"),
Huachuan Petroleum & Natural Gas Exploration ("Huachuan") and Development
Company and CAREC. Huaxi purchases the facility's generated power and Huachuan
provides fuel, both pursuant to separate 15-year agreements.
<PAGE>
Hefei Prosperity Lake is an oil-fired combined cycle power plant
consisting of two 38 MW gas turbines generating units ("gas turbine unit") and
one 39 MW heat recovery steam turbine generating unit ("steam turbine unit"). It
is located within the boundaries of an existing 325 MW coal fired power plant in
Hefei, Anhui Province, PRC. Construction of the power plant commenced in
November 1996. The gas turbine unit commenced commercial operation in the third
quarter of 1997 and the steam turbine unit is scheduled to commence commercial
operation in the third quarter of 1998. Hefei Prosperity Lake is owned by
Liyuan-AES and Zhongli Energy, two 16-year cooperative joint ventures formed
among a subsidiary of AES Chigen, Hefei Municipal Construction and Investment
Company and by Anhui Liyuan Electric Power Development Company Limited. Anhui
Provincial Electric Power Corporation purchases power from the plant pursuant to
a 16-year operation and off-take contract.
Jiaozuo Aluminum Power is a 250 MW coal-fired power plant located
adjacent to the Jiaozuo Aluminum Mill ("Jiaozuo Mill") in Jiaozuo, Henan
Province, PRC. Construction of the power plant commenced in the first quarter of
1995. The first unit of the power plant commenced commercial operation in the
third quarter of 1997. The second unit is expected to commence commercial
operation in the second quarter of 1998. Jiaozuo Aluminum Power is owned by
Jiaozuo Wan Fang, a 23-year cooperative joint venture owned 70 percent by an AES
Chigen wholly-owned subsidiary and 30 percent by Jiaozuo Mill. Power is
purchased under 23-year contracts by Jiaozuo Mill and by the Henan Electric
Power Corporation. Jiaozuo Aluminum Power purchases fuel under one-year
negotiated contracts from the local area.
Ekibastuz is a 4,000 MW (design capacity) mine-mouth, coal-fired power
facility in eastern Kazakhstan. Due to economic difficulties over the ten years
prior to the Company's purchase, the facility has experienced a reduction in
performance and has operated at a capacity factor of up to approximately 20
percent. In its 1996 acquisition of the facility, AES agreed to increase the
capacity to 63 percent over a five-year period (contingent on the purchaser's
performance of its obligations under the power sales contract). For a further
description of Ekibastuz, see the information contained in the section entitled
"Results of Operations" contained in Item 7, "Discussion and Analysis of
Financial Condition and Results of Operations" hereof.
Lal Pir and Pak Gen are adjacent 344 and 351 MW, respectively,
oil-fired facilities in Punjab Province, Pakistan. Lal Pir commenced commercial
operation during the fourth quarter of 1997 and Pak Gen commenced commercial
operation in the first quarter of 1998. The Pakistan Water and Power Development
Authority ("WAPDA") purchases the electrical capacity and electrical output of
the facilities through two separate 30-year power sales agreements. The Pakistan
State Oil Company Limited ("PSO"), the state-owned petroleum company, supplies
fuel under 30-year agreements. Certain of the obligations of WAPDA under the
power sales agreements and of PSO under the fuel supply agreements are
guaranteed by the Government of Pakistan.
Tau Power, also known as Altai, is a joint venture that is owned by AES
and Israel-based Suntree Power. In October 1997, Tau Power completed its
acquisition and takeover of two hydro-electric stations and four combined heat
and power stations 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 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.
EUROPE
AES currently owns and operates, through subsidiaries and affiliates,
seven plants in Europe representing approximately 2,869 MW.
NIGEN is a joint venture between AES and a Belgian utility that
consists of two power plants in Northern Ireland: Kilroot, a 520 MW dual-fired
(coal and oil) power plant, and Belfast West, a 240
<PAGE>
MW coal-fired power plant. The Kilroot and Belfast West plants have entered into
power sales contracts, subject to cancellation in 13 years and three years,
respectively, with Northern Ireland Electricity, plc, a transmission and
distribution company.
Medway Power Limited is a 688 MW combined cycle gas-fired power plant
in Southeast England on the Isle of Grain. Medway is owned by a joint venture
among an AES subsidiary and subsidiaries of Southern Electric plc ("Southern")
and SEEBOARD plc ("SEEBOARD"). The plant began operations in November 1995. AES,
through a subsidiary, operates and maintains the plant. Medway Power sells its
entire output through national electricity pool trading arrangements (the
"Pool") at prices based on the supply of, and demand for, electricity available
in the Pool. In addition, Medway Power has entered into a contract with each of
Southern and SEEBOARD, under which Southern and SEEBOARD will pay Medway Power
capacity payments based on the plant's available capacity, and energy cost
payments, based on the plant's actual sales of electricity to the Pool, that
reflect fuel costs and variable transmission charges incurred (each a "Contract
for Differences"). The basis of the contracts is 660 MW. Sales of electrical
output in excess of 660 MW are sold into the Pool, and are not subject to the
Contract for Differences.
Tiszai Eromu Rt. owns and operates three power plants totaling 1,281 MW
of gross capacity and a coal mine in Hungary. The plants consist of (i) the
Tisza II facility, an 860 MW oil and natural gas-fired facility that sells
electricity under a contract ending in 2010, (ii) the Tiszapalkonya facility, a
250 MW coal-fired facility that sells electricity under a contract ending in
2001, and (iii) the Borsod facility, a 171 MW coal-fired facility that sells
electricity under a contract ending in 2001. Each plant sells electricity to
Magyar Villamos Muvek Rt., a Hungarian, state-owned integrated utility.
Indian Queens is a 140 MW oil-fired, simple cycle plant located in
Cornwall County, England. AES acquired Indian Queens through its purchase of the
international assets of Destec Energy, Inc. in June, 1997. The plant began
commercial operation in October, 1996. Power generated by Indian Queens is sold
into the national electricity pool in the UK. Indian Queens, because of its
design, also sells ancillary services to the National Grid Company, the operator
of the UK's high voltage transmission system.
PROJECTS UNDER CONSTRUCTION
Aixi Heart River is a 50 MW coal-fired CFB power plant located in
Nanchuan, Sichuan Province, PRC. Construction of the power plant commenced in
February 1996, and is expected to be completed in 1998. Aixi Heart River is
owned by Fuling Aixi, a 25-year cooperative joint venture formed by Sichuan
Fuling Banxi Colliery and a wholly owned subsidiary of AES Chigen. The minority
partner will provide fuel to the plant and Sichuan Fuling Power Company will
purchase the power generated by the facility, both pursuant to separate 25-year
agreements.
The steam turbine unit of Hefei Prosperity Lake is currently under
construction and scheduled to commence commercial operation in the third quarter
of 1998. Likewise, the second unit of the 250 MW coal-fired Jiaozou Aluminum
Power facility remains under construction and is expected to commence commercial
operation in the second quarter of 1998. For a further description of these
facilities see the caption entitled "Asia and the Pacific" above.
Elsta is a 405 MW gas-fired, combined-cycle cogeneration plant
currently under construction at the chemical manufacturing facilities of Dow
Benelux N.V. in the Zeeland Province of the Netherlands. AES acquired its
interest in Elsta through the Company's acquisition of the international assets
of Destec Energy, Inc. in June, 1997. The remaining interest in Elsta is held
equally by two Dutch utilities: N.V. Delta Nutsbedrijven ("Deltan") and N.V.
Provinciale Noordbrabantse Energie-Maatschappij ("PNEM"). Elsta is the first
major private power project in the Netherlands. Pursuant to a 20-year power
sales agreement, Dow Benelux will purchase between 85 and 125 MW of electrical
capacity. Dow Benelux also expects to purchase an average of 500 MT/hr of
multi-pressure process steam energy and will have dispatch rights on steam
energy subject to minimum and maximum purchase obligations. The project's
minority partners, Deltan and
<PAGE>
PNEM, have agreed to purchase electrical capacity from the plant not purchased
by Dow (280-320 MW) for an initial contract period of 20 years following the
commercial operation date.
As part of the Company's acquisition of its interest in Elsta, AES
assumed responsibility under a guaranteed lump-sum turn-key contract for the
engineering, procurement and construction of the plant. Due to deficient
engineering and construction performance prior to AES's acquisition, the plant
was unable to meet its originally scheduled commercial operation date of
September 30, 1997. AES now expects that Elsta will achieve commercial operation
in June 1998. No assurance can be given, however, that Elsta will attain
commercial operation by that date. Substantial risks to the successful
completion of the plant continue to exist, including those relating to
undetected design flaws, government permitting difficulties and unknown
construction defects.
In September 1995, AES successfully completed the financing and began
construction of Warrior Run, a 180 MW coal-fired thermal cogeneration facility
near the city of Cumberland in Allegheny County, Maryland. Engineering,
procurement and construction of the project under a turn-key contract with
Raytheon Engineers & Contractors, Inc. and ABB/Combustion Engineering is
expected to be completed in 1999. Potomac Edison, a subsidiary of Allegheny
Power System, Inc. will purchase electricity under a 30 year agreement, which
has been approved by the Maryland Public Service Commission.
Barry is a 230 MW gas-fired combined cycle facility currently under
construction in Barry, South Wales, United Kingdom. Construction began in
October, 1996 and the facility is expected to commence operations by the second
quarter of 1998. Construction services are being supplied by TBV Power Limited
under a lump sum, turnkey construction contract. The Barry facility will sell
electricity into the national electricity spot market in the United Kingdom. In
February 1997, Barry raised (pound)112 million of non-recourse project
financing, underwritten solely by The Industrial Bank of Japan, Limited.
Mt. Stuart is a 288 MW power station located at Townsville, North
Queensland, Australia that is currently under construction. The facility will
consist of two 144 MW open-cycle gas turbines. AES has entered into various
agreements to develop, own, and operate the facility. The plant will burn
liquefied petroleum gas and will sell electricity to the Queensland Transmission
and Supply Corporation under a 10-year power purchase agreement. The facility
will operate as a peaking station and, therefore, it is estimated that the
facility will operate for only 3 percent to 5 percent of the year. In September
1997, AES raised A$103.5 million to finance the plant's construction.
The Company began construction on its Parana project in September 1997.
Parana is an 830 MW gas-fired, combined cycle power plant. Parana will be
located in San Nicolas, Argentina, adjacent to San Nicolas, in which AES owns a
controlling interest. Parana is in the process of arranging for project
financing for the facility. Parana has entered into a lump sum, turnkey
construction contract with Nichimen Corporation and Mitsubishi Heavy Industries
for the plant. 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.
Yangcheng Sun City, currently under construction, is a 2,100 MW
coal-fired mine-mouth power plant located in Yangcheng, Shanxi Province, PRC.
Construction of the power plant commenced in the second quarter of 1997 and AES
made its initial equity investment in the third quarter of 1997. AES Chigen,
through a wholly-owned subsidiary, will be responsible for overseeing the
management of construction and operations of the plant. AES Chigen is committed
to invest $98 million of equity in the project and will own twenty-five percent
of the 20-year joint venture with five other partners owning the remaining 75
percent. The project will be funded with $1.21 billion of debt provided by the
China Construction Bank, China State Development Bank, U.S. Export-Import Bank,
and Kreditanstalt fur Wiederaufbau (KfW) and $393 million of equity.
Yangcheng Sun City is one of the first "coal-by-wire" power projects in
China. The power will be produced in Shanxi Province and shipped via a 755
kilometer transmission line to Jiangsu Province, a coastal province. The project
is being constructed over a 60-month period by the Shanxi
<PAGE>
Provincial Power Company under a fixed-price, fixed-schedule turnkey contract.
The first unit is scheduled to come on line within 35 months. Low sulfur coal
will be supplied by the Shanxi Provincial Coal Transportation and Sales Company.
In January 1997, the Comision de Electricidad, a decentralized public
agency of the Federal Government of the United Mexican States selected a
consortium led by AES to develop, design, engineer, construct, equip,
commission, start-up, operate and maintain a 484 MW combined-cycle, gas fired
power generation facility ("Merida III"). The Project will be located in the
city of Merida, Yucatan, Mexico. The Project will consist of two gas-fired
turbines, two heat recovery steam generators, a single steam turbine, and
certain other common facilities. Engineering, procurement and construction of
the project is under a turn-key contract with Westinghouse and construction is
expected to be completed in 2000.
In April 1997, CEEE, the electric distribution company for the state of
Rio Grande do Sul, Brazil, selected AES to build, own, and operate a 600 MW
gas-fired combined cycle power plant to be built at the border city of
Uruguaiana, in the State of Rio Grande do Sul, Brazil ("AES Uruguaiana"). CEEE
will purchase the electricity of AES Uruguaiana under a 20 year power purchase
agreement. The Project will consist of two gas-fired turbines, two heat recovery
steam generators and a single steam turbine, and certain other common
facilities. Engineering, procurement and construction of the project is under a
turn-key contract with Westinghouse and construction is expected to be completed
in 2000.
PROJECTS IN ADVANCED STAGES OF DEVELOPMENT
The Company currently is pursuing over 100 new business opportunities
in various stages of development. Each of these projects are subject to numerous
risks as discussed elsewhere in this Annual Report on Form 10-K, and no
assurance can be given that any of the projects or businesses will be completed
or acquired. Listed below are development projects that have achieved certain
milestone objectives the Company deems significant.
In January 1998, the Company 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 2000, and electricity will be sold to the Bangladesh
Power Development Board.
In November 1997, AES won a bid to acquire three natural gas-fired,
electric generating stations from Southern California Edison ("Edison") for
approximately $781 million. 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" and
initially will operate in part under agreements with California's 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. Completion of the acquisition
is subject to a number of conditions, including the receipt of California Public
Utilities Commission approval, federal regulatory and anti-trust approvals and
successful implementation of the new California electric spot market, called the
Power Exchange.
The AES Ironwood project is in the advanced stages of development and
will be a natural gas-fired combined cycle facility currently in southeastern
Pennsylvania. Total plant capacity is anticipated to be approximately 720 MW.
The plant is anticipated to achieve commercial operation by the end of 2000.
Power generated by Ironwood will be purchased by General Public Utility under
the terms of a power purchase agreement finalized in February 1997.
<PAGE>
An affiliate of the Company, San Francisco Energy Company, LP ("SFEC"),
which is a joint venture between AES Pacific, an indirectly wholly owned
subsidiary of AES and a general partner in SFEC, and Sonat Inc., is developing a
240 MW natural gas-fired facility in San Francisco, California. SFEC signed a
Standard Offer contract in 1994 with Pacific Gas & Electric ("PG&E") as the
winner of the San Francisco portion of the California Public Utilities
Commission's Biennial Resource Plan Update. The contract calls for the full
capacity of the plant to be purchased by Pacific Gas & Electric for 30 years,
with an option to terminate after 17 years. However, a ruling by the Federal
Energy Regulatory Commission ("FERC") has questioned the validity of the
California Biennial Resource Plan update ("BRPU"), pursuant to which SFEC was
awarded its contract. The Company believes that its contract with PG&E is valid,
but the Company is currently involved in litigation with PG&E over the validity
of the contract. The Company does not believe that the ultimate resolution of
this matter will have a material adverse effect on the Company. Substantial
risks to the successful completion of this project exist, including those
relating to the contract litigation, FERC decision, siting, financing,
construction and permitting.
AES has been developing AES Puerto Rico which is to be a 454 MW
coal-fired cogeneration facility in Guayama, Puerto Rico. The Puerto Rico
Electricity Power Authority has agreed to purchase the electrical output of the
facility pursuant to a 25-year power sales agreement. The project received
approval of its environmental impact statement from the Puerto Rico
Environmental Quality Board, but such approval has been challenged. This issue
is currently on appeal to the Supreme Court of Puerto Rico, which has not yet
rendered a decision. Development of the project is stayed during determination
of the appeal.
AES has also been developing a 420 MW coal-fired facility in the State
of Orissa, India ("AES Ib Valley"). Under the terms of an executed power sales
agreement, the Orissa State Electricity Board ("OSEB") agreed to purchase at
least 85 percent of the electrical capacity of the facility pursuant to a
30-year contract. Certain of OSEB's obligations are guaranteed by the Government
of Orissa ("GOO"). In addition, the Government of India ("GOI") agreed to
guarantee a portion of GOO's obligations. In July 1995, a newly elected state
government initiated a review of the terms and conditions of AES Ib Valley's
agreements with OSEB and GOO. This review has led OSEB and GOO to seek
significant modifications to the terms of the power sales agreement. In light of
this review AES has been unable to reach financial closing on this project and
has been forced to terminate certain financing and contractual commitments
relating to the project. AES Ib Valley is currently in negotiation with GOO and
OSEB and may agree to changes, including those relating to the plant's technical
configuration, capital cost, size and the price paid for electricity.
Notwithstanding the Company's willingness to discuss modifications to the
project, the Company believes that its current agreements with GOO, OSEB and GOI
are valid, and if agreements cannot be restructured on terms acceptable to AES,
the Company intends to pursue its rights with respect to enforcement of the
existing contracts. No assurance can be given that either (i) the terms of a new
contract will be agreed to or (ii) if AES pursues its legal claims, that it will
be able to compel specific performance or recover significant damages.
REGULATORY MATTERS
Despite the recent movement toward electricity restructuring,
electricity markets in the United States are still heavily regulated. United
States laws and regulations still govern to some extent wholesale electricity
transactions, the type of fuel utilized, the type of energy produced, and power
plant ownership. State regulatory commissions have jurisdiction over retail
electricity transactions. United States power projects also are subject to laws
and regulations controlling emissions and other substances produced by a plant
and the siting of plants. These laws and regulations generally require that a
wide variety of permits and other approvals be obtained before the construction
or operation of a power plant commences, and that the facility operate in
compliance with these permits thereafter. FERC must also approve rates charged
by certain power marketers such as those of the Company's subsidiary, AES Power.
In the United States, so-called Qualifying Facilities ("QFs") are
relieved of compliance with extensive federal, state and local regulations by
the provisions of the Public Utility Regulatory Policies Act, as amended
("PURPA"). Each of AES's current domestic plants is a QF. Loss of QF
<PAGE>
status, if not prevented, would subject these plants to more extensive
regulations. The Company believes, however, that it will usually be able to
react in a manner that would avoid the loss of QF status.
State public utility commissions ("PUCs") regulate both the retail
rates and financial performance of electric utilities. Since a wholesale power
sales contract is generally reflected in a utility's retail rates, power sales
contracts from QFs are indirectly under the regulatory purview of PUCs. PUCs
often will pre-approve contracts with prices that do not exceed so-called
"avoided costs" because such contracts often have been acquired through a
competitive or market-based process. Recognizing the competitive nature of most
acquisition processes, most PUCs will permit utilities to "pass through"
expenses associated with an independent power contract to the utility's retail
customers, although no assurance can be given that a PUC will not attempt to
deny the "pass through" of these expenses in the future. The Company believes
that any such attempt by a PUC would, among other things, be pre-empted by
federal law.
AES must obtain exemptions from, or become subject to regulation by,
the Securities and Exchange Commission under the Public Utility Holding Company
Act ("PUHCA") in regard to both its domestic and foreign utility company
holdings. There are a number of exemptions from PUHCA that are available for
both domestic and foreign utility company owners, including those for QFs,
Exempt Wholesale Generators and Foreign Utility Companies. AES has obtained, and
believes that it will be able to obtain and maintain in the future, appropriate
PUHCA exemptions for its utility acquisitions.
In addition, as one of the Company's major non-U.S. markets, changes in
Brazilian regulatory structures will have an impact on the Company. The
electricity industry in Brazil is regulated by the Brazilian federal government,
acting through the Ministry of Mines and Energy, which has exclusive authority
over the electricity sector through regulatory powers assigned to it. This
sector is currently in a state of rapid change in Brazil. For example, pursuant
to a federal law enacted in 1996, regulatory policy for the sector, which was
implemented by the Departmento Nacional de Aguas e Energia Eletrica ("DNAEE"),
is now implemented by a new autonomous national electric energy agency (Agencia
Nacional de Energia Eletrica or "ANEEL"). ANEEL is expected to be an independent
regulatory agency and to delegate certain functions to agencies based in certain
states of Brazil. However, ANEEL cannot delegate any authority regarding tariffs
to state agencies. There is uncertainty regarding the status of current
regulations and the possibility of new regulations which may apply to the
electricity sector in Brazil.
ANEEL is responsible for (i) granting and supervising concessions for
electricity generation, transmission and distribution, including approval of
applications for the setting of electricity tariffs; (ii) supervising and
performing financial examinations of the concessionary companies; (iii) issuing
regulations for the electricity sector; and (iv) planning, coordinating and
executing water resource studies and granting and supervising concessions for
the use of water resources. Due to electricity tariffs' significant weight in
the measurement of national inflation, tariff increases have been controlled by
the Ministry of Finance, although it is not its official responsibility.
In addition to the powers currently granted to DNAEE, ANEEL has the
following responsibilities: (i) to implement and regulate the exploitation of
electric energy and the use of hydroelectric power pursuant to the Power Sector
Law; (ii) to promote the bidding process for the granting of new concessions;
(iii) to solve administrative disputes among utilities, IPP companies,
self-producers and customers; and (iv) to determine the criteria for the
establishment of the cost of the transmission of energy pursuant to the Power
Sector Law. Nevertheless, until regulations regarding the implementation of
ANEEL are promulgated, DNAEE will continue to monitor and regulate the Brazilian
electricity sector.
<PAGE>
UNITED STATES ENVIRONMENTAL REGULATIONS
The construction and operation of power projects are subject to
extensive environmental and land use regulation. In the United States those
regulations applicable to AES primarily involve the discharge of effluents into
the water, emissions into the air and the use of water, but can also include
wetlands preservation, endangered species, waste disposal and noise regulation.
These laws and regulations often require a lengthy and complex process of
obtaining licenses, permits and approvals from federal, state and local
agencies. If such laws and regulations are changed and AES's facilities are not
"grandfathered" (that is, made exempt by the fact that the facility pre-existed
the law) or otherwise are not excluded, extensive modifications to a project's
technologies and facilities could be required. If environmental laws or
regulations were to change in the future, there can be no assurance that AES
would be able to recover all or any increased costs from its customers or that
its business and financial condition would not be materially and adversely
affected. In addition, the Company may be required to make significant capital
or other expenditures in connection with such changes in environmental laws or
regulations. While AES expects that environmental and land use regulations in
the United States will continue to become more stringent over time, the Company
is not aware of any currently planned changes in law that would result in a
material adverse effect on its consolidated financial position.
Clean Air Act. The original Clean Air Act of 1970 set guidelines for
emissions standards for major pollutants (e.g., SO2 and NOx) from newly-built
sources. In late 1990, Congress passed a set of amendments to the Clean Air Act
(the "1990 Amendments"). All of AES's domestic operating plants perform at
levels better than federal emission standards mandated for such plants under the
Clean Air Act (as amended). The 1990 Amendments attempt to reduce acid rain
precursor emissions (SO2 and NOX) from existing sources -- particularly large,
older power plants that were exempted from certain regulations under the
original Clean Air Act. Because AES's facilities are relatively new cogeneration
units with low air emissions that qualify as "existing sources" under the 1990
Amendments, they have been "grandfathered" from certain acid rain compliance
provisions of the 1990 Amendments. Other provisions of the Clean Air Act related
to the reduction of ozone precursor emissions (VOC and NOx) have triggered
"reasonably available control technology" ("RACT") requirements by various
states to reduce such emissions.
The hazardous air pollutant provisions of the 1990 Amendments presently
exclude electric steam generating facilities such as AES's domestic plants;
however, the 1990 Amendments directed that the Environmental Protection Agency
("EPA" or the "Agency") prepare a study on hazardous air pollutant ("HAP")
emissions from power plants. In the fall of 1996, EPA released an interim report
on HAP emissions from power plants that tentatively concluded that the risk of
contracting cancer from exposure to HAPs (except mercury) from most plants was
very low (less than one in 1 million). EPA is developing a separate study on
mercury emissions from power plants. The draft mercury study report is currently
being reviewed by the federal Scientific Advisory Board and it is not certain
when a final report will be released. A final comprehensive HAP report with
recommendations is expected to be issued after EPA's review of mercury emissions
from power plants is complete. If it is determined that mercury from power
plants should be regulated, the use of "maximum available control technology"
("MACT") for mercury (which is now not subject to regulation) could be required.
In 1997, EPA published new rules that tighten ambient air quality
standards for ozone and small particulate matter (so-called PM 2.5). These new
standards increase the number of so-called "nonattainment regions" for ozone and
particulates. If new ozone and particulate matter nonattainment areas are
created, AES's plants may be faced with further emission reduction requirements
that could necessitate the installation of additional control technology.
In order to make further improvements in air quality in the eastern
United States, EPA in 1997 issued a call for states to revise their "state
implementation plans" (SIPs) for ozone precursors--primarily NOX. EPA
recommended further reductions of up to 65% for some states, depending on local
conditions. As a result, AES will be required to make further reductions in NOX
emissions at its Beaver Valley plant in Pennsylvania (AES's other plants have
emission levels well below baseline levels).
<PAGE>
The Company does not believe that any of the potential additional
requirements discussed above will have a material adverse effect on its results
of operations and consolidated financial position.
Hazardous Waste Regulation. Based on a 1988 study, EPA has decided not
to regulate most coal combustion ash as a hazardous waste; however, EPA reserved
making a decision with respect to coal ash from fluidized bed combustion (the
burning of coal in the presence of limestone), which is still being evaluated by
the Agency. AES, along with other CFB owners and manufacturers, is currently
participating in a study to evaluate whether or not CFB ash should be classified
as hazardous. EPA is required to make a determination on whether to regulate CFB
ash in 1998. If EPA decides to regulate fluidized bed coal ash as a hazardous or
special waste, AES could incur additional ash disposal costs to dispose of ash
from its plants that utilize fluidized bed boilers.
FOREIGN ENVIRONMENTAL REGULATIONS
AES now has ownership interests in operating power plants in many
countries outside the United States. Each of these countries and the localities
therein have separate laws and regulations governing the siting, permitting,
ownership and power sales from AES's plants. These laws and regulations are
often quite different than those in effect in the United States--and AES's
non-U.S. businesses have been in substantial compliance with these different
laws and regulations. In addition, projects funded by the World Bank are subject
to World Bank environmental standards, which may be more stringent than local
country standards but are typically not as strict as U.S. standards. Whenever
feasible, AES attempts to use advanced environmental technologies (such as CFB
coal technology or advanced gas turbines) in order to minimize environmental
impacts.
Based on current trends, AES expects that environmental and land use
regulations affecting its plants located outside the United States will likely
become more stringent over time. This appears to be due in part to a greater
participation by local citizenry in the monitoring and enforcement of
environmental laws, better enforcement of applicable environmental laws by the
regulatory agencies, and the adoption of more sophisticated environmental
requirements. If foreign environmental and land use regulations were to change
in the future, the Company may be required to make significant capital or other
expenditures in order to comply. 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 foreign environmental and land use
regulations.
NEW UNITED STATES LEGISLATION
In the United States, some states (for example, California, Illinois,
Michigan, Massachusetts and Pennsylvania) have passed or are considering new
legislation that permits utility customers to choose their electricity supplier
in a competitive electricity market (so-called "retail access" or "customer
choice" laws). While such "customer choice" plans differ in details, they
usually share some important elements: (1) they allow customers to choose their
electricity suppliers by a certain date (the dates in the existing or proposed
legislation vary between 1998 and 2003); (2) they allow utilities to recover
so-called "stranded assets"--the remaining costs of uneconomic generating or
regulatory assets; and (3) they reaffirm the validity of existing QF contracts,
and make provisions to assure payment over the contract life.
In order to guarantee payment of utilities' costs and the costs of QF
contracts, some states have used or are proposing to use financial methods to
"securitize" these payments. The "securitization" process might involve the
following steps: first, the financial obligations to be "securitized" would be
legally affirmed through legislation. This legal obligation then is used to
borrow money in public debt markets to pay off the obligation. The legal
obligation allows the borrower to obtain a good credit rating and therefore a
lower interest rate. In some cases, the benefits of the lower interest rate are
passed on to retail electric customers (perhaps in the form of a rate decrease).
"Securitization" of QF contract obligations, if applied to AES contracts in the
future,
<PAGE>
would significantly reduce the risk to AES that its power sales contracts would
not be honored due to potential financial difficulties of the utility purchaser.
In addition to state restructuring legislation, members of Congress
have proposed new federal legislation to encourage customer choice and recovery
of stranded assets. Some argue that federal legislation is needed to avoid the
"patchwork" effect of each state acting separately to pass restructuring
legislation; others argue that each state should decide whether to allow retail
choice. In 1997 several bills were (and others are expected to be) submitted to
Congress on electricity restructuring. While it is uncertain whether or when
federal legislation dealing with electricity restructuring might be passed, it
is the opinion of the Company that such legislation would not have a materially
adverse effect on the Company's U.S. business.
In addition to the federal restructuring legislation proposals, a
number of bills have been proposed by members of Congress to repeal all or
portions of PURPA and/or PUHCA--as separate legislation if a comprehensive
restructuring bill fails to pass. The Company believes that the repeal of PURPA
and/or PUHCA is unlikely (and inappropriate) unless it is a part of a
comprehensive restructuring bill.
In anticipation of restructuring legislation, many U.S. utilities are
seeking ways to lower their costs in order to become more competitive. These
include the costs that utilities are required to pay under QF contracts, which
the utilities may view as excessive when compared to current market prices. Many
utilities are therefore seeking ways to lower these contract prices by
renegotiating the contracts, or in some cases by litigation. While the Company
is generally open to renegotiation of existing contracts, it believes that the
aforementioned electricity market restructuring legislation will likely reduce
both the pressure to renegotiate and the need for such contract renegotiations.
EMPLOYEES
At December 31, 1997, AES and its subsidiaries employed approximately
10,000 people. The total number of people employed in facilities which AES
operates or has an equity interest in is approximately 30,000.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT
The following is certain information concerning the present executive officers
and significant employees of the Registrant set out in alphabetical order.
Dennis W. Bakke, 52 years old, co-founded the Registrant with Roger
Sant in 1981 and has been a director of the Registrant since 1986. He has been
President of the Registrant since 1987 and Chief Executive Officer since January
1994. From 1987 to 1993, he served as Chief Operating Officer of the Registrant;
from 1982 to 1986, he served as Executive Vice President of the Registrant; and
from 1985 to 1986 he also served as Treasurer of the Registrant. He served with
Mr. Sant as Deputy Assistant Administrator of the Federal Energy Agency ("FEA")
from 1974 to 1976 and as Deputy Director of the Energy Productivity Center, an
energy research organization affiliated with The Mellon Institute at
Carnegie-Mellon University, from 1978 to 1981. He is a trustee of Rivendell
School and a member of the Board of Directors of MacroSonix Corporation in
Richmond, Virginia.
Mark S. Fitzpatrick, 47 years old, has served as a Senior Vice
President of the Registrant since January 1998, and was appointed Vice President
of the Registrant in 1987. Mr. Fitzpatrick became Managing Director of Applied
Energy Services Electric Limited for the United Kingdom and Western Europe
operations in 1990. From 1984 to 1987, he served as a project director of the
AES Beaver Valley and AES Thames projects.
Paul T. Hanrahan, 40 years old, was appointed Vice President of the
Registrant effective January 1994. He currently is President of AES Chigen,
where he served as Executive Vice President, Chief Operating Officer and
Secretary from December 1993 until February 1995. He was General Manager of AES
Transpower, Inc., a subsidiary of the Registrant, from 1990 to 1993.
<PAGE>
William R. Luraschi, 34 years old, has been Vice President of the
Registrant since January 1998, Secretary since February 1996 and General Counsel
of the Registrant since January 1994. Prior to that, Mr. Luraschi was an
attorney with the law firm of Chadbourne & Parke L.L.P.
David G. McMillen, 59 years old, was named Vice President of the
Company in December 1991. He was appointed President of AES Shady Point in 1995
and is currently plant manager of the AES Shady Point facility. He was President
of AES Thames from 1989 to 1995. From 1985 to 1988, he served as plant manager
of the AES Beaver Valley plant and from 1986 to 1988 he served as President of
AES Beaver Valley.
Dr. Roger F. Naill, 50 years old, has been Vice President for Planning
at AES since 1981. Prior to joining the Registrant, Dr. Naill was Director of
the Office of Analytical Services at the U.S. Department of Energy.
Oscar Prieto, 45 years old, was appointed Vice President of the
Registrant effective January 1998 and has been General Executive Director of
Light Servicos de Electricidade, S.A. since June 1996. Mr. Prieto served as
General Manager of San Nicolas from 1994, when he joined AES, until he was
appointed to the position at Light in 1996. Before coming to AES, Mr. Prieto
worked in various positions with the Dow Chemical Company from 1980 to 1994.
John Ruggirello, 47 years old, was appointed Vice President of the
Registrant effective January 1997, and heads an AES group responsible for
project development, construction and plant operations in much of the United
States and Canada. He served as President of AES Beaver Valley from 1990 to
1996.
J. Stuart Ryan, 39 years old, was appointed Senior Vice President of
the Registrant effective January 1998, and heads the AES Transpower group which
is responsible for the Company's business in Asia (excluding China). From 1994
through 1997, he served as Vice President of the Registrant. Prior to 1994, Mr.
Ryan served as general manager of a group within AES.
Roger W. Sant, 66 years old, co-founded the Company with Dennis Bakke
in 1981. He has been Chairman of the Board and a director of the Registrant
since its inception, and he held the office of Chief Executive Officer through
December 31, 1993. He currently is Chairman of the Boards of Directors of The
Summit Foundation and The World Wildlife Fund U.S., and serves on the Boards of
Directors of The World Resources Institute, the World Wide Fund for Nature and
Marriott International, Inc. He was Assistant Administrator for Energy
Conservation and the Environment of the Federal Energy Agency ("FEA") from 1974
to 1976 and the Director of the Energy Productivity Center, an energy research
organization affiliated with The Mellon Institute at Carnegie-Mellon University,
from 1977 to 1981.
Barry J. Sharp, 38 years old, was appointed Senior Vice President and
Chief Financial Officer effective January 1998 and had been Vice President and
Chief Financial Officer since 1987. He also served as Secretary of the
Registrant until February 1996. From 1986 to 1987, he served as the Company's
Director of Finance and Administration. Mr. Sharp is a certified public
accountant.
Sarah Slusser, 35 years old, was appointed President of AES Aurora,
Inc., effective April 1997. AES Aurora is a wholly owned subsidiary of the
Company responsible for business development, construction and operations of
facilities and projects in Mexico, Central America, the Caribbean and Texas.
Prior to that, Ms. Slusser served as Project Director for various AES projects
in the same region from 1993 to 1997.
Paul D. Stinson, 41 years old, was appointed Vice President of the
Registrant effective January 1998. Since April 1997 Mr. Stinson has been
Managing Director of AES Silk Road, Ltd., a wholly owned subsidiary of the
Company responsible for business development, construction and operations of
facilities and projects in Russia, Kazakhstan, Pakistan and other parts of Asia.
Mr. Stinson served as Managing Director of Medway Power Ltd. from 1994 until
1997 and was Plant Manager of the Medway Power Station owned by Medway Power
Ltd. from 1992 to 1997.
<PAGE>
Thomas A. Tribone, 45 years old, has been Senior Vice President of the
Registrant since 1990, and leads an AES group responsible for power marketing,
project development, construction and plant operations in South America. From
1987 to 1990 he served as Vice President for project development and from 1985
to 1987 he served as project director of the AES Shady Point plant.
Kenneth R. Woodcock, 54 years old, has been Senior Vice President of
the Registrant since 1987 and now handles AES relationships with the investment
community as well as support for AES business development activities worldwide.
From 1984 to 1987, he served as a Vice President for Business Development. Prior
to the founding of AES he served in the United States federal government in
energy and environment departments.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales.
See the information contained under the caption "Geographic Segments"
in Note 13 to the Consolidated Financial Statements contained in Item 8 hereof.
ITEM 2. PROPERTIES
Offices are maintained by the Registrant in many places around the
world which are generally occupied pursuant to the provisions of long- and
short-term leases, none of which is material to the Company. With a few
exceptions, the Registrant's facilities which are described in Item 1 hereof are
subject to mortgages or other liens or encumbrances as part of the project's
related finance facility. The land interest held by the majority of the
facilities is that of a lessor or, in the case of the facilities located in the
People's Republic of China, a land use right that is leased or owned by the
related joint venture that owns the project. However, in a few instances there
exists no accompanying project financing for the facility and in a few of these
cases the land interest may not be subject to any encumbrance and is owned by
the subsidiary or affiliate owning the facility outright.
ITEM 3. LITIGATION.
The Company is involved in certain legal proceedings in the normal
course of business. It is the opinion of the Company that none of the pending
litigation is expected to have a material adverse effect on its results of
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information.
The common stock of the Company is currently traded on the NYSE stock
market under the symbol "AES." All stock prices from January 1, 1996 to and
including October 15, 1996 were quoted on the NASDAQ stock market under the
symbol "AESC." The following table sets forth the high and low sale prices for
the common stock as reported by NASDAQ or the NYSE for the periods indicated.
-------------------------------- -------------------- -----------
1996 HIGH LOW
-------------------------------- -------------------- -----------
First Quarter $ 12-5/8 $ 10-1/2
Second Quarter 14-13/16 11-1/8
Third Quarter 20-1/4 13-5/16
Fourth Quarter 25-1/16 19-5/8
-------------------------------- -------------------- -----------
1997 HIGH LOW
-------------------------------- -------------------- -----------
First Quarter $ 34-1/8 $ 22-3/8
Second Quarter 37-3/4 27-1/2
Third Quarter 45-1/4 34-5/8
Fourth Quarter 49-5/8 35
(b) Holders.
As of February 2, 1998, there were 955 record holders of the
Registrant's Common Stock, par value $0.01 per share.
(c) Dividends.
Under the terms of a corporate revolving loan and letters of credit
facility of $600 million entered into with a commercial bank syndicate, the
Company is currently prohibited from paying cash dividends. In addition, the
Registrant is precluded from paying cash dividends on its Common Stock under the
terms of a guaranty to the utility customer in connection with the AES Thames
project in the event certain net worth and liquidity tests of the Registrant are
not met. The Registrant has met these tests at all times since making the
guaranty.
The ability of the Registrant's project subsidiaries to declare and pay
cash dividends to the Registrant is subject to certain limitations in the
project loans and other agreements entered into by such project subsidiaries.
Such limitations permit the payment of cash dividends out of current cash flow
for quarterly, semiannual 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, and in certain cases after providing for debt service reserves.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA)
- ---------------------------------------------- ----------- ------------ ----------- ----------- -----------
FOR THE YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993
- ---------------------------------------------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues $1,411 $ 835 $ 679 $ 533 $ 519
Operating costs and expenses 1,043 557 426 297 323
Operating income 368 278 253 236 196
Income before income taxes, minority
interest and extraordinary item 263 193 167 145 89
Extraordinary item (3) -- -- 2 --
Net income 185 125 107 100 71
Basic earnings per share:
Before extraordinary item $ 1.13 $ 0.83 $ 0.71 $ 0.67 $ 0.50
Extraordinary item (0.02) -- -- 0.01 --
Basic earnings per share $ 1.11 $ 0.83 $ 0.71 $ 0.68 $ 0.50
Diluted earnings per share:
Before extraordinary item $ 1.11 $ 0.80 $ 0.70 $ 0.66 $ 0.49
Extraordinary item (0.02) -- -- 0.01 --
Diluted earnings per share $ 1.09 $ 0.80 $ 0.70 $ 0.67 $ 0.49
Dividends per share - common stock -- -- -- -- $ 0.29
- ---------------------------------------------- ----------- ------------ ----------- ----------- -----------
AS OF DECEMBER 31 1997 1996 1995 1994 1993
- ---------------------------------------------- ----------- ------------ ----------- ----------- -----------
Total assets $8,909 $3,622 $2,341 $1,915 $1,687
Revolving bank loan (current) -- 88 50 -- --
Project financing debt (long-term) 3,489 1,558 1,098 1,019 1,075
Other notes payable (long-term) 1,096 450 125 125 125
Stockholders' equity 1,481 721 549 401 309
</TABLE>
<PAGE>
ITEM 7. DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
INTRODUCTION
The AES Corporation and its subsidiaries and affiliates (collectively
"AES" or the "Company") are helping to meet the world's needs by providing
electricity to customers in many countries. Electricity sales accounted for 95%
of total revenues during 1997 and 97% during 1996. Other sales arise from the
sale of steam and other commodities related to the Company's cogeneration
operations. Service revenues represent fees earned in connection with wholesale
power services, and operating and construction services provided by AES to its
affiliates.
Until recently, the Company's sales of electricity were almost
exclusively made to customers (generally electric utilities or regional electric
companies) on a wholesale basis for further resale to end users. This is often
referred to as the electricity "generating" business. Sales by these generating
companies are usually made under long-term contracts from power plants owned by
the Company's subsidiaries and affiliates. The Company's ownership portfolio of
power facilities includes new plants constructed for such purposes ("greenfield"
plants) as well as existing power plants acquired through competitively bid
privatization initiatives and negotiated acquisitions.
AES now operates and owns (entirely, or in part) a diverse portfolio of
electric power plants (including those within the integrated distribution
companies discussed below) with a total capacity of 17,636 megawatts (MW). Of
that total, 43% are fueled by coal or petroleum coke, 6% are fueled by natural
gas, 34% are hydroelectric facilities, 6% are fueled by oil, and the remaining
11% are capable of using multiple fossil fuels. Of the total MW, 1,069 (six
plants) are located in the U.S., 1,588 (four plants) are in the UK, 840 (five
plants) are in Argentina, 603 (seven plants) are in China, 1,281 (three plants)
are in Hungary, 5,856 (thirty nine) are in Brazil, 5,384 (seven plants) are in
Kazakhstan, 210 (one plant) is in the Dominican Republic, 110 (one plant) is in
Canada, and 695 (two plants) are in Pakistan.
AES is also currently in the process of adding approximately 5,331 MW
to its operating portfolio by constructing several new plants. These include a
180 MW coal-fired plant in the U.S., four coal-fired plants in China totaling
2,314 MW, a 230 MW natural gas-fired plant in the UK, a 405 MW natural gas-fired
plant in the Netherlands, a 288 MW kerosene-fired plant in Australia, an 830 MW
natural gas-fired plant in Argentina, a 484 MW natural gas-fired plant in Mexico
and a 600 MW natural gas-fired plant in Brazil.
As a result, AES's total MW of 84 power plants in operation and under
construction is approximately 22,967 and net equity ownership (total MW adjusted
for the Company's ownership percentage) represents approximately 12,247 MW.
Because of the significant magnitude and complexity of building new
electric generating plants, construction periods often range from two to five
years, depending on the technology and location. AES currently expects that
projects now under construction will reach commercial operation and begin to
sell electricity at various dates through the year 2002. The completion of each
plant in a timely manner is generally supported by a guarantee from the plant's
construction contractor, although in certain cases, AES has assumed the risk of
satisfactory construction completion. However, it remains possible, due to
changes in the economic, political, technological, regulatory or logistical
circumstances involving each individual plant, that commercial operations may be
delayed in certain cases.
Beginning in 1996 and continuing through 1997, AES has also purchased
interests (both majority and minority) in companies that sell electricity
directly to commercial, industrial, governmental and residential customers. This
is often referred to as the electricity "distribution" business. Electricity
sales by AES's distribution businesses are generally made pursuant to the
provisions of long-term electricity sale concessions granted by the appropriate
governmental authority as part of the original privatization of each
distribution company. In certain cases, these distribution companies are
"integrated", in that they also own electric power plants for the purpose of
generating a portion of the electricity they sell. Each distribution company
also purchases, in varying proportions, electricity from third party wholesale
suppliers, including in certain cases, other subsidiaries of the Company.
AES has majority ownership in two distribution companies in Argentina,
one in Brazil and one in El Salvador (purchased in 1998), and less than majority
ownership in two additional distribution companies in Brazil. These six
companies serve a total of approximately 8 million customers with gigawatt hour
sales exceeding 63,000. On a net equity basis, AES's ownership represents
approximately 2 million customers and gigawatt hour sales exceeding 15,000.
AES continues to believe that there is significant demand for more
efficiently operated electricity generation and distribution businesses. Guided
by its commitment to serve the world's needs for electricity, AES is pursuing
additional greenfield developments and acquisitions in many countries. Several
of these, if consummated, would require the Company to obtain substantial
additional financing, including both debt and equity financing.
Certain subsidiaries and affiliates of the Company (domestic and
non-U.S.) have signed long-term contracts or similar arrangements for the sale
of electricity and are in various stages of developing the related greenfield
power plants. There exist sub-
<PAGE>
stantial risks to their successful completion, including, but not limited to,
those relating to failures of siting, financing, construction, permitting,
governmental approvals or termination of the power sales contract as a result of
a failure to meet milestones. As of December 31, 1997, capitalized costs for
projects under development were approximately $87 million. The Company believes
that these costs are recoverable; however, no assurance can be given that
changes in circumstances related to individual development projects will not
occur or that any of these projects will be completed and reach commercial
operation.
AES has been successful in growing its business and serving additional
customers by participating in competitive bidding under privatization
initiatives and has been particularly interested in acquiring existing
businesses or assets in electricity markets that are promoting competition and
eliminating rate of return regulation. In such privatizations, sellers generally
seek to complete competitive solicitations in less than one year, much quicker
than the time periods associated with greenfield development, and require
payment in full on transfer. AES believes that its experience in competitive
markets and its worldwide integrated group structure, with its significant
geographic coverage and presence, enable it to react quickly and creatively in
such situations.
Because of this relatively quick process or other considerations, it may
not always be possible to arrange "project financing" (the Company's
historically preferred financing method, which is discussed further under
"Capital Resources, Liquidity and Market Risk") for specific potential
acquisitions. Additionally, as in the past, certain acquisitions or the
commencement of construction on several greenfield developments would
potentially require the Company to obtain substantial additional financing
including both debt and equity. As a result, during 1997, the Company enhanced
its financial capabilities to respond to these more accelerated opportunities by
expanding its revolving line and letter of credit facility (the "Revolver") to
$600 million from $425 million. AES also currently maintains a $1.5 billion
"universal shelf" registration statement that allows for the issuance of various
additional debt and preferred or common equity securities either individually or
in combination.
RESULTS OF OPERATIONS
REVENUES. Total revenues increased $576 million (69%) to $1,411 million from
1996 to 1997 after increasing $156 million (23%) to $835 million from 1995 to
1996. The increase in 1997 primarily reflects the acquisitions of controlling
interests in the distribution companies Eden, Edes and Sul and electricity
generating plants at Los Mina and Altai, a full year of operations at Tisza and
Ekibastuz, service revenue associated with construction at Elsta, and the start
of commercial operations at Lal Pir. The increase in 1996 primarily reflects the
acquisition of controlling interests in Tisza and Ekibastuz during the year.
The nature of most of the Company's generating businesses is such that
each power plant generally relies on one power sales contract with a single
electric customer for the majority, if not all, of its revenues. During 1997,
the Company's three largest customers accounted for 36% of total revenues. As a
result, the prolonged failure of any one of those customers to fulfill its
contractual payment obligations in the future could have a substantial negative
impact on AES's results of operations. Where possible, the Company has sought to
reduce this risk, in part, by entering into power sales contracts with customers
that have their debt or preferred stock rated "investment grade" by nationally
recognized rating agencies and by locating its plants in different geographic
areas in order to mitigate the effects of regional economic downturns.
However, AES does not limit its business solely to the most developed
countries or economies, or only to those countries with investment grade
sovereign credit ratings. In certain locations, particularly developing
countries or countries that are in a transition from centrally planned to market
oriented economies, the electricity purchasers, both wholesale and retail, may
experience difficulty in meeting contractual payment obligations.
Beginning in August 1996 and continuing through 1997, AES has recorded a
provision of $28 million associated with aggregate outstanding receivables
(excluding VAT) of $54 million at December 31, 1997 related to the operations of
the Ekibastuz power plant in Kazakhstan. Approximately $35 million of the
aggregate balance (excluding VAT), before considering the provision, is due from
a government-owned distribution company. There can be no assurance of the
ultimate collectibility of these amounts owed to Ekibastuz, or as a result, the
recoverability of the related net assets (totaling $57 million at December 31,
1997) or additional amounts the Company may invest.
A portion of the electricity sales from certain plants is not subject to
a contract and is available for sale, when economically advantageous, in the
relevant spot electricity market. The prices paid for electricity in the spot
markets may be volatile and are dependent on the behavior of the relevant
economies, including the demand for and retail price of electricity and the
competitive price and availability of power from other suppliers.
Electricity sales by AES's distribution businesses are made pursuant to
provisions of long-term electricity sales concession agreements ranging in
remaining length from 19 to 94 years. Each business is generally authorized to
charge its customers a tariff for electric services which consists of two
components: an energy expense pass-through component and an inflation or
similarly adjusted operating cost component. Both components are established as
part of the original grant of the concession for certain initial periods
(ranging from six to ten years remaining). Beginning subsequent to the initial
periods and at regular intervals (such as every five years thereafter) the
concession grantor has the authority to review the costs of the relevant
business to determine the inflation or similar adjustment factor, if any, to the
operation cost component (the "Adjustment Escalator") for the subsequent regular
interval. This review can result in an Adjustment Escalator that has a positive,
zero or negative value. To date, the Company has not reached the end of the
initial tariff periods in any of its distribution businesses. As a result, there
can be no assurance as to the effects, if any, on its future results of
operations of potential changes to the Adjustment Escalator.
Additionally, the electricity sales concessions generally include either
a direct (via the specific pricing provisions of the concession) or indirect
(via the Adjustment Escalator) adjustment to a portion of the tariff that
reflects changes, either entirely or in part, in the exchange rates between the
local currency and the U.S. dollar. Such adjustments are made in arrears at
various regular intervals and in certain cases, requests for interim adjustments
are permitted. As such, the results of operations of AES's non-U.S. distribution
businesses should be partially or entirely protected against fluctuations in
such currency exchange rates, such as the Argentine peso and the Brazilian real.
However, if either or both of these currencies were to experience a sudden or
severe devaluation relative to the U.S. dollar, because of the in arrears nature
of the respective adjustment in the tariff or because of the significant
resulting local currency inflation of the tariff, the future results of
operations of AES's distribution companies in that country or countries could be
adversely affected. Depending on the duration or severity of such devaluation,
the future results of operations of AES may also be adversely affected.
COSTS OF SALES AND SERVICES. Total costs of sales and services increased $479
million (95%) to $981 million in 1997 after increasing $108 million (27%) to
$502 million in 1996. The increase in 1997 was caused primarily by the costs of
electricity sales associated with the acquisition of controlling interests in
Eden, Edes, Sul, Los Mina and Altai, a full year of operations at Tisza and
Ekibastuz, construction costs at Elsta, and the start of commercial operations
at Lal Pir, offset in part, by lower costs at San Nicolas due to lower fuel
prices. The increase in 1996 was caused primarily by the costs of electricity
sales associated with the acquisition of controlling interests in Tisza and
Ekibastuz in that year.
<PAGE>
GROSS MARGIN. Gross margin (revenues less costs of sales and services) increased
$97 million (29%) to $430 million from 1996 to 1997 after increasing $48 million
(17%) to $333 million from 1995 to 1996. The improvement in 1997 primarily
reflects the additional gross margin contributed by the operations of Eden,
Edes, Sul, Los Mina, Altai, Tisza and Lal Pir, and improved operations at San
Nicolas and Thames. The improvement in 1996 primarily reflects the additional
gross margin contributed by the operations of Tisza and Ekibastuz, improved
operations at San Nicolas and Thames and higher electricity prices under the
Deepwater sales contract due to higher natural gas prices. Gross margin as a
percentage of total revenues (net of the provision to reduce contract
receivables) decreased from 37% in 1996 to 29% in 1997, primarily due to lower
relative gross margin percentages of recently acquired businesses including
Tisza, Ekibastuz, Eden, Edes, Los Mina, Sul and Altai, offset in part, by an
improved gross margin percentage at San Nicolas. Gross margin as a percentage of
total revenues (net of the provision to reduce contract receivables) decreased
from 42% in 1995 to 37% in 1996, primarily due to lower relative gross margin
percentages at Tisza and Ekibastuz, offset in part, by an improved gross margin
percentage at Deepwater.
The Company's operations are located in several different geographical
areas. Seasonal variations or unusual weather conditions in certain regions,
including in particular, Argentina and Brazil, or the specific needs of
individual power plants to perform routine or unanticipated maintenance that may
require an outage, could significantly affect comparable quarterly financial
results. In addition, some power sales contracts permit the customer to dispatch
the related plant (i.e., direct the plant to deliver a reduced amount of
electrical output) within certain specified parameters. Such dispatching,
however, does not have a material impact on the results of operations of the
related subsidiary because, even when dispatched, the plant's capacity payments
generally are not reduced.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $10 million (29%) to $45 million from 1996 to
1997 after increasing less than $3 million (9%) to $35 million from 1995 to
1996. The 1997 increase is attributable to increases in administrative costs.
The 1996 increase is attributable to increases in administrative costs and
expenses associated with the development of new business opportunities. As a
percentage of total revenue, selling, general and administrative expenses
decreased to 3% in 1997, down from 4% in 1996 and 5% in 1995. The Company's
general and administrative costs do not necessarily vary with changes in
revenue.
OPERATING INCOME. Operating income improved $90 million (32%) to $368 million
from 1996 to 1997 after increasing $25 million (10%) to $278 million from 1995
to 1996. The increases result from the factors discussed in the preceding
paragraphs.
OTHER INCOME AND EXPENSE. Other income and expense, on a net basis, increased
$20 million (24%) to $105 million from 1996 to 1997 after decreasing $1 million
(1%) to $85 million from 1995 to 1996. Interest expense increased 69% in 1997
and increased 13% in 1996. The increase in 1997 reflects a full year of interest
expense associated with the senior subordinated notes issued in 1996, project
financing debt relating to the 1996 acquisitions, interest expense associated
with the senior subordinated notes and Tecons issued in 1997 and project
financing debt relating to the acquisitions in 1997, offset in part, by lower
interest expense resulting from declining balances related to other project
financing debt. The increase in 1996 reflects additional interest associated
with increased borrowings under the Revolver, the 10.25% Notes and project
financing debt associated with the acquisition of the Company's equity
investment in Light and additional project financing debt associated with the
acquisition of Tisza, offset, in part, by declining balances related to other
project financing debt.
Interest income increased 71% in 1997 and decreased 11% in 1996. The 1997
increase results primarily from higher cash balances as a result of the debt,
common stock and Tecons issued during the year, higher cash balances at Chigen
due to the issuance of the $180 million notes in December 1996, interest income
at Eden and Edes associated with the late payments on customer accounts and
interest on debt service reserves at Indian Queens and Coral Reef (Light). The
1996 decrease results primarily from lower invested funds at Chigen, offset, in
part, by interest income earned on receivables at Tisza.
Equity in earnings of affiliates (after income taxes) increased 200% in
1997 and 150% in 1996. The increase in 1997 results primarily from the
acquisition of a 13.06% equity interest in Cemig (of which approximately 3.6%
was sold to a partner in January 1998), and a full year of equity in earnings
from a 2.4% increase in the Company's ownership percentage (to an aggregate of
13.75%) of Light. The increase in 1996 results almost entirely from the
Company's acquisition of its original 11.35% interest in Light in June 1996,
offset slightly by a decrease in equity in earnings from NIGEN due to a planned
outage.
INCOME TAXES. The Company's effective tax rate was 40% for both 1997 and 1996 as
compared to 38% in 1995. The increase from 1995 to 1996 was due primarily to
non-U.S. withholding and income taxes.
EXTRAORDINARY ITEM. During 1997, the Company redeemed its $75 million 9.75%
Senior Subordinated Notes due 2000 resulting in an extraordinary loss of $3
million, net of taxes.
<PAGE>
OUTLOOK
All over the world, electricity markets continue to be restructured and
there is a trend away from government-owned and government-regulated electricity
systems toward deregulated, competive market structures. Many countries have
rewritten their laws and regulations to allow foreign investment and private
ownership of electricity generation, transmission or distribution companies.
Some countries (for example the UK, Brazil and some of those of the former
Soviet Union, among others) have or are in the process of "privatizing" their
electricity systems by selling all or part of such to private investors. This
global trend of electricity market restructuring provides significant new
business opportunities for companies like AES.
Several states in the U.S. are also beginning to follow this trend. In
particular, some regulated public utilities have begun to sell or auction their
generation capacity. Substantially all of the transmission and distribution
services in the U.S. continue however to be regulated under a state and Federal
regulatory framework. In addition, many states have passed or are considering
new legislation that would permit utility customers to choose their electricity
supplier in a competitive electricity market (so-called "retail access" or
"customer choice" laws). While each state's plan differs in details, there are
certain consistent elements, including allowing customers to choose their
electricity suppliers by a certain date (the dates in the existing or proposed
legislation vary between 1998 and 2003), allowing utilities to recover "stranded
assets" (the remaining costs of uneconomic generating or regulatory assets) and
a reaffirmation of the validity of contracts like the Company's U.S. contracts.
In addition to the potential for state restructuring legislation, the
U.S. Congress has proposed new Federal legislation to encourage customer choice
and recovery of stranded assets. Federal legislation might be needed to avoid
the patchwork quilt effect of each state acting separately to pass restructuring
legislation (with the likely result of uneven market structures in neighboring
states). While it is uncertain whether or when Federal legislation dealing with
electricity restructuring might be passed, the Company believes that such
legislation would not likely have a negative effect on the Company's U.S.
business and may create opportunities.
There is also legislation currently before the U.S. Congress to repeal
part or all of the current provisions of the Public Utility Regulatory Policies
Act of 1978 ("PURPA") and of the Public Utility Holding Company Act of 1935
("PUHCA"). The Company believes that if such legislation is adopted, competition
in the U.S. for new generation capacity from vertically integrated utilities
would increase. However, independents like AES would also be free to acquire
retail utilities.
As consumers, regulators and suppliers continue the debate about how to
further decrease the regulatory aspects of providing electricity services, the
Company believes in and is encouraging the continued orderly transition to a
more competitive electricity market. Inherent in any significant transition to
competitive markets are risks associated with the competitiveness of existing
regulated enterprises, and as a result, their ability to perform under long-term
contracts such as the Company's electricity sale contracts. Although AES
strongly believes that its contracts will be honored, there can be no assurance
that each of its customers, in a restructured and competitive environment, will
be capable in all circumstances of fulfilling their financial and legal
obligations.
AES's investments and involvement in the development of new projects and
the acquisition of existing power plants and distribution companies in locations
outside the U.S. is increasing. The financing, development and operation of such
businesses may entail significant political and financial uncertainties and
other structuring issues (including uncertainties associated with the legal
environments, with first-time privatization efforts in the countries involved,
currency exchange rate fluctuations, currency repatriation restrictions,
currency inconvertibility, political instability, civil unrest, and in severe
cases possible expropriation). Although AES attempts to minimize these risks,
these issues have the potential to cause substantial delays or material
impairment to the value of the project being developed or business being
operated.
It is also possible that as more of the world's markets for electricity
move toward competition, an increasing proportion of the Company's revenues may
be dependent on prices determined in spot markets. In order to capture a portion
of the market share in competitive generation markets, AES is considering and
may elect to invest in and construct low-cost "merchant" plants (plants without
long-term electricity sale contracts) in those markets. Such an investment may
require the Company (as well as its competitors) to make larger equity
contributions (as a percentage of the total capital cost) than the more
"traditional" contract-based investments.
Because of the nature of AES's operations, its activities are subject to
stringent environmental regulation by relevant authorities at each location. If
environmental laws or regulations were to change in the future, there can be no
assurance that AES would be able to recover all or any increased costs from its
customers or that its business and financial condition would not be materially
and adversely affected. In addition, the Company or its subsidiaries and
affiliates may be required to make significant capital expenditures in
connection with environmental matters. AES is committed to operating its
businesses cleanly, safely and reliably and strives to comply with all
environmental laws, regulations, permits and licenses but, despite such efforts,
at times has been in non-compliance, although no such instance has resulted in
revocation of any permit or license.
<PAGE>
FINANCIAL POSITION AND CASH FLOWS
At December 31, 1997, AES had net negative consolidated working capital of
$14 million as compared to $120 million at the end of 1996. The decrease in
working capital is primarily due to an increase in the current portion of
project financing debt, accrued interest on debt issued in 1997, and accounts
payable of newly acquired companies, offset in part, by increases in cash and
cash equivalents, short-term investments, accounts receivable associated with
newly acquired companies and the Hazelwood asset classified as held for sale.
Property, plant and equipment, net of accumulated depreciation, was
$4,149 million at December 31, 1997, up from $2,220 million at the end of 1996.
The net increase of $1,929 million (87%) is primarily attributable to the
acquisitions during 1997 of Eden, Edes, Los Mina, Indian Queens, Sul and Altai,
the continuation of construction activities at Lal Pir, Pak Gen, Warrior Run,
Jiaozou and Barry, and the commencement of construction at Mt. Stuart and
Uruguaiana.
Other assets increased $2,670 million (297%) to $3,570 million primarily
due to the Company's purchase of, and undistributed earnings from a 13.06%
interest in Cemig, the purchase of a 50% interest in Kingston and a 50% interest
in Elsta, deposits to debt service reserves, payments for deferred financing
costs associated with debt issued during the year, payments associated with
projects in development, and the acquisition of electricity sales concessions
and contracts acquired through the purchase of Eden, Edes, Indian Queens, and
Sul.
Project financing debt, net of repayments, increased as a result of
additional borrowings associated with the acquisitions of Eden, Edes, Indian
Queens and Sul, and additional construction borrowings associated with Lal Pir,
Pak Gen, Warrior Run, Jiaozou, Barry, Mt. Stuart and Uruguaiana. A significant
portion of the Lal Pir and Pak Gen loans, associated with equipment purchases,
will be repaid in Japanese yen. The anticipated electricity prices under the
related power sales contracts (to be received beginning with commercial
operation of those plants) also includes a yen component designed to correlate
with the yen-based financing.
Other notes payable (non-current) increased $646 million (144%) to $1,096
million as a result of the issuances of senior subordinated debt, offset in part
by the redemption of the Company's $75 million 9.75% Notes.
OPERATING ACTIVITIES. Cash flows provided by operating activities totaled $193
million during 1997 as compared to $195 million during 1996 and $200 million
during 1995. The decrease in 1997 was primarily due to a larger portion of net
income being derived from undistributed earnings from affiliates and increased
net working capital (excluding project financing debt) necessary to support
retail electricity sales. The moderate change in 1996 was primarily due to
undistributed earnings from affiliates and larger cash payments for income
taxes. These factors offset a significant increase in net income before
depreciation as compared with 1995. The increase in 1995 was primarily due to
increased pre-tax income. Unrestricted net cash flow to the parent company after
cash paid for general and administrative costs, and project development expenses
but before investments and debt service amounted to approximately $259 million,
$165 million and $116 million for the years ended December 31, 1997, 1996 and
1995, respectively.
INVESTING ACTIVITIES. Net cash used in investing activities totaled $3,799
million during 1997 as compared to $1,135 million during 1996 and $343 million
during 1995. The 1997 amount primarily reflects construction activity at Barry,
Lal Pir, Pak Gen, Warrior Run, and Mt. Stuart; an additional purchase of Light
shares (2.4%); acquisition of a 60% interest in each of Eden and Edes; the
acquisition of a 13.06% interest in Cemig; acquiring Destec's international
assets; the acquisition of 90% of Sul; acquisition of an 85% interest in Altai;
and the funding of debt service reserves related to Chigen. The 1996 amount
primarily reflects the acquisitions of San Juan, Tisza and Ekibastuz, the Light
investment; construction progress at Lal Pir, Pak Gen, Warrior Run and Barry;
Chigen's investments in various projects; reimbursable payments for contracts
related to a project in development; and the funding of debt service reserves
for the project financing of the Light investment. The 1995 amount primarily
reflects the Company's investments in the outstanding debt of Deepwater,
additional ownership in San Nicolas, the acquisition of Rio Juramento, and
construction efforts at Lal Pir, Pak Gen and Warrior Run, and Chigen's
investments in the Wuxi and Yangchun Fuyang projects.
FINANCING ACTIVITIES. Net cash provided by financing activities aggregated
$3,723 million during 1997 as compared to $886 million during 1996 and $127
million during 1995. The 1997 increase was primarily due to the issuance of
project financing debt drawn under construction financing commitments or
associated with acquisition financings; the issuance of senior subordinated
notes; the issuance of Tecons and common stock; and contributions from minority
partners. These financing inflows were offset by project financing debt
amortization payments and refinancing and repayments under the Company's
revolving line of credit. The significant cash financing inflows in 1996 were
caused by construction loan draws for Lal Pir, Pak Gen and Warrior Run; project
acquisition financing of the Light investment; issuance of $250 million of
10.25% Notes; initial project financing at San Nicolas; and net borrowings under
the Company's revolving line of credit. Significant cash financing outflows were
due to scheduled debt amortization of the project financings. During 1995 the
Company drew on its project financing loan commitments associated with the
construction of Lal Pir and Warrior Run and borrowed under its revolving credit
facility. Repayments of project finance loans during the year were made in
accordance with amortization schedules.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
AES's business is capital intensive and requires significant
investments to develop or acquire new operations. Occasionally, AES will also
seek to refinance certain outstanding project financing loans or other notes
payable. Continued access to capital on competitive and acceptable terms is
therefore a significant factor in the Company's ability to further expand. AES
has primarily utilized project financing loans to fund the capital expenditures
associated with investment in constructing and acquiring its electric power
plants, distribution companies and related assets. Project financing borrowings
are 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 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 businesses, 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) for
businesses 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 government sponsored,
multilateral or bilateral international financial institutions or agencies. As a
precondition to making such project financing available, these institutions may
also require governmental guarantees of certain project and sovereign related
risks. Depending on the policies of specific governments, such guarantees may
not be offered and as a result, AES may determine that sufficient financing will
ultimately not be available to fund the related business, and may cease
development or acquisition of such business.
In addition to the project financing loans, if available, AES as the
parent company 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 issuances of debt, common stock and other securities issued by the Company.
Interim needs for shorter-term and working capital financing at the
parent company have been met with borrowings under AES's Revolver. Over the past
several years, the Company has continued to increase the amount of available
financing under the Revolver. In the fourth quarter of 1997, AES increased the
amount committed under the Revolver to $600 million. Under the terms of the
Revolver, the Company will be required to reduce its direct borrowings to $225
million for 30 consecutive days during each twelve month period. The Revolver
also includes financial covenants related to net worth, cash flow, investments,
financial leverage and certain other obligations and limitations on cash
dividends. At December 31, 1997, cash borrowings and letters of credit
outstanding under the Revolver amounted to $27 million and $180 million,
respectively, compared with $213 million and $123 million in 1996. The Company
may also from time to time seek to meet some of its short-term and interim
funding needs with additional commitments from banks and other financial
institutions at the parent or subsidiary level.
The ability of AES's subsidiaries and affiliates to declare and to pay
dividends to AES is restricted under the terms of existing project financing
debt agreements. See Note 5 to the consolidated financial statements for
additional information. In connection with its project financings and related
contracts, AES has expressly undertaken certain limited obligations and
contingent liabilities, most of which will only be effective or will be
terminated upon the occurrence of future events. AES's obligations and
contingent liabilities in certain cases take the form of, or are supported by,
letters of credit. These obligations and contingent liabilities, excluding
future commitments to invest and those collateralized with letter of credit
obligations under the Revolver, were limited by their terms as of December 31,
1997 to an aggregate of approximately $149 million. The Company is obligated
under other contingent liabilities which are limited to amounts, or percentages
of amounts, received by AES as distributions from its project subsidiaries.
These contingent liabilities aggregated $33 million as of December 31, 1997. In
addition, AES has expressly undertaken certain other contingent obligations
which the Company does not expect to have a material adverse effect on its
results of operations or financial position, but which by their terms are not
capped at a dollar amount. Because each of the Company's businesses are distinct
entities and geographically diverse and because the obligations related to a
single business are based on contingencies of varying types, the Company
believes it is unlikely that it will be called upon to perform under several of
such obligations at any one time.
At December 31, 1997, the Company had future commitments to fund
investments in its projects under construction and in development of $114
million. Of this amount, letters of credit in the amount of $42 million under
the Revolver have been issued to support a portion of these obligations. In
addition, certain of the Company's subsidiaries have obligations to fund equity
and loans in their projects. At December 31, 1997 such commitments to invest
amount to approximately $129 million. These future capital commitments are
expected to be funded by internally-generated cash flows and by external
financings as may be necessary.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company attempts, whenever possible, to hedge certain aspects of its
projects against the effects of fluctuations in inflation, interest rates,
exchange rates and energy prices. Because of the complexity of hedging
strategies and the diverse nature of AES's operations, its portfolio's results,
although significantly hedged, will likely be somewhat affected by fluctuations
in these variables and such fluctuations may result in improvement or
deterioration of operating results. Results of operations would generally
improve with higher oil and natural gas prices and with lower interest rates.
Operating results are also sensitive to the difference between inflation and
interest rates, and would generally improve when increases in inflation are
higher than increases in interest rates.
AES has generally structured the energy payments in its power sales
contracts to adjust with similar price indices as do its contracts with the fuel
suppliers for the corresponding power plants. In some cases a portion of
revenues is associated with operations and maintenance costs, and as such is
usually indexed to adjust with inflation.
AES primarily consists of businesses with long-term contracts or retail
sales concessions. While this contract-based portfolio is expected to be an
effective hedge against future energy and electricity market price risks, it is
worth noting that a portion of AES's current and expected future revenues
(particularly those related to certain portions of businesses in Kazakhstan, the
UK, Argentina, Hungary and beginning in 1998, Texas) are derived from businesses
without significant long-term revenue contracts. In some of these businesses,
AES has taken additional steps to improve their predictability, in the Company's
opinion, by using other contractual hedging provisions such as entering into
fuel supply contracts that absorb a significant portion of the variability in
electricity sales prices. Despite these mitigating factors, increasing reliance
on non-contract ("merchant") businesses in AES's portfolio does subject the
Company to potentially increasing electricity market price risk.
The hedging approaches and methodologies utilized by the Company are
implemented through contractual provisions with fuel suppliers, international
financial institutions and several of the Company's customers. As a result,
their effectiveness is dependent, in part, on each counterparty's ability to
perform in accordance with the provisions of the relevant contract. The Company
has sought to reduce this credit risk in part by entering into contracts, where
possible, with creditworthy organizations. In certain instances, where the
Company determines that additional credit support is necessary, AES will seek to
execute (either concurrently or subsequently) standby, guarantee or option
agreements with creditworthy third parties. In particular, AES has executed and
is the beneficiary of fuel purchase option agreements, corporate and
governmental guarantees to support the obligations of local fuel suppliers in
several locations and sovereign governmental guarantees supporting the
electricity purchase obligation of government-owned power authorities, such as
in the Dominican Republic and Pakistan.
AES has also used a hedging strategy in an attempt to insulate each
plant's financial performance, where appropriate, against the risk of
fluctuations in interest rates. Depending on whether capacity payments are fixed
or vary with inflation, the Company generally attempts to hedge against interest
rate fluctuations by arranging fixed-rate or variable rate financing,
respectively. In certain cases, the Company executes interest rate swap and
interest rate cap agreements to effectively fix or limit the interest rate on
the underlying variable rate financing. At December 31, 1997 the Company and its
subsidiaries had approximately $2.1 billion of fixed rate debt obligations. In
addition the Company had entered into interest rate swap agreements and forward
interest rate swap agreements aggregating approximately $1 billion at December
31, 1997 which the Company used to hedge its interest rate exposure on variable
rate debt.
Through its equity investments in foreign subsidiaries and affiliates,
AES operates in jurisdictions dealing in currencies other than the Company's
consolidated reporting currency, the U.S. dollar. Such investments and advances
were made to fund capital investment or acquisition requirements, to provide
working capital, or to provide collateral for contingent obligations. Due
primarily to the long-term nature of certain investments and advances, the
Company accounts for any adjustments resulting from translation as a charge or
credit directly to a separate component of stockholders' equity until such time
as the Company realizes such charge or credit. At that time differences may be
recognized in the statement of operations as gains or losses. See the discussion
under the heading Results of Operations.
In addition, certain of the Company's foreign subsidiaries have entered
into obligations in currencies other than their own functional currencies or the
U.S. dollar. Whenever possible, these subsidiaries have attempted to limit
potential foreign exchange exposure by entering into revenue contracts which
adjust to changes in the foreign exchange rates. Certain foreign affiliates and
subsidiaries operate in countries where the local inflation rates are greater
than U.S. inflation rates. In such cases the foreign currency tends to devalue
relative to the U.S. dollar over time. The Company's subsidiaries and affiliates
have entered into revenue contracts which attempt to adjust for these
differences; however, there can be no assurance that such adjustments will
compensate for the full effect of currency devaluation, if any. At December 31,
1997 the Company and its subsidiaries had approximately $450 million in
outstanding debt that was denominated in currencies other than the U.S. dollar.
<PAGE>
The table below provides information about the Company's financial
instruments and derivative financial instruments that are sensitive to changes
in interest rates, in particular debt obligations, Tecons, and interest rate
swaps. AES does not trade in these financial instruments and derivatives and
therefore has classified them as other than trading. For debt obligations and
Tecons the table presents principal cash flows and related weighted average
interest rates by expected maturity dates over the next five years and
thereafter. For interest rate swaps, the table presents aggregate contractual
notional amounts and weighted average interest rates over the next five years.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. Weighted average variable rates are based on implied forward
rates in the yield curve at December 31, 1997. The information is presented in
U.S. dollar equivalents, which is the Company's reporting currency. The
instruments' actual cash flows are denominated in U.S. dollars (USD), Japanese
yen (JPY), Australian dollars (AUD), Chinese renminbi yuan (CHY) and UK pounds
sterling (GBP) as indicated in parentheses as of December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997
- -----------------------------------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS THERE- FAIR
By expected maturity date 1998 1999 2000 2001 2002 AFTER TOTAL VALUE
- -----------------------------------------------------------------------------------------------------------------
Liabilities (USD Equivalents in millions)
Long-term Debt:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate (USD) 42 31 41 51 24 1,888 2,077 2,111
Average interest rate 10.72% 11.17% 10.83% 10.45% 10.94% 9.29%
Variable rate (USD) 540 986 200 158 163 469 2,516 2,516
Average interest rate 8.39% 7.73% 7.85% 7.93% 7.92% 7.46%
Fixed rate (JPY) 3 6 6 6 6 27 54 51
Average interest rate 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Variable rate (JPY) 3 25 25 25 25 110 213 213
Average interest rate 3.51% 3.93% 4.08% 4.31% 4.50% 5.22%
Variable rate (GBP) 0 4 8 8 12 144 176 176
Average interest rate -- 8.75% 8.64% 8.58% 8.47% 8.25%
Fixed rate (AUD) 0 0 0 0 0 5 5 2
Average interest rate -- -- -- -- -- 7.65% --
Fixed rate (CHY) 2 0 0 0 0 0 2 2
Average interest rate 11.09% -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
TOTAL 590 1,052 280 248 230 2,643 5,043 5,071
TECONS
Fixed rate (USD) 0 0 0 0 0 550 550 661
Average interest rate -- -- -- -- -- 5.44%
- -----------------------------------------------------------------------------------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS FAIR
By aggregate notional amounts outstanding 1997 1998 1999 2000 2001 2002 VALUE
- -----------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS (USD Equivalents in millions)
Variable to fixed (USD) 645 746 487 459 415 368 79
Average pay rate 8.81% 8.38% 8.30% 8.31% 8.30% 8.32%
Average receive rate 5.84% 5.84% 6.00% 6.02% 6.04% 6.06%
Variable to fixed (GPB) 142 0 0 0 0 0 0
Average pay rate 6.90% -- -- -- -- --
Average receive rate 7.69% -- -- -- -- --
Variable to fixed (AUD) 0 58 55 51 38 34 2
Average pay rate -- 7.38% 7.38% 7.38% 7.38% 7.38%
Average receive rate -- 5.38% 5.79% 6.10% 6.22% 6.31%
- -----------------------------------------------------------------------------------------------------------------
Total 787 804 542 510 453 402 81
</TABLE>
<PAGE>
The table below also provides information about the Company's financial
instruments by functional currency and presents such information in U.S. dollar
equivalents. The table summarizes information on instruments that are sensitive
to foreign currency exchange rates. These instruments are debt obligations of
the Company's subsidiaries which are denominated in currencies other than that
subsidiary's functional currency. AES does not trade in these financial
instruments and therefore has classified them as other than trading. Such
functional currencies include the Argentine peso (ARS), the Pakistan rupee
(PKR), the Japanese yen (JPY), the Chinese renminbi yuan (CHY) and the U.S.
dollar (USD). For debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity dates for the next
five years and thereafter.
<TABLE>
<CAPTION>
December 31, 1997
- -----------------------------------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS THERE-
By expected maturity date 1998 1999 2000 2001 2002 AFTER TOTAL
- -----------------------------------------------------------------------------------------------------------------
Liabilities (USD Equivalents in millions)
Long-term Debt:
<S> <C> <C> <C> <C> <C> <C> <C>
ARS Functional Currency:
Fixed Rate (USD) 29 17 17 4 0 0 67
Average interest rate 9.65% 10.88% 10.72% 10.88% -- --
Variable Rate (USD) 2 2 3 2 0 0 9
Average interest rate 10.64% 10.80% 10.82% 10.84% -- --
PKR Functional Currency:
Fixed rate (USD) 2 8 8 8 8 44 78
Average interest rate 9.03% 9.03% 9.03% 9.03% 9.03% 9.31%
Variable rate (USD) 3 7 7 7 7 25 56
Average interest rate 8.70% 8.86% 8.89% 8.92% 8.95% 9.17%
Fixed rate (JPY) 3 6 6 6 6 27 54
Average interest rate 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%
Variable rate (JPY) 3 25 25 25 25 110 213
Average interest rate 3.51% 3.93% 4.08% 4.31% 4.50% 5.22%
USD Functional Currency:
Fixed rate (CHY) 2 0 0 0 0 0 2
Average interest rate 11.09% -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
Total 44 65 66 52 46 206 479
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Stockholders of The AES Corporation:
We have audited the accompanying consolidated balance sheets of The AES
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedules listed in the index on page S-1. These consolidated
financial statements and financial statement schedules are the responsibility of
The AES Corporation's management. Our responsibility is to express an opinion on
the consolidated financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The AES Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Washington, DC
January 28, 1998, except for Note 16, as to which date is February 10, 1998
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Sales $1,361 $ 824 $ 672
Services 50 11 7
- --------------------------------------------------------------------------------------------------------
Total revenues 1,411 835 679
OPERATING COSTS AND EXPENSES:
Cost of sales 940 495 388
Cost of services 41 7 6
Selling, general and administrative expenses 45 35 32
Provision to reduce contract receivables 17 20 --
- --------------------------------------------------------------------------------------------------------
Total operating costs and expenses 1,043 557 426
- --------------------------------------------------------------------------------------------------------
OPERATING INCOME 368 278 253
OTHER INCOME AND (EXPENSE):
Interest expense (244) (144) (127)
Interest income 41 24 27
Foreign currency exchange loss (7) -- --
Equity in earnings of affiliates (net of income taxes) 105 35 14
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST, AND EXTRAORDINARY ITEM 263 193 167
INCOME TAXES 56 60 57
MINORITY INTEREST 19 8 3
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 188 125 107
Extraordinary item-net loss on extinguishment of
debt (less applicable income taxes of $2) (3) -- --
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 185 $ 125 $ 107
- --------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
BEFORE EXTRAORDINARY ITEM $ 1.13 $ 0.83 $ 0.71
EXTRAORDINARY ITEM (0.02) -- --
- --------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $ 1.11 $ 0.83 $ 0.71
- --------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
BEFORE EXTRAORDINARY ITEM $ 1.11 $ 0.80 $ 0.70
EXTRAORDINARY ITEM (0.02) -- --
- --------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $ 1.09 $ 0.80 $ 0.70
- --------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in millions)
- --------------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 302 $ 185
Short-term investments 127 20
Accounts receivable, net 323 95
Inventory 95 81
Asset held for sale 139 --
Receivable from affiliates 23 9
Deferred income taxes 47 65
Prepaid expenses and other current assets 134 47
- --------------------------------------------------------------------------------------
Total current assets 1,190 502
PROPERTY, PLANT AND EQUIPMENT:
Land 29 30
Electric generation and distribution assets 3,809 1,898
Accumulated depreciation and amortization (373) (282)
Construction in progress 684 574
- --------------------------------------------------------------------------------------
Property, plant and equipment, net 4,149 2,220
OTHER ASSETS:
Deferred financing costs, net 122 47
Project development costs 87 53
Investments in and advances to affiliates 1,863 491
Debt service reserves and other deposits 236 175
Electricity sales concessions and contracts 1,179 30
Goodwill 23 22
Other assets 60 82
- --------------------------------------------------------------------------------------
Total other assets 3,570 900
- --------------------------------------------------------------------------------------
TOTAL $ 8,909 $ 3,622
- --------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(in millions, except par values)
- --------------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 205 $ 64
Accrued interest 68 25
Accrued and other liabilities 335 95
Other notes payable - current portion -- 88
Project financing debt - current portion 596 110
- --------------------------------------------------------------------------------------
Total current liabilities 1,204 382
LONG-TERM LIABILITIES:
Project financing debt 3,489 1,558
Other notes payable 1,096 450
Deferred income taxes 273 243
Other long-term liabilities 291 55
- --------------------------------------------------------------------------------------
Total long-term liabilities 5,149 2,306
MINORITY INTEREST 525 213
COMMITMENTS AND CONTINGENCIES -- --
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING
SOLELY JUNIOR SUBORDINATED DEBENTURES OF AES 550 --
STOCKHOLDERS' EQUITY:
Preferred stock (no par value; 2 million shares
authorized; none issued) -- --
Common stock ($.01 par value; 500 million
shares authorized; shares issued and outstanding:
1997 - 175.0 million; 1996 - 154.8 million) 2 2
Additional paid-in capital 1,030 359
Retained earnings 581 396
Cumulative foreign currency translation adjustment (131) (33)
Less treasury stock at cost (1997 - .2 million shares;
1996 - .6 million shares) (1) (3)
- --------------------------------------------------------------------------------------
Total stockholders' equity 1,481 721
- --------------------------------------------------------------------------------------
TOTAL $ 8,909 $ 3,622
======================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in millions)
For the Years Ended December 31 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $185 $125 $107
Adjustments to net income:
Depreciation and amortization 114 65 55
Deferred taxes 20 26 48
Undistributed earnings of affiliates (57) (20) 3
Other 22 6 4
Changes in consolidated working capital (91) (7) (17)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 193 195 200
INVESTING ACTIVITIES:
Property additions (511) (506) (171)
Acquisitions, net of cash acquired (2,454) (148) (121)
Sale of short-term investments 77 103 254
Purchase of short-term investments (184) (66) (218)
Affiliate advances and equity investments (649) (430) (10)
Project development costs (34) (16) (22)
Debt service reserves and other assets (44) (72) (55)
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,799) (1,135) (343)
FINANCING ACTIVITIES:
Borrowings (repayments) under the revolver (186) 163 50
Issuance of project financing debt
and other coupon bearing securities 3,926 802 133
Repayments of project financing debt
and other coupon bearing securities (749) (75) (63)
Payments for deferred financing costs (34) (13) (3)
Other liabilities (6) (3) 8
Contributions by minority interests 269 10 7
Sale (repurchase) of common stock 503 2 (5)
- -----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,723 886 127
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 117 (54) (16)
CASH AND CASH EQUIVALENTS, BEGINNING 185 239 255
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, ENDING $302 $185 $239
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest $201 $134 $120
Cash payments for income taxes, net of refunds 31 32 6
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Deferred purchase price of Cemig shares $528 $ -- $ --
Common stock issued for amalgamation of AES Chigen 157 -- --
Conversion of subordinated debentures to common stock -- 50 --
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The AES Corporation and its subsidiaries and affiliates, (collectively
"AES" or the "Company") is a global power company primarily engaged in owning
and operating electric power generation and distribution businesses in many
countries around the world.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements of
the Company include the accounts of AES, its subsidiaries and controlled
affiliates. Investments in 50% or less owned affiliates over which the Company
has the ability to exercise significant influence, but not control, are
accounted for using the equity method. The accounts of AES China Generating Co.
Ltd. ("Chigen") are consolidated based on its fiscal year ended November 30.
Intercompany transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS -- The Company considers cash on hand, deposits
in banks, certificates of deposit and short-term marketable securities with an
original maturity of three months or less as cash and cash equivalents.
INVESTMENTS -- Securities that the Company has both the positive intent
and ability to hold to maturity are classified as held- to-maturity and are
carried at historical cost. Other investments that the Company does not intend
to hold to maturity are classified as available-for-sale, and any significant
unrealized gains or losses are recorded as a separate component of stockholders'
equity. Interest and dividends on investments are reported in interest income.
Gains and losses on sales of investments are recorded using the specific
identification method. Short-term investments consist of investments with
original maturities in excess of three months but less than one year. Debt
service reserves and other deposits, which might otherwise be considered cash
and cash equivalents, are treated as noncurrent assets (see Note 3).
INVENTORY -- Inventory, valued at the lower of cost or market (first in,
first out method), consists of coal, raw materials, spare parts, and supplies.
Inventory consists of the following (in millions):
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
Coal and other raw materials $58 $57
Spare parts, materials and supplies 37 24
- --------------------------------------------------------------------------------
TOTAL $95 $81
================================================================================
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment, including
improvements, is stated at cost. Depreciation, after consideration of salvage
value, is computed using the straight-line method over the estimated composite
lives of the assets, which range from 3 to 40 years. Maintenance and repairs are
charged to expense as incurred. Emergency and rotable spare parts inventories
are included in electric generation and distribution assets and are depreciated
over the useful life of the related components.
INTANGIBLE ASSETS -- Goodwill and electricity sales concessions and
contracts are amortized on a straight-line basis over their estimated periods of
benefit, which range from 16 to 40 years. Intangible assets at December 31, 1997
and 1996 are shown net of accumulated amortization of $13 million and $3
million, respectively. The Company reviews its goodwill and electricity sales
concessions and contracts for impairment whenever events or changes in
circumstances indicate that the carrying amount of such asset may not be
recoverable.
CONSTRUCTION IN PROGRESS -- Construction progress payments, engineering
costs, insurance costs, wages, interest and other costs relating to construction
in progress are capitalized. Construction in progress balances are transferred
to electric generation and distribution assets when the assets are ready for
their intended use. Interest capitalized during development and construction
totaled $67 million, $27 million and $8 million in 1997, 1996 and 1995,
respectively.
DEFERRED FINANCING COSTS -- Financing costs are deferred and amortized
using the straight-line method over the related financing period, which does not
differ materially from the effective interest method of amortization. Deferred
financing costs are shown net of accumulated amortization of $52 million and $36
million as of December 31, 1997 and 1996, respectively.
PROJECT DEVELOPMENT COSTS -- The Company capitalizes the costs of
developing new projects. These costs represent amounts incurred for professional
services, salaries, permits, options, capitalized interest and other related
direct costs. These costs are included in investments in affiliates or property
when financing is obtained, or expensed at the time the Company determines that
a particular project will no longer be developed. The continued capitalization
is subject to on-going risks related to successful completion, including those
related to political, siting, financing, construction, permitting and contract
compliance. Certain reimbursable costs related to one of the projects have been
classified as other assets.
FOREIGN CURRENCY TRANSLATION -- Foreign subsidiaries and affiliates
translate their assets and liabilities into U.S. dollars at the current exchange
rates in effect at the end of the fiscal period. The gains or losses that result
from this process, and gains and losses on
<PAGE>
intercompany transactions which are long-term in nature, and which the Company
does not intend to repatriate, are shown in the cumulative foreign currency
translation adjustment balance in the stockholders' equity section of the
balance sheet. For subsidiaries operating in highly inflationary countries, the
U.S. dollar is considered to be the functional currency, and transaction gains
and losses are included in determining net income. Gains and losses that arise
from exchange rate fluctuations on transactions denominated in a currency other
than the functional currency, except those that are hedged, are included in
determining net income. The revenue and expense accounts of foreign subsidiaries
and affiliates are translated into U.S. dollars at the average exchange rates
that prevailed during the period.
REVENUE RECOGNITION AND CONCENTRATION -- Revenues from the sale of
electricity and steam are recorded based upon output delivered and capacity
provided at rates as specified under contract terms. Electricity distribution
revenues are recognized when billed. Most of the Company's power plants rely
primarily on one power sales contract with a single customer for the majority of
revenues. Three customers accounted for 14%, 12%, and 10% of revenues in 1997,
five customers accounted for 20%, 16%, 16%, 11% and 10% of revenues in 1996, and
four customers accounted for 24%, 18%, 18% and 13% of revenues in 1995. The
prolonged failure of any of these customers to fulfill contractual obligations
could have a substantial negative impact on AES's revenues and profits. However,
the Company does not anticipate non-performance by the customers under these
contracts.
HEDGING ARRANGEMENTS -- The Company enters into various derivative
transactions in order to hedge its exposure to certain market risks. The Company
currently has outstanding interest rate swap and cap agreements which hedge
against interest rate exposure on floating rate project financing debt. The
transactions, which are classified as other than trading are accounted for as a
hedge, and interest is expensed or capitalized, as appropriate, using effective
interest rates. Any fees or swap payments are amortized as yield adjustments.
NET INCOME PER SHARE -- During 1997, the company adopted Statement of
Financial Accounting Standard (SFAS) No. 128, Earnings Per Share and computed
basic and diluted net income per share based on the weighted average number of
shares of common stock and potential common stock outstanding during the period,
after giving effect to stock splits (see Note 9). Potential common stock, for
purposes of determining diluted earnings per share, includes the effects of
dilutive stock options, warrants, deferred compensation arrangements and
convertible securities. The effect of such potential common stock is computed
using the treasury stock method or the if-converted method, as applicable.
Comparative earnings per share data have been restated for prior periods.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain reclassifications have been made to prior
period amounts to conform with the 1997 presentation.
2. ACQUISITIONS
In January 1997, the Company acquired an additional 2.4% interest in
Light-Servicos de Electricidade S.A. ("Light"), a publicly-held Brazilian
corporation that operates as the concessionaire of an integrated electric power
generation, transmission and distribution system which serves Rio de Janeiro,
Brazil. In June 1996, AES and three other partners participated in a consortium
which acquired a 50.44% controlling interest. The additional investment in 1997
of approximately $82 million, increased AES's holdings in Light to 13.75%. The
Company has the ability to exercise significant influence over the operation of
Light and records the investment using the equity method.
In May 1997, AES completed its amalgamation with Chigen. As a result of
the amalgamation, the Company issued approximately 5 million shares of AES
Common Stock in exchange for all of the outstanding Chigen Class A Common Stock.
A portion of the transaction cost of approximately $29 million represents values
assigned to power purchase contracts which are being amortized over the life of
the related power purchase contracts, which range from 16 to 25 years.
Also in May 1997, a subsidiary of the Company acquired 60% of two
electric distribution companies sold as part of the Argentine government
privatization program. The companies purchased were Empresa Distribudora
Electrica Norte (Eden), which serves the northern part of the Buenos Aires
province, and Empresa Distribudora Electrica Sur (Edes), which serves the
southern part of the province. The Company, together with its partner, invested
approximately $565 million to acquire a 90% ownership in each company. A portion
of the acquisition costs, approximately $204 million, represents the value of
the 95 year electricity sales concessions granted to Eden and Edes, and is being
amortized over 40 years.
In June 1997, AES, through a consortium, acquired, for approximately $1
billion, a 14.41% interest (of which AES's direct ownership during 1997 was
13.06%) in Companhia Energetica de Minas Gerais ("Cemig"), an integrated
electric utility serving the State of Minas Gerais in Brazil. Cemig owns
approximately 5,000 MW of generating capacity and serves approximately 4 million
customers. This investment also represents approximately 33% of the voting
interest in Cemig. The Company has the ability to exercise significant influence
over the operation of Cemig and records the investment using the equity method.
<PAGE>
In June 1997, AES acquired the international assets of Destec Energy,
Inc. for approximately $439 million. The purchase included five electric
generating plants in construction or operation and a number of power projects in
development. The plants acquired by AES (with ownership percentages in
parenthesis) include a 110 MW gas-fired combined cycle plant in Kingston, Canada
("Kingston") (50%); a 405 MW gas-fired combined cycle plant under construction
in Terneuzen, Netherlands ("Elsta") (50%); a 140 MW gas-fired simple cycle plant
in Cornwall, England ("Indian Queens") (100%); a 235 MW oil-fired simple cycle
plant in Santo Domingo, Dominican Republic ("Los Mina") (100%); and a 1600 MW
coal-fired plant in Victoria, Australia ("Hazelwood") (20%). A portion of the
acquisition cost, approximately $172 million, represents the value of various
contracts which are being amortized over the respective lives of 20 years, and a
$67 million liability related to the completion of construction at Elsta.
The Hazelwood investment was classified as held for sale at December 31,
1997, and subsequently sold in February 1998. The Company recognized a foreign
currency transaction loss of $5 million in 1997.
In October 1997, a subsidiary of the Company acquired an 85% interest in
two hydro-electric stations (GES) and four combined heat and power stations
(TETS) in East Kazakhstan ("Altai"). Altai has a total electric capacity of
1,384 MW with an additional equivalent thermal capacity of approximately 1,000
MW. The purchase price was approximately $24 million for the 20 year GES
concession and the TETS shares.
Also in October 1997, AES acquired 90% of Companhia Centro-Oeste de
Distribuicao de Energia Electrica, ("Sul") an electric distribution company in
the state of Rio Grande do Sul, Brazil. The purchase price for this acquisition
was approximately $1.4 billion. A portion of the acquisition cost, approximately
$884 million, represents the value of the electricity sales concession granted
to Sul, which is being amortized over the 30 year period of the concession. Sul
is in the process of finalizing its severance plan, and has recorded a $34
million liability for severance costs at December 31, 1997.
In March 1996, a subsidiary of the Company acquired a 98% interest in
Hidrotermica San Juan, S.A., ("San Juan"), which is the owner and operator of a
78 MW power generation facility in the province of San Juan, Argentina. The
facility, which sells electricity into the Argentine spot market, includes a 45
MW hydroelectric power plant and a 33 MW gas combustion plant. As a result of
this acquisition, the Company acquired a hydroelectric concession valued at $17
million which is being amortized over the life of the concession of 30 years.
During 1996, the Company, through a subsidiary, acquired a controlling
interest in three power plants totaling 1,281 MW and a coal mine through the
purchase of a 94% share of Tisza Eromu Rt. ("Tisza"), an electricity generation
company in Hungary, for a total purchase price of $127 million.
In August 1996, a subsidiary of the Company acquired a majority
controlling interest in a 4,000 MW coal-fired facility in Kazakhstan
("Ekibastuz"), for approximately $3 million. Beginning in August 1996 and
continuing through 1997, AES has recorded a provision of $28 million associated
with aggregate outstanding receivables (excluding VAT) of $54 million at
December 31, 1997 related to the operations of Ekibastuz. Approximately $35
million of the aggregate balance (excluding VAT), before considering the
provision, is due from a government-owned distribution company. There can be no
assurance of the ultimate collectibility of these amounts owed to Ekibastuz, or
as a result, the recoverability of the related net assets (totaling $57 million
at December 31, 1997) or additional amounts the Company may invest.
These acquisitions were accounted for as purchases. The purchase price
allocations for Eden, Edes, Cemig, Los Mina, Indian Queens, Elsta, Kingston,
Altai and Sul have been completed on a preliminary basis, subject to adjustments
resulting from new or additional facts that may come to light when the
engineering, environmental, and legal analyses are completed during the
respective allocation periods. The accompanying financial statements include the
operating results of Eden and Edes from May 1997, equity in earnings of Cemig
from June 1997, the operating results of Los Mina and Indian Queens from June
1997, equity in earnings of Kingston from June 1997, the operating results of
Sul and Altai from October 1997, the operating results of Tisza and Ekibastuz
from August 1996, and equity in earnings of Light from June 1996. The following
table presents supplemental unaudited proforma operating results as if all of
the acquisitions had occurred at the beginning of 1996 (in millions, except per
share amounts):
<PAGE>
- --------------------------------------------------------------------------------
For the Years Ended December 31 1997 1996
- --------------------------------------------------------------------------------
Revenues $ 1,918 $2,195
Net income before extraordinary item 136 50
Net income after extraordinary item 133 50
Basic earnings per share $ 0.76 $ 0.29
Diluted earnings per share $ 0.75 $ 0.28
- --------------------------------------------------------------------------------
The proforma results are based upon assumptions and estimates which the Company
believes are reasonable. The proforma results do not purport to be indicative of
the results that actually would have been obtained had the acquisitions occurred
on January 1, 1996, nor are they intended to be a projection of future results.
3. INVESTMENTS
At December 31, 1997 and 1996, the Company's investments were classified as
either held-to-maturity or available-for-sale. The amortized cost and estimated
fair value of the investments at December 31, 1997 and 1996 classified as
held-to-maturity and available-for-sale were approximately the same.
The short-term investments and debt service reserves and other deposits were
invested as follows (in millions):
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
RESTRICTED CASH AND CASH EQUIVALENTS(1) $ 130 $ 104
- --------------------------------------------------------------------------------
HELD-TO-MATURITY
U.S. treasury and government agency securities 37 1
Foreign certificates of deposit 95 --
Commercial paper 66 39
- --------------------------------------------------------------------------------
Subtotal 198 40
- --------------------------------------------------------------------------------
AVAILABLE-FOR-SALE
U.S. treasury and government agency securities 15 43
Certificates of deposit 2 3
Commercial paper 15 5
Floating rate notes 3 --
- --------------------------------------------------------------------------------
Subtotal 35 51
- --------------------------------------------------------------------------------
TOTAL $ 363 $ 195
================================================================================
(1) amounts required to be maintained in cash in accordance with certain
covenants of various project financing agreements.
Short-term investments classified as held-to-maturity and available-for-sale
were $111 and $16 million, respectively, at December 31, 1997 and $9 million and
$11 million, respectively at December 31, 1996.
<PAGE>
4. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The following table presents summarized financial information (in millions) for
equity method affiliates on a combined 100% basis. Amounts presented for 1997
include the accounts of NIGEN, Ltd. ("NIGEN") (47% owned UK affiliate), Medway
Power Ltd. ("Medway") (25% owned UK affiliate), Light (13.75% owned Brazilian
affiliate), Chigen's affiliates, Kingston (50% owned Canadian affiliate), Elsta
(50% owned Netherlands affiliate), and Cemig (13.06% owned Brazilian affiliate).
Amounts presented for 1996 include the accounts of NIGEN, Medway, Light, and
Chigen's affiliates, and amounts presented for 1995 include the accounts of
NIGEN and Medway.
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Sales $ 3,991 $ 1,959 $ 276
Operating income 984 497 86
Net income 670 383 49
Current assets 1,698 889 171
Noncurrent assets 14,800 4,914 949
Current liabilities 1,809 863 70
Noncurrent liabilities 4,752 2,108 973
Stockholders' equity 9,937 2,832 77
- --------------------------------------------------------------------------------
The Company's share of undistributed earnings of affiliates included in
consolidated retained earnings was $89 million and $33 million at December 31,
1997 and 1996, respectively. The Company charged and recognized construction
revenues, management fees and interest on advances to its affiliates which
aggregated $42 million, $9 million and $8 million for each of the years ended
December 31, 1997, 1996 and 1995, respectively.
5. DEBT
PROJECT FINANCING DEBT -- Project financing debt at December 31, 1997 and 1996
consisted of the following (in millions):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Interest Final
Rate(1) Maturity 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SENIOR DEBT - VARIABLE RATE
Notes payable to banks 7.9% 2013 1,830 $ 230
Commercial paper (see below) 7.2% 2007 598 631
Debt to (or guaranteed by) multilateral
or export credit agencies 6.4% 2010 429 368
SENIOR DEBT - FIXED RATE
Notes payable to banks 10.0% 2009 623 84
Capital leases 8.1% 2016 143 105
Tax-exempt bonds 7.4% 2019 74 74
Chigen bonds 10.1% 2006 180 --
Debt to (or guaranteed by) multilateral
& export credit agencies 6.5% 2008 133 110
SUBORDINATED DEBT - VARIABLE AND FIXED RATE 13.0% 2010 75 66
- ---------------------------------------------------------------------------------------
SUBTOTAL 4,085 1,668
Less current maturities (596) (110)
- ---------------------------------------------------------------------------------------
TOTAL $3,489 $ 1,558
=======================================================================================
</TABLE>
(1) weighted average interest rate at December 31, 1997
<PAGE>
Project financing debt borrowings are primarily collateralized by the capital
stock of the relevant subsidiary and in certain cases, the physical assets of
and all significant agreements associated with such business.
The Company has interest rate swap and forward interest rate swap
agreements in an aggregate notional principal amount of $1,031 million at
December 31, 1997. The swap agreements effectively change the interest rate on
the portion of the debt covered by the notional amounts to a weighted average
fixed rate ranging from approximately 7.4% to 12.1%. The agreements expire at
various dates from 1999 through 2014. In the event of nonperformance by the
counterparties, the subsidiaries may be exposed to increased interest rates;
however, the Company does not anticipate nonperformance by the counterparties,
which are multinational financial institutions. At December 31, 1997,
subsidiaries of the Company have interest rate cap and forward interest rate cap
agreements at various rates with remaining terms ranging from two to six years
in an aggregate notional amount of $418 million.
Shady Point and Hawaii have issued commercial paper supported by
irrevocable letters of credit issued by multinational financial institutions. In
the event of nonperformance or credit deterioration of these institutions, the
Company may be exposed to the risk of higher effective interest rates. The
Company does not believe that such nonperformance or credit deterioration is
likely.
OTHER NOTES PAYABLE -- Other notes payable at December 31, 1997 and 1996
consisted of the following (in millions):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
INTEREST FINAL FIRST CALL
RATE(1) MATURITY DATE 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate revolving bank loan(2) 7.50% 2000 -- $ 27 $ 213
Senior subordinated notes 9.75% 2000 1997 -- 75
Senior subordinated notes 10.25% 2006 2001 250 250
Senior subordinated notes 8.38% 2007 2002 325 --
Senior subordinated notes 8.50% 2007 2002 375 --
Senior subordinated notes 8.88% 2027 2004 125 --
Unamortized discounts (6) --
- ---------------------------------------------------------------------------------------------------
SUBTOTAL 1,096 538
Less current maturities -- (88)
- ---------------------------------------------------------------------------------------------------
TOTAL $1,096 $ 450
===================================================================================================
</TABLE>
(1) weighted average interest rate at December 31, 1997.
(2) floating rate loan
Under the terms of the $600 million corporate revolving bank loan and letter of
credit facility ("Revolver"), the Company must reduce its direct borrowings to
$225 million for 30 consecutive days annually to obtain additional loans.
Commitment fees on the unused portion at December 31, 1997 are .38% per annum,
and as of that date $393 million was available. The Company's senior
subordinated notes are general unsecured obligations of the Company. The
Company's 9.75% senior subordinated notes due 2000 were refinanced in August
1997. As a result, the Company recorded an extraordinary loss of $3 million, net
of tax.
FUTURE MATURITIES OF DEBT -- Scheduled maturities of total debt at
December 31, 1997 are (in millions):
1998 $ 596
1999 1,058
2000 286
2001 255
2002 237
Thereafter 2,749
- --------------------------------------------------------------------------------
Total $ 5,181
================================================================================
<PAGE>
COVENANTS--The terms of the Company's Revolver, senior subordinated notes
and project financing debt agreements contain certain covenants. The covenants
provide for, among other items, maintenance of certain reserves, and require
that minimum levels of working capital, net worth and certain financial ratio
tests are met. The most restrictive of these covenants include limitations on
incurring additional debt and on the payment of dividends to shareholders.
The project financing debt limitations of AES's subsidiaries permit the
payment of dividends to the parent company 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. As of December 31, 1997, approximately $68 million was available
under project loan documents for distribution by U.S. subsidiaries.
6. COMMITMENTS AND CONTINGENCIES
As of December 31, 1997, the Company and its consolidated subsidiaries
were obligated under long-term non-cancelable operating leases, primarily for
office rental and site leases. Rental expense for operating leases was $9
million, $4 million and $3 million in the years ended 1997, 1996 and 1995,
respectively. The future minimum lease commitments under these leases are $10
million for 1998, $7 million for 1999, $3 million for each year 2000 through
2001, $2 million for 2002, and a total of $64 million for the years thereafter.
A subsidiary of the Company has entered into a "take-or-pay" contract for
the purchase of electricity with a term of five years. Purchases in 1997 were
approximately $1 million. The future commitment under this contract is $7
million for each year 1998 through 2002.
Operating subsidiaries of the Company enter into various long-term
contracts for the purchase of fuel subject to termination only in certain
limited circumstances. These contracts have remaining terms of 1 to 29 years.
On November 24, 1997 the Company announced that it had won a bid to
acquire three natural gas-fired electric generating stations from Southern
California Edison for approximately $781 million. The Company anticipates
completion of the acquisition in 1998. It is expected that a significant portion
of the acquisition price will be raised from proceeds through a project
financing debt arrangement. However, both the acquisition and the financing are
contingent upon certain conditions precedent.
GUARANTEES -- In connection with certain of its project financing,
acquisition and power purchase agreements, AES has expressly undertaken limited
obligations and commitments, most of which will only be effective or will be
terminated upon the occurrence of future events. In addition, the Company has
undertaken commitments to fund its equity in projects currently under
development and construction. These obligations and commitments, excluding those
collateralized by letter of credit obligations discussed below, were limited as
of December 31, 1997, by the terms of the agreements, to an aggregate of
approximately $221 million. The Company is also obligated under other
commitments which are limited to amounts, or percentages of amounts, received by
AES as distributions from its project subsidiaries. These amounts aggregated $33
million as of December 31, 1997. Certain of the Company's subsidiaries have
obligations to fund equity and loans in their projects. At December 31, 1997
such commitments to invest amounted to approximately $129 million.
LETTERS OF CREDIT -- At December 31, 1997 and 1996, the Company had $180
million and $123 million, respectively, of letters of credit outstanding under
its credit facility which operate to guarantee performance relating to certain
project development activities and subsidiary operations. The Company pays a
letter of credit fee of 1.50% on the outstanding amounts.
LITIGATION -- The Company is involved in certain legal proceedings in the
normal course of business. It is the opinion of the Company that none of the
pending litigation will have a material adverse effect on its results of
operations, financial position, or cash flows.
7. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS
During 1997, two wholly-owned special purpose business trusts
(individually, "AES Trust I" and "AES Trust II" and collectively, the "Trusts")
issued Term Convertible Securities ("Tecons"). On March 31, AES Trust I issued 5
million of $2.6875 Tecons (liquidation value $50) for total proceeds of $250
million and concurrently purchased $250 million of 5.375% junior subordinated
convertible debentures due 2027 of AES (individually the "5.375% Debentures").
On October 29, AES Trust II issued 6 million of $2.75 Tecons (liquidation value
$50) for total proceeds of $300 million and concurrently purchased $300 million
of 5.5% junior subordinated convertible due 2012 of AES (individually the "5.5%
Debentures" and collectively with the 5.375% Debentures the "Junior
Debentures"). The sole assets of AES Trust I are the 5.375% Debentures and the
sole assets of AES Trust II are the 5.5% Debentures. The obligations of the
Trusts, as provided under the terms of the Tecons, are fully and unconditionally
guaranteed by AES.
Dividends on the Tecons are payable quarterly at an annual rate of 5.375%
by AES Trust I and 5.5% for AES Trust II. The Trusts are each permitted to defer
payment of dividends for up to 20 consecutive quarters, provided that AES has
exercised its right to defer interest payments under the corresponding Junior
Debentures. During such deferral periods, dividends on the Tecons will
accumulate quarterly and accrue interest and AES may not declare or pay
dividends on its common stock. The Tecons are convertible into the common stock
of AES
<PAGE>
at each holder's option prior to March 31, 2027 for AES Trust I and September
30, 2012 for AES Trust II at the rate of 1.3812 and .8914 shares, respectively,
representing a conversion price equivalent to $36.20 and $56.09 per share
respectively.
AES, at its option, can redeem the 5.375% Debentures after March 31, 2000
which would result in the required redemption of the Tecons issued by AES Trust
I, for $51.68 per Tecon, reduced annually by $0.336 to a minimum of $50 per
Tecon and can redeem the 5.5% Debentures after September 30, 2000 which would
result in the required redemption of the Tecons issued by AES Trust II, for
$51.72 per Tecon, reduced annually by $0.344 to a minimum of $50 per Tecon.
Interest expense for the year ended December 31, 1997 includes $10 million
and $3 million related to the dividends accrued on the Tecons of AES Trust I and
AES Trust II, respectively.
8. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in millions)
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
COMMON STOCK
<S> <C> <C> <C>
Balance at January 1 and December 31 $ 2 $ 2 $ 2
=======================================================================================================
ADDITIONAL PAID-IN CAPITAL
Balance at January 1 $ 359 $ 292 $ 239
Issuance of common stock 494 -- --
Issuance of common stock pursuant to Chigen amalgamation 157 -- --
Issuance of common stock under benefit plans
and exercise of stock options 12 3 2
Tax benefit associated with the exercise of options 8 15 --
Issuance of common stock on conversion of 6.5%
subordinated debentures, net ($13.08 per share) -- 49 --
Chigen Class A redeemable common stock -- -- 51
- -------------------------------------------------------------------------------------------------------
Balance at December 31 $ 1,030 $ 359 $ 292
=======================================================================================================
RETAINED EARNINGS
Balance at January 1 $ 396 $ 271 $ 164
Net income for the year 185 125 107
- -------------------------------------------------------------------------------------------------------
Balance at December 31 $ 581 $ 396 $ 271
=======================================================================================================
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at December 31 $ (131) $ (33) $ (10)
=======================================================================================================
TREASURY STOCK
Balance at December 31 $ (1) $ (3) $ (6)
- -------------------------------------------------------------------------------------------------------
</TABLE>
STOCK SPLIT AND STOCK DIVIDEND -- On July 15, 1997 the Board of Directors
authorized a two-for-one split, effected in the form of a stock dividend,
payable to stockholders of record on August 28, 1997. Accordingly, all
outstanding share, per share and stock option data in all periods presented have
been restated to reflect the split.
STOCK CONVERSION -- On July 30, 1996, the Company exercised its right to
redeem the 6.5% debentures at a redemption price equal to approximately 104% of
the principal amount of the debentures, together with accrued interest through
the date of redemption. As a result, $49 million of the debentures, net of
conversion costs, were converted into 3.8 million shares of common stock of the
Company at a conversion price of $13.08 per share.
STOCK OPTIONS AND WARRANTS -- The Company has granted options to purchase
shares of common stock under its stock option plans. Under the terms of the
plans, the Company may issue options to purchase shares of the Company's common
stock at a price equal to 100% of the market price at the date the option is
granted.
<PAGE>
The options become eligible for exercise under various schedules. At December
31, 1997, there were approximately 4.5 million shares reserved for future grants
under the plans.
A summary of the option activity follows (in thousands of shares):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 8,020 $ 9.30 8,126 $ 7.28 7,080 $ 6.04
Exercised during the year (941) 7.78 (960) 5.35 (710) 1.76
Forfeitures during the year (58) 11.23 (432) 10.28 (114) 9.18
Granted during the year 949 35.62 1,286 19.39 1,870 10.02
Conversion of Chigen options 876 19.67 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Outstanding - end of year 8,846 $13.20 8,020 $ 9.30 8,126 $ 7.28
==================================================================================================================
Eligible for exercise - end of year 6,163 $ 9.37 4,264 $ 6.43 2,418 $ 4.52
==================================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997 (in thousands of shares) :
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
RANGE OF TOTAL REMAINING LIFE AVERAGE TOTAL AVERAGE
EXERCISE PRICES OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ .78 to $3.24 1,718 2.6 $ 2.75 1,718 $ 2.75
$ 5.83 to $9.88 2,159 6.0 8.84 1,503 8.61
$ 10.00 to $14.44 2,369 7.3 10.50 2,060 10.43
$ 14.66 to $22.85 1,611 8.3 20.25 795 20.39
$ 23.00 to $42.00 989 9.3 35.91 87 27.59
- ----------------------------------------------------------------------------------------------------
Total 8,846 $13.20 6,163 $ 9.37
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Company accounts for its stock-based compensation plans under APB No. 25,
and adopted SFAS No. 123 for disclosure purposes in 1996. No compensation
expense has been recognized in connection with the options, as all options have
been granted only to AES people, including Directors, with an exercise price
equal to the market price of the Company's common stock on the date of grant.
For SFAS No. 123 disclosure purposes, the weighted average fair value of each
option grant has been estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions: risk-free
interest rate of 5.9%, 6.5% and 5.5% and expected volatility of 37%, 28% and 24%
for the years ended December 31, 1997, 1996 and 1995, respectively, a dividend
payout rate of zero for each year and an expected option life of 7 years. Using
these assumptions, the weighted average fair value of each stock option granted
was $17.86, $8.81 and $4.09, for the years ended December 31, 1997, 1996 and
1995, respectively. In calculating the fair value, there were no adjustments
made to account for vesting provisions or for non-transferability or risk of
forfeiture.
Had compensation expense been determined under the provisions of SFAS No.
123, utilizing the assumptions detailed above, the Company's net income and
earnings per share for the years ended December 31, 1997, 1996 and 1995 would
have been reduced to the following pro forma amounts (in millions):
<PAGE>
- --------------------------------------------------------------------------------
For the Years Ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------
NET INCOME:
As reported $ 185 $ 125 $ 107
Pro forma 168 121 106
BASIC EARNINGS PER SHARE:
As reported $1.11 $0.83 $0.71
Pro forma 1.01 0.80 0.71
DILUTED EARNINGS PER SHARE:
As reported $1.09 $0.80 $0.70
Pro forma 1.00 0.78 0.69
================================================================================
The disclosures of such amounts and assumptions are not intended to forecast any
possible future appreciation of the Company's stock price or change in dividend
policy.
In addition to the options described above, the Company has outstanding
warrants to purchase up to 1.3 million shares of its common stock at $14.72 per
share through July 2000, which were issued as partial settlement of a
shareholder class action suit and were expensed in 1995. Warrants exercised
under this settlement were not significant during December 1997 or 1996.
AES CHINA GENERATING CO. LTD. -- In May 1997, the Company acquired all of
the outstanding Class A shares of Chigen by amalgamating Chigen with a
wholly-owned subsidiary of the Company. As a result of this transaction, the
Company issued approximately 5 million shares of its common stock. As part of
the amalgamation, the Company also converted the outstanding options of the
Chigen stock option plan to AES stock options at the ratio of .29 to 1.
9. EARNINGS PER SHARE
The following table presents a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations for income
before extraordinary item. In the table below Income represents the numerator
(in millions) and Shares represent the denominator (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
$ PER $ PER $ PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income before extraordinary item
available to common stockholders $188 166.6 $1.13 $125 151.5 $0.83 $107 149.9 $0.71
EFFECT OF DILUTIVE SECURITIES
Stock Options and Warrants -- 4.4 -- 2.7 -- 1.5
Stock units allocated to deferred
compensation plans -- 0.5 -- 0.5 -- 0.5
Tecons and other convertible debt,
net of tax 10 6.3 1 2.5 2 3.8
- ----------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Income before extraordinary item
available to common stockholders
assuming conversion $198 177.8 $1.11 $126 157.2 $0.80 $109 155.7 $0.70
================================================================================================================
</TABLE>
<PAGE>
10. INCOME TAXES
INCOME TAX PROVISION -- The provision for income taxes consists of the following
(in millions):
- --------------------------------------------------------------------------------
For the Years Ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------
Federal
Current $ 7 $ 19 $ 4
Deferred 22 27 47
State
Current 19 12 5
Deferred (6) (2) 1
Foreign
Current 10 3 --
Deferred 4 1 --
- --------------------------------------------------------------------------------
Total $ 56 $ 60 $ 57
================================================================================
EFFECTIVE AND STATUTORY RATE RECONCILIATION -- A reconciliation of the
U.S. statutory Federal income tax rate to the Company's effective tax rate as a
percentage of income before taxes (excluding earnings and taxes from affiliates
accounted for on the equity method, and minority interests) is as follows:
- --------------------------------------------------------------------------------
For the Years Ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------
Statutory Federal tax rate 35% 35% 35%
Change in valuation allowance (2) (2) (6)
State taxes, net of Federal tax benefit 5 6 6
Taxes on foreign earnings 3 2 --
Other - net (1) (1) 3
- --------------------------------------------------------------------------------
Effective tax rate 40% 40% 38%
================================================================================
DEFERRED INCOME TAXES -- Deferred income taxes relate principally to
accelerated depreciation methods used for tax purposes and certain other
expenses which are deducted for income tax purposes, but not for financial
reporting purposes. Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss and tax credit carryforwards. These items are stated at the
enacted tax rates that are expected to be in effect when taxes are actually paid
or recovered. Deferred tax assets and deferred tax liabilities are as follows
(in millions):
- --------------------------------------------------------------------------------
For the Years Ended December 31 1997 1996
- --------------------------------------------------------------------------------
Differences between book and tax basis of
property and total deferred tax liability $ 476 $ 379
- --------------------------------------------------------------------------------
Operating loss carryforwards (75) (124)
Bad debt and other book provisions (47) --
Retirement costs (31) --
Tax credit carryforwards (104) (97)
Other deductible temporary differences (24) (13)
- --------------------------------------------------------------------------------
Total gross deferred tax asset (281) (234)
Less: valuation allowance 31 33
- --------------------------------------------------------------------------------
Total net deferred tax asset (250) (201)
- --------------------------------------------------------------------------------
Net deferred tax liability $ 226 $ 178
================================================================================
<PAGE>
As of December 31, 1997, the Company had Federal net operating loss
carryforwards for tax purposes of approximately $159 million expiring from 2007
through 2009, Federal investment tax credit carryforwards for tax purposes of
approximately $51 million expiring in years 2001 through 2006, and Federal
alternative minimum tax credits of approximately $42 million which carry forward
without expiration.
The valuation allowance decreased during the current year by
approximately $2 million to $31 million at December 31, 1997. This decrease
resulted primarily from the utilization of foreign net operating loss
carryforwards, offset in part by a partial valuation allowance for the provision
to reduce contract receivables. The $31 million valuation allowance at December
31, 1997 relates primarily to U.S. state and foreign operating losses, and
foreign deferred tax assets, the ultimate realization of which is uncertain. The
Company believes that it is more likely than not that the remaining deferred tax
assets will be realized.
The valuation allowance increased during 1996 by approximately $24
million to $33 million at December 31, 1996. This increase resulted primarily
from the acquisition of foreign entities with certain pre-existing deferred tax
assets, the ultimate realization of which is uncertain. The valuation allowance
for these pre-existing deferred tax assets was recorded as acquisition
adjustments and had no effect on the current year income tax expense. The $33
million valuation allowance at December 31, 1996 relates primarily to U.S. state
and foreign tax credits, U.S. state operating losses, and foreign deferred tax
assets, the ultimate realization of which is uncertain.
Undistributed earnings of certain foreign affiliates aggregated $129
million on December 31, 1997. The Company considers these earnings to be
indefinitely reinvested outside of the U.S. and, accordingly, no U.S. deferred
taxes have been recorded with respect to the earnings. Should the earnings be
remitted as dividends, the Company may be subject to additional U.S. taxes, net
of allowable foreign tax credits. It is not practicable to estimate the amount
of any additional taxes which may be payable on the undistributed earnings. A
deferred tax asset of $14 million has been recorded as of December 31, 1997 for
the cumulative effects of certain foreign currency translations.
11. PROFIT SHARING AND DEFERRED COMPENSATION PLANS
PROFIT SHARING AND STOCK OWNERSHIP PLAN -- The Company sponsors two profit
sharing and stock ownership plans, qualified under section 401 of the Internal
Revenue Code, which are available to eligible AES people. The plans provide for
Company matching contributions, other Company contributions at the discretion of
the Compensation Committee of the Board of Directors, and discretionary tax
deferred contributions from the participants. Participants are fully vested in
their own contributions and the Company's matching contributions. Participants
vest in other Company contributions over a five-year period. Company
contributions to the plan were approximately $5 million for the year ended
December 31, 1997 and $4 million for both of the years ended December 31, 1996
and 1995.
DEFERRED COMPENSATION PLANS -- The Company sponsors a deferred
compensation plan under which directors of the Company may elect to have a
portion or all of their compensation deferred. The amounts allocated to each
participant's deferred compensation account may be converted into common stock
units. Upon termination or death of a participant, the Company is required to
distribute, under various methods, cash or the number of shares of common stock
accumulated within the participant's deferred compensation account. Distribution
of stock is to be made from common stock held in treasury or from authorized but
previously unissued shares. The plan terminates and full distribution is
required to be made to all participants upon any change of control of the
Company (as defined).
In addition, the Company sponsors an executive officers' deferred
compensation plan. At the election of an executive officer, the Company will
establish an unfunded, non-qualified compensation arrangement for each officer
who chooses to terminate participation in the Company's profit sharing and
employee stock ownership plan. The participant may elect to forego payment of
any portion of his or her compensation and have an equal amount allocated to a
contribution account. In addition, the Company will credit the participant's
account with an amount equal to the Company's contributions (both matching and
profit sharing) that would have been made on such officer's behalf if he or she
had been a participant in the profit sharing plan. The participant may elect to
have all or a portion of the Company's contribution converted into stock units.
Dividends paid on common stock are allocated to the participant's account in the
form of stock units. The participant's account balances are distributable upon
termination of employment or death.
During 1995, the Company adopted a supplemental retirement plan covering
certain highly-compensated AES people. The plan provides incremental profit
sharing and matching contributions to participants that would have been paid to
their accounts in the Company's profit sharing plan if it were not for
limitations imposed by income tax regulations. All contributions to the plan are
vested in the manner provided in the Company's profit sharing plan, and once
vested are nonforfeitable. The participant's account balances are distributable
upon termination of employment or death.
<PAGE>
DEFINED BENEFIT PLAN -- The Company's subsidiary, Sul, has a contributory
defined benefit pension plan covering substantially all of its employees.
Pension benefits are based on years of credited service, age of the participant
and average earnings. Plan assets are comprised of Brazilian government
securities and bonds, stocks of publicly-traded Brazilian companies and real
estate holdings. Net pension expense for the two months ended December 31, 1997
(subsequent to the date of acquisition) includes the following components (in
millions):
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
Benefit cost for service $ .3
Interest cost on projected benefit obligation .1
Actual return on plan assets .3
Net amortization and deferral .1
- --------------------------------------------------------------------------------
Net pension expense $ .8
================================================================================
The amounts included in the consolidated balance sheet were based on the funded
status of the plan at December 31, 1997 and are as follows (in millions):
- --------------------------------------------------------------------------------
December 31 1997
- --------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS
Vested benefit obligation $ (31)
Nonvested benefit obligation (26)
- --------------------------------------------------------------------------------
Accumulated benefit obligation (57)
Additional amounts related to assumed pay increases (15)
- --------------------------------------------------------------------------------
Projected benefit obligation (72)
Plan assets at fair value 31
- --------------------------------------------------------------------------------
Benefit obligations in excess of plan assets (41)
Unamortized net obligations at date of adoption (3)
- --------------------------------------------------------------------------------
Pension liability recognized in the consolidated balance sheet $ (44)
================================================================================
Significant assumptions used in the calculation of pension expense and
obligation are as follows:
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
Discount rate 6%
Rate of compensation increase 2%
Long-term rate of return on plan 6%
- --------------------------------------------------------------------------------
The Company is not obligated under any post-retirement benefit plans other than
the profit sharing, deferred compensation plans, and defined benefit plan
described in this Note.
<PAGE>
12. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
The following table summarizes the unaudited quarterly statements of operations
(in millions, except per share amounts):
- -------------------------------------------------------------------------------------------------------
Quarters ended 1997 MAR 31 JUN 30 SEP 30 DEC 31
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales and services $ 261 $261 $358 $531
Gross margin 94 98 112 126
Net income before extraordinary item 40 42 50 56
Extraordinary item -- -- (3) --
Net income 40 42 47 56
Basic earnings per share:
Before extraordinary item $0.26 $0.26 $0.29 $0.32
Extraordinary item -- -- (0.02) --
Basic earnings per share $0.26 $0.26 $0.27 $0.32
Diluted earnings per share:
Before extraordinary item $0.25 $0.25 $0.28 $0.32
Extraordinary item -- -- (0.02) --
Diluted earnings per share $0.25 $0.25 $0.26 $0.32
- -------------------------------------------------------------------------------------------------------
Quarters ended 1996 MAR 31 JUN 30 SEP 30 DEC 31
- -------------------------------------------------------------------------------------------------------
Sales and services $ 172 $174 $205 $284
Gross margin 74 76 85 98
Net income 29 28 32 36
Basic earnings per share $0.19 $0.19 $0.21 $0.23
Diluted earnings per share 0.19 0.18 0.21 0.23
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
13. GEOGRAPHIC SEGMENTS
Information about the Company's operations in different geographic areas is as
follows (in millions):
- --------------------------------------------------------------------------------
For the Years Ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------
REVENUES
North America $ 577 $ 554 $ 542
South America/Central America 423 146 131
Asia 148 45 1
Europe 263 90 5
- --------------------------------------------------------------------------------
Total $ 1,411 $ 835 $ 679
================================================================================
For the Years Ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------
OPERATING INCOME
North America $ 261 $ 258 $ 251
South America/Central America 64 21 14
Asia 15 (9) (8)
Europe 28 8 (4)
- --------------------------------------------------------------------------------
Total $ 368 $ 278 $ 253
================================================================================
For the Years Ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------
EQUITY IN EARNINGS (NET OF INCOME TAXES)
North America $ -- $ -- $ --
South America/Central America 88 21 --
Asia 2 1 --
Europe 15 13 14
- --------------------------------------------------------------------------------
Total $ 105 $ 35 $ 14
================================================================================
December 31 1997 1996 1995
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
North America $ 1,914 $ 1,831 $1,693
South America/Central America 4,712 683 230
Asia 1,571 744 328
Europe 712 364 90
- --------------------------------------------------------------------------------
Total $ 8,909 $ 3,622 $2,341
================================================================================
<PAGE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's assets and liabilities have been
determined using available market information. The estimates are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The fair value of current financial assets, current liabilities, debt
service reserves and other deposits, and other assets are estimated to be equal
to their reported carrying amounts. The fair value of project financing debt is
estimated differently based upon the type of loan. For variable rate loans,
carrying value approximates fair value. For fixed rate loans, the fair value is
estimated using discounted cash flow analyses based on the Company's current
incremental borrowing rates, or by the estimated discount rate a prospective
seller would pay to a credit-worthy third party to assume the obligations. The
carrying value and fair value of the Placerita and Indian Queens capital leases
have been excluded from this disclosure. The fair value of swap agreements is
the estimated net amount that the Company would pay to terminate the agreements
at the balance sheet date. The estimated fair values of the senior subordinated
notes and Tecons are based on quoted market prices.
The estimated fair values of the Company's financial instruments at December 31,
1997 and 1996 are as follows (in millions):
- --------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------
Project financing debt $3,942 $3,953 $1,562 $1,562
Other notes payable 1,096 1,116 538 560
Tecons 550 661 -- --
Interest rate swaps -- 81 -- 68
- --------------------------------------------------------------------------------
The fair value estimates presented herein are based on pertinent information
available as of December 31, 1997 and 1996. The Company is not aware of any
factors that would significantly affect the estimated fair value amounts since
that date.
15. NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Company will be required to adopt the provisions of SFAS No. 130,
Reporting Comprehensive Income and No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Company will report comprehensive income
in a separate statement which will show the effects of the foreign currency
translation loss as a component of comprehensive income. The Company believes
its segment disclosures under SFAS 131 will be materially consistent with those
currently presented.
16. SUBSEQUENT EVENTS
In January 1998 the Company, pursuant to an option agreement with one of its
partners in Cemig, sold approximately 28% of its 13.06% ownership interest in
Cemig for $115 million, approximating its carrying value. As a result of the
sale, the Company's ownership percentage decreased to approximately 10%. The
Company continues to exert significant influence, as its voting interests remain
unchanged.
On February 10, 1998, the Company sold its investment in Hazelwood for
approximately $139 million, which approximated its carrying value as an asset
held for sale at December 31, 1997. The Company used the proceeds of these sales
to repay a portion of the project financing debt classified as a current
liability at December 31, 1997.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See the information with respect to the ages of the Registrant's
directors in the table on page 4 and the information contained under the caption
"Election of Directors" on pages 1 through 3 inclusive, of the Proxy Statement
for the Annual Meeting of Stockholders of the Registrant to be held on April 21,
1998, which information is incorporated herein by reference. See also the
information with respect to executive officers of the Registrant under the
caption entitled "Executive Officers and Significant Employees of the
Registrant" in Item 1 of Part I hereof, which information is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION.
See the information contained under the captions "Compensation of
Executive Officers" on pages 10 through 12 inclusive and "Compensation of
Directors" on page 5, of the Proxy Statement for the Annual Meeting of
Stockholders of the Registrant to be held on April 21, 1998, which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS.
(a) Security Ownership of Certain Beneficial Owners.
See the information contained under the caption "Security Ownership of
Certain Beneficial Owners, Directors, and Executive Officers" on page 4 of the
Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be
held on April 21, 1998, which information is incorporated herein by reference.
(b) Security Ownership of Directors and Executive Officers.
See the information contained under the caption "Security Ownership of
Certain Beneficial Owners, Directors, and Executive Officers" on page 4 of the
Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be
held on April 21, 1998, which information is incorporated herein by reference.
(c) Changes in Control.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information for Mr. Thomas I. Unterberg, a director of the
Registrant, contained under the caption "Election of Directors" on page 2 of the
Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be
held on April 21, 1998, which information is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements (all financial statements listed below are of
the Company and its consolidated subsidiaries).
- Independent Auditors' Report is contained in the section
entitled "Financial Statements and Supplementary Data" at Item
8 hereof.
- Consolidated Balance Sheets at December 31, 1996 and 1997 are
contained in the section entitled "Financial Statements and
Supplementary Data" at Item 8 hereof.
- Consolidated Statements of Operations -- For the Years Ended
December 31, 1995, 1996 and 1997 are contained in the section
entitled "Financial Statements and Supplementary Data" at Item
8 hereof.
- Consolidated Statements of Cash Flows -- For the Years Ended
December 31, 1995, 1996 and 1997 are contained in the section
entitled "Financial Statements and Supplementary Data" at Item
8 hereof.
- Notes to Consolidated Financial Statements -- For the Years
Ended December 31, 1995, 1996 and 1997 are contained in the
section entitled "Financial Statements and Supplementary Data"
at Item 8 hereof.
(2) Financial Statement Schedules
- See Index to Financial Statement Schedules of the Registrant
and subsidiaries at page S-1 hereof, which Index is
incorporated herein by reference.
(3) Exhibits
3.1 Amended and Restated Certificate of Incorporation of The AES
Corporation is incorporated by herein reference to Exhibits
3.1 and 3.2 to the Registration Statement on Form S-8
(Registration No. 333-26225).
3.2 By-Laws of The AES Corporation, as amended, are incorporated
herein by reference to Exhibit 3.2 of the Registration
Statement on Form S-4 (Registration No. 333-22513).
4.1 Amended and Restated Declaration of Trust of AES Trust I,
among The AES Corporation, The First National Bank of Chicago
and First Chicago Delaware, Inc., to provide for the issuance
of the $2.6875 Term Convertible Securities, Series A.
4.2 Junior Subordinated Indenture, between The AES Corporation and
The First National Bank of Chicago, to provide for the
issuance of the $2.6875 Term Convertible Securities, Series A.
4.3 First Supplemental Indenture to Junior Subordinated Indenture,
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance of the
$2.6875 Term Convertible Securities, Series A.
4.4 Guarantee Agreement, between The AES Corporation and The First
National Bank of Chicago, as initial guarantee trustee, to
provide for the issuance of the $2.6875 Term Convertible
Securities, Series A.
<PAGE>
4.5 Second Supplemental Indenture dated as of October 13, 1997
between the Company and the First National Bank of Chicago, as
trustee, to provide for the issuance from time to time of the
10.25% Senior Subordinated Notes Due 2006, is incorporated
herein by reference to Exhibit 4.2.1 of the Registration
Statement on Form S-3/A (Registration No. 333-39857) filed
November 19, 1997.
4.6 Indenture dated as of October 29, 1997 between The AES
Corporation and The First National Bank of Chicago, as
trustee, to provide for the issuance from time to time of the
8.50% Senior Subordinated Notes due 2007 of the Company and
the 8.875% Senior Subordinated Debentures due 2027, is
incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (Registration No.
333-44845) filed January 23, 1998.
4.7 First Supplemental Indenture dated as of November 21, 1997
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance from time to
time of the 8.50% Senior Subordinated Notes due 2007 of the
Company and the 8.875% Senior Subordinated Debentures due
2027, is incorporated herein by reference to Exhibit 4.1.2 to
the Registration Statement on Form S-4 (Registration No.
333-44845) filed January 23, 1998.
4.8 Junior Subordinated Debt Trust Securities Indenture dated as
of March 1, 1997 between the Company and The First National
Bank of Chicago, to provide for the issuance of the $2.75 Term
Convertible Securities, Series B, is incorporated herein by
reference to Exhibit 4.1 to the Registration Statement on Form
S-3 (Registration No. 333-46189) filed February 12, 1998.
4.9 Second Supplemental Indenture dated as of October 29, 1997
between the Company and The First National Bank of Chicago, to
provide for the issuance of the $2.75 Term Convertible
Securities, Series B, is incorporated herein by reference to
Exhibit 4.1.1 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.10 Amended and Restated Declaration of Trust of AES Trust II, to
provide for the issuance of the $2.75 Term Convertible
Securities, Series B, is incorporated herein by reference to
Exhibit 4.3 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.11 Restated Certificate of Trust of AES Trust II, to provide for
the issuance of the $2.75 Term Convertible Securities, Series
B, is incorporated herein by reference to Exhibit 4.4 to the
Registration Statement on Form S-3 (Registration No.
333-46189) filed February 12, 1998.
4.12 Form of Preferred Security, to provide for the issuance of the
$2.75 Term Convertible Securities, Series B, is incorporated
herein by reference to Exhibit 4.5 to the Registration
Statement on Form S-3 (Registration No. 333-46189) filed
February 12, 1998.
4.13 Form of Junior Subordinated Debt Trust Security, to provide
for the issuance of the $2.75 Term Convertible Securities,
Series B, is incorporated herein by reference to Exhibit 4.6
to the Registration Statement on Form S-3 (Registration No.
333-46189) filed February 12, 1998.
4.14 Preferred Securities Guarantee with respect to Preferred
Securities, to provide for the issuance of the $2.75 Term
Convertible Securities, Series B, is incorporated herein by
reference to Exhibit 4.7 to the Registration Statement on Form
S-3 (Registration No. 333-46189) filed February 12, 1998.
4.15 Other instruments defining the rights of holders of long-term
indebtedness of the Registrant and its consolidated
subsidiaries.
10.1 Amended Power Sales Agreement, dated as of December 10, 1985,
between Oklahoma Gas and Electric Company and AES Shady Point,
Inc. is incorporated herein by reference to Exhibit 10.5 to
the Registration Statement on Form S-1 (Registration No.
33-40483).
10.2 First Amendment to the Amended Power Sales Agreement, dated as
of December 19, 1985, between Oklahoma Gas and Electric
Company and AES Shady Point, Inc. is incorporated herein by
reference to Exhibit 10.45 to the Registration Statement on
Form S-1 (Registration No. 33-46011).
10.3 Electricity Purchase Agreement, dated as of December 6, 1985,
between The Connecticut Light and Power Company and AES
Thames, Inc. is incorporated herein by reference to Exhibit
10.4 to the Registration Statement on Form S-1 (Registration
No. 33-40483).
10.4 Power Purchase Agreement, dated March 25, 1988, between AES
Barbers Point, Inc. and Hawaiian Electric Company, Inc., as
amended, is incorporated herein by reference to Exhibit 10.6
to the Registration Statement on Form S-1 (Registration No.
33-40483).
<PAGE>
10.5 The AES Corporation Profit Sharing and Stock Ownership Plan is
incorporated herein by reference to Exhibit 4(c)(1) to the
Registration Statement on Form S-8 (Registration No.
33-49262).
10.6 The AES Corporation Incentive Stock Option Plan of 1991, as
amended, is incorporated herein by reference to Exhibit 10.30
to the Annual Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1995.
10.7 Applied Energy Services, Inc. Incentive Stock Option Plan of
1982 is incorporated herein by reference to Exhibit 10.31 to
the Registration Statement on Form S-1 (Registration No.
33-40483).
10.8 Deferred Compensation Plan for Executive Officers, as amended,
is incorporated herein by reference to Exhibit 10.32 to
Amendment No. 1 to the Registration Statement on Form S-1
(Registration No. 33-40483).
10.9 Deferred Compensation Plan for Directors, as amended, is
incorporated herein by reference to Exhibit 10.33 to Amendment
No. 1 to the Registration Statement on Form S-1 (Registration
No. 33-40483).
10.10 The AES Corporation Stock Option Plan for Outside Directors is
incorporated herein by reference to Exhibit 10.43 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.
10.11 The AES Corporation Supplemental Retirement Plan is
incorporated herein by reference to Exhibit 10.64 to the
Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1994.
11 Statement of computation of earnings per share.
12 Statement of computation of ratio of earnings to fixed
charges.
21 Significant subsidiaries of The AES Corporation.
23 Consent of independent auditors, Deloitte & Touche LLP.
24 Powers of attorney.
27 Financial Data Schedule (Article 5).
(b) Reports on Form 8-K.
- Registrant filed a Current Report on Form 8-K dated November 10, 1997
in respect of the acquisition by a subsidiary of the Registrant of 90%
of the common shares of CCODEE (AES Sul as used in this Annual Report
on Form 10-K) and disclosing the sale of equity securities pursuant to
Regulation S to finance the acquisition.
- Registrant filed a Current Report on Form 8-K dated November 6, 1997
including the Registrant's 1996 consolidated financial statements
updated for certain subsequent events.
- Registrant filed a Current Report on Form 8-K dated October 21, 1997 in
respect of (i) a press release issued on October 21, 1997, announcing
the Company's third quarter earnings, (ii) a press release issued on
October 21, 1997, announcing that the Company commenced private
offerings of senior subordinated notes and convertible securities, and
(iii) a press release issued on October 24, 1997, announcing pricing of
privately placed offerings.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 1998 THE AES CORPORATION
(Company)
By: /s/ Dennis W. Bakke
----------------------
Name: Dennis W. Bakke
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* /s/ Roger W. Sant Chairman of the Board March 30, 1998
- -----------------------------
(Roger W. Sant)
/s/ Dennis W. Bakke President, Chief Executive Officer (principal March 30, 1998
- ----------------------------- executive officer) and Director
(Dennis W. Bakke)
* /s/ Hazel R. O'Leary Director March 30, 1998
- -----------------------------
(Hazel R. O'Leary)
* /s/ Vicki-Ann Assevero Director March 30, 1998
- -----------------------------
(Vicki-Ann Assevero)
* /s/ Dr. Alice F. Emerson Director March 30, 1998
- ------------------------------
(Dr. Alice F. Emerson)
* /s/ Robert F. Hemphill, Jr. Director March 30, 1998
- ------------------------------
(Robert F. Hemphill, Jr.)
* /s/ Frank Jungers Director March 30, 1998
- -------------------------------
(Frank Jungers)
* /s/ Dr. Henry R. Linden Director March 30, 1998
- -------------------------------
Dr. Henry R. Linden)
* /s/ John H. McArthur Director March 30, 1998
- -------------------------------
(John H. McArthur)
* /s/ Thomas I. Unterberg Director March 30, 1998
- -------------------------------
(Thomas I. Unterberg)
* /s/ Robert H. Waterman, Jr. Director March 30, 1998
- -------------------------------
(Robert H. Waterman, Jr.)
/s/ Barry J. Sharp Senior Vice President and Chief Financial Officer March 30, 1998
- --------------------------------- (principal financial and accounting officer)
(Barry J. Sharp)
By: * /s/ William R. Luraschi March 30, 1998
---------------------------
Attorney-in-Fact
</TABLE>
<PAGE>
THE AES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial Information of Registrant S-2
Schedule II - Valuation and Qualifying Accounts S-6
Schedules other than those listed above are omitted as the information
is either not applicable, not required, or has been furnished in the financial
statements or notes thereto included in Item 8 hereof.
S-1
<PAGE>
THE AES CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF UNCONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5 $ 5
Accounts receivable 2 --
Accounts and notes receivable from subsidiaries 53 130
Prepaid expenses and other current assets 2 25
---------- -----------
Total current assets 62 160
Investment in subsidiaries (on the equity method) 893 2,340
Office Equipment
Cost 5 5
Accumulated depreciation (4) (4)
---------- -----------
Office equipment, net 1 1
Other Assets
Deferred financing costs (less accumulated amortization: 1996, $6, 1997, $11) 16 57
Project development costs 53 55
Deferred income taxes 20 --
Notes receivable from subsidiaries 192 565
Escrow deposits and other assets 56 55
---------- -----------
Total other assets 337 732
---------- -----------
TOTAL $ 1,293 $ 3,233
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable $ 2 $ 6
Accrued and other liabilities 29 53
Notes payable 88 --
---------- -----------
Total current liabilities 119 59
Long-term Liabilities
Notes payable 450 1,096
Deferred income taxes -- 44
Other long-term liabilities 3 3
---------- -----------
Total long-term liabilities 453 1,142
Company obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely junior subordinated debentures of AES -- 550
Stockholders' Equity:
Preferred stock -- --
Common stock 2 2
Additional paid-in capital 359 1,030
Retained earnings 396 581
Cumulative foreign currency translation adjustment (3) (1)
Treasury stock (33) (131)
---------- -----------
Total stockholders' equity 721 1,481
---------- -----------
TOTAL $ 1,293 $ 3,233
========== ===========
</TABLE>
See notes to Schedule I
S-2
<PAGE>
THE AES CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF UNCONSOLIDATED OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues
Service revenues $ 58 $ 59 $ 22
Equity in earnings of subsidiaries 108 142 256
--------- -------- --------
Total revenues 166 201 278
Operating costs and expenses:
Cost of services 47 46 5
Selling, general and administrative expenses 19 30 36
--------- -------- --------
Total operating costs and expenses 66 76 41
Operating income 100 125 237
Interest income/(expense) 7 (15) (26)
--------- -------- --------
Income before income taxes and extraordinary item 107 110 211
Income tax expense (benefit) -- (15) 23
--------- -------- --------
Net income before extraordinary item 107 125 188
Extraordinary item - net loss on extinguishment of
debt (less applicable income taxes of $2) -- -- 3
--------- -------- --------
Net income $ 107 $ 125 $ 185
========= ======== ========
</TABLE>
See notes to Schedule I
S-3
<PAGE>
THE AES CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF UNCONSOLIDATED CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------ ------------
1995 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
Net cash provided by/(used in) operating activities $ 3 $ 23 $ (30)
INVESTING ACTIVITIES
Issuance of notes receivable 2 (19) (372)
Acquisitions, net of cash acquired (130) (148) (1,274)
Dividends from subsidiaries 88 130 152
Project development costs, net (34) (16) (3)
Investment in subsidiaries (32) (322) (38)
Escrow deposits and other (4) (47) 1
-------- --------- ----------
Net cash provided by (used in) investing activities (110) (422) (1,534)
FINANCING ACTIVITIES
Borrowings (repayments) under the revolver 50 163 (186)
Issuance of notes payable and coupon bearing securities -- 243 1,535
Principal payments on notes payable -- -- (275)
Proceeds from issuance of common stock 1 2 503
Purchased treasury stock (6) -- --
Payments for deferred financing costs (2) (6) (13)
-------- --------- ----------
Net cash provided by financing activities 43 402 1,564
Increase/(decrease) in cash and cash equivalents (64) 3 0
Cash and cash equivalents, beginning 66 2 5
-------- --------- ----------
Cash and cash equivalents, ending $ 2 $ 5 $ 5
======== ========= ==========
</TABLE>
See notes to Schedule I
S-4
<PAGE>
THE AES CORPORATION
SCHEDULE I
NOTES TO SCHEDULE I
1. APPLICATION OF SIGNIFICANT ACCOUNTING PRINCIPLES
Accounting for Subsidiaries -- The AES Corporation has accounted for
the earnings of its subsidiaries on the equity method in the unconsolidated
condensed financial information.
Income Taxes -- The unconsolidated income tax expense or benefit
computed for the Company in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, reflects the tax assets and
liabilities of the Company on a stand alone basis and the effect of filing a
consolidated U.S. income tax return with certain other affiliated companies.
Accounts and Notes Receivable from Subsidiaries -- Such amounts have
been shown in current or long-term assets based on terms in agreements with
subsidiaries, but payment is dependent upon meeting conditions precedent in the
subsidiary loan agreements.
2. NOTES PAYABLE
Notes payable at December 31, 1996 and 1997 consisted of the following
(in millions):
<TABLE>
<CAPTION>
First
Interest Final Call
Rate(1) Maturity Date 1996 1997
--------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Corporate revolving bank loan(2) 7.50% 2000 -- $ 213 $ 27
Senior subordinated notes 9.75% 2000 1997 75 --
Senior subordinated notes 10.25% 2006 2001 250 250
Senior subordinated notes 8.38% 2007 2002 -- 325
Senior subordinated notes 8.50% 2007 2002 -- 375
Senior subordinated notes 8.88% 2027 2004 -- 125
Unamortized discounts -- (6)
--------- ----------
Subtotal 538 1,096
Less current maturities (88) --
========= ==========
TOTAL $450 $ 1,096
========= ==========
</TABLE>
(1) Weighted average interest rate at December 31, 1997.
(2) Floating rate loan.
S-5
<PAGE>
THE AES CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Period
--------- -------- ------
Description
Allowance for contract receivables
Year ended December 31, 1996 -- 20 20
Year ended December 31, 1997 $ 20 $ 17 $ 37
Amortization of deferred costs
Year ended December 31, 1995 26 5 31
Year ended December 31, 1996 31 5 36
Year ended December 31, 1997 $ 36 $ 16 $ 52
S-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Description of Exhibit Numbered Page
- ------- ---------------------- -------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of The AES
Corporation is incorporated by herein reference to Exhibits 3.1 and 3.2
to the Registration Statement on Form S-8 (Registration No. 333) filed
April 30, 1997.
3.2 By-Laws of The AES Corporation, as amended, are incorporated herein by
reference to Exhibit 3.2 of the Registration Statement on Form S-4
(Registration No. 333-22513).
4.1 Amended and Restated Declaration of Trust of AES Trust I, among The AES
Corporation, The First National Bank of Chicago and First Chicago
Delaware, Inc., to provide for the issuance of the $2.6875 Term
Convertible Securities, Series A.
4.2 Junior Subordinated Indenture, between The AES Corporation and The
First National Bank of Chicago, to provide for the issuance of the
$2.6875 Term Convertible Securities, Series A.
4.3 First Supplemental Indenture to Junior Subordinated Indenture, between
The AES Corporation and The First National Bank of Chicago, as trustee,
to provide for the issuance of the $2.6875 Term Convertible Securities,
Series A.
4.4 Guarantee Agreement, between The AES Corporation and The First National
Bank of Chicago, as initial guarantee trustee, to provide for the
issuance of the $2.6875 Term Convertible Securities, Series A.
4.5 Second Supplemental Indenture dated as of October 13, 1997 between the
Company and the First National Bank of Chicago, as trustee, to provide
for the issuance from time to time of the 10.25% Senior Subordinated
Notes Due 2006, is incorporated herein by reference to Exhibit 4.2.1 of
the Registration Statement on Form S-3/A (Registration No. 333-39857)
filed November 19, 1997.
4.6 Indenture dated as of October 29, 1997 between The AES Corporation and
The First National Bank of Chicago, as trustee, to provide for the
issuance from time to time of the 8.50% Senior Subordinated Notes due
2007 of the Company and the 8.875% Senior Subordinated Debentures due
2027, is incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (Registration No. 333-44845) filed
January 23, 1998.
4.7 First Supplemental Indenture dated as of November 21, 1997 between The
AES Corporation and The First National Bank of Chicago, as trustee, to
provide for the issuance from time to time of the 8.50% Senior
Subordinated Notes due 2007 of the Company and the 8.875% Senior
Subordinated Debentures due 2027, is incorporated herein by reference
to Exhibit 4.1.2 to the Registration Statement on Form S-4
(Registration No. 333-44845) filed January 23, 1998.
4.8 Junior Subordinated Debt Trust Securities Indenture dated as of March
1, 1997 between the Company and The First National Bank of Chicago, to
provide for the issuance of the $2.75 Term Convertible Securities,
Series B, is incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-3 (Registration No. 333-46189) filed
February 12, 1998.
4.9 Second Supplemental Indenture dated as of October 29, 1997 between the
Company and The First National Bank of Chicago, to provide for the
issuance of the $2.75 Term Convertible Securities, Series B, is
incorporated herein by reference to Exhibit 4.1.1 to the Registration
Statement on Form S-3 (Registration No. 333-46189) filed February 12,
1998.
</TABLE>
<PAGE>
4.10 Amended and Restated Declaration of Trust of AES Trust II, to provide
for the issuance of the $2.75 Term Convertible Securities, Series B, is
incorporated herein by reference to Exhibit 4.3 to the Registration
Statement on Form S-3 (Registration No. 333-46189) filed February 12,
1998.
4.11 Restated Certificate of Trust of AES Trust II, to provide for the
issuance of the $2.75 Term Convertible Securities, Series B, is
incorporated herein by reference to Exhibit 4.4 to the Registration
Statement on Form S-3 (Registration No. 333-46189) filed February 12,
1998.
4.12 Form of Preferred Security, to provide for the issuance of the $2.75
Term Convertible Securities, Series B, is incorporated herein by
reference to Exhibit 4.5 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.13 Form of Junior Subordinated Debt Trust Security, to provide for the
issuance of the $2.75 Term Convertible Securities, Series B, is
incorporated herein by reference to Exhibit 4.6 to the Registration
Statement on Form S-3 (Registration No. 333-46189) filed February 12,
1998.
4.14 Preferred Securities Guarantee with respect to Preferred Securities, to
provide for the issuance of the $2.75 Term Convertible Securities,
Series B, is incorporated herein by reference to Exhibit 4.7 to the
Registration Statement on Form S-3 (Registration No. 333-46189) filed
February 12, 1998.
4.15 Other instruments defining the rights of holders of unregistered
long-term indebtedness of the Registrant and its consolidated
subsidiaries.
10.1 Amended Power Sales Agreement, dated as of December 10, 1985, between
Oklahoma Gas and Electric Company and AES Shady Point, Inc. is
incorporated herein by reference to Exhibit 10.5 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.2 First Amendment to the Amended Power Sales Agreement, dated as of
December 19, 1985, between Oklahoma Gas and Electric Company and AES
Shady Point, Inc. is incorporated herein by reference to Exhibit 10.45
to the Registration Statement on Form S-1 (Registration No. 33-46011).
10.3 Electricity Purchase Agreement, dated as of December 6, 1985, between
The Connecticut Light and Power Company and AES Thames, Inc. is
incorporated herein by reference to Exhibit 10.4 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.4 Power Purchase Agreement, dated March 25, 1988, between AES Barbers
Point, Inc. and Hawaiian Electric Company, Inc., as amended, is
incorporated herein by reference to Exhibit 10.6 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.5 The AES Corporation Profit Sharing and Stock Ownership Plan is
incorporated herein by reference to Exhibit 4(c)(1) to the Registration
Statement on Form S-8 (Registration No. 33-49262).
10.6 The AES Corporation Incentive Stock Option Plan of 1991, as amended, is
incorporated herein by reference to Exhibit 10.30 to the Annual Report
on Form 10-K of the Registrant for the fiscal year ended December 31,
1995.
10.7 Applied Energy Services, Inc. Incentive Stock Option Plan of 1982 is
incorporated herein by reference to Exhibit 10.31 to the Registration
Statement on Form S-1 (Registration No. 33-40483).
10.8 Deferred Compensation Plan for Executive Officers, as amended, is
incorporated herein by reference to Exhibit 10.32 to Amendment No. 1 to
the Registration Statement on Form S-1 (Registration No. 33-40483).
10.9 Deferred Compensation Plan for Directors, as amended, is incorporated
herein by reference to Exhibit 10.33 to Amendment No. 1 to the
Registration Statement on Form S-1 (Registration No. 33-40483).
10.10 The AES Corporation Stock Option Plan for Outside Directors is
incorporated herein by reference to Exhibit 10.43 to the Annual Report
on Form 10-K of Registrant for the Fiscal Year ended December 31, 1991.
<PAGE>
10.11 The AES Corporation Supplemental Retirement Plan is incorporated herein
by reference to Exhibit 10.64 to the Annual Report on Form 10-K of the
Registrant for the year ended December 31, 1994.
11 Statement of computation of earnings per share.
12 Statement of computation of ratio of earnings to fixed charges.
21 Significant subsidiaries of The AES Corporation.
23 Consent of Independent Auditors, Deloitte & Touche LLP.
24 Powers of Attorney.
27 Financial Data Schedule (Article 5).
CONFORMED COPY
================================================================================
AMENDED AND RESTATED DECLARATION OF TRUST
OF
AES TRUST I
---------------------------------------
DATED AS OF MARCH 31, 1997
---------------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS 1
----------------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions......................................................2
ARTICLE 2
TRUST INDENTURE ACT
SECTION 2.01. Trust Indenture Act; Application.................................8
SECTION 2.02. Lists of Holders of Preferred Securities.........................9
SECTION 2.03. Reports by the Property Trustee..................................9
SECTION 2.04. Periodic Reports to Property Trustee.............................9
SECTION 2.05. Evidence of Compliance with Conditions Precedent.................9
SECTION 2.06. Events of Default; Waiver........................................9
SECTION 2.07. Disclosure of Information.......................................11
ARTICLE 3
ORGANIZATION
SECTION 3.01. Name............................................................12
SECTION 3.02. Office..........................................................12
SECTION 3.03. Issuance of the Trust Securities................................12
SECTION 3.04. Purchase of Debentures..........................................13
SECTION 3.05. Purpose.........................................................13
SECTION 3.06. Authority.......................................................14
SECTION 3.07. Title to Property of the Trust..................................14
SECTION 3.08. Powers and Duties of the Regular Trustees.......................14
SECTION 3.09. Prohibition of Actions by Trust and Trustees....................17
SECTION 3.10. Powers and Duties of the Property Trustee.......................18
SECTION 3.11. Delaware Trustee................................................21
SECTION 3.12. Certain Rights and Duties of the Property Trustee...............21
SECTION 3.13. Registration Statement and Related Matters......................24
SECTION 3.14. Filing of Amendments to Certificate of Trust....................25
SECTION 3.15. Execution of Documents by Regular Trustees......................25
- ----------
1This Table of Contents does not constitute part of the Amended and Restated
Declaration of Trust and should not have any bearing upon the interpretation of
any of its terms or provisions.
i
<PAGE>
PAGE
SECTION 3.16. Trustees Not Responsible for Recitals or Issuance of
Securities...............................................................25
SECTION 3.17. Duration of Trust...............................................26
ARTICLE 4
SPONSOR
SECTION 4.01. Purchase of Common Securities by Sponsor........................26
SECTION 4.02. Expenses........................................................26
ARTICLE 5
TRUSTEES
SECTION 5.01. Number of Trustees; Qualifications..............................27
SECTION 5.02. Appointment, Removal and Resignation of Trustees................29
SECTION 5.03. Vacancies among Trustees........................................31
SECTION 5.04. Effect of Vacancies.............................................31
SECTION 5.05. Meetings........................................................31
SECTION 5.06. Delegation of Power.............................................32
ARTICLE 6
DISTRIBUTIONS
SECTION 6.01. Distributions...................................................32
ARTICLE 7
ISSUANCE OF SECURITIES
SECTION 7.01. General Provisions Regarding Securities.........................32
SECTION 7.02. Conversion Agent................................................34
ARTICLE 8
TERMINATION OF TRUST
SECTION 8.01. Termination of Trust............................................35
ARTICLE 9
TRANSFER OF INTERESTS
SECTION 9.01. Transfer of Securities..........................................35
SECTION 9.02. Transfer of Certificates........................................36
ii
<PAGE>
SECTION 9.03. Deemed Security Holders.........................................36
SECTION 9.04. Book Entry Interests............................................37
SECTION 9.05. Notices to Holders of Certificates..............................38
SECTION 9.06. Appointment of Successor Clearing Agency........................38
SECTION 9.07. Definitive Preferred Securities Certificates....................38
SECTION 9.08. Mutilated, Destroyed, Lost or Stolen Certificates...............38
ARTICLE 10
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 10.01. Exculpation....................................................39
SECTION 10.02. Indemnification................................................39
SECTION 10.03. Outside Business...............................................40
ARTICLE 11
ACCOUNTING
SECTION 11.01. Fiscal Year....................................................41
SECTION 11.02. Certain Accounting Matters.....................................41
SECTION 11.03. Banking........................................................42
SECTION 11.04. Withholding....................................................42
ARTICLE 12
AMENDMENTS AND MEETINGS
SECTION 12.01. Amendments.....................................................42
SECTION 12.02. Meetings of the Holders of Securities; Action by Written
Consent..................................................................43
ARTICLE 13
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 13.01. Representations and Warranties of Property Trustee.............45
ARTICLE 14
MISCELLANEOUS
SECTION 14.01. Notices........................................................46
SECTION 14.02. Undertaking for Costs..........................................47
SECTION 14.03. Governing Law..................................................48
SECTION 14.04. Headings.......................................................48
iii
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SECTION 14.05. Partial Enforceability.........................................48
SECTION 14.06. Counterparts...................................................48
SECTION 14.07. Intention of the Parties.......................................48
SECTION 14.08. Successors and Assigns.........................................48
SIGNATURES AND SEALS
EXHIBIT A: CERTIFICATE OF TRUST
EXHIBIT B: TERMS OF THE PREFERRED SECURITIES
EXHIBIT C: TERMS OF THE COMMON SECURITIES
iv
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
AES TRUST I
MARCH 31, 1997
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of March 31, 1997 by the undersigned trustees (together with all
other Persons from time to time duly appointed and serving as trustees in
accordance with the provisions of this Declaration, the "Trustees"), The AES
Corporation, a Delaware corporation, as trust sponsor ("AES" or the "Sponsor"),
and by the holders, from time to time, of undivided beneficial interests in the
assets of the Trust to be issued pursuant to this Declaration.
WHEREAS, the Sponsor and the Trustees entered into a Declaration of Trust
dated as of November 1, 1996 (the "Original Declaration") in order to establish
a statutory business trust (the "Trust") under the Business Trust Act (as
hereinafter defined);
WHEREAS, the Certificate of Trust (the "Certificate of Trust") of the Trust
was filed with the office of the Secretary of State of the State of Delaware on
November 5, 1996 and was restated on March 27, 1997;
WHEREAS, the Trustees and the Sponsor desire to continue the Trust pursuant
to the Business Trust Act for the purpose of, as described more fully in
Sections 3.03 and 3.04 hereof, (i) issuing and selling Preferred Securities (as
defined herein) representing preferred undivided beneficial interests in the
assets of the Trust for cash and investing the proceeds thereof in Debentures
(as hereinafter defined) of AES issued under the Indenture (as hereinafter
defined) to be held as assets of the Trust and (ii) issuing and selling Common
Securities (as defined herein) representing common undivided beneficial
interests in the assets of the Trust to AES in exchange for cash and investing
the proceeds thereof in additional Debentures issued under the Indenture to be
held as assets of the Trust; and
NOW, THEREFORE, it being the intention of the parties hereto that the Trust
constitute a business trust under the Business Trust Act, that the Original
Declaration be amended and restated in its entirety as provided herein and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets referred to in clauses (i) and (ii) of the
previous
<PAGE>
Whereas clause purchased by the Trust will be held in trust for the benefit of
the Holders (as defined herein) from time to time, of the Certificates (as
defined herein) representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Declaration.
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.01;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to this
Amended and Restated Declaration of Trust (including Exhibits A, B and C hereto
(the "Exhibits")) as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Exhibits are to Articles and Sections of and Exhibits to this Declaration unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Declaration unless otherwise defined in this Declaration or unless
the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act or any successor rule thereunder.
"Book Entry Interest" means a beneficial interest in a Global Certificate
registered in the name of a Clearing Agency or a nominee thereof, ownership and
transfers of which shall be maintained and made through book entries by such
Clearing Agency as described in Section 9.04.
2
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in the City of New York, in the State of New York
are authorized or required by applicable law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. Code ss. 3801 et seq., as it may be amended from time to time.
"Certificate" means a Common Security Certificate or a Preferred Security
Certificate.
"Certificate of Trust" has the meaning set forth in the second Whereas
clause above.
"Clearing Agency" means an organization registered as a "Clearing Agency"
pursuant to Section 17A of the Exchange Act that is acting as depository for the
Preferred Securities and in whose name or in the name of a nominee of that
organization, shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Preferred Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time the Clearing Agency
effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the Closing Date as specified in the Underwriting
Agreement, which date is also the date of execution and delivery of this
Declaration.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation. A reference to a specific section ((Sec.))
of the Code refers not only to such specific section but also to any
corresponding provision of any federal tax statute enacted after the date of
this Declaration, as such specific section or corresponding provision is in
effect on the date of application of the provisions of this Declaration
containing such reference.
"Commission" means the Securities and Exchange Commission.
"Common Security" has the meaning specified in Section 7.01(b).
3
<PAGE>
"Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security substantially in the form of
Annex I to Exhibit C.
"Common Stock" means the common stock of AES, par value $.01 per share.
"Conversion Agent" has the meaning specified in Section 7.02.
"Covered Person" means (i) any officer, director, shareholder, partner,
member, representative, employee or agent of the Trust or its Affiliates, (ii)
any officer, director, shareholder, employees, representatives or agents of AES
or its Affiliates and (iii) the Holders from time to time of the Securities.
"Debenture Trustee" means The First National Bank of Chicago, as trustee
under the Indenture until a successor is appointed thereunder and thereafter
means such successor trustee.
"Debentures" means the series of Junior Subordinated Convertible Debentures
issued by AES under the Indenture to the Property Trustee and entitled the
"5.375% Junior Subordinated Debentures due 2027".
"Definitive Preferred Security Certificates" has the meaning set forth in
Section 9.04.
"Delaware Trustee" has the meaning set forth in Section 5.01(a)(3).
"Depositary Agreement" means the agreement among the Trust, the Property
Trustee and DTC dated as of the Closing Date, as the same may be amended or
supplemented from time to time.
"Distribution" means a distribution payable to Holders of Securities in
accordance with Section 6.01.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Event of Default" in respect of the Securities means an Indenture Event of
Default has occurred and is continuing in respect of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time or any successor legislation.
4
<PAGE>
"Fiscal Year" has the meaning specified in Section 11.01.
"Global Certificate" has the meaning set forth in Section 9.04.
"Holder" means a Person in whose name a Certificate representing a Security
is registered, such Person being a beneficial owner within the meaning of the
Business Trust Act.
"Indemnified Person" means any Trustee, any Affiliate of any Trustee, any
Conversion Agent, any Paying Agent, any officers, directors, shareholders,
members, partners, employees, representatives or agents of any Trustee,
Conversion Agent or Paying Agent, or any employee or agent of the Trust or its
Affiliates.
"Indenture" means the Junior Subordinated Indenture dated as of March 1,
1997 between AES and the Debenture Trustee as supplemented by the First
Supplemental Indenture thereto dated as of March 31, 1997, pursuant to which the
Debentures are to be issued.
"Indenture Event of Default" means an event or condition defined as an
"Event of Default" with respect to the Debentures under Section 6.01(a) of the
Indenture has occurred and is continuing.
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time or any successor legislation.
"Legal Action" has the meaning specified in Section 3.08(g).
"Liquidation Distribution" has the meaning set forth in Exhibits B and C
hereto establishing the terms of the Securities.
"Majority in liquidation amount of the Securities" means, except as
otherwise required by the Trust Indenture Act and except as provided in the
penultimate paragraph of paragraph 6 of Exhibit B hereto, Holder(s) of
outstanding Securities voting together as a single class or, as the context may
require, Holder(s) of outstanding Preferred Securities or Common Securities
voting separately as a class, who are the record owners of a relevant class of
Securities whose liquidation amount (including the stated amount that would be
paid on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined)
5
<PAGE>
represents more than 50% of the liquidation amount of all outstanding Securities
of such class.
"Ministerial Action" has the meaning set forth in the terms of the
Securities as set forth in Exhibits B and C hereto.
"Option Closing Date" means the Option Closing Date as specified in the
Underwriting Agreement.
"Original Declaration" has the meaning set forth in the first WHEREAS
clause above.
"Paying Agent" has the meaning specified in Section 3.10(i).
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee" means the Guarantee Agreement dated as of March 31,
1997 of AES in respect of the Preferred Securities.
"Preferred Security" has the meaning specified in Section 7.01(b).
"Preferred Security Beneficial Owner" means, with respect to a Book Entry
Interest, a Person who is the beneficial owner of such Book Entry Interest, as
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).
"Preferred Security Certificate" means a definitive certificate in fully
registered form representing a Preferred Security substantially in the form of
Annex I to Exhibit B.
"Property Trustee" means the Trustee meeting the eligibility requirements
set forth in Section 5.01(c) and having the duties set forth for the Property
Trustee herein.
"Property Account" has the meaning specified in Section 3.10(c)(i).
"Quorum" means a majority of the Regular Trustees or, if there are only two
Regular Trustees, both such Regular Trustees.
6
<PAGE>
"Regular Trustee" means any Trustee other than the Property Trustee and the
Delaware Trustee.
"Related Party" means any direct or indirect wholly owned subsidiary of AES
or any other Person which owns, directly or indirectly, 100% of the outstanding
voting securities of AES.
"Resignation Request" has the meaning specified in Section 5.02(d).
"Responsible Officer" means, with respect to the Property Trustee, the
chairman of the board of directors, the president, any vice-president, any
assistant vice-president, the secretary, any assistant secretary, the treasurer,
any assistant treasurer, any trust officer or assistant trust officer or any
other officer of the Property Trustee customarily performing functions similar
to those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Rule 3a-7" means Rule 3a-7 under the Investment Company Act or any
successor rule thereunder.
"Securities" means the Common Securities and the Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended from time to
time or any successor legislation.
"Special Event" has the meaning set forth in the terms of the Securities as
set forth in Exhibits B and C hereto.
"Sponsor" or "AES" means The AES Corporation, a Delaware corporation, or
any successor entity in a merger, in its capacity as sponsor of the Trust.
"Successor Delaware Trustee" has the meaning specified in Section
5.02(b)(ii).
"Successor Property Trustee" means a successor Trustee possessing the
qualifications to act as Property Trustee under Section 5.01(c).
"10% in liquidation amount of the Securities" means, except as otherwise
required by the Trust Indenture Act and except as provided in the penultimate
paragraph of paragraph 6 of Exhibit B hereto, Holder(s) of outstanding
Securities voting together as a single class or, as the context may require,
Holder(s) of
7
<PAGE>
outstanding Preferred Securities or Common Securities, voting separately as a
class, who are the record owners of a relevant class of Securities whose
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) represents 10% or
more of the liquidation amount of all outstanding Securities of such class.
"Treasury Regulations" means the income tax regulations including temporary
and proposed regulations, promulgated under the Code by the United States
Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and references herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Underwriting Agreement" means the Underwriting Agreement dated as of March
31, 1997 among the Trust, the Sponsor, J.P. Morgan Securities Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Morgan Stanley &
Co. Incorporated, Salomon Brothers Inc and Unterberg Harris.
ARTICLE 2
TRUST INDENTURE ACT
SECTION 2.01. Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust Indenture
Act that are required to be part of this Declaration and shall, to the extent
applicable, be governed by such provisions;
(b) if and to the extent that any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by ss.ss.310 to 317, inclusive,
of the Trust Indenture Act, such imposed duties shall control;
8
<PAGE>
(c) the Property Trustee, to the extent permitted by applicable law and/or
the rules and regulations of the Commission, shall be the only Trustee which is
a trustee for the purposes of the Trust Indenture Act; and
(d) the application of the Trust Indenture Act to this Declaration shall
not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.02. Lists of Holders of Preferred Securities.
(a) Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide the Property Trustee with such information as is required under
ss. 312(a) of the Trust Indenture Act at the times and in the manner provided in
ss. 312(a); and
(b) the Property Trustee shall comply with its obligations under ss.ss.
310(b), 311 and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Property Trustee. Within 60 days after May 15
of each year, commencing May 1998, the Property Trustee shall provide to the
Holders of the Securities such reports as are required by ss. 313 of the Trust
Indenture Act, if any, in the form, in the manner and at the times provided by
ss. 313 of the Trust Indenture Act. The Property Trustee shall also comply with
the requirements of ss. 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to Property Trustee. Each of the Sponsor and
the Regular Trustees on behalf of the Trust shall provide to the Property
Trustee, the Commission and the Holders of the Securities, as applicable, such
documents, reports and information as required by ss. 314(a)(1)-(3) (if any) of
the Trust Indenture Act and the compliance certificates required by ss.
314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be
provided in the form, in the manner and at the times required by ss. 314(a)(4)
and (c) of the Trust Indenture Act (provided that any certificate to be provided
pursuant to ss. 314(a)(4) of the Trust Indenture Act shall be provided within
120 days of the end of each Fiscal Year).
SECTION 2.05. Evidence of Compliance with Conditions Precedent. Each of the
Sponsor and the Regular Trustees on behalf of the Trust shall provide to the
Property Trustee such evidence of compliance with any conditions precedent, if
any, provided for in this Declaration which relate to any of the matters set
forth in ss. 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given pursuant to ss. 314(c) shall comply with ss. 314(e) of the
Trust Indenture Act.
9
<PAGE>
SECTION 2.06. Events of Default; Waiver. (a) Subject to Section 2.06(c),
Holders of Preferred Securities may, by vote of at least a Majority in
liquidation amount of the Preferred Securities (A) in accordance with the terms
of the Preferred Securities, 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, or (B) on behalf of the
Holders of all Preferred Securities, waive any past Event of Default in respect
of the Preferred Securities and its consequences; provided that if the Event of
Default arises out of an Indenture Event of Default:
(i) which is not waivable under the Indenture, the Event of Default
under this Declaration shall also be not waivable; or
(ii) which requires the consent or vote of (1) holders of Debentures
representing a specified percentage greater than a majority in principal
amount of the Debentures, or (2) each holder of Debentures, the Event of
Default under this Declaration may only be waived by, in the case of clause
(1) above, the vote of Holders of Preferred Securities representing such
specified percentage of the aggregate liquidation amount of the Preferred
Securities or, in the case of clause (2) above, each Holder of Preferred
Securities.
Upon such waiver, any such default shall cease to exist, and any Event of
Default with respect to the Preferred Securities arising therefrom shall be
deemed to have been cured for every purpose of this Declaration, but no such
waiver shall extend to any subsequent or other default or Event of Default with
respect to the Preferred Securities or impair any right consequent thereon.
(b) Subject to Section 2.06(c), Holders of Common Securities may by vote of
at least a Majority in liquidation amount of the Common Securities, (A) in
accordance with the terms of the Common Securities, 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 or
(B) on behalf of the Holders of all of the Common Securities, waive any past
Event of Default with respect to the Common Securities and its consequences,
provided that, if the Event of Default arises out of an Indenture Event of
Default:
(i) which is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event of
Default under the Declaration as provided below, the Event of Default under
this Declaration shall also not be waivable; or
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(ii) which requires the consent or vote of (1) holders of Debentures
representing a specified percentage greater than a majority in principal
amount of the Debentures or (2) each holder of Debentures, except where the
holders of the Common Securities are deemed to have waived such Event of
Default under this Declaration as provided below, the Event of Default
under this Declaration may only be waived by, in the case of clause (1)
above, the vote of Holders of Common Securities representing such specified
percentage of the aggregate liquidation amount of the Common Securities or,
in the case of clause (2) above, each holder of Common Securities; and
provided, further, that each Holder of Common Securities will be deemed to have
waived any Event of Default with respect to the Common Securities and its
consequences until all Events of Default with respect to the Preferred
Securities have been cured, waived by the Holders of Preferred Securities as
provided in this Declaration or otherwise eliminated and until all Events of
Default with respect to the Preferred Securities have been so cured, waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the Holders of the Preferred Securities and only the Holders of the
Preferred Securities will have the right to direct the Property Trustee in
accordance with the terms of this Declaration or the Securities. In the event
that any Event of Default with respect to the Preferred Securities is waived by
the Holders of Preferred Securities as provided in this Declaration, the Holders
of Common Securities agree that such waiver shall also constitute the waiver of
such Event of Default with respect to the Common Securities for all purposes
under this Declaration without any further act, vote or consent of the Holders
of the Common Securities. Subject to the foregoing provisions of this Section
2.06(b), upon such waiver, any such default shall cease to exist and any Event
of Default with respect to the Common Securities arising therefrom shall be
deemed to have been cured for every purpose of this Declaration, but no such
waiver shall extend to any subsequent or other default or Event of Default with
respect to the Common Securities or impair any right consequent thereon.
(c) The right of any Holder of Securities to receive payment of
Distributions on the Securities in accordance with this Declaration and the
terms of the Securities set forth in Exhibits B and C on or after the respective
payment dates therefor, or to institute suit for the enforcement of any such
payment on or after such payment dates, shall not be impaired without the
consent of such Holder.
(d) As provided in the terms of the Securities set forth in Exhibits B and
C hereto, a waiver of an Indenture Event of Default by the Property Trustee at
the written direction of the Holders of the Preferred Securities constitutes a
waiver of
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the corresponding Event of Default under this Declaration in respect of the
Securities.
SECTION 2.07. Disclosure of Information. The disclosure of information as
to the names and addresses of the Holders of the Securities in accordance with
ss. 312 of the Trust Indenture Act, regardless of the source from which such
information was derived, shall not be deemed to be a violation of any existing
law, or any law hereafter enacted which does not specifically refer to ss. 312
of the Trust Indenture Act, nor shall the Property Trustee be held accountable
by reason of mailing any material pursuant to a request made under ss. 312(b) of
the Trust Indenture Act.
ARTICLE 3
ORGANIZATION
SECTION 3.01. Name. The Trust continued by this Declaration is named "AES
Trust I" as such name may be modified from time to time by the Regular Trustees
following written notice to the Holders of Securities. The Trust's activities
may be conducted under the name of the Trust or any other name deemed advisable
by the Regular Trustees.
SECTION 3.02. Office. The address of the principal office of the Trust is
c/o The AES Corporation, 1001 North 19th Street, Arlington, Virginia 22209. Upon
ten days' written notice to the Holders, the Regular Trustees may change the
location of the Trust's principal office. The name of the registered agent and
office of the Trust in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801. At any time, the Regular
Trustees may designate another registered agent and/or registered office.
SECTION 3.03. Issuance of the Trust Securities. On March 31, 1997 the
Sponsor, on behalf of the Trust and pursuant to the Original Declaration,
executed and delivered the Underwriting Agreement. On the Closing Date and
contemporaneously with the execution and delivery of this Declaration, the
Regular Trustees, on behalf of the Trust, shall execute and deliver to (i) the
underwriters named in the Underwriting Agreement, a Global Certificate,
registered in the name of the nominee of the initial Clearing Agency as
specified in Section 9.04, in an aggregate amount of 5,000,000 Preferred
Securities having an aggregate liquidation amount of $250,000,000, against
receipt of the aggregate purchase price of such Preferred Securities of
$250,000,000, and (ii) the Sponsor, Common Securities Certificates, registered
in the name of the Sponsor, in an
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aggregate amount of 154,640 Common Securities having an aggregate liquidation
amount of $7,732,000, against receipt of the aggregate purchase price of such
Common Securities of $7,732,000. In the event and to the extent the
overallotment option granted by the Trust pursuant to the Underwriting Agreement
is exercised by such underwriters, on the Option Closing Date the Regular
Trustees, on behalf of the Trust, shall execute and deliver to (i) such
underwriters a Global Certificate, registered in the name of the nominee of the
initial Clearing Agency as specified in Section 9.04, in an aggregate amount of
up to 500,000 Preferred Securities having an aggregate liquidation amount of up
to $2,500,000 against receipt of the aggregate purchase price of such Preferred
Securities of up to $2,500,000, and (ii) the Sponsor, Common Security
Certificates, registered in the name of the Sponsor, in an aggregate amount of
15,464 Common Security having an aggregate liquidation of $773,200, against
receipt of the aggregate purchase price of such Common Securities of up to
$773,200.
SECTION 3.04. Purchase of Debentures. On the Closing Date and
contemporaneously with the execution and delivery of this Declaration, the
Regular Trustees, on behalf of the Trust, shall purchase from the Sponsor with
the proceeds received by the Trust from the sale of the Securities on such date
pursuant to Section 3.03, at a purchase price of 100% of the principal amount
thereof, Debentures, registered in the name of the Property Trustee and having
an aggregate principal amount equal to $257,732,000, and, in satisfaction of the
purchase price for such Debentures, the Regular Trustee, on behalf of the Trust,
shall deliver or cause to be delivered to the Sponsor the sum of $257,732,000.
In the event the overallotment option granted by the Trust with respect to the
Preferred Securities pursuant to the Underwriting Agreement is exercised by the
underwriters named therein, on the Option Closing Date the Regular Trustees, on
behalf of the Trust, shall purchase from the Sponsor with the proceeds received
by the Trust from the sale of the Preferred Securities on such date pursuant to
Section 3.03, at a purchase price of 100% of the principal amount thereof,
additional Debentures, registered in the name of the Property Trustee and having
an aggregate principal amount of up to $25,773,200, and, in satisfaction of the
purchase price for such Debentures, the Regular Trustees, on behalf of the
Trust, shall deliver or cause to be delivered to the Sponsor an amount equal to
the aggregate principal amount of the Debentures being purchased.
SECTION 3.05. Purpose. The exclusive purposes and functions of the Trust
are: (a)(i) to issue and sell Preferred Securities for cash and use the proceeds
of such sales to acquire from AES Debentures issued under the Indenture having
an aggregate principal amount equal to the aggregate liquidation amount of the
Preferred Securities so issued and sold; (ii) to enter into such agreements and
arrangements as may be necessary in connection with the sale of
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Preferred Securities to the initial purchasers thereof (including the
Underwriting Agreement) and to take all action, and exercise such discretion, as
may be necessary or desirable in connection therewith and to file such
registration statements or make such other filings under the Securities Act, the
Exchange Act or state securities or "Blue Sky" laws as may be necessary or
desirable in connection therewith and the issuance of the Preferred Securities;
and (iii) to issue and sell Common Securities to AES for cash and use the
proceeds of such sale to purchase as trust assets an equal aggregate principal
amount of Debentures issued under the Indenture; and (b) except as otherwise
limited herein, to engage in only those other activities necessary, convenient
or incidental thereto. The Trust shall not borrow money, issue debt or reinvest
proceeds derived from investments, pledge any of its assets or at any time while
the Securities are outstanding, otherwise undertake (or permit to be undertaken)
any activity that would result in or cause the Trust to be treated as anything
other than a grantor trust for United States federal income tax purposes.
SECTION 3.06. Authority. Subject to the limitations provided in this
Declaration and to the specific duties of the Property Trustee, the Regular
Trustees shall have exclusive and complete authority to carry out the purposes
of the Trust. An action taken by the Regular Trustees in accordance with their
powers shall constitute the act of and serve to bind the Trust and an action
taken by the Property Trustee in accordance with its powers shall constitute the
act of and serve to bind the Trust. In dealing with the Trustees acting on
behalf of the Trust, no Person shall be required to inquire into the authority
of the Trustees to bind the Trust. Persons dealing with the Trust are entitled
to rely conclusively on the power and authority of the Trustees as set forth in
this Declaration.
SECTION 3.07. Title to Property of the Trust. Except as provided in Section
3.10 with respect to the Debentures and the Property Account or unless otherwise
provided in this Declaration, legal title to all assets of the Trust shall be
vested in the Trust. The Holders shall not have legal title to any part of the
assets of the Trust, but shall have an individual undivided beneficial interest
in the assets of the Trust.
SECTION 3.08. Powers and Duties of the Regular Trustees. The Regular
Trustees shall have the exclusive power, authority and duty to cause the Trust,
and shall cause the Trust, to engage in the following activities:
(a) to issue Preferred Securities and Common Securities, in each case in
accordance with this Declaration; provided, however, that the Trust may issue no
more than one series of Preferred Securities and no more than one series of
Common Securities, and, provided further, that there shall be no interests in
the Trust other than the Securities and the issuance of Securities shall be
limited to (x)
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a one-time, simultaneous issuance of both Preferred Securities and Common
Securities on the Closing Date and (y) any subsequent issuance of Preferred
Securities on the Option Closing Date pursuant to an exercise of the
over-allotment option granted to underwriters in the Underwriting Agreement;
(b) in connection with the issuance of the Preferred Securities, at the
direction of the Sponsor, to effect or cause to be effected the filings, and to
execute or cause to be executed, the documents, set forth in Section 3.13 and to
execute, deliver and perform on behalf of the Trust the Depositary Agreement;
(c) to acquire as trust assets Debentures with the proceeds of the sale of
the Preferred Securities and Common Securities; provided, however, that the
Regular Trustees shall cause legal title to all of the Debentures to be vested
in, and the Debentures to be held of record in the name of, the Property Trustee
for the benefit of the Holders of the Preferred Securities and the Common
Securities;
(d) to cause the Trust to enter into the Underwriting Agreement and such
other agreements and arrangements as may be necessary or desirable in connection
with the sale of Preferred Securities to the initial purchasers thereof and the
consummation thereof, and to take all action, and exercise all discretion, as
may be necessary or desirable in connection with the consummation thereof;
(e) to give the Sponsor and the Property Trustee prompt written notice of
the occurrence of a Special Event; provided, that the Regular Trustees shall
consult with the Sponsor and the Property Trustee before taking or refraining to
take any Ministerial Action in relation to a Special Event;
(f) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including for the purposes
of Section 316(c) of the Trust Indenture Act and with respect to Distributions,
voting rights, redemptions, and exchanges, and to issue relevant notices to
Holders of the Preferred Securities and Common Securities as to such actions and
applicable record dates;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.10(e), the Property Trustee has
the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors and
consultants and pay reasonable compensation for such services;
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(i) to cause the Trust to comply with the Trust's obligations under the
Trust Indenture Act;
(j) to give the certificate to the Property Trustee required by ss.
314(a)(4) of the Trust Indenture Act, which certificate may be executed by any
Regular Trustee;
(k) to incur expenses which are necessary or incidental to carrying out any
of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, registrar and transfer
agent for the Securities, the Regular Trustees hereby initially appointing the
Property Trustee for such purposes;
(m) to take all actions and perform such duties as may be required of the
Regular Trustee pursuant to the terms of the Securities set forth in Exhibits B
and C hereto;
(n) to execute all documents or instruments, perform all duties and powers
and do all things for and on behalf of the Trust in all matters necessary or
incidental to the foregoing;
(o) to take all action which may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Securities or
to enable the Trust to effect the purposes for which the Trust has been created;
(p) to take all action, not inconsistent with this Declaration or with
applicable law, which the Regular Trustees determine in their discretion to be
reasonable and necessary or desirable in carrying out the activities of the
Trust as set out in this Section 3.08, in order that:
(i) the Trust will not be deemed to be an Investment Company required
to be registered under the Investment Company Act;
(ii) 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; and
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(iii) the Trust will comply with any requirements imposed by any
taxing authority on holders of instruments treated as indebtedness for
United States federal income tax purposes;
provided that such action does not adversely affect the interests of Holders;
(q) to take all action necessary to cause all applicable tax returns and
tax information reports that are required to be filed with respect to the Trust
to be duly prepared and filed by the Regular Trustees, on behalf of the Trust;
and
(r) subject to the requirements of Rule 3a-7 and ss. 317(b) of the Trust
Indenture Act, to appoint one or more Paying Agents in addition to the Property
Trustee.
The Regular Trustees must exercise the powers set forth in this Section
3.08 in a manner which is consistent with the purposes and functions of the
Trust set out in Section 3.05 and the Regular Trustees shall not take any action
which is inconsistent with the purposes and functions of the Trust set forth in
Section 3.05.
Subject to this Section 3.08, the Regular Trustees shall have none of the
powers nor any of the authority of the Property Trustee set forth in Section
3.10.
SECTION 3.09. Prohibition of Actions by Trust and Trustees. The Trust shall
not, and the Trustees (including the Property Trustee) shall cause the Trust not
to, engage in any activity other than as required or authorized by this
Declaration. In particular, the Trust shall not and the Trustees (including the
Property Trustee) shall not cause the Trust to:
(a) invest any proceeds received by the Trust from holding the Debentures
but shall promptly distribute all such proceeds to Holders of Securities
pursuant to the terms of this Declaration and of the Securities;
(b) acquire any assets other than as expressly provided herein;
(c) possess Trust property for other than a Trust purpose;
(d) make any loans, other than loans represented by the Debentures;
(e) possess any power or otherwise act in such a way as to vary the Trust
assets or the terms of the Securities in any way whatsoever;
(f) issue any securities or other evidences of beneficial ownership of, or
beneficial interests in, the Trust other than the Securities;
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(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 Debenture Trustee with respect to the Debentures, (ii) waive
any past default that is waivable under Section 6.06 of the Indenture, (iii)
exercise any right to rescind or annul any declaration that the principal of all
of the Debentures shall be due and payable or (iv) consent to any amendment,
modification or termination of the Indenture or the Debentures, 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 partnership
and that the Trust will continue to be classified as a grantor trust for United
States federal income tax purposes.
SECTION 3.10. Powers and Duties of the Property Trustee. (a) The legal
title to the Debentures shall be owned by and held of record in the name of the
Property Trustee in trust for the benefit of the Holders of the Securities. The
right, title and interest of the Property Trustee to the Debentures shall vest
automatically in each Person who may hereafter be appointed as Property Trustee
in accordance with Article 5. Such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and
delivered.
(b) The Property Trustee shall not transfer its right, title and interest
in the Debentures to the Regular Trustees or, if the Property Trustee does not
also act as the Delaware Trustee, the Delaware Trustee.
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing bank
account (the "Property Account") in the name of and under the exclusive
control of the Property Trustee on behalf of the Holders of the Securities
and on the receipt of payments of funds made in respect of the Debentures
held by the Property Trustee, deposit such funds into the Property Account
and, without any further acts of the Property Trustee or the Regular
Trustees, promptly make payments to the Holders of the Preferred Securities
and Common Securities from the Property Account in accordance with Section
6.01. Funds in the Property Account shall be held uninvested, and without
liability for interest thereon, until disbursed in accordance with this
Declaration. The Property Account shall be an account which is maintained
with a banking institution whose long term
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unsecured indebtedness is rated by a "nationally recognized statistical
rating organization", as such term is defined for purposes of Rule
436(g)(2) under the Securities Act, at least equal to (but in no event less
than "A" or the equivalent) the rating assigned to the Preferred Securities
by a nationally recognized statistical rating organization;
(ii) engage in such ministerial activities as shall be necessary or
appropriate to effect promptly the redemption of the Preferred Securities
and the Common Securities to the extent the Debentures are redeemed or
mature;
(iii) upon notice of distribution issued by the Regular Trustees in
accordance with the terms of the Preferred Securities and the Common
Securities, engage in such ministerial activities as shall be necessary or
appropriate to effect promptly the distribution pursuant to terms of the
Securities of Debentures to Holders of Securities upon the occurrence of a
Special Event; and
(iv) have the legal power to exercise all of the rights, powers and
privileges of a holder of the Debentures under the Indenture and, if an
Event of Default occurs and is continuing, the Property Trustee, subject to
Section 2.06(b), shall for the benefit of the Holders of the Securities,
enforce its rights as holder of the Debentures under the Indenture, subject
to the rights of the Holders of the Preferred Securities pursuant to the
terms of this Declaration, the Business Trust Act and the Trust Indenture
Act.
(d) The Property Trustee shall take all actions and perform such duties as
may be specifically required of the Property Trustee pursuant to the terms of
the Securities set forth in Exhibits B and C hereto.
(e) The Property Trustee shall take any Legal Action which arises out of or
in connection with an Event of Default or the Property Trustee's duties and
obligations under this Declaration, the Business Trust Act or the Trust
Indenture Act; provided however, that the holders of a Majority in liquidation
amount of the Preferred Securities will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Property Trustee or to direct the exercise of any trust or power conferred upon
the Property Trustee under the Declaration, including the right to direct the
Property Trustee to exercise the remedies available to it as a holder of the
Debentures. If the Property Trustee fails to enforce its rights under the
Debentures, a Holder of Preferred Securities, to the extent permitted by law,
may institute a legal proceeding directly against AES to enforce the Property
Trustee's rights under the Debentures without first
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instituting any legal proceeding against the Property Trustee or any other
Person; provided further, that, if an Event of Default has occurred and is
continuing and such event is attributed to the failure of the Sponsor to pay
interest or principal on the 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 Preferred Securities may directly institute a proceeding for
enforcement of payment to such Holder of the principal of or interest on the
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such Holder (a "Holder Direct Action") on or
after the respective due date specified in the Debentures. In connection with
such Holder Direct Action, the rights of the Holders of the Common Securities
will be subrogated to the rights of such Holder of Preferred Securities to the
extent of any payment made by the Sponsor to such Holders of Preferred
Securities in such Holder Direct Action. Except as provided in the preceding
sentences, the Holders of Preferred Securities will not be able to exercise
directly any remedy available to the Holders of the Debentures.
(f) All moneys deposited in the Property Account, and all Debentures held
by the Property Trustee for the benefit of the Holders of the Securities will
not be subject to any right, charge, security interest, lien or claim of any
kind in favor of, or for the benefit of the Property Trustee or its agents or
their creditors.
(g) The Property Trustee shall, within 90 days after the occurrence of a
default with respect to the Securities known to the Property Trustee, transmit
by mail, first class postage prepaid, to the holders of the Securities, as their
names and addresses appear upon the register, notice of all such defaults with
respect to the Securities, unless such defaults shall have been cured before the
giving of such notice (the term "defaults" for the purposes of this Section
3.10(g) being hereby defined to be an Indenture Event of Default, not including
any periods of grace provided for in the Indenture and irrespective of the
giving of any notice provided therein); provided, that, except in the case of
default in the payment of the principal of (or premium, if any) or interest on
any of the Debentures, the Property Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive committee or
a trust committee of directors and/or Responsible Officers, of the Property
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of the Securities. The Property Trustee shall not be
deemed to have knowledge of any default, except (i) a default in the payment of
principal, premium or interest on the Debentures or (ii) any default as to which
the Property Trustee shall have received written notice or a Responsible Officer
charged with the administration of this Declaration shall have obtained written
notice.
(h) The Property Trustee shall continue to serve as a Trustee until either:
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(i) the Trust has been completely liquidated and the proceeds thereof
distributed to the Holders of Securities pursuant to the terms of the
Securities; or
(ii) a Successor Property Trustee has been appointed and accepted that
appointment in accordance with Article 5.
(i) The Property Trustee shall act as paying agent in respect of the Common
Securities and the Preferred Securities and, subject to Section 3.08(r), may
authorize one or more Persons (each, a "Paying Agent") to pay Distributions,
redemption payments or liquidation payments on behalf of the Trust with respect
to the Preferred Securities. Any such Paying Agent shall comply with ss. 317(b)
of the Trust Indenture Act. Any Paying Agent may be removed by the Property
Trustee, after consultation with the Regular Trustees, at any time and a
successor Paying Agent or additional Paying Agents may be appointed at any time
by the Property Trustee, subject to Section 3.08(r).
(j) The Property Trustee shall give prompt written notice to the Holders of
the Securities of any notice received by it from AES of its election to defer
payments of interest on the Debentures by extending the interest payment period
with respect thereto.
(k) Subject to this Section 3.10, the Property Trustee shall have none of
the powers or the authority of the Regular Trustees set forth in Section 3.08.
(l) The Property Trustee shall exercise the powers, duties and rights set
forth in this Section 3.10 and Section 3.12 in a manner which is consistent with
the purposes and functions of the Trust set out in Section 3.05, and the
Property Trustee shall not take any action which is inconsistent with the
purposes and functions of the Trust set forth in Section 3.05.
SECTION 3.11. Delaware Trustee. Notwithstanding any other provision of this
Declaration other than Section 5.01(a)(3), the Delaware Trustee shall not be
entitled to exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities of the Regular Trustees and the Property Trustee
(except as required under the Business Trust Act) described in this Declaration.
Except as set forth in Section 5.01(a)(3), the Delaware Trustee shall be a
Trustee for the sole and limited purpose of fulfilling the requirements of ss.
3807 of the Business Trust Act. No implied covenants or obligations shall be
read into this Declaration against the Delaware Trustee.
SECTION 3.12. Certain Rights and Duties of the Property Trustee. (a) The
Property Trustee, before the occurrence of an Event of Default and after the
curing
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of all Events of Default that may have occurred, shall undertake to perform only
such duties as are specifically set forth in this Declaration, and no implied
covenants shall be read into this Declaration against the Property Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.06), the Property Trustee shall exercise such of the
rights and powers vested in it by this Declaration, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee shall be
determined solely by the express provisions of this Declaration, and
the Property Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this
Declaration, and no implied covenants or obligations shall be read
into this Declaration against the Property Trustee; and
(B) in the absence of bad faith on the part of the Property
Trustee, the Property Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Property
Trustee and conforming to the requirements of this Declaration; but in
the case of any such certificates or opinions that by any provision
hereof are specifically required to be furnished to the Property
Trustee, the Property Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements of
this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders as provided herein relating to the time,
method
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and place of conducting any proceeding for any remedy available to the
Property Trustee hereunder or under the Indenture, or exercising any trust
or power conferred upon the Property Trustee under this Declaration; and
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable ground
for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Declaration or adequate
indemnity against such risk or liability is not reasonably assured to it.
(c) Subject to the provisions of Section 3.12(a) and (b):
(i) whenever in the administration of this Declaration, the Property
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the Property
Trustee (unless other evidence is herein specifically prescribed) may, in
the absence of bad faith on its part and, if the Trust is excluded from the
definition of Investment Company solely by means of Rule 3a-7, subject to
the requirements of Rule 3a-7, request and rely upon a certificate, which
shall comply with the provisions of ss. 314(e) of the Trust Indenture Act,
signed by any two of the Regular Trustees or by an authorized officer of
the Sponsor, as the case may be;
(ii) The Property Trustee (A) may consult with counsel (which may be
counsel to the Sponsor or any of its Affiliates and may include any of its
employees) selected by it in good faith and with due care and the written
advice or opinion of such counsel with respect to legal matters shall be
full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon and in accordance with such advice and opinion and (B) shall have
the right at any time to seek instructions concerning the administration of
this Declaration from any court of competent jurisdiction;
(iii) The Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Property Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney appointed
by it in good faith and with due care;
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(iv) The Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Declaration at the request or
direction of any Holders, unless such Holders shall have offered to the
Property Trustee reasonable security and indemnity against the costs,
expenses (including attorneys' fees and expenses) and liabilities that
might be incurred by it in complying with such request or direction;
provided that nothing contained in this clause (iv) shall relieve the
Property Trustee of the obligation, upon the occurrence of an Event of
Default (which has not been cured or waived) to exercise such of the rights
and powers vested in it by this Declaration, and to use the same degree of
care and skill in this exercise, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs; and
(v) Any action taken by the Property Trustee or its agents hereunder
shall bind the Holders of the Securities and the signature of the Property
Trustee or its agents alone shall be sufficient and effective to perform
any such action; and no third party shall be required to inquire as to the
authority of the Property Trustee to so act, or as to its compliance with
any of the terms and provisions of this Declaration, both of which shall be
conclusively evidenced by the Property Trustee's or its agent's taking such
action.
SECTION 3.13. Registration Statement and Related Matters. In accordance
with the Original Declaration, AES and the Trustees have authorized and
directed, and hereby confirm the authorization of, AES, as the sponsor of the
Trust, (i) to file with the Commission and execute, in each case on behalf of
the Trust, (a) the Registration Statement on Form S-3 (File No. 333-15487) (the
"1933 Act Registration Statement") including any amendments thereto and any
further pre-effective or post-effective amendments to such Registration
Statement, relating to the registration under the Securities Act of the
Preferred Securities of the Trust and (b) a Registration Statement on Form 8-A
or other appropriate form (the "1934 Act Registration Statement") (including all
pre-effective and post-effective amendments thereto) relating to the
registration of the Preferred Securities of the Trust under Section 12(b) of the
Exchange Act; (ii) to file with the New York Stock Exchange and execute on
behalf of the Trust a listing application and all other applications,
statements, certificates, agreements and other instruments as shall be necessary
or desirable to cause the Preferred Securities to be listed on the New York
Stock Exchange; (iii) to file and execute on behalf of the Trust such
applications, reports, surety bonds, irrevocable consents, appointments of
attorney for service of process and other papers and documents as shall be
necessary or desirable to register the Preferred Securities under the securities
or "Blue Sky" laws of such jurisdictions as AES on behalf of the Trust, may deem
necessary or desirable and (iv) to execute on behalf of the
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Trust the Underwriting Agreement. In the event that any filing referred to in
clauses (i)-(iii) above is required by the rules and regulations of the
Commission, the New York Stock Exchange or state securities or blue sky laws, to
be executed on behalf of the Trust by the Trustees, the Regular Trustees, in
their capacities as Trustees of the Trust, are hereby authorized and directed to
join in any such filing and to execute on behalf of the Trust any and all of the
foregoing, it being understood that the Property Trustee and the Delaware
Trustee, in their capacities as Trustees of the Trust, shall not be required to
join in any such filing or execute on behalf of the Trust any such document
unless required by the rules and regulations of the Commission, the New York
Stock Exchange or state securities or blue sky laws. In connection with all of
the foregoing, AES and each Trustee, solely in its capacity as Trustee of the
Trust, have constituted and appointed, and hereby confirm the appointment of,
Barry J. Sharp, William R. Luraschi and Willard Hoagland and each of them, as
his, her or its, as the case may be, true and lawful attorneys-in-fact, and
agents, with full power of substitution and resubstitution, for AES or such
Trustee or in AES's or such Trustee's name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to the 1933 Act Registration Statement and the 1934 Act Registration Statement
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Commission, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as AES or such Trustee might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his or her substitute or substitutes, shall do or cause
to be done by virtue hereof.
SECTION 3.14. Filing of Amendments to Certificate of Trust. The Restated
Certificate of Trust as filed with the Secretary of State of the State of
Delaware on November 1, 1996 and restated on March 27, 1997 is attached hereto
as Exhibit A. On or after the date of execution of this Declaration, the
Trustees shall cause the filing with the Secretary of State of the State of
Delaware of such amendments to the Certificate of Trust as the Trustees shall
deem necessary or desirable.
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SECTION 3.15. Execution of Documents by Regular Trustees. Unless otherwise
determined by the Regular Trustees and except as otherwise required by the
Business Trust Act with respect to the Certificate of Trust or otherwise, a
majority of, or if there are only two, both of, the Regular Trustees are
authorized to execute and deliver on behalf of the Trust any documents which the
Regular Trustees have the power and authority to execute or deliver pursuant to
this Declaration.
SECTION 3.16. Trustees Not Responsible for Recitals or Issuance of
Securities. The recitals contained in this Declaration and the Securities shall
be taken as the statements of the Sponsor and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.17. Duration of Trust. The Trust, absent termination pursuant to
the provisions of Article 8 hereof, shall have existence until November 1, 2031.
ARTICLE 4
SPONSOR
SECTION 4.01. Purchase of Common Securities by Sponsor. On the Closing Date
the Sponsor will purchase all of the Common Securities issued by the Trust at
the same time as the Preferred Securities to be issued on such date are issued,
such purchase to be in an amount equal to 3% of the total capital of the Trust
(including for this purpose the maximum amount of Preferred Securities, if any,
which may be issued on the Option Closing Date pursuant to the exercise of the
overallotment option set forth in the Underwriting Agreement).
SECTION 4.02. Expenses. (a) In connection with the purchase of the
Debentures by the Trust, the Sponsor, in its capacity as Sponsor and not as a
Holder, shall be responsible for and shall pay for all debts and obligations
(other than with respect to the Securities) and all costs and expenses of the
Trust (including, but not limited to, costs and expenses relating to the
organization of the Trust, the issuance of the Preferred Securities to initial
purchasers thereof, the fees and expenses (including reasonable counsel fees and
expenses) of the Trustees (including any amounts payable under Article 10), the
costs and expenses relating to the operation of the Trust, including without
limitation, costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses
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for printing and engraving and computing or accounting equipment, paying
agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and
other telecommunications expenses and costs and expenses incurred in connection
with the disposition of Trust assets).
(b) In connection with the purchase of the Debentures by the Trust, the
Sponsor, in its capacity as Sponsor and not as a Holder, will pay any and all
taxes (other than United States withholding taxes attributable to the Trust or
its assets) and all liabilities, costs and expenses with respect to such taxes
of the Trust.
(c) The Sponsor's obligations under this Section 4.02 shall be 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 hereof. Any such Creditor may enforce the
Sponsor's obligations under this Section 4.02 directly against the Sponsor and
the Sponsor irrevocably waives any right or remedy to require that any such
Creditor take any action against the Trust or any other Person before proceeding
against the Sponsor. The Sponsor agrees to execute such additional agreements as
may be necessary or desirable in order to give full effect to the provisions of
this Section 4.02.
ARTICLE 5
TRUSTEES
SECTION 5.01. Number of Trustees; Qualifications. (a) The number of
Trustees initially shall be five (5). At any time (i) before the issuance of the
Securities, the Sponsor may, by written instrument, increase or decrease the
number of, and appoint, remove and replace the, Trustees, and (ii) after the
issuance of the Securities the number of Trustees may be increased or decreased
solely by, and Trustees may be appointed, removed or replaced solely by, vote of
Holders of Common Securities representing a Majority in liquidation amount of
the Common Securities voting as a class; provided that in any case:
(i) the number of Trustees shall be at least five (5) unless the
Trustee that acts as the Property Trustee also acts as the Delaware
Trustee, in which cases the number of Trustees shall be at least four (4);
(ii) at least a majority of the Trustees shall at all times be
officers, directors or employees of AES;
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(iii) if required by the Business Trust Act, one Trustee (the
"Delaware Trustee") shall be either a natural person who is a resident of
the State of Delaware or, if not a natural person, an entity which has its
principal place of business in the State of Delaware and otherwise is
permitted to act as a Trustee hereunder under the laws of the State of
Delaware, except that if the Property Trustee has its principal place of
business in the State of Delaware and otherwise is permitted to act as a
Trustee hereunder under the laws of the State of Delaware, then the
Property Trustee shall also be the Delaware Trustee and Section 3.11 shall
have no application; and
(iv) there shall at all times be a Property Trustee hereunder which
shall satisfy the requirements of Section 5.01(c).
Each Trustee shall be either a natural person at least 21 years of age or a
legal entity which shall act through one or more duly appointed representatives.
(b) The initial Regular Trustees shall be:
William R. Luraschi
Willard Hoagland
Barry J. Sharp
c/o THE AES CORPORATION
1001 North 19th Street
Arlington, Virginia 22209
(c) There shall at all times be one Trustee which shall act as Property
Trustee. In order to act as Property Trustee hereunder, such Trustee shall:
(i) not be an Affiliate of the Sponsor;
(ii) be a corporation or national banking association organized and
doing business under the laws of the United States of America or any State
or Territory thereof or of the District of Columbia, or a corporation,
national banking association or Person permitted by the Commission to act
as an institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000, and subject to supervision or examination
by Federal, State, Territorial or District of Columbia authority. If such
corporation or national banking association publishes reports of condition
at least annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then for the purposes
of this Section 5.01(c)(ii), the combined capital and
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surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published;
and
(iii) if the Trust is excluded from the definition of an Investment
Company solely by reason of Rule 3a-7 and to the extent Rule 3a-7 requires
a trustee having certain qualifications to hold title to the "eligible
assets" (as defined in Rule 3a-7) of the Trust, the Property Trustee shall
possess those qualifications.
If at any time the Property Trustee shall cease to satisfy the requirements
of clauses (i)-(iii) above, the Property Trustee shall immediately resign in the
manner and with the effect set out in Section 5.02(d). If the Property Trustee
has or shall acquire any "conflicting interest" within the meaning of ss. 310(b)
of the Trust Indenture Act, the Property Trustee and the Holders of the Common
Securities (as if such Holders were the obligor referred to in ss. 310(b) of the
Trust Indenture Act) shall in all respects comply with the provisions of ss.
310(b) of the Trust Indenture Act. The Preferred Guarantee shall be deemed to be
specifically described in this Declaration for the purposes of clause (i) of the
first proviso contained in ss. 310(b) of the Trust Indenture Act.
The initial Trustee which shall serve as the Property Trustee is The First
National Bank of Chicago, a national banking association, whose address is as
set forth in Section 14.01(b).
(d) The initial Trustee which shall serve as the Delaware Trustee is First
Chicago Delaware Inc., a Delaware corporation, whose address is as set forth in
Section 14.01(c).
(e) Any action taken by Holders of Common Securities pursuant to this
Article 5 shall be taken at a meeting of Holders of Common Securities convened
for such purpose or by written consent as provided in Section 12.02.
(f) No amendment may be made to this Section 5.01 which would change any
rights with respect to the number, existence or appointment and removal of
Trustees, except with the consent of each Holder of Common Securities.
SECTION 5.02. Appointment, Removal and Resignation of Trustees. (a) Subject
to Section 5.02(b), Trustees may be appointed or removed without cause at any
time:
(i) until the issuance of the Securities, by written instrument
executed by the Sponsor; and
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(ii) after the issuance of the Securities by vote of the Holders of a
Majority in liquidation amount of the Common Securities voting as a class.
(b) (i) The Trustee that acts as Property Trustee shall not be removed in
accordance with Section 5.02(a) until a Successor Property Trustee possessing
the qualifications to act as Property Trustee under Section 5.01(c) has been
appointed and has accepted such appointment by written instrument executed by
such Successor Property Trustee and delivered to the Regular Trustees, the
Sponsor and the Property Trustee being removed; and
(ii) the Trustee that acts as Delaware Trustee shall not be removed in
accordance with Section 5.02(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Section 5.1(a)(3) (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware
Trustee and delivered to the Regular Trustees, the Sponsor and the Delaware
Trustee being removed.
(c) A Trustee appointed to office shall hold office until his successor
shall have been appointed or until his death, removal or resignation.
(d) Any Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument (a "Resignation Request") in writing
signed by the Trustee and delivered to the Sponsor and the Trust, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that:
(i) no such resignation of the Trustee that acts as the Property
Trustee shall be effective until:
(A) a Successor Property Trustee possessing the qualifications to
act as Property Trustee under Section 5.01(c) has been appointed and
has accepted such appointment by instrument executed by such Successor
Property Trustee and delivered to the Trust, the Sponsor and the
resigning Property Trustee; or
(B) if the Trust is excluded from the definition of an Investment
Company solely by reason of Rule 3a-7, until the assets of the Trust
have been completely liquidated and the proceeds thereof distributed
to the Holders of the Securities; and
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(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(e) If no Successor Property Trustee or Successor Delaware Trustee shall
have been appointed and accepted appointment as provided in this Section 5.02
within 60 days after delivery to the Sponsor and the Trust of a Resignation
Request, the resigning Property Trustee or Delaware Trustee may petition any
court of competent jurisdiction for appointment of a Successor Property Trustee
or Successor Delaware Trustee. Such court may thereupon after such notice, if
any, as it may deem proper and prescribe, appoint a Successor Property Trustee
or Successor Delaware Trustee, as the case may be.
SECTION 5.03. Vacancies among Trustees. If a Trustee ceases to hold office
for any reason and the number of Trustees is not reduced pursuant to Section
5.01 or if the number of Trustees is increased pursuant to Section 5.01, a
vacancy shall occur. A resolution certifying the existence of such vacancy by a
majority of the Regular Trustees shall be conclusive evidence of the existence
of such vacancy. The vacancy shall be filled with a Trustee appointed in
accordance with the requirements of this Article 5.
SECTION 5.04. Effect of Vacancies. The death, resignation, retirement,
removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to
perform the duties of a Trustee, or any one of them, shall not operate to annul
the Trust. Whenever a vacancy in the number of Regular Trustees shall occur
until such vacancy is filled as provided in this Article 5, the Regular Trustees
in office, regardless of their number, shall have all the powers granted to the
Regular Trustees and shall discharge all the duties imposed upon the Regular
Trustees by this Declaration.
SECTION 5.05. Meetings. Meetings of the Regular Trustees shall be held from
time to time upon the call of any Trustee. Regular meetings of the Regular
Trustees may be held at a time and place fixed by resolution of the Regular
Trustees. Notice of any in-person meeting of the Regular Trustees shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 48 hours before such meeting. Notice of
any telephonic meeting of the Regular Trustees or any committee thereof shall be
hand delivered or otherwise delivered in writing (including by facsimile, with a
hard copy by overnight courier) not less than 24 hours before such meeting.
Notices shall contain a brief statement of the time, place and anticipated
purposes of the meeting. The presence (whether in person or by telephone) of a
Regular
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Trustee at a meeting shall constitute a waiver of notice of such meeting except
where a Regular Trustee attends a meeting for the express purpose of objecting
to the transaction of any activity on the ground that the meeting has not been
lawfully called or convened. Unless provided otherwise in this Declaration, any
action of the Regular Trustees may be taken at a meeting by vote of a majority
of the Regular Trustees present (whether in person or by telephone) and eligible
to vote with respect to such matter; provided that a Quorum is present, or
without a meeting by the unanimous written consent of the Regular Trustees.
SECTION 5.06. Delegation of Power. (a) Any Regular Trustee may, by power of
attorney consistent with applicable law, delegate to any other natural person
over the age of 21 his or her power for the purpose of executing any
registration statement or amendment thereto or other document or schedule filed
with the Commission or making any other governmental filing (including, without
limitation to filings referred to in Section 3.13).
(b) The Regular Trustees shall have power to delegate from time to time to
such of their number or to officers of the Trust the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Regular Trustees or otherwise as the Regular Trustees may deem expedient,
to the extent such delegation is not prohibited by applicable law or contrary to
the provisions of the Trust, as set forth herein.
ARTICLE 6
DISTRIBUTIONS
SECTION 6.01. Distributions. Holders shall receive periodic distributions,
redemption payments and liquidation distributions in accordance with the
applicable terms of the relevant Holder's Securities ("Distributions").
Distributions shall be made to the Holders of Preferred Securities and Common
Securities in accordance with the terms of the Securities as set forth in
Exhibits B and C hereto. If and to the extent that AES makes a payment of
interest (including Compounded Interest (as defined in the Indenture)), premium
and principal on the Debentures held by the Property Trustee (the amount of any
such payment being a "Payment Amount"), the Property Trustee shall and is
directed to promptly make a Distribution of the Payment Amount to Holders in
accordance with the terms of the Securities as set forth in Exhibits B and C
hereto.
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ARTICLE 7
ISSUANCE OF SECURITIES
SECTION 7.01. General Provisions Regarding Securities. (a) The Regular
Trustees shall issue on behalf of the Trust securities in fully registered form
representing undivided beneficial interests in the assets of the Trust in
accordance with Section 7.01(b) and for the consideration specified in Section
3.03.
(b) The Regular Trustees shall issue on behalf of the Trust one class of
preferred securities representing undivided beneficial interests in the assets
of the Trust having such terms as are set forth in Exhibit B (the "Preferred
Securities") which terms are incorporated by reference in, and made a part of,
this Declaration as if specifically set forth herein, and one class of common
securities representing undivided beneficial interests in the assets of the
Trust having such terms as are set forth in Exhibit C (the "Common Securities")
which terms are incorporated by reference in, and made a part of, this
Declaration as if specifically set forth herein. The Trust shall have no
securities or other interests in the assets of the Trust other than the
Preferred Securities and the Common Securities.
(c) The Certificates shall be signed on behalf of the Trust by the Regular
Trustees (or if there are more than two Regular Trustees by any two of the
Regular Trustees). Such signatures may be the manual or facsimile signatures of
the present or any future Regular Trustee. Typographical and other minor errors
or defects in any such reproduction of any such signature shall not affect the
validity of any Certificate. In case any Regular Trustee of the Trust who shall
have signed any of the Certificates shall cease to be such Regular Trustee
before the Certificate so signed shall be delivered by the Trust, such
Certificate nevertheless may be delivered as though the person who signed such
Certificate had not ceased to be such Regular Trustee; and any Certificate may
be signed on behalf of the Trust by such persons as, at the actual date of the
execution of such Certificate, shall be the Regular Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such a Regular Trustee. Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the Regular Trustees may deem appropriate,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
Securities may be listed, or to conform to usage. Pending the preparation of
definitive Certificates, the Regular Trustees on behalf
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of the Trust may execute temporary Certificates (printed, lithographed or
typewritten), in substantially the form of the definitive Certificates in lieu
of which they are issued, but with such omissions, insertions and variations as
may be appropriate for temporary Certificates, all as may be determined by the
Regular Trustees. Each temporary Certificate shall be executed by the Regular
Trustees on behalf of the Trust upon the same conditions and in substantially
the same manner, and with like effect, as definitive Certificates. Without
unnecessary delay, the Regular Trustees on behalf of the Trust will execute and
furnish definitive Certificates and thereupon any or all temporary Certificates
may be surrendered to the transfer agent and registrar in exchange therefor
(without charge to the Holders). Each Certificate whether in temporary or
definitive form shall be countersigned by the manual or facsimile signature of
an authorized signatory of the Person acting as registrar and transfer agent for
the Securities, which shall initially be the Property Trustee.
(d) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(e) Upon issuance of the Securities as provided in this Declaration, the
Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable.
(f) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by this Declaration.
(g) Upon issuance of the Securities as provided in this Declaration, the
Regular Trustees on behalf of the Trust shall return to AES the $10 constituting
initial trust assets as set forth in the Original Declaration.
SECTION 7.02. Conversion Agent. The Trust shall maintain an office or
agency where Preferred Securities may be presented for conversion ("Conversion
Agent"). The Trust may appoint the Conversion Agent and may appoint one or more
additional Conversion Agents in such other locations as it may determine. The
term "Conversion Agent" includes any additional Conversion Agent. The Trust may
change any Conversion Agent without prior notice to any Holders. If the Trust
fails to appoint or maintain another entity as Conversion Agent, the Property
Trustee will act as such. The Trust or any of its Affiliates may act as
Conversion Agent. The Trust shall act as Conversion Agent for the Common
Securities. The Conversion Agent shall be entitled to the rights and protections
extended to the Property Trustee when acting in such capacity.
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The Property Trustee is hereby initially appointed as Conversion Agent
for the Preferred Securities.
ARTICLE 8
TERMINATION OF TRUST
SECTION 8.01. Termination of Trust. This Declaration and the Trust shall
terminate and be of no further force or effect when:
(a) all of the Securities shall have been called for redemption and the
amounts necessary for redemption thereof shall have been paid to the Holders of
Securities in accordance with the terms of the Securities; or
(b) all of the Debentures shall have been distributed to the Holders of
Securities in exchange for all of the Securities in accordance with the terms of
the Securities; or
(c) upon the expiration of the term of the Trust as set forth in Section
3.17; or,
(d) upon the distribution of the Sponsor's common stock to all Securities
Holders upon conversion of all outstanding Preferred Securities.
and a certificate of cancellation is filed by the Trustees with the Secretary of
State of the State of Delaware. The Trustees shall so file such a certificate as
soon as practicable after the occurrence of an event referred to in this Section
8.01.
The provisions of Sections 3.12 and 4.02 and Article 10 shall survive the
termination of the Trust.
ARTICLE 9
TRANSFER OF INTERESTS
SECTION 9.01. Transfer of Securities. (a) Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration. Any transfer or purported transfer of any
Security not made in accordance with this Declaration shall be null and void.
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(b) Subject to this Article 9, Preferred Securities shall be freely
transferable.
(c) Subject to this Article 9, AES and any Related Party may only transfer
Common Securities to AES or a Related Party; provided that any such transfer
shall be subject to the condition that the transferor shall have obtained (1)
either a ruling from the Internal Revenue Service or an unqualified written
opinion addressed to the Trust and delivered to the Trustees of nationally
recognized independent tax counsel experienced in such matters to the effect
that such transfer will not (i) cause the Trust to be treated as issuing a class
of interests in the Trust differing from the class of interests represented by
the Common Securities originally issued to AES, (ii) result in the Trust
acquiring or disposing of, or being deemed to have acquired or disposed of, an
asset, or (iii) result in or cause the Trust to be treated as anything other
than a grantor trust for United States federal income tax purposes and (2) an
unqualified written opinion addressed to the Trust and delivered to the Trustees
of a nationally recognized independent counsel experienced in such matters that
such transfer will not cause the Trust to be an Investment Company or controlled
by an Investment Company.
SECTION 9.02. Transfer of Certificates. The Regular Trustees shall provide
for the registration of Certificates and of transfers of Certificates, which
will be effected without charge but only upon payment (with such indemnity as
the Regular Trustees may require) in respect of any tax or other government
charges which may be imposed in relation to it. Upon surrender for registration
of transfer of any Certificate, the Regular Trustees shall cause one or more new
Certificates to be issued in the name of the designated transferee or
transferees. Every Certificate surrendered for registration of transfer shall be
accompanied by a written instrument of transfer in form satisfactory to the
Regular Trustees duly executed by the Holder or such Holder's attorney duly
authorized in writing. Each Certificate surrendered for registration of transfer
shall be canceled by the Regular Trustees. A transferee of a Certificate shall
be entitled to the rights and subject to the obligations of a Holder hereunder
upon the receipt by such transferee of a Certificate. By acceptance of a
Certificate, each transferee shall be deemed to have agreed to be bound by this
Declaration.
SECTION 9.03. Deemed Security Holders. The Trustees may treat the Person in
whose name any Certificate shall be registered on the books and records of the
Trust as the sole holder of such Certificate and of the Securities represented
by such Certificate for purposes of receiving Distributions and for all other
purposes whatsoever and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such Certificate or in the Securities
represented by such Certificate on the part of any Person, whether or not the
Trustees shall have actual or other notice thereof.
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SECTION 9.04. Book Entry Interests. Unless otherwise specified in the terms
of the Preferred Securities, the Preferred Securities Certificates, on original
issuance (including Preferred Securities, if any, issued on the Option Closing
Date pursuant to the exercise of the overallotment option set forth in the
Underwriting Agreement), will be issued in the form of one or more, fully
registered, global Preferred Security Certificates (each a "Global
Certificate"), to be delivered to DTC, the initial Clearing Agency, by, or on
behalf of, the Trust. Such Global Certificates shall initially be registered on
the books and records of the Trust in the name of Cede & Co., the nominee of
DTC, and no Preferred Security Beneficial Owner will receive a definitive
Preferred Security Certificate representing such Preferred Security Beneficial
Owner's interests in such Global Certificates, except as provided in Section
9.07. Unless and until definitive, fully registered Preferred Security
Certificates (the "Definitive Preferred Security Certificates") have been issued
to the Preferred Security Beneficial Owners pursuant to Section 9.07:
(a) the provisions of this Section 9.04 shall be in full force and effect;
(b) (i) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the payment of
Distributions on the Global Certificates and receiving approvals, votes or
consents hereunder) as the Holder of the Preferred Securities and the sole
holder of the Global Certificates and, except as set forth herein or in Rule
3a-7 with respect to the Property Trustee, shall have no obligation to the
Preferred Security Beneficial Owners; provided, that solely for the purposes of
determining whether the Holders of the requisite amount of Preferred Securities
have voted on any matter provided for in this Declaration, so long as definitive
Preferred Security Certificates have not been issued (pursuant to Section 9.07
hereof), the Trustees may conclusively rely on, and shall be protected in
relying on, any written instrument (including a proxy) delivered to the Trustees
by the Clearing Agency setting forth the Preferred Security Beneficial Owners'
votes or assigning the right to vote on any matter to any other Persons either
in whole or in part;
(c) to the extent that the provisions of this Section 9.04 conflict with
any other provisions of this Declaration, the provisions of this Section 9.04
shall control; and
(d) the rights of the Preferred Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants. DTC will
make book entry transfers among the Clearing Agency Participants and
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receive and transmit payments of Distributions on the Global Certificates to
such Clearing Agency Participants.
SECTION 9.05. Notices to Holders of Certificates. Whenever a notice or
other communication to the Holders is required to be given under this
Declaration, unless and until Definitive Preferred Security Certificates shall
have been issued pursuant to Section 9.07, the relevant Trustees shall give all
such notices and communications, specified herein to be given to Preferred
Securities Holders, to the Clearing Agency and, with respect to any Preferred
Security Certificate registered in the name of a Clearing Agency or the nominee
of a Clearing Agency, the Trustees shall, except as set forth herein or in Rule
3a-7 with respect to the Property Trustee, have no notice obligations to the
Preferred Security Beneficial Owners.
SECTION 9.06. Appointment of Successor Clearing Agency. If any Clearing
Agency elects to discontinue its services as securities depository with respect
to the Preferred Securities, the Regular Trustees may, in their sole discretion,
appoint a successor Clearing Agency with respect to the Preferred Securities.
SECTION 9.07. Definitive Preferred Securities Certificates. If (i) a
Clearing Agency elects to discontinue its services as securities depository with
respect to the Preferred Securities and a successor Clearing Agency is not
appointed within 90 days after such discontinuance pursuant to Section 9.06 or
(ii) the Regular Trustees elect after consultation with the Sponsor to terminate
the book entry system through the Clearing Agency with respect to the Preferred
Securities, then (x) Definitive Preferred Security Certificates shall be
prepared by the Regular Trustees on behalf of the Trust with respect to such
Preferred Securities and (y) upon surrender of the Global Certificates by the
Clearing Agency, accompanied by registration instructions, the Regular Trustees
shall cause definitive Preferred Security Certificates to be delivered to
Preferred Security Beneficial Owners in accordance with the instructions of the
Clearing Agency. Neither the Trustees nor the Trust shall be liable for any
delay in delivery of such instructions and each of them may conclusively rely on
and shall be protected in relying on, such instructions.
SECTION 9.08. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any
mutilated Certificates should be surrendered to the Regular Trustees, or if the
Regular Trustees shall receive evidence to their satisfaction of the
destruction, loss or theft of any Certificate; and (b) there shall be delivered
to the Regular Trustees such security or indemnity as may be required by them to
keep each of them harmless, then in the absence of notice that such Certificate
shall have been acquired by a bona fide purchaser, any two Regular Trustees on
behalf of the
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Trust shall execute and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
denomination. In connection with the issuance of any new Certificate under this
Section 9.08, the Regular Trustees may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Certificate issued pursuant to this section shall
constitute conclusive evidence of an ownership interest in the relevant
Securities, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
ARTICLE 10
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 10.01. Exculpation. (a) No Indemnified Person shall be liable,
responsible or accountable in damages or otherwise to the Trust or any Covered
Person 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 the authority conferred on such Indemnified Person by this
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.
(b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Trust and upon such information, opinions, reports or
statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.
(c) Pursuant to ss. 3803(a) of the Business Trust Act, the Holders of
Securities, in their capacities as Holders, shall be entitled to the same
limitation of liability that is extended to stockholders of private corporations
for profit organized under the General Corporation Law of the State of Delaware.
SECTION 10.02. Indemnification. (a) To the fullest extent permitted by
applicable law, the Sponsor shall indemnify and hold harmless each Indemnified
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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 this 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.
(b) To the fullest extent permitted by applicable 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 Sponsor
prior to the final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Sponsor 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 in Section 10.02(a).
(c) The provisions of this Section 10.02 shall survive the termination of
this Declaration or the resignation or removal of any Trustee.
SECTION 10.03. Outside Business. The Sponsor and any Trustee may engage in
or possess an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Trust, and the Trust and the Holders of Securities shall have no rights by
virtue of this Declaration in and to such independent ventures or the income or
profits derived therefrom, and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. Neither the Sponsor nor any Trustee shall be obligated to present any
particular investment or other opportunity to the Trust even if such opportunity
is of a character that, if presented to the Trust, could be taken by the Trust,
and the Sponsor or any Trustee shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to others any such
particular investment or other opportunity. Any Trustee may engage or be
interested in any financial or other transaction with the Sponsor or any
Affiliate of the Sponsor or may act as depository for, trustee or agent for, or
act on any committee or body of holders of, securities or other obligations of
the Sponsor or its Affiliates.
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ARTICLE 11
ACCOUNTING
SECTION 11.01. Fiscal Year. The fiscal year ("Fiscal Year") of the Trust
shall be the calendar year, or such other year as is required by the Code.
SECTION 11.02. Certain Accounting Matters. (a) At all times during the
existence of the Trust, the Regular Trustees shall keep, or cause to be kept,
full books of account, records and supporting documents, which shall reflect in
reasonable detail, each transaction of the Trust. The books of account shall be
maintained on the accrual method of accounting, in accordance with generally
accepted accounting principles, consistently applied. The Trust shall use the
accrual method of accounting for United States federal income tax purposes. The
books and records of the Trust, together with a copy of this Declaration and a
certified copy of the Certificate of Trust, or any amendment thereto, shall at
all times be maintained at the principal office of the Trust and shall be open
for inspection for any examination by any Holder or its duly authorized
representative for any purpose reasonably related to its interest in the Trust
during normal business hours.
(b) The Regular Trustees shall cause to be prepared and mailed to each
Holder of Securities, an annual United States federal income tax information
statement, on such form as is required by the Code, containing such information
with regard to the Securities held by each Holder as is required by the Code and
the Treasury Regulations. Notwithstanding any right under the Code to deliver
any such statement at a later date, the Regular Trustees shall endeavor to
deliver all such statements within 30 days after the end of each Fiscal Year of
the Trust.
(c) The Regular Trustees shall cause to be prepared and filed with the
appropriate taxing authority, an annual United States federal income tax return,
on such form as is required by the Code, and any other annual income tax returns
required to be filed by the Regular Trustees on behalf of the Trust with any
state or local taxing authority, such returns to be filed as soon as practicable
after the end of each Fiscal Year of the Trust.
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SECTION 11.03. Banking. The Trust shall maintain one or more bank accounts
in the name and for the sole benefit of the Trust; provided, however, that all
payments of funds in respect of the Debentures held by the Property Trustee
shall be made directly to the Property Account and no other funds from the Trust
shall be deposited in the Property Account. The sole signatories for such
accounts shall be designated by the Regular Trustees; provided, however, that
the Property Trustee shall designate the sole signatories for the Property
Account.
SECTION 11.04. Withholding. The Trust and the Trustees shall comply with
all withholding requirements under United States federal, state and local law.
The Trust shall request, and the Holders shall provide to the Trust, such forms
or certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Trust shall file required forms
with applicable jurisdictions and, unless an exemption from withholding is
properly established by a Holder, shall remit amounts withheld with respect to
the Holder to applicable jurisdictions. To the extent that the Trust is required
to withhold and pay over any amounts to any authority with respect to
distributions or allocations to any Holder, the amount withheld shall be deemed
to be a distribution in the amount of the withholding to the Holder. In the
event of any claimed overwithholding, Holders shall be limited to an action
against the applicable jurisdiction. If the amount to be withheld was not
withheld from a Distribution, the Trust may reduce subsequent Distributions by
the amount of such withholding.
ARTICLE 12
AMENDMENTS AND MEETINGS
SECTION 12.01. Amendments. (a) Except as otherwise provided in this
Declaration or by any applicable terms of the Securities, this Declaration may
be amended by, and only by, a written instrument executed by a majority of the
Regular Trustees; provided, however, that (i) no amendment to this Declaration
shall be made unless the Regular Trustees shall have obtained (A) either a
ruling from the Internal Revenue Service or a written unqualified opinion of
nationally recognized independent tax counsel experienced in such matters to the
effect that such amendment will not cause the Trust to be classified for United
States federal income tax purposes as an association taxable as a corporation or
a partnership and to the effect that 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
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to the effect that such amendment will not cause the Trust to be an Investment
Company which is required to be registered under the Investment Company Act,
(ii) at such time after the Trust has issued any Securities which remain
outstanding, any amendment which would adversely affect the rights, privileges
or preferences of any Holder of Securities may be effected only with such
additional requirements as may be set forth in the terms of such Securities,
(iii) Section 4.02, Section 9.01(c) and this Section 12.01 shall not be amended
without the consent of all of the Holders of the Securities, (iv) no amendment
which adversely affects the rights, powers and privileges of the Property
Trustee shall be made without the consent of the Property Trustee, (v) Article 4
shall not be amended without the consent of the Sponsor, and (vi) the rights of
Holders of Common Securities under Article 5 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.
(b) Notwithstanding Section 12.02(a)(ii), this Declaration may be amended
without the consent of the Holders of the Securities to (i) cure any ambiguity,
(ii) correct or supplement any provision in this Declaration that may be
defective or inconsistent with any other provision of this Declaration, (iii) to
add to the covenants, restrictions or obligations of the Sponsor, and (iv) to
conform to any changes in Rule 3a-7 or any change in interpretation or
application of Rule 3a-7 by the Commission, which amendment does not adversely
affect the rights, preferences or privileges of the Holders.
SECTION 12.02. Meetings of the Holders of Securities; Action by Written
Consent. (a) Meetings of the Holders of Preferred Securities and/or Common
Securities may be called at any time by the Regular Trustees (or as provided in
the terms of the Securities) to consider and act on any matter on which Holders
of such class of Securities are entitled to act under the terms of this
Declaration, the terms of the Securities or the rules of any stock exchange on
which the Preferred Securities are listed or admitted for trading. The Regular
Trustees shall call a meeting of Holders of Preferred Securities or Common
Securities, if directed to do so by Holders of at least 10% in liquidation
amount of such class of Securities. Such direction shall be given by delivering
to the Regular Trustees one or more calls in a writing stating that the signing
Holders of Securities wish to call a meeting and indicating the general or
specific purpose for which the meeting is to be called. Any Holders of
Securities calling a meeting shall specify in writing the Certificates held by
the Holders of Securities exercising the right to call a meeting and only those
specified Certificates shall be counted for purposes of determining whether the
required percentage set forth in the second sentence of this paragraph has been
met.
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(b) Except to the extent otherwise provided in the terms of the Securities,
the following provision shall apply to meetings of Holders of Securities:
(i) Notice of any such meeting shall be given by mail to all the
Holders of Securities having a right to vote thereat not less than 7 days
nor more than 60 days prior to the date of such meeting. Whenever a vote,
consent or approval of the Holders of Securities is permitted or required
under this Declaration or the rules of any stock exchange on which the
Preferred Securities are listed or admitted for trading, such vote, consent
or approval may be given at a meeting of the Holders of Securities. Any
action that may be taken at a meeting of the Holders of Securities may be
taken without a meeting if a consent in writing setting forth the action so
taken is signed by Holders of Securities owning not less than the minimum
aggregate liquidation amount of Securities that would be necessary to
authorize or take such action at a meeting at which all Holders of
Securities having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the
Holders of Securities entitled to vote who have not consented in writing.
The Regular Trustees may specify that any written ballot submitted to the
Holders of Securities for the purpose of taking any action without a
meeting shall be returned to the Trust within the time specified by the
Regular Trustees.
(ii) Each Holder of a Security may authorize any Person to act for it
by proxy on all matters in which a Holder of a Security is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid after the expiration of
11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Holder of the
Security executing it. Except as otherwise provided herein or in the terms
of the Securities, all matters relating to the giving, voting or validity
of proxies shall be governed by the General Corporation Law of the State of
Delaware relating to proxies, and judicial interpretations thereunder, as
if the Trust were a Delaware corporation and the Holders of the Securities
were stockholders of a Delaware corporation.
(iii) Each meeting of the Holders of the Securities shall be conducted
by the Regular Trustees or by such other Person that the Regular Trustees
may designate.
(iv) Unless otherwise provided in the Business Trust Act, this
Declaration or the rules of any stock exchange on which the Preferred
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Securities are then listed or admitted for trading, the Regular Trustees,
in their sole discretion, shall establish all other provisions relating to
meetings of Holders of Securities, including notice of the time, place or
purpose of any meeting at which any matter is to be voted on by any Holders
of Securities, waiver of any such notice, action by consent without a
meeting, the establishment of a record date, quorum requirements, voting in
person or by proxy or any other matter with respect to the exercise of any
such right to vote.
ARTICLE 13
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 13.01. Representations and Warranties of Property Trustee. (a) The
Trustee which acts as initial Property Trustee represents and warrants to the
Trust and to the Sponsor at the date of this Declaration, and each Successor
Property Trustee represents and warrants to the Trust and the Sponsor at the
time of the Successor Property Trustee's acceptance of its appointment as
Property Trustee that:
(i) The Property Trustee is a national banking association or a
banking corporation with trust powers, duly organized, validly existing and
in good standing under the laws of the United States or the laws of the
state of its incorporation, with trust power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of,
this Declaration.
(ii) The execution, delivery and performance by the Property Trustee
of this Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee. The Declaration has been duly
executed and delivered by the Property Trustee, and constitutes a legal,
valid and binding obligation of the Property Trustee, enforceable against
it in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(iii) The execution, delivery and performance of this Declaration by
the Property Trustee does not conflict with or constitute a breach of the
Charter or By-laws of the Property Trustee.
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(iv) No consent, approval or authorization of, or registration with or
notice to, any banking authority which supervises or regulates the Property
Trustee is required for the execution, delivery or performance by the
Property Trustee, of this Declaration.
(v) The Property Trustee satisfies the qualifications set forth in
Section 5.01(c).
(b) The Trustee which acts as initial Delaware Trustee represents and
warrants to the Trust and the Sponsor at the date of this Declaration, and each
Successor Delaware Trustee represents and warrants to the Trust and the Sponsor
at the time of the Successor Delaware Trustee's acceptance of its appointment as
Delaware Trustee, that it satisfies the qualifications set forth in Section
5.01(a)(3).
ARTICLE 14
MISCELLANEOUS
SECTION 14.01. Notices. All notices provided for in this Declaration shall
be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the Trust's
mailing address set forth below (or such other address as the Regular Trustees
on behalf of the Trust may give notice of to the Holders of the Securities):
AES Trust I
c/o The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
Attention: General Counsel
Facsimile No: (703) 528-4510
(b) if given to the Property Trustee, at the mailing address of the
Property Trustee set forth below (or such other address as the Property Trustee
may give notice of to the Holders of the Securities):
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, IL 60670-0126
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Attention: Corporate Trust Administrator
Telecopy: (312) 407-1708
(c) if given to the Delaware Trustee, at the mailing address of the
Delaware Trustee set forth below (or such other address as the Delaware Trustee
may give notice of to the Holders of the Securities):
First Chicago Delaware Inc.
300 King Street
Wilmington, Delaware 19801
Telecopy: (312) 407-1708
(d) if given to the Holder of the Common Securities, at the mailing address
of the Sponsor set forth below (or such other address as the Holder of the
Common Securities may give notice to the Trust):
The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
Attention: Corporate Secretary
Facsimile No: (703) 528-4510
(e) if given to any other Holder, at the address set forth on the books and
records of the Trust.
A copy of any notice to the Property Trustee or the Delaware Trustee shall
also be sent to the Trust. All notices shall be deemed to have been given, when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 14.02. Undertaking for Costs. All parties to this Declaration
agree, and each Holder of any Securities by his or her acceptance thereof shall
be deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this Declaration, or in
any suit against the Property Trustee for any action taken or omitted by it as
Property Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 14.02 shall not apply to any suit
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instituted by the Property Trustee, to any suit instituted by any Holder of
Preferred Securities, or group of Holders of Preferred Securities, holding more
than 10% in aggregate liquidation amount of the outstanding Preferred
Securities, or to any suit instituted by any Holder of Preferred Securities for
the enforcement of the payment of the principal of (or premium, if any) or
interest on the Debentures, on or after the respective due dates expressed in
such Debentures.
SECTION 14.03. Governing Law. This Declaration and the rights of the
parties hereunder shall be governed by and interpreted in accordance with the
laws of the State of Delaware and all rights and remedies shall be governed by
such laws without regard to principles of conflict of laws.
SECTION 14.04. Headings. Headings contained in this Declaration are
inserted for convenience of reference only and do not affect the interpretation
of this Declaration or any provision hereof.
SECTION 14.05. Partial Enforceability. If any provision of this
Declaration, or the application of such provision to any Person or circumstance,
shall be held invalid, the remainder of this Declaration, or the application of
such provision to persons or circumstances other than those to which it is held
invalid, shall not be affected thereby.
SECTION 14.06. Counterparts. This Declaration may contain more than one
counterpart of the signature pages and this Declaration may be executed by the
affixing of the signature of the Sponsor and each of the Trustees to one of such
counterpart signature pages. All of such counterpart signature pages shall be
read as though one, and they shall have the same force and effect as though all
of the signers had signed a single signature page.
SECTION 14.07. Intention of the Parties. It is the intention of the parties
hereto that the Trust not be classified for United States federal income tax
purposes as an association taxable as a corporation or partnership but that the
Trust be treated as a grantor trust for United States federal income tax
purposes. The provisions of this Declaration shall be interpreted to further
this intention of the parties.
SECTION 14.08. Successors and Assigns. Whenever in this Declaration any of
the parties hereto is named or referred to, the successors and assigns of such
party shall be deemed to be included, and all covenants and agreements in this
Declaration by the Sponsor and the Trustees shall bind and inure to the benefit
of their respective successors and assigns, whether so expressed.
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IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
THE AES Corporation
as Sponsor
By: /s/ BARRY J. SHARP
-------------------------------------------------
Name: Barry J. Sharp
Title: Vice PREsident and Chief Financial Officer
/s/ WILLIAM R. LURASCHI
-------------------------------------------------
William R. Luraschi
as Trustee
/s/ WILLARD J. HOAGLAND
-------------------------------------------------
Willard Hoagland
as Trustee
/s/ BARRY J. SHARP
-------------------------------------------------
Barry J. Sharp
as Trustee
The First National Bank of Chicago
as Property Trustee
By: /s/ MARY R. FONTI
-------------------------------------------------
Name: Mary R. Fonti
Title: Assistant Vice President
First Chicago Delaware Inc.
as Delaware Trustee
By: /s/ MELISSA S. WEISMAN
-------------------------------------------------
Name:Melissa S. Weisman
Title: Vice President
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EXHIBIT A
RESTATED CERTIFICATE OF TRUST
OF
AES TRUST I
THIS Restated Certificate of Trust of AES Capital Trust I (the "Trust"),
dated March 26, 1996, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. Code ss. 3801 et seq.).
WHEREAS, the Trustees entered into a Certificate of Trust dated as of
November 1, 1996 (the "Original Certificate") in order to form a business trust
under the Delaware Business Trust Act (12 Del. Code ss. 3801 et seq.).
NOW, THERETOFORE, it is the intention of the parties hereto that the
Original Certificate of Trust be amended and restated in its entirety as
provided herein.
1. Name. The name of the business trust being formed hereby is AES Trust I.
2. Delaware Trustee. The name and business address of the trustee of the
Trust with a principal place of business in the State of Delaware is First
Chicago Delaware Inc., 300 King Street, Wilmington, Delaware 19801.
3. Effective Date. This Certificate of Trust shall be effective as of its
filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust,
have executed this Certificate of Trust as of the date first above written.
First Chicago Delaware Inc.
as Delaware Trustee
/s/ Steven M. Wagner
------------------------
Name: Steven M. Wagner
Title: Vice President
<PAGE>
The First National Bank of Chicago
as Property Trustee
/s/ Richard D. Manella
--------------------------
Name: Richard D. Manella
Title: Vice President
/s/ William R. Luraschi
--------------------------
William R. Luraschi
as Trustee
/s/ Willard Hoagland
--------------------------
Willard Hoagland
as Trustee
/s/ Barry J. Sharp
--------------------------
Barry J. Sharp
as Trustee
<PAGE>
EXHIBIT B
TERMS OF
PREFERRED SECURITIES
Pursuant to Section 7.01 of the Amended and Restated Declaration of Trust
of AES Trust I dated as of March 31, 1997 (as amended from time to time, the
"Declaration"), the designations, rights, privileges, restrictions, preferences
and other terms and provisions of the Preferred Securities are set forth below
(each capitalized term used but not defined herein having the meaning set forth
in the Declaration):
1. DESIGNATION AND NUMBER. Preferred Securities of the Trust with an
aggregate liquidation amount in the assets of the Trust of Two Hundred and Fifty
Million Dollars ($250,000,000) (plus up to an additional Twenty Five Million
Dollars ($25,000,000) issuable upon exercise of the overallotment option set
forth in the Underwriting Agreement) and a liquidation amount in the assets of
the Trust of $50 per Preferred Security, are hereby designated as "$2.6875 Term
Convertible Securities, Series A". The Preferred Security Certificates
evidencing the Preferred Securities shall be substantially in the form attached
hereto as Annex I, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice or to conform
to the rules of any stock exchange on which the Preferred Securities are listed.
In connection with the issuance and sale of the Preferred Securities and the
Common Securities, the Trust will purchase as trust assets Debentures of AES
having an aggregate principal amount equal to the aggregate liquidation amount
of the Preferred Securities and Common Securities so issued and bearing interest
at an annual rate equal to the annual Distribution rate on the Preferred
Securities and Common Securities and having payment and redemption provisions
which correspond to the payment and redemption provisions of the Preferred
Securities and Common Securities.
2. DISTRIBUTIONS. (a) Distributions payable on each Preferred Security will
be fixed at a rate per annum of 5.375% (the "Coupon Rate") of the stated
liquidation amount of $50 per Preferred Security. Distributions in arrears for
more than one calendar quarter will bear interest at the rate per annum of
5.375% thereof (to the extent permitted by law), compounded quarterly. The term
"Distributions" as used herein means such periodic cash distributions and any
such interest payable unless otherwise stated. A Distribution will be made by
the Property Trustee only to the extent that interest payments are made in
respect of the Debentures held by the Property Trustee. The amount of
Distributions payable for any period will be
<PAGE>
computed for any quarterly Distribution period on the basis of a 360-day year of
twelve 30-day months.
(b) Distributions on the Preferred Securities will be cumulative, will
accrue from March 31, 1997 and will be payable quarterly in arrears, on the last
day of each quarter commencing on June 30, 1997, except as otherwise described
below, but only if and to the extent that interest payments are made in respect
of the Debentures held by the Property Trustee. So long as AES shall not be in
default in the payment of interest on the Debentures, AES has the right under
the Indenture for the Debentures to defer payments of interest by extending the
interest payment period from time to time on the Debentures for a period not
exceeding 20 consecutive quarterly interest periods (each, an "Extension
Period") and, as a consequence, quarterly Distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at the rate of
5.375% per annum, compounded quarterly during any such Extension Period. Prior
to the termination of any such Extension Period, AES 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; and provided that no Extension Period shall last beyond the
date of maturity or any redemption date of the Debentures.. Upon the termination
of any Extension Period and the payment of all amounts then due, AES may
commence a new Extension Period, subject to the above requirements. Payments of
accrued Distributions will be payable to Holders of Preferred Securities as they
appear on the books and records of the Trust on the first record date after the
end of the Extension Period.
(c) Distributions on the Preferred Securities will be payable promptly by
the Property Trustee (or other Paying Agent) upon receipt of immediately
available funds to the Holders thereof as they appear on the books and records
of the Trust on the relevant record dates. While the Preferred Securities remain
in book-entry only form, the relevant record dates shall be one business day
prior to the relevant Distribution date, and if the Preferred Securities are no
longer in book-entry only 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. Distributions payable on any Preferred Securities
that are not punctually paid on any Distribution payment date as a result of AES
having failed to make the corresponding interest payment on the Debentures will
forthwith cease to be payable to the person in whose name such Preferred
Security is registered on the relevant record date, and such defaulted
Distribution will instead be payable to the person in whose name such Preferred
Security 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 AES has elected to make a full or
partial payment of interest
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accrued on the Debentures on such Distribution payment date. Subject to any
applicable laws and regulations and the provisions of the Declaration, each
payment in respect of the Preferred Securities will be made as described in
paragraph 10 hereof. If any date on which Distributions are payable on the
Preferred Securities is not a Business Day, then payment of the Distribution
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.
(d) All Distributions paid with respect to the Preferred Securities and the
Common Securities will be paid Pro Rata to the Holders thereof entitled thereto.
If an Event of Default has occurred and is continuing, the Preferred Securities
shall have a priority over the Common Securities with respect to Distributions.
(e) In the event of an election by the Holder to convert its Securities
through the Conversion Agent into Common Stock pursuant to the terms of the
Securities as set forth in this Exhibit B to the Declaration, no payment,
allowance or adjustment shall be made with respect to accumulated and unpaid
Distributions on such Securities, or be required to be made; provided, however,
that if a Security is surrendered for conversion after the close of business on
any regular record date for payment of a Distribution and before the opening of
business on the corresponding Distribution date, then, notwithstanding such
conversion, the Distribution payable on such Distribution date will be paid in
cash to the person in whose name the Security is registered at the close of
business on such record date, and (other than a Security or a portion of a
Security called for redemption on a redemption date occurring after such record
date and on or prior to such Distribution date) when so surrendered for
conversion, the Security must be accompanied by payment of an amount equal to
the Distribution payable on such Distribution date.
(f) In the event that there is any money or other property held by or for
the Trust that is not accounted for under the Declaration, such money or
property shall be distributed Pro Rata among the Holders of the Preferred
Securities and Common Securities.
3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any voluntary
or involuntary dissolution, winding-up or termination of the Trust, the Holders
of the Preferred Securities and Common Securities at the date of the
dissolution, winding-up or termination, as the case may be, will be entitled to
receive Pro Rata solely out of the assets of the Trust available for
distribution to Holders of Preferred Securities and Common Securities after
satisfaction of liabilities to creditors, an amount equal to the aggregate of
the stated liquidation amount of $50 per
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Preferred Security and Common Security plus accrued and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"), unless, in connection with such dissolution, winding-up or
termination, and after satisfaction of liabilities to creditors, Debentures in
an aggregate principal amount equal to the aggregate stated liquidation amount
of such Preferred Securities and Common Securities and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions on,
such Preferred Securities and Common Securities, shall be distributed Pro Rata
to the Holders of the Preferred Securities and Common Securities in exchange for
such Securities.
If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities and Common Securities shall be paid, subject
to the next paragraph, on a Pro Rata basis.
Holders of Common Securities will be entitled to receive Liquidation
Distributions upon any such dissolution Pro Rata with Holders of Preferred
Securities, except that if an Event of Default has occurred and is continuing,
the Preferred Securities shall have a priority over the Common Securities with
respect to such Liquidation Distribution.
4. REDEMPTION AND DISTRIBUTION OF DEBENTURES. The Preferred Securities and
Common Securities may only be redeemed if Debentures having an aggregate
principal amount equal to the aggregate liquidation amount of the Preferred
Securities and Common Securities are repaid, redeemed or distributed as set
forth below:
(a) Upon the repayment of the Debentures, in whole or in part, whether at
maturity, upon redemption at any time or from time to time on or after March 31,
2000, or at any time in certain circumstances upon the occurrence of a Tax
Event, the proceeds of such repayment will be promptly applied to redeem Pro
Rata Preferred Securities and Common Securities having an aggregate liquidation
amount equal to the aggregate principal amount of the Debentures so repaid or
redeemed, upon not less than 30 nor more than 60 days' notice, at a redemption
price per Preferred and Common Security equal to the redemption price of the
Debentures, together with accrued and unpaid Distributions thereon through the
date of redemption, payable in cash (the "Redemption Price"). The date of any
such repayment or redemption of Preferred Securities and Common Securities shall
be established to coincide with the repayment or redemption date of the
Debentures.
(b) If fewer than all the outstanding Preferred Securities and Common
Securities are to be so redeemed, the Preferred Securities and the Common
Securities will be redeemed Pro Rata and the Preferred Securities to be redeemed
will be
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redeemed as described in paragraph 4(f)(ii) below. If a partial redemption would
result in the delisting of the Preferred Securities by any national securities
exchange or other organization on which the Preferred Securities are then
listed, AES pursuant to the Indenture will only redeem Debentures in whole and,
as a result, the Trust may only redeem the Preferred Securities in whole.
(c) 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 Regular Trustees shall, unless the Debentures are redeemed in the limited
circumstances described below, dissolve the Trust and, after satisfaction of
creditors, cause Debentures held by the Property Trustee having an aggregate
principal amount equal to the aggregate stated liquidation amount of and accrued
and unpaid interest equal to accrued and unpaid Distributions on, and having the
same record date for payment as the Preferred Securities and Common Securities,
to be distributed to the Holders of the Preferred Securities and Common
Securities on a Pro Rata basis in liquidation of such Holders' interests in the
Trust, within 90 days following the occurrence of such Special Event (the "90
Day Period"), 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 a nationally recognized independent tax
counsel experienced in such matters (a "No Recognition Opinion"), which opinion
may rely on any then applicable published revenue ruling of the Internal Revenue
Service, to the effect that the Holders of the Preferred Securities will not
recognize any gain or loss for United States federal income tax purposes as a
result of the dissolution of the Trust and distribution of Debentures; and
provided, further, that, if and as long as at the time there is available to the
Trust the opportunity to eliminate, within the 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 that has no adverse effect on
the Trust, AES or the Holders of the Preferred Securities ("Ministerial
Action"), the Trust will pursue such measure in lieu of dissolution.
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 AES would be precluded from
deducting the interest on the Debentures for United States federal income tax
purposes even if the Debentures were distributed to the Holders of Preferred
Securities and Common Securities in liquidation of such Holder's interest in the
Trust as described in this paragraph 4(c) or (ii) the Regular Trustees shall
have been informed by such tax counsel that a No Recognition Opinion cannot be
delivered to the Trust, AES shall have the right at any time, upon not less than
30 nor more than 60 days' notice, to redeem the Debentures in whole or in part
for cash at the Redemption Price within 90 days following the occurrence of such
Tax Event, and promptly following such
5
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redemption Preferred Securities and Common Securities with an aggregate
liquidation amount equal to the aggregate principal amount of the 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 AES or the
Regular Trustees on behalf of the Trust the opportunity to eliminate, within
such 90 day period, the Tax Event by taking some Ministerial Action, AES or the
Regular Trustees on behalf of the Trust will pursue such measure in lieu of
redemption and; provided, further, that AES shall have no right to redeem the
Debentures while the Regular Trustees on behalf of the Trust are pursuing such
Ministerial Action. The Common Securities will be redeemed Pro Rata with the
Preferred Securities, except that if an Event of Default under the Indenture has
occurred and is continuing, the Preferred Securities will have a priority over
the Common Securities with respect to payment of the Redemption Price.
"Tax Event" means that the Regular Trustees shall have obtained an opinion
of nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that on or after March 24, 1997 as a
result of (a) any amendment to, or change (including any announced prospective
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 announced or which
interpretation or pronouncement is issued or announced or which action is taken,
in each case on or after March 24, 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 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 AES to the Trust on the
Debentures is not, or within 90 days of the date thereof will not be, deductible
by AES 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 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
6
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is or will be considered an Investment Company which is required to be
registered under the Investment Company Act, which Change in 1940 Act Law
becomes effective on or after March 24, 1997.
On the date fixed for any distribution of Debentures, upon dissolution of
the Trust, (i) the Preferred Securities will no longer be deemed to be
outstanding and (ii) certificates representing Preferred Securities will be
deemed to represent beneficial interests in the Debentures having an aggregate
principal amount equal to the stated liquidation amount of, and bearing accrued
and unpaid interest equal to accrued and unpaid Distributions on, such Preferred
Securities until such certificates are presented to AES or its agent for
transfer or reissuance.
(d) The Trust may not redeem any outstanding Preferred Securities unless
all accrued and unpaid Distributions have been paid on all Preferred Securities
for all quarterly Distribution periods terminating on or prior to the date of
redemption.
(e) If Debentures are distributed to Holders of the Preferred Securities,
AES, pursuant to the terms of the Indenture, will use its best efforts to have
the Debentures listed on the New York Stock Exchange or on such other exchange
as the Preferred Securities were listed immediately prior to the distribution of
the Debentures.
(f) (i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Preferred Securities and Common Securities (a
"Redemption/ Distribution Notice") will be given by the Regular Trustees on
behalf of the Trust by mail to each Holder of Preferred Securities and Common
Securities to be redeemed or exchanged not less than 30 nor more than 60 days
prior to the date fixed for redemption or exchange thereof. For purposes of the
calculation of the date of redemption or exchange and the dates on which notices
are given pursuant to this paragraph (f)(i), a Redemption/Distribution Notice
shall be deemed to be given on the day such notice is first mailed by
first-class mail, postage prepaid, to Holders of Preferred Securities and Common
Securities. Each Redemption/Distribution Notice shall be addressed to the
Holders of Preferred Securities and Common Securities at the address of each
such Holder appearing in the books and records of the Trust. No defect in the
Redemption/Distribution Notice or in the mailing of either thereof with respect
to any Holder shall affect the validity of the redemption or exchange
proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Preferred Securities
are to be redeemed, the Preferred Securities to be redeemed will be redeemed Pro
Rata from each Holder of Preferred Securities, it being understood that, in
respect of Preferred Securities registered in the name of and held of record by
DTC (or successor Clearing Agency) or any other nominee, the Preferred
Securities will be redeemed from, and the distribution of the proceeds of such
redemption will be made to, each Clearing
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Agency Participant (or person on whose behalf such nominee holds such
securities) in accordance with the procedures applied by such agency or nominee.
(iii) Subject to paragraph 10 hereof, if the Trust gives a Redemption/
Distribution Notice in respect of a redemption of Preferred Securities as
provided in this paragraph 4 (which notice will be irrevocable) then (A) while
the Preferred Securities are in book-entry only form, with respect to the
Preferred Securities, by 12:00 noon, New York City time, on the redemption date,
provided that AES has paid the Property Trustee, in immediately available funds,
a sufficient amount of cash in connection with the related redemption or
maturity of the Debentures, the Property Trustee will deposit irrevocably with
DTC (or successor Clearing Agency) funds sufficient to pay the applicable
Redemption Price with respect to the Preferred Securities and will give DTC (or
successor Clearing Agency) irrevocable instructions and authority to pay the
Redemption Price to the Holders of the Preferred Securities and (B) if the
Preferred Securities are issued in definitive form, with respect to the
Preferred Securities and provided that AES has paid the Property Trustee, in
immediately available funds, a sufficient amount of cash in connection with the
related redemption or maturity of the Debentures, the Property Trustee will pay
the relevant Redemption Price to the Holders of such Preferred Securities by
check mailed to the address of the relevant Holder appearing on the books and
records of the Trust on the redemption date. If a Redemption/Distribution Notice
shall have been given and funds deposited as required, if applicable, then
immediately prior to the close of business on the date of such deposit,
Distributions will cease to accrue on the Preferred Securities called for
redemption, such Preferred Securities will no longer be deemed to be outstanding
and all rights of Holders of such Preferred Securities so called for redemption
will cease, except the right of the Holders of such Preferred Securities to
receive the Redemption Price, but without interest on such Redemption Price.
Neither the Trustees nor the Trust shall be required to register or cause to be
registered the transfer of any Preferred Securities which have been so called
for redemption. If any date fixed for redemption of Preferred Securities is not
a Business Day, then payment of the Redemption Price payable on such date will
be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date fixed for redemption. If AES fails to repay Debentures
on maturity or on the date fixed for this redemption or if payment of the
Redemption Price in respect of Preferred Securities is improperly withheld or
refused and not paid either by the Property Trustee or by AES pursuant to the
Preferred Securities Guarantee, Distributions on such Preferred Securities 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 Redemption Price.
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(iv) Redemption/Distribution Notices shall be sent by the Regular Trustees
on behalf of the Trust to DTC or its nominee (or any successor Clearing Agency
or its nominee) if the Global Certificates have been issued or, if Definitive
Preferred Security Certificates have been issued, to the Holders of the
Preferred Securities.
(v) Upon the date of dissolution of the Trust and distribution of
Debentures as a result of the occurrence of a Special Event, Preferred Security
Certificates shall be deemed to represent beneficial interests in the Debentures
so distributed, and the Preferred Securities will no longer be deemed
outstanding and may be canceled by the Regular Trustees. The Debentures so
distributed shall have an aggregate principal amount equal to the aggregate
liquidation amount of the Preferred Securities so distributed.
(vi) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), AES or any of its
subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
5. CONVERSION RIGHTS. The Holders of Securities shall have the right at any
time prior to the close of business on March 31, 2027 (or, in the case of
Securities called for redemption, prior to the close of business on the Business
Day prior to the redemption date), at their option, to cause the Conversion
Agent to convert Securities, on behalf of the converting Holders, into shares of
Common Stock in the manner described herein on and subject to the following
terms and conditions:
The Securities will be convertible at the office of the Conversion Agent
into fully paid and nonassessable shares of Common Stock pursuant to the
Holder's direction to the Conversion Agent to exchange such Securities for a
portion of the Debentures theretofore held by the Trust on the basis of one
Security per $50 principal amount of Debentures, and immediately convert such
amount of Debentures into fully paid and nonassessable shares of Common Stock at
an initial rate of 0.6906 shares of Common Stock per $50 principal amount of
Debentures (which is equivalent to a conversion price of $72.40 per share of
Common Stock, subject to certain adjustments set forth in Sections 5.03 and 5.04
of the Supplemental Indenture (as so adjusted, the "Conversion Price")).
(a) In order to convert Securities into Common Stock the Holder shall
submit to the Conversion Agent at the office referred to above an irrevocable
request to convert Securities on behalf of such Holder (the "Conversion
Request"), together, if the Securities are in certificated form, with such
certificates. The Conversion Request shall (i) set forth the number of
Securities to be converted and the name or names, if other than the Holder, in
which the shares of Common Stock should be issued and (ii) direct the Conversion
Agent (a) to exchange such Securities for a
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portion of the Debentures held by the Trust (at the rate of exchange specified
in the preceding paragraph) and (b) to immediately convert such Debentures on
behalf of such Holder, into Common Stock (at the conversion rate specified in
the preceding paragraph). The Conversion Agent shall notify the Property Trustee
of the Holder's election to exchange Securities for a portion of the Debentures
held by the Trust and the Property Trustee shall, upon receipt of such notice,
deliver to the Conversion Agent the appropriate principal amount of Debentures
for exchange in accordance with this Section. The Conversion Agent shall
thereupon notify the Property Trustee of the Holder's election to convert such
Debentures into shares of Common Stock. If a Security is surrendered for
conversion after the close of business on any regular record date for payment of
a Distribution and before the opening of business on the corresponding
Distribution payment date, then, notwithstanding such conversion, the
Distribution payable on such Distribution payment date will be paid in cash to
the person in whose name the Security is registered at the close of business on
such record date, and (other than a Security or a portion of a Security 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
Security must be accompanied by payment of an amount equal to the Distribution
payable on such Distribution payment date. Except as provided above, neither the
Trust nor the Sponsor will make, or be required to make, any payment, allowance
or adjustment upon any conversion on account of any accumulated and unpaid
Distributions accumulated on the Securities surrendered for conversion, or on
account of any accumulated and unpaid dividends on the shares of Common Stock
issued upon such conversion. Securities shall be deemed to have been converted
immediately prior to the close of business on the day on which the Conversion
Request relating to such Securities is received by the Trust in accordance with
the foregoing provision (the "Conversion Date"). The Person or Persons entitled
to receive Common Stock issuable upon conversion of the Debentures shall be
treated for all purposes as the record holder or holders of such Common Stock at
such time. As promptly as practicable on or after the Conversion Date, the
Sponsor shall issue and deliver at the office of the Conversion Agent a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, together with the cash payment, if any, in lieu
of any fraction of any share to the Person or Persons entitled to receive the
same, unless otherwise directed by the Holder in the Conversion Request and the
Conversion Agent shall distribute such certificate or certificates, together
with the applicable cash payment, if any, to such Person or Persons.
(b) Each Holder of a Security by his acceptance thereof appoints The First
National Bank of Chicago "Conversion Agent" for the purpose of effecting the
conversion of Securities in accordance with this Section. In effecting the
conversion and transactions described in this Section, the Conversion Agent
shall be acting as agent of the Holders of Securities directing it to effect
such conversion transactions. The Conversion Agent is hereby authorized (i) to
exchange Securities from time to
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time for Debentures held by the Trust in connection with the conversion of such
Securities in accordance with this section and (ii) to convert all or a portion
of the Debentures into Common Stock and thereupon to deliver such shares of
Common Stock in accordance with the provisions of this section and to deliver to
the Trust a new Debenture or Debentures for any resulting unconverted principal
amount.
(c) No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof, such fractional interest will be paid in cash
by the Sponsor to the Conversion Agent, which in turn will make such payment to
the Holder or Holders of Securities so converted.
(d) The Sponsor shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for issuance upon the conversion of
the Debentures, free from any preemptive or other similar rights, such number of
shares of Common Stock as shall from time to time be issuable upon the
conversion of all the Debentures then outstanding. Notwithstanding the
foregoing, the Sponsor shall be entitled to deliver upon conversion of
Debentures, shares of Common Stock reacquired and held in the treasury of the
Sponsor (in lieu of the issuance of authorized and unissued shares of Common
Stock), so long as any such treasury shares are free and clear of all liens,
charges, security interests or encumbrances. Any shares of Common Stock issued
upon conversion of the Debentures shall be duly authorized, validly issued and
fully paid and nonassessable. The Trust shall deliver the shares of Common Stock
received upon conversion of the Debentures to the converting Holder free and
clear of all liens, charges, security interests and encumbrances, except for
United States withholding taxes. Each of the Sponsor and the Trust shall prepare
and shall use its best efforts to obtain and keep in force such governmental or
regulatory permits or other authorizations as may be required by law, and shall
comply with all applicable requirements as to registration or qualification of
Common Stock (and all requirements to list Common Stock issuable upon conversion
of Debentures that are at the time applicable), in order to enable the Sponsor
to lawfully issue Common Stock to the Trust upon conversion of the Debentures
and the Trust to lawfully deliver Common Stock to each Holder upon conversion of
the Securities.
(e) The Sponsor will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Debentures
and the delivery of the shares of Common Stock by the Trust upon conversion of
the Securities. The Sponsor shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Securities so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Trust the amount of
any such tax, or has established to the satisfaction of the Trust that such tax
has been paid.
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(f) Nothing in the preceding Paragraph (e) shall limit the requirement of
the Trust to withhold taxes pursuant to the terms of the Securities as set forth
in this Exhibit B to the Declaration or to the Declaration itself or otherwise
require the Property Trustee or the Trust to pay any amounts on account of such
withholdings.
6. VOTING RIGHTS. (a) Except as provided under paragraph 6(b) below and as
otherwise required by law and the Declaration, the Holders of the Preferred
Securities will have no voting rights.
(b) If any proposed amendment to the Declaration provides for, or the
Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Securities,
whether by way of amendment to the Declaration or otherwise, or (ii) the
dissolution, winding-up or termination of the Trust, other than in connection
with the distribution of Debentures held by the Property Trustee, upon the
occurrence of a Special Event or in connection with the redemption of Preferred
Securities as a consequence of a redemption of Debentures, then the Holders of
outstanding Securities will be entitled to vote on such amendment or proposal as
a class and such amendment or proposal shall not be effective except with the
approval of the Holders of Securities representing a Majority in liquidation
amount of such Securities; provided, however, that (A) if any amendment or
proposal referred to in clause (i) above would adversely affect only the
Preferred Securities or the Common Securities, then only the affected class will
be entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a Majority in liquidation
amount of such class of Securities and (B) amendments to the Declaration shall
be subject to such further requirements as are set forth in Sections 12.01 and
12.02 of the Declaration.
In the event the consent of the Property Trustee, as the holder of the
Debentures, is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the Property
Trustee shall request the written direction of the Holders of the Securities
with respect to such amendment, modification or termination. The Property
Trustee shall vote with respect to such amendment, modification or termination
as directed by a Majority in liquidation amount of the Securities voting
together as a single class; provided that where such amendment, modification or
termination of the Indenture requires the consent or vote of (1) holders of
Debentures representing a specified percentage greater than a majority in
principal amount of the Debentures or (2) each holder of Debentures, the
Property Trustee may only vote with respect to that amendment, modification or
termination as directed by, in the case of clause (1) above, the vote of Holders
of Securities representing such specified percentage of the aggregate
liquidation amount of the Securities, or, in the case of clause (2) above, each
Holder of Securities; and provided, further, that the Property Trustee shall be
under no obligation to take any action in accordance with the directions of the
Holders of
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Securities unless the Property Trustee shall have received, at the expense of
the Sponsor, 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.
Subject to Section 2.06 of the Declaration, and the provisions of this and
the next succeeding paragraph, the Holders of a Majority in liquidation amount
of the Preferred Securities, voting separately as a class shall have the right
to (A) on behalf of all Holders of Preferred Securities, waive any past default
that is waivable under the Declaration (subject to, and in accordance with the
Declaration) and (B) 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
Debentures, to (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or exercising any
trust or power conferred on the Debenture Trustee with respect to the
Debentures, (ii) waive any past default that is waivable under Section 6.06 of
the Indenture, or (iii) exercise any right to rescind or annul a declaration
that the principal of all the Debentures shall be due and payable; provided that
where the taking of any action under the Indenture requires the consent or vote
of (1) holders of Debentures representing a specified percentage greater than a
majority in principal amount of the Debentures or (2) each holder of Debentures,
the Property Trustee may only take such action if directed by, in the case of
clause (1) above, the vote of Holders of Preferred Securities representing such
specified percentage of the aggregate liquidation amount of the Preferred
Securities, or, in the case of clause (2) above, each Holder of Preferred
Securities. The Property Trustee shall not revoke any action previously
authorized or approved by a vote of the Holders of the Preferred Securities.
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 Debenture
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 Preferred
Securities unless the Property Trustee shall have received, at the expense of
the Sponsor, 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 Debentures under the Indenture), any Holder of
Preferred Securities may, to the extent permitted by 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
13
<PAGE>
legal proceeding directly against AES to enforce the Property Trustee's rights
under the Declaration, without first instituting a legal proceeding against the
Property Trustee or any other Person. Notwithstanding the foregoing, if an Event
of Default has occurred and is continuing and such event is attributable to the
failure of the Sponsor to pay interest or principal on the Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then the registered holder of the Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Debentures having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities of
such Holder (a "Holder Direct Action") on or after the respective due date
specified in the Debentures. In connection with such Holder Direct Action, the
Sponsor will be subrogated to the rights of such Holder of Preferred Securities
under the Declaration to the extent of any payment made by the Sponsor to such
Holder of Preferred Securities in such Holder Direct Action. Except as provided
in the preceding sentences, the holders of Preferred Securities will not be able
to exercise any other remedy available to the holders of the Debentures.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of the Holders of the Preferred Securities will constitute a waiver of
the corresponding Event of Default under the Declaration in respect of the
Securities.
Any required approval or direction of Holders of Preferred Securities may
be given at a separate meeting of Holders of Preferred Securities convened for
such purpose, at a meeting of all of the Holders of Securities of the Trust or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which Holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Preferred Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consents.
No vote or consent of the Holders of Preferred Securities will be required
for the Trust to redeem and cancel Preferred Securities or distribute Debentures
in accordance with the Declaration.
Notwithstanding that Holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities at such time that are owned by AES or by any entity directly or
indirectly controlling or controlled by or under direct or indirect common
control with AES 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.
14
<PAGE>
Except as provided in this paragraph 6, Holders of the Preferred Securities
will have no rights to increase or decrease the number of Trustees or to
appoint, remove or replace a Trustee, which voting rights are vested solely in
the Holders of the Common Securities.
7. PRO RATA TREATMENT. A reference in these terms of the Preferred
Securities to any payment, distribution or treatment as being "Pro Rata" shall
mean pro rata to each Holder of Securities according to the aggregate
liquidation amount of the Securities held by the relevant Holder in relation to
the aggregate liquidation amount of all Securities outstanding unless, in
relation to a payment, an 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 Preferred Securities pro rata according to the aggregate
liquidation amount of Preferred Securities held by the relevant Holder relative
to the aggregate liquidation amount of all Preferred Securities outstanding, and
only after satisfaction of all amounts owed to the Holders of the Preferred
Securities, to each Holder of Common Securities pro rata according to the
aggregate liquidation amount of Common Securities held by the relevant Holder
relative to the aggregate liquidation amount of all Common Securities
outstanding.
8. RANKING. The Preferred Securities rank pari passu and payment thereon
will be made Pro Rata with the Common Securities except that where an Event of
Default occurs and is continuing, the rights of Holders of Preferred Securities
to payment in respect of Distributions and payments upon liquidation, redemption
or otherwise rank in priority to the rights of Holders of the Common Securities.
9. MERGERS, CONSOLIDATIONS OR AMALGAMATIONS. 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.
10. TRANSFER, EXCHANGE, METHOD OF PAYMENTS. Payment of Distributions and
payments on redemption of the Preferred Securities will be payable, the transfer
of the Preferred Securities will be registrable, and Preferred Securities will
be exchangeable for Preferred Securities of other denominations of a like
aggregate liquidation amount, at the principal corporate trust office of the
Property Trustee in The City of New York; provided that payment of Distributions
may be made at the option of the Regular Trustees on behalf of the Trust by
check mailed to the address of the persons entitled thereto and that the payment
on redemption of any Preferred Security will be made only upon surrender of such
Preferred Security to the Property Trustee.
11. ACCEPTANCE OF INDENTURE AND PREFERRED GUARANTEE. Each Holder of
Preferred Securities, by the acceptance thereof, agrees to the provisions of (i)
the Preferred Guarantee, including the subordination provisions therein and (ii)
the
15
<PAGE>
Indenture and the Debentures, including the subordination provisions of the
Indenture.
12. NO PREEMPTIVE RIGHTS. The Holders of Preferred Securities shall have no
preemptive rights to subscribe to any additional Preferred Securities or Common
Securities.
13. MISCELLANEOUS. These terms shall constitute a part of the Declaration.
The Trust will provide a copy of the Declaration and the Indenture to a Holder
without charge on written request to the Trust at its principal place of
business.
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<PAGE>
Annex I
FORM OF PREFERRED SECURITY CERTIFICATE
[IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - This
Preferred Security is a Global Certificate within the meaning of the Declaration
hereinafter referred to and is registered in the name of The Depository Trust
Company ("DTC") or a nominee of DTC. This Preferred Security is exchangeable for
Preferred Securities registered in the name of a person other than DTC or its
nominee only in the limited circumstances described in the Declaration and no
transfer of this Preferred Security (other than a transfer of this Preferred
Security as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC) may be registered except in limited circumstances.
Unless this Preferred Security is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York) to the Trust or its
agent for registration of transfer, exchange or payment, and any Preferred
Security issued is registered in the name of Cede & Co. or such other name as
requested by an authorized representative of The Depository Trust Company and
any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner
hereof, Cede & Co., has an interest herein.]
Number ___________ Preferred Securities
-----------
CUSIP NO. ____________
Certificate Evidencing Preferred Securities
of
AES Trust I
$2.6875 Term Convertible Securities, Series A
(liquidation amount $50 per security)
AES Trust I, a statutory business trust created under the laws of the State
of Delaware (the "Trust"), hereby certifies that _________ (the "Holder") is the
registered owner of ___________ (______) preferred securities of the Trust
<PAGE>
representing undivided beneficial interests in the assets of the Trust
designated the $2.6875 Term Convertible Securities, Series A (liquidation amount
$50 per security) (the "Preferred Securities"). The Preferred Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Securities are set
forth in, and this certificate and the Preferred Securities represented hereby
are issued and shall in all respects be subject to the terms and provisions of,
the Amended and Restated Declaration of Trust of the Trust dated as of March 31,
1997, as the same may be amended from time to time (the "Declaration") including
the designation of the terms of Preferred Securities as set forth in Exhibit B
thereto. The Preferred Securities and the Common Securities issued by the Trust
pursuant to the Declaration represent undivided beneficial interests in the
assets of the Trust, including the Debentures (as defined in the Declaration)
issued by The AES Corporation, a Delaware corporation ("AES"), to the Trust
pursuant to the Indenture referred to in the Declaration. The Holder is entitled
to the benefits of the Guarantee Agreement of AES dated as of March 31, 1997
(the "Guarantee") to the extent provided therein. The Trust will furnish a copy
of the Declaration, the Guarantee and the Indenture to the Holder without charge
upon written request to the Trust at its principal place of business or
registered office.
The Holder of this Certificate, by accepting this Certificate, is deemed to
have (i) agreed to the terms of the Indenture and the Debentures, including that
the Debentures are subordinate and junior in right of payment to all Senior and
Subordinated Debt (as defined in the Indenture) as and to the extent provided in
the Indenture and (ii) agreed to the terms of the Guarantee, including that the
Guarantee is subordinate and junior in right of payment to all other liabilities
of AES, including the Debentures, and ranks pari passu in right payment with the
most senior preferred stock issued, from time to time, by AES.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
2
<PAGE>
IN WITNESS WHEREOF, the Trustees of the Trust have executed this
certificate this thirty-first day of March 1997.
AES TRUST I
By:_________________________, as Trustee
Name:
Title: Trustee
By:_________________________, as Trustee
Name:
Title: Trustee
Dated:
Countersigned and Registered:
Transfer Agent and Registrar
By:___________________________
Authorized Signature
3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be fixed at a rate
per annum of 5.375 % of the stated liquidation amount of $50 per Preferred
Security, such rate being the rate of interest payable on the Debentures to be
held by the Property Trustee. Distributions in arrears for more than one quarter
will bear interest thereon at the rate per annum of 5.375% thereof (to the
extent permitted by law) compounded quarterly. The term "Distributions" as used
herein means such cash distributions and any such interest payable unless
otherwise stated. A Distribution is payable only to the extent that payments are
made in respect of the Debentures held by the Property Trustee. The amount of
Distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months.
Except as otherwise described below, distributions on the Preferred
Securities will be cumulative, will accrue from March 31, 1997 and will be
payable quarterly in arrears, on the last day of each quarter, commencing on
June 30, 1997, but only if and to the extent that interest payments are made in
respect of the Debentures held by the Property Trustee. So long as AES shall not
be in default in the payment of interest on the Debentures, AES has the right
under the Indenture for the Debentures to defer payments of interest by
extending the interest payment period from time to time on the Debentures for a
period not exceeding 20 consecutive quarters (each an "Extension Period") and,
as a consequence, quarterly Distributions will continue to accrue with interest
thereon (to the extent permitted by applicable law) at the rate of 5.375% per
annum, compounded quarterly during such Extension period; provided that no
Extension Period shall last beyond the date of maturity or any redemption date
of the Debentures. Prior to the termination of any such Extension Period, AES
may commence a new Extension Period; provided that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarterly interest periods. Payments of accrued Distributions will
be payable to Holders as they appear on the books and records of the Trust on
the first record date after the end of the Extension Period. Upon the
termination of any Extension Period and the payment of all amounts then due, AES
may commence a new Extension Period, subject to the above requirements.
The Preferred Securities shall be redeemable as provided in the
Declaration.
The Preferred Securities shall be convertible into shares of Common Stock,
through (i) the exchange of Preferred Securities for a portion of the Debentures
and (ii) the immediate conversion of such Debentures into Common Stock, in the
manner and according to the terms set forth in the Declaration.
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<PAGE>
CONVERSION REQUEST
To: The First National Bank of Chicago as Property Trustee of AES Trust I
The undersigned owner of these Preferred Securities hereby irrevocably
exercises the option to convert these Preferred Securities, or the portion below
designated, into common stock of The AES Corporation (the "Common Stock") in
accordance with the terms of the Amended and Restated Declaration of Trust,
dated as of March 31, 1997 (as amended from time to time, the "Declaration"), by
William R. Luraschi, Barry J. Sharp and Willard Hoagland as Regular Trustees,
First Chicago Delaware Inc., as Delaware Trustee, The First National Bank of
Chicago, as Property Trustee, The AES Corporation, as Sponsor, and by the
Holders, from time to time, of undivided beneficial interests in the assets of
the Trust to be issued pursuant to the Declaration. Pursuant to the
aforementioned exercise of the option to convert these Preferred Securities, the
undersigned hereby directs the Conversion Agent (as that term is defined in the
Declaration) to (i) exchange such Preferred Securities for a portion of the
Debentures (as that term is defined in the Declaration) held by the Trust (at
the rate of exchange specified in the terms of the Preferred Securities set
forth as Exhibit B to the Declaration) and (ii) immediately convert such
Debentures on behalf of the undersigned, into Common Stock (at the conversion
rate specified in the terms of the Trust Preferred Securities set forth as
Exhibit B to the Declaration).
The undersigned does also hereby direct the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
5
<PAGE>
Date: _______________, _____
in whole ___ in part ___
Number of Preferred Securities to be
converted:
-----------------------
If a name or names other than the
undersigned, please indicate in the
spaces below the name or names in which
the shares of Common Stock are to be
issued, along with the address or
addresses of such person or persons
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or Other
Identifying Number
----------------------------------
----------------------------------
----------------------------------
Signature Guarantee:** _________
- --------
2(Signature must be guaranteed by an "eligible guarantor institution" that is, a
bank, stockbroker, savings and loan association or credit union meeting the
6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Preferred Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date: _________________________
Signature: ____________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
- ----------
requirements of the Conversion Agent, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Conversion
Agent in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
7
<PAGE>
EXHIBIT C
TERMS OF
COMMON SECURITIES
Pursuant to Section 7.01 of the Amended and Restated Declaration of Trust
of AES Capital Trust I dated as of March 31, 1997 (as amended from time to time,
the "Declaration"), the designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities are set
forth below (each capitalized term used but not defined herein having the
meaning set forth in the Declaration):
1. DESIGNATION AND NUMBER. Common Securities of the Trust with an aggregate
liquidation amount in the assets of the Trust of Seven Million, Seven Hundred
and Thirty Two Thousand Dollars ($7,732,000) and a liquidation amount in the
assets of the Trust of $50 per Common Security, are hereby designated as "5.375%
Common Trust Securities". The Common Security Certificates evidencing the Common
Securities shall be substantially in the form attached hereto as Annex I, with
such changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice. The Common Securities are to be issued and
sold to The AES Corporation ("AES") in consideration of $7,732,000 in cash. In
connection with the issuance and sale of the Preferred Securities and the Common
Securities, the Trust will purchase as trust assets Debentures of AES having an
aggregate principal amount equal to the aggregate liquidation amount of the
Preferred Securities and Common Securities so issued, and bearing interest at an
annual rate equal to the annual Distribution rate on the Preferred Securities
and Common Securities and having payment and redemption provisions which
correspond to the payment and redemption provisions of the Preferred Securities
and Common Securities.
2. DISTRIBUTIONS. (a) Distributions payable on each Common Security will be
fixed at a rate per annum of 5.375% (the "Coupon Rate") of the stated
liquidation amount of $50 per Common Security. Distributions in arrears for more
than one calendar quarter will bear interest at the rate per annum of 5.375%
thereof (to the extent permitted by applicable law), compounded quarterly. The
term "Distributions" as used in these terms means such periodic cash
distributions and any such interest payable unless otherwise stated. A
Distribution will be made by the Property Trustee only to the extent that
interest payments are made in respect of the Debentures held by the Property
Trustee. The amount of Distributions payable for any period will be computed for
any monthly Distribution period on the basis of a 360-day year of twelve 30 day
months.
<PAGE>
(b) Distributions on the Common Securities will be cumulative, will accrue
from March 31, 1997 and will be payable quarterly in arrears, on the last day of
each month commencing on June 30, 1997, except as otherwise described below, but
only if and to the extent that interest payments are made in respect of the
Debentures held by the Property Trustee. So long as AES shall not be in default
in the payment of interest on the Debentures, AES has the right under the
Indenture for the Debentures to defer payments of interest by extending the
interest payment period from time to time on the Debentures for a period not
exceeding 20 consecutive quarterly interest periods (each, an "Extension
Period") and, as a consequence, quarterly Distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at the rate of
5.375% per annum, compounded quarterly during any such Extension Period;
provided that no Extension Period shall last beyond the date of maturity or any
redemption date of the Debentures. Prior to the termination of any such
Extension Period, AES 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, AES
may commence a new Extension Period, subject to the above requirements. Payments
of accrued Distributions will be payable to Holders of Common Securities as they
appear on the books and records of the Trust on the first record date after the
end of the Extension Period.
(c) Distributions on the Common Securities will be payable promptly by the
Property Trustee (or other Paying Agent) upon receipt of immediately available
funds to the Holders thereof as they appear on the books and records of the
Trust on the relevant record dates which will be one business day prior to the
relevant Distribution date unless the Preferred Securities are no longer in
book-entry only form in which event 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. Distributions payable on any Common Securities that
are not punctually paid on any Distribution date as a result of AES having
failed to make the corresponding interest payment on the Debentures will
forthwith cease to be payable to the person in whose name such Common Security
is registered on the relevant record date, and such defaulted Distribution will
instead be payable to the person in whose name such Common Security 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 AES has elected to make a full or
partial payment of interest accrued on the Debentures on such Distribution
payment date. Subject to any applicable laws and regulations and the provisions
of the Declaration, each payment in respect of the Common Securities will be
made as described in paragraph 10 hereof. If any date on which Distributions are
payable on the Common Securities is
<PAGE>
not a Business Day, then payment of the Distribution 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.
(d) All Distributions paid with respect to the Common Securities and the
Preferred Securities will be paid Pro Rata to the Holders thereof entitled
thereto. If an Event of Default has occurred and is continuing, the Preferred
Securities shall have a priority over the Common Securities with respect to
Distributions.
(e) In the event of an election by the Holder to convert its Securities
through the Conversion Agent into Common Stock pursuant to the terms of the
Securities as set forth in this Exhibit C to the Declaration, no payment,
allowance or adjustment shall be made with respect to accumulated and unpaid
Distributions on such Securities, or be required to be made; provided, however,
that if a Security is surrendered for conversion after the close of business on
any regular record date for payment of a Distribution date will be paid in cash
to the person in whose name the Security is registered at the close of business
on such record date, and (other than a Security or a portion of a Security
called for redemption on a redemption date occurring after such record date and
on or prior to such Distribution date) when so surrendered for conversion, the
Security must be accompanied by payment of an amount equal to the Distribution
payable on such Distribution date.
(f) In the event that there is any money or other property held by or for
the Trust that is not accounted for under the Declaration, such money or
property shall be distributed Pro Rata among the Holders of the Preferred
Securities and Common Securities.
3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any voluntary
or involuntary dissolution, winding-up or termination of the Trust, the Holders
of the Preferred Securities and Common Securities at the date of the
dissolution, winding-up or termination, as the case may be, will be entitled to
receive Pro Rata solely out of the assets of the Trust available for
distribution to Holders of Preferred Securities and Common Securities, after
satisfaction of liabilities to creditors, an amount equal to the aggregate of
the stated liquidation amount of $50 per Preferred Security and Common Security
plus accrued and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"), unless, in connection with such
dissolution, winding-up or termination, and after satisfaction of liabilities to
creditors, Debentures in an aggregate principal amount equal to the aggregate
stated liquidation amount of such Preferred Securities and Common Securities
bearing accrued and unpaid interest in an amount equal to the
3
<PAGE>
accrued and unpaid Distributions on, such Preferred Securities and Common
Securities, shall be distributed Pro Rata to the Holders of the Preferred
Securities and Common Securities in exchange for such Securities.
If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities and Common Securities shall be paid, subject
to the next paragraph, on a Pro Rata basis.
Holders of Common Securities will be entitled to receive Liquidation
Distributions upon any such dissolution Pro Rata with Holders of Preferred
Securities, except that if an Event of Default has occurred and is continuing,
the Preferred Securities shall have a priority over the Common Securities with
respect to such Liquidation Distribution.
4. REDEMPTION AND DISTRIBUTION OF DEBENTURES. The Preferred Securities and
Common Securities may only be redeemed if Debentures having an aggregate
principal amount equal to the aggregate liquidation amount of the Preferred
Securities and Common Securities are repaid, redeemed or distributed as set
forth below:
(a) Upon the repayment of the Debentures, in whole or in part, whether at
maturity, upon redemption at any time or from time to time on or after March 31,
2000, or at any time in certain circustances upon the occurrence of a Tax Event,
the proceeds of such repayment will be promptly applied to redeem Pro Rata
Preferred Securities and Common Securities having an aggregate liquidation
amount equal to the aggregate principal amount of the Debentures so repaid or
redeemed, upon not less than 30 nor more than 60 days' notice, at a redemption
price per Preferred and Common Security equal to the redemption price of the
Debentures, together with accrued and unpaid Distributions thereon through the
date of redemption, payable in cash (the "Redemption Price"). The date of any
such repayment or redemption of Preferred Securities and Common Securities shall
be established to coincide with the repayment or redemption date of the
Debentures.
(b) If fewer than all the outstanding Preferred Securities and Common
Securities are to be so redeemed, the Preferred Securities and the Common
Securities will be redeemed Pro Rata and the Common Securities to be redeemed
will be redeemed as described in paragraph 4(e)(ii) below. If a partial
redemption would result in the delisting of the Preferred Securities by any
national securities exchange or other organization on which the Preferred
Securities are then listed, AES pursuant to the Indenture will only redeem
Debentures in whole and, as a result, the Trust may only redeem the Common
Securities in whole.
4
<PAGE>
(c) 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 Regular Trustees shall, unless the Debentures are redeemed in the limited
circumstances described below, dissolve the Trust and, after satisfaction of
creditors, cause Debentures held by the Property Trustee having an aggregate
principal amount equal to the aggregate stated liquidation amount of and accrued
and unpaid interest equal to accrued and unpaid Distributions on, and having the
same record date for payment as the Preferred Securities and Common Securities,
to be distributed to the Holders of the Preferred Securities and Common
Securities on a Pro Rata basis in liquidation of such Holders' interests in the
Trust, within 90 days following the occurrence of such Special Event (the "90
Day Period"); 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 a nationally recognized independent tax
counsel experienced in such matters (a "No Recognition Opinion"), which opinion
may rely on any then applicable published revenue rulings of the Internal
Revenue Service, to the effect that the Holders of the Preferred Securities will
not recognize any gain or loss for United States federal income tax purposes as
a result of the dissolution of the Trust and distribution of Debentures; and
provided, further, that, if and as long as 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 that has no adverse effect on
the Trust, AES or the Holders of the Preferred Securities ("Ministerial Action")
the Trust will pursue such measure in lieu of dissolution.
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 AES would be precluded from
deducting the interest on the Debentures for United States federal income tax
purposes even if the Debentures were distributed to the Holders of Preferred
Securities and Common Securities in liquidation of such Holder's interest in the
Trust as described in this paragraph 4(c) or (ii) the Regular Trustees shall
have been informed by such tax counsel that a No Recognition Opinion cannot be
delivered to the Trust, AES shall have the right at any time, upon not less than
30 nor more than 60 days' notice, to redeem the Debentures in whole or in part
for cash at the Redemption Price within 90 days following the occurrence of such
Tax Event, and promptly following such redemption Preferred Securities and
Common Securities with an aggregate liquidation amount equal to the aggregate
principal amount of the 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 AES or the Regular Trustees on behalf of the Trust
the opportunity to eliminate, within such 90 day period, the Tax Event by taking
some Ministerial Action, AES or the Holders of the Preferred
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<PAGE>
Securities, AES or the Regular Trustees on behalf of the Trust will pursue such
measure in lieu of redemption; and provided, further, that AES shall have no
right to redeem the Debentures while the Regular Trustees on behalf of the Trust
are pursuing such Ministerial Action. The Common Securities will be redeemed Pro
Rata with the Preferred Securities, except that if an Event of Default under the
Indenture has occurred and is continuing, the Preferred Securities will have a
priority over the Common Securities with respect to payment of the Redemption
Price.
"Tax Event" means that the Regular Trustees shall have obtained an opinion
of nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that on or after March 31, 1997 as a
result of (a) any amendment to, or change (including any announced prospective
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 announced or which
interpretation or pronouncement is issued or announced or which action is taken,
in each case on or after March 31, 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 Debentures, (ii) the Trust is, or will be within 90 days of the
date thereof, subject to more than a de minimis amount of taxes, duties or other
governmental charges or (iii) interest payable by AES to the Trust on the
Debentures is not, or within 90 days of the date thereof will not be, deductible
by AES 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 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 Investment Company Act, which
Change in 1940 Act Law becomes effective on or after March 31, 1997.
On the date fixed for any distribution of Debentures, upon dissolution of
the Trust, (i) the Common Securities will no longer be deemed to be outstanding
and (ii)
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<PAGE>
any certificates representing Common Securities will be deemed to represent
beneficial interests in the Debentures having an aggregate principal amount
equal to the stated liquidation amount of, and bearing accrued and unpaid
interest equal to accrued and unpaid Distributions on, such Common Securities
until such certificates are presented to AES or its agent for transfer or
reissuance.
(d) The Trust may not redeem any outstanding Common Securities unless all
accrued and unpaid Distributions have been paid on all Common Securities for all
quarterly Distribution periods terminating on or prior to the date of
redemption.
(e)(i) Notice of any redemption of, or notice of distribution of Debentures
in exchange for, the Preferred Securities and Common Securities (a "Redemption/
Distribution Notice") will be given by the Regular Trustees on behalf of the
Trust by mail to each Holder of Preferred Securities and Common Securities to be
redeemed or exchanged not less than 30 nor more than 60 days prior to the date
fixed for redemption or exchange thereof. For purposes of the calculation of the
date of redemption or exchange and the dates on which notices are given pursuant
to this paragraph (e)(i), a Redemption/Distribution Notice shall be deemed to be
given on the day such notice is first mailed by first-class mail, postage
prepaid, to Holders of Preferred Securities and Common Securities. Each
Redemption/Distribution Notice shall be addressed to the Holders of Preferred
Securities and Common Securities at the address of each such Holder appearing in
the books and records of the Trust. No defect in the Redemption/Distribution
Notice or in the mailing of either thereof with respect to any Holder shall
affect the validity of the redemption or exchange proceedings with respect to
any other Holder.
(ii) In the event that fewer than all the outstanding Common Securities are
to be redeemed, the Common Securities to be redeemed will be redeemed Pro Rata
from each Holder of Common Securities (subject to adjustment to eliminate
fractional Common Securities).
(iii) If the Trust gives a Redemption/Distribution Notice in respect of a
redemption of Common Securities as provided in this paragraph 4 (which notice
will be irrevocable) then immediately prior to the close of business on the
redemption date, provided that AES has paid to the Property Trustee in
immediately available funds a sufficient amount of cash in connection with the
related redemption or maturity of the Debentures, Distributions will cease to
accrue on the Common Securities called for redemption, such Common Securities
will no longer be deemed to be outstanding and all rights of Holders of such
Common Securities so called for redemption will cease, except the right of the
Holders of such Common Securities to receive the Redemption Price, but without
interest on such Redemption Price. Neither the Trustees nor the Trust shall be
required to register or cause to be registered the transfer of any Common
Securities which have been so called for
7
<PAGE>
redemption. If any date fixed for redemption of Common Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date fixed for redemption. If payment of the Redemption Price in respect
of Common Securities is improperly withheld or refused and not paid by the
Property Trustee, Distributions on such Common Securities 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 Redemption Price.
(iv) Redemption/Distribution Notices shall be sent by the Regular Trustees
on behalf of the Trust to the Holders of the Common Securities.
(v) Upon the date of dissolution of the Trust and distribution of
Debentures as a result of the occurrence of a Special Event, Common Security
Certificates shall be deemed to represent beneficial interests in the Debentures
so distributed, and the Common Securities will no longer be deemed outstanding
and may be canceled by the Regular Trustees. The Debentures so distributed shall
have an aggregate principal amount equal to the aggregate liquidation amount of
the Common Securities so distributed.
5. CONVERSION RIGHTS. The Holders of Securities shall have the right at any
time prior to the close of business on March 31, 2027 (or, in the case of
Securities called for redemption, prior to the close of business on the Business
Day prior to the redemption date), at their option, to cause the Conversion
Agent to convert Securities, on behalf of the converting Holders, into shares of
Common Stock in the manner described herein on and subject to the following
terms and conditions:
The Securities will be convertible at the office of the Conversion Agent
into fully paid and nonassessable shares of Common Stock pursuant to the
Holder's direction to the Conversion Agent to exchange such Securities for a
portion of the Debentures theretofore held by the Trust on the basis of one
Security per $50 principal amount of Debentures, and immediately convert such
amount of Debentures into fully paid and nonassessable shares of Common Stock at
an initial rate of 0.6906 shares of Common Stock per $50 principal amount of
Debentures (which is equivalent to a conversion price of $72.40 per share of
Common Stock, subject to certain adjustments set forth in Sections 5.03 and 5.04
of the Supplemental Indenture (as so adjusted, "Conversion Price")).
(a) In order to convert Securities into Common Stock the Holder shall
submit to the Conversion Agent at the office referred to above an irrevocable
request to
8
<PAGE>
convert Securities on behalf of such Holder (the "Conversion Request"),
together, if the Securities are in certificated form, with such certificates.
The Conversion Request shall (i) set forth the number of Securities to be
converted and the name or names, if other than the Holder, in which the shares
of Common Stock should be issued and (ii) direct the Conversion Agent (a) to
exchange such Securities for a portion of the Debentures held by the Trust (at
the rate of exchange specified in the preceding paragraph) and (b) to
immediately convert such Debentures on behalf of such Holder, into Common Stock
(at the conversion rate specified in the preceding paragraph). The Conversion
Agent shall notify the Property Trustee of the Holder's election to exchange
Securities for a portion of the Debentures held by the Trust and the Property
Trustee shall, upon receipt of such notice, deliver to the Conversion Agent the
appropriate principal amount of Debentures for exchange in accordance with this
Section. The Conversion Agent shall thereupon notify the Property Trustee of the
Holder's election to convert such Debentures into shares of Common Stock. If a
Security is surrendered for conversion after the close of business on any
regular record date for payment of a Distribution and before the opening of
business on the corresponding Distribution payment date, then, notwithstanding
such conversion, the Distribution payable on such Distribution payment date will
be paid in cash to the person in whose name the Security is registered at the
close of business on such record date, and (other than a Security or a portion
of a Security 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 Security must be accompanied by payment of an
amount equal to the Distribution payable on such Distribution payment date.
Except as provided above, neither the Trust nor the Sponsor will make, or be
required to make, any payment, allowance or adjustment upon any conversion on
account of any accumulated and unpaid Distributions accumulated on the
Securities surrendered for conversion, or on account of any accumulated and
unpaid dividends on the shares of Common Stock issued upon such conversion.
Securities shall be deemed to have been converted immediately prior to the close
of business on the day on which a Conversion Request relating to such Securities
is received by the Trust in accordance with the foregoing provision (the
"Conversion Date"). The Person or Persons entitled to receive Common Stock
issuable upon conversion of the Debentures shall be treated for all purposes as
the record holder or holders of such Common Stock at such time. As promptly as
practicable on or after the Conversion Date, the Sponsor shall issue and deliver
at the office of the Conversion Agent a certificate or certificates for the
number of full shares of Common Stock issuable upon such conversion, together
with the cash payment, if any, in lieu of any fraction of any share to the
Person or Persons entitled to receive the same, unless otherwise directed by the
Holder in the Conversion Request and the Conversion Agent shall distribute such
certificate or certificates, together with the applicable cash payment, if any,
to such Person or Persons.
9
<PAGE>
(b) Each Holder of a Security by his acceptance thereof appoints The First
National Bank of Chicago "Conversion Agent" for the purpose of effecting the
conversion of Securities in accordance with this Section. In effecting the
conversion and transactions described in this Section, the Conversion Agent
shall be acting as agent of the Holders of Securities directing it to effect
such conversion transactions. The Conversion Agent is hereby authorized (i) to
exchange Securities from time to time for Debentures held by the Trust in
connection with the conversion of such Securities in accordance with this
section and (ii) to convert all or a portion of the Debentures into Common Stock
and thereupon to deliver such shares of Common Stock in accordance with the
provisions of this section and to deliver to the Trust a new Debenture or
Debentures for any resulting unconverted principal amount.
(c) No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof, such fractional interest will be paid in cash
by the Company to the Conversion Agent, which in turn will make such payment to
the Holder or Holders of Securities so converted.
(d) The Sponsor shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for issuance upon the conversion of
the Debentures, free from any preemptive or other similar rights, such number of
shares of Common Stock as shall from time to time be issuable upon the
conversion of all the Debentures then outstanding. Notwithstanding the
foregoing, shall be entitled to deliver upon conversion of Debentures, shares of
Common Stock reacquired and held in the treasury of the Sponsor (in lieu of the
issuance of authorized and unissued shares of Common Stock), so long as any such
treasury shares are free and clear of all liens, charges, security interests or
encumbrances. Any shares of Common Stock issued upon conversion of the
Debentures shall be duly authorized, validly issued and fully paid and
nonassessable. The Trust shall deliver the shares of Common Stock received upon
conversion of the Debentures to the converting Holder free and clear of all
liens, charges, security interests and encumbrances, except for United States
withholding taxes. Each of the Sponsor and the Trust shall prepare and shall use
its best efforts to obtain and keep in force such governmental or regulatory
permits or other authorizations as may be required by law, and shall comply with
all applicable requirements as to registration or qualification of Common Stock
(and all requirements to list Common Stock issuable upon conversion of
Debentures that are at the time applicable), in order to enable the company to
lawfully issue Common Stock to the Trust upon conversion of the Debentures and
the Trust to lawfully deliver Common Stock to each Holder upon conversion of the
Securities.
(e) The Sponsor will pay any and all taxes that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Debentures
and the delivery of the shares of Common Stock by the Trust upon conversion of
the Securities. The Sponsor shall not, however, be required to pay any tax which
may be
10
<PAGE>
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock in a name other than that in which the Securities so converted
were registered, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Trust the amount of any such
tax, or has established to the satisfaction of the Trust that such tax has been
paid.
(f) Nothing in the preceding Paragraph (e) shall limit the requirement of
the Trust to withhold taxes pursuant to the terms of the Securities or set forth
in this Exhibit C to the Declaration or to the Declaration itself or otherwise
require the Property Trustee or the Trust to pay any amounts on account of such
withholdings.
6. VOTING RIGHTS. (a) Except as provided under paragraph 5(b) below and as
otherwise required by law and the Declaration, the Holders of the Common
Securities will have no voting rights.
(b) Holders of Common Securities have the sole right under the Declaration
to increase or decrease the number of Trustees, and to appoint, remove or
replace a Trustee, any such increase, decrease, appointment, removal or
replacement to be approved by Holders of Common Securities representing a
Majority in liquidation amount of the Common Securities.
If any proposed amendment to the Declaration provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Securities, whether by way of
amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up
or termination of the Trust, other than in connection with the distribution of
Debentures held by the Property Trustee, upon the occurrence of a Special Event
or in connection with the redemption of Common Securities as a consequence of a
redemption of Debentures, then the Holders of outstanding Securities will be
entitled to vote on such amendment or proposal as a class and such amendment or
proposal shall not be effective except with the approval of the Holders of
Securities representing a Majority in liquidation amount of such Securities;
provided, however, that (A) if any amendment or proposal referred to in clause
(i) above would adversely affect only the Preferred Securities or the Common
Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a Majority in liquidation amount of such class of
Securities, (B) the rights of Holders of Common Securities under Article 4.02 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, and (C) amendments to the Declaration shall be subject to
such further requirements as are set forth in Sections 12.01 and 12.02 of the
Declaration.
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<PAGE>
In the event the consent of the Property Trustee as the holder of the
Debentures, is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the Property
Trustee shall request the written direction of the Holders of the Securities
with respect to such amendment, modification or termination. The Property
Trustee shall vote with respect to such amendment, modification or termination
as directed by a Majority in liquidation amount of the Securities voting
together as a single class; provided that where such amendment, modification or
termination of the Indenture requires the consent or vote of (1) holders of
Debentures representing a specified percentage greater than a majority in
principal amount of the Debentures or (2) each holder of Debentures, the
Property Trustee may only vote with respect to that amendment, modification or
termination as directed by, in the case of clause (1) above, the vote of Holders
of Securities representing such specified percentage of the aggregate
liquidation amount of the Securities, or, in the case of clause (2) above, each
Holder of Securities; and provided, further, that the Property Trustee shall be
under no obligation to take any action in accordance with the directions of the
Holders of the Securities unless the Property Trustee shall have received, at
the expense of the Sponsor, an opinion of nationally recognized independent tax
counsel recognized as an 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.
Subject to Section 2.06 of the Declaration, and the provisions of this
and the next succeeding paragraph, the Holders of a Majority in liquidation
amount of the Common Securities, voting separately as a class shall have the
right to (A) on behalf of all Holders of Common Securities, waive any past
default that is waivable under the Declaration (subject to, and in accordance
with the Declaration) and (B) 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 holder of the Debentures,
to (i) direct the time, method and place of conducting any proceeding for any
remedy available to the Debenture Trustee, or exercising any trust or power
conferred on the Debenture Trustee with respect to the Debentures, (ii) waive
any past default and its consequences that is waivable under Section 6.06 of the
Indenture, or (iii) exercise any right to rescind or annul a declaration that
the principal of all the Debentures shall be due and payable; provided that
where the taking of any action under the Indenture requires the consent or vote
of (1) holders of Debentures representing a specified percentage greater than a
majority in principal amount of the Debentures or (e) each holder of Debentures,
the Property Trustee may only take such action if directed by, in the case of
clause (1) above, the vote of Holders of Common Securities representing such
specified percentage of the aggregate liquidation amount of the Common
Securities, or, in the case of clause (2) above, each Holder of Common
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<PAGE>
Securities. Pursuant to this paragraph, the Property Trustee shall not revoke,
or take any action inconsistent with, any action previously authorized or
approved by a vote of the Holders of the Preferred Securities, and shall not
take any action in accordance with the direction of the Holders of the Common
Securities under this paragraph if the action is prejudicial to the Holders of
Preferred Securities. 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 Debenture 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 Common Securities unless the Properties Trustee shall have
received, at the expense of the Sponsor, 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 income tax
purposes following such action.
Notwithstanding any other provision of these terms, each Holder of Common
Securities will be deemed to have waived any Event of Default with respect to
the Common Securities and its consequences until all Events of Default with
respect to the Preferred Securities have been cured, waived by the Holders of
Preferred Securities as provided in the Declaration or otherwise eliminated, and
until all Events of Default with respect to the Preferred Securities have been
so cured, waived by the Holders of Preferred Securities or otherwise eliminated,
the Property Trustee will be deemed to be acting solely on behalf of the Holders
of Preferred Securities and only the Holders of the Preferred Securities will
have the right to direct the Property Trustee in accordance with the terms of
the Declaration or of the Securities. In the event that any Event of Default
with respect to the Preferred Securities is waived by the Holders of Preferred
Securities as provided in the Declaration, the Holders of Common Securities
agree that such waiver shall also constitute the 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.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of the Holders of the Preferred Securities will constitute a waiver of
the corresponding Event of Default under the Declaration in respect of the
Securities.
Any required approval of Holders of Common Securities may be given at a
separate meeting of Holders of Common Securities convened for such purpose, at a
meeting of all of the Holders of Securities of the Trust or pursuant to written
consent. The Regular Trustees will cause a notice of any meeting at which
Holders of Common Securities are entitled to vote, or of any matter upon which
action by written consent of such Holders is to be taken, to be mailed to each
Holder of record of Common Securities. Each such notice will include a statement
setting forth (i) the date of such
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<PAGE>
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 Common Securities will be required for
the Trust to redeem and cancel Common Securities in accordance with the
Declaration.
7. PRO RATA TREATMENT. A reference in these terms of the Common Securities
to any payment, distribution or treatment as being "Pro Rata" shall mean pro
rata to each Holder of Securities according to the aggregate liquidation amount
of the Securities held by the relevant Holder in relation to the aggregate
liquidation amount of all Securities outstanding unless, in relation to a
payment, an 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
Preferred Securities pro rata according to the aggregate liquidation amount of
Preferred Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Preferred Securities, to
each Holder of Common Securities pro rata according to the aggregate liquidation
amount of Common Securities held by the relevant Holder relative to the
aggregate liquidation amount of all Common Securities outstanding.
8. RANKING. The Common Securities rank pari passu and payment thereon will
be made Pro Rata with the Preferred Securities except that where an Event of
Default occurs and is continuing, the rights of Holders of Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise are subordinate to the rights of Holders of the Preferred Securities.
9. MERGERS, CONSOLIDATIONS OR AMALGAMATIONS. 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 body.
10. TRANSFERS, EXCHANGES, METHOD OF PAYMENTS. Payment of Distributions and
payments on redemption of the Common Securities will be payable, the transfer of
the Common Securities will be registrable, and Common Securities will be
exchangeable for Common Securities of other denominations of a like aggregate
liquidation amount, at the principal corporate trust office of the Property
Trustee in The City of 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 Common Security will be made only upon surrender of such
Common Security to the Property Trustee. Notwithstanding the foregoing,
transfers of Common Securities are subject to conditions set forth in Section
9.01(c) of the Declaration.
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11. ACCEPTANCE OF INDENTURE. Each Holder of Common Securities, by the
acceptance thereof, agrees to the provisions of the Indenture and the
Debentures, including the subordination provisions thereof.
12. NO PREEMPTIVE RIGHTS. The Holders of Common Securities shall have no
preemptive rights to subscribe to any additional Common Securities or Preferred
Securities.
13. MISCELLANEOUS. These terms shall constitute a part of the Declaration.
The Trust will provide a copy of the Declaration and the Indenture to a Holder
without charge on written request to the Trust at its principal place of
business.
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Annex I
FORM OF COMMON SECURITY CERTIFICATE
TRANSFER OF THIS CERTIFICATE
IS SUBJECT TO THE CONDITIONS
SET FORTH IN THE DECLARATION
REFERRED TO BELOW
Certificate Number Number of Common Securities
------ ----------
Certificate Evidencing Common Securities
of
AES Trust I
5.375% Common Trust Securities
(liquidation amount $50 per Common Security)
AES Trust I, a statutory business trust formed under the laws of the State
of Delaware (the "Trust"), hereby certifies that The AES Corporation (the
"Holder") is the registered owner of ____________________________ (_________)
common securities of the Trust representing undivided beneficial interests in
the assets of the Trust designated the "5.375% Common Trust Securities"
(liquidation amount $50 per security) (the "Common Securities"). The Common
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer and satisfaction of the other conditions set
forth in the Declaration (as defined below) including, without limitation
Section 9.01(c) thereof. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities are set
forth in, and this certificate and the Common Securities represented hereby are
issued and shall in all respects be subject to the terms and provisions of, the
Amended and Restated Declaration of Trust of the Trust dated as of March 31,
1997, as the same may be amended from time to time (the "Declaration") including
the designation of the terms of Common Securities as set forth in Exhibit C
thereto. The Common Securities and the Preferred Securities issued by the Trust
pursuant to the
<PAGE>
Declaration represent undivided beneficial interests in the assets of the Trust,
including the Debentures (as defined in the Declaration) issued by The AES
Corporation, a Delaware corporation, to the Trust pursuant to the Indenture
referred to in the Declaration. The Trust will furnish a copy of the Declaration
and the Indenture to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.
The Holder of this Certificate, by accepting this Certificate, is deemed to
have agreed to the terms of the Indenture and the Debentures, including that the
Debentures are subordinate and junior in right of payment to all Senior Debt (as
defined in the Indenture) as and to the extent provided in the Indenture.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
2
<PAGE>
IN WITNESS WHEREOF, the Trustees of the Trust have executed this
certificate this thirty-first day of March, 1997.
AES TRUST I
By________________________, as Trustee
Name:
Title: Trustee
By_________________________, as Trustee
Name:
Title: Trustee
Dated:
Countersigned and Registered:
Transfer Agent and Registrar
By:___________________________
Authorized Signature
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate per
annum of 5.375% (the "Coupon Rate") of the stated liquidation amount of $50 per
Common Security, such rate being the rate of interest payable on the Debentures
to be held by the Property Trustee. Distributions in arrears for more than one
quarter will bear interest thereon at the rate per annum of 5.375% thereof (to
the extent permitted by law) compounded monthly. The term "Distributions" as
used herein means such cash distributions and any such interest payable unless
otherwise stated. A Distribution is payable only to the extent that payments are
made in respect of the Debentures held by the Property Trustee. The amount of
Distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months.
Except as otherwise described below, distributions on the Common Securities
will be cumulative, will accrue from March 31, 1997 and will be payable
quarterly in arrears, on the last day of each quarter, commencing on June 30,
1997, but only if and to the extent that interest payments are made in respect
of the Debentures held by the Property Trustee. So long as AES shall not be in
default in the payment of interest on the Debentures, AES has the right under
the Indenture for the Debentures to defer payments of interest by extending the
interest payment period from time to time on the Debentures for a period not
exceeding 20 consecutive quarters (each an "Extension Period") and, as a
consequence, quarterly Distributions will continue to accrue with interest
thereon (to the extent permitted by applicable law) at the rate of 5.375% per
annum, compounded quarterly during such Extension period; provided that no
Extension Period shall last beyond the date of maturity or any redemption date
of the Debentures. Prior to the termination of any such Extension Period, AES
may commence a new Extension Period; provided that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarterly interest periods. Payments of accrued Distributions will
be payable to Holders as they appear on the books and records of the Trust on
the first record date after the end of the Extension Period. Upon the
termination of any Extension Period and the payment of all amounts then due, AES
may commence a new Extension Period, subject to the above requirements.
The Common Securities shall be redeemable as provided in the Declaration.
The Common Securities shall be convertible into shares of Common Stock,
through (i) the exchange of Common Securities for a portion of the Debentures
and (ii) the immediate conversion of such Debentures into Common Stock, in the
manner and according to the terms set forth in the Declaration.
4
<PAGE>
CONVERSION REQUEST
To: The First National Bank of Chicago
as Property Trustee of AES Trust I
The undersigned owner of these Common Securities hereby irrevocably
exercises the option to convert these Common Securities, or the portion below
designated, into Common Stock of The AES Corporation (the "Common Stock") in
accordance with the terms of the Amended and Restated Declaration of Trust dated
as of March 31, 1997 (as amended from time to time, the "Declaration"), by
William R. Luraschi, Barry J. Sharp and Willard Hoagland, as Regular Trustees,
First Chicago Delaware Inc., as Delaware Trustee, The First National Bank of
Chicago, as Property Trustee, The AES Corporation, as Sponsor, and by the
Holders, from time to time, of undivided beneficial interests in the assets of
the Trust to be issued pursuant to the Declaration. Pursuant to the
aforementioned exercise of the option to convert these Common Securities, the
undersigned hereby directs the Conversion Agent (as that term is defined in the
Declaration) to (i) exchange such Common Securities for a portion of the
Debentures (as that term is defined in the Declaration) held by the Trust (at
the rate of exchange specified in the terms of the Common Securities set forth
as Exhibit C to the Declaration) and (ii) immediately convert such Debentures on
behalf of the undersigned, into Common Stock (at the conversion rate specified
in the terms of the Common Securities set forth as Exhibit C to the
Declaration).
The undersigned does also hereby direct the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
5
<PAGE>
Date: _____________, _____
in whole ___ in part ___
Number of Common Securities to be
converted: _______________
If a name or names other than the
undersigned, please indicate in the spaces
below the name or names in which the shares
of Common Stock are to be issued, along
with the address or addresses of such
person or persons
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
- -----------------------------------
- -----------------------------------
- -----------------------------------
Signature Guarantee:* _____________
- --------
1(Signature must be guaranteed by an "eligible guarantor institution" that is, a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Conversion Agent, which requirements include membership
6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
_____________________________________________________ agent to transfer this
Common Security Certificate on the books of the Trust. The agent may substitute
another to act for him or her.
Date: ________________________
Signature: _________________________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
- ----------
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Conversion Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.)
7
CONFORMED COPY
================================================================================
THE AES CORPORATION
AND
THE FIRST NATIONAL BANK OF CHICAGO
AS TRUSTEE
-----------------------------------------------------------------------
JUNIOR SUBORDINATED INDENTURE
DATED AS OF MARCH 1, 1997
-----------------------------------------------------------------------
JUNIOR SUBORDINATED DEBENTURES
================================================================================
<PAGE>
TABLE OF CONTENTS
----------------------
PAGE
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ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions................................................2
ARTICLE 2
ISSUE, DESCRIPTION, TERMS, EXECUTION REGISTRATION AND EXCHANGE OF
DEBENTURES
SECTION 2.01. Designation, Terms, Amount, Authentication and
Delivery of Debentures...............................................8
SECTION 2.02. Form of Debenture and Trustee's Certificate...............10
SECTION 2.03. Date and Denominations of Debentures and Provisions
for Payment of Principal, Premium and Interest......................10
SECTION 2.04. Execution of Debentures...................................12
SECTION 2.05. Exchange of Debentures....................................13
SECTION 2.06. Temporary Debentures......................................14
SECTION 2.07. Mutilated, Destroyed, Lost or Stolen Debentures...........15
SECTION 2.08. Cancellation of Surrendered Debentures....................16
SECTION 2.09. Provisions of Indenture and Debentures for Sole
Benefit of Parties and Debentureholders.............................16
SECTION 2.10. Appointment of Authenticating Agent.......................16
SECTION 2.11. Global Debenture..........................................17
SECTION 2.12. CUSIP Numbers.............................................18
ARTICLE 3
REDEMPTION OF DEBENTURES AND SINKING FUND PROVISIONS
SECTION 3.01. Redemption of Debentures..................................18
SECTION 3.02. Notice of Redemption......................................18
SECTION 3.03. Debentures Due and Payable................................19
SECTION 3.04. Sinking Funds for Debentures..............................20
SECTION 3.05. Satisfaction of Sinking Fund Payments With Debentures.....20
SECTION 3.06. Redemption of Debentures for Sinking Fund.................20
ARTICLE 4
PARTICULAR COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Principal of (And Premium, if any) and
Interest on Debentures..............................................21
SECTION 4.02. Maintenance of Office or Agent for Payment of
Debentures, Designation of Office or Agency for Payment,
Registration, Transfer and Exchange of Debentures...................21
SECTION 4.03. Duties of Paying Agent; Company as Payment Agent;
and Holding Sums of Trust...........................................21
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SECTION 4.04. Appointment to Fill Vacancy in Office of Trustee..........22
ARTICLE 5
DEBENTUREHOLDER'S LISTS AND REPORTS BY THE COMPANY AND THE
TRUSTEE
SECTION 5.01. Company to Furnish Trustee Information as to Names
and Addresses of Debentures.........................................23
SECTION 5.02. Trustee to Preserve Information as to Names and
Addresses of Debentureholders.......................................23
SECTION 5.03. Annual and Other Reports to Be Filed by Company
With Trustee........................................................24
SECTION 5.04. Trustee to Transmit Annual Report to
Debentureholders....................................................25
ARTICLE 6
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT
SECTION 6.01. Events of Default Defined..................................27
SECTION 6.02. Covenant of Company to Pay to Trustee Whole Amount
Due on Debentures on Default in Payment of Interest or
Principal (and Premiums, if any)....................................29
SECTION 6.03. Application of Moneys Collected by Trustee.................31
SECTION 6.04. Limitation on Suits by Holders of Debentures...............31
SECTION 6.05. Remedies Cumulative; Delay or Omission in Exercise
of Rights Not Waiver of Default.....................................32
SECTION 6.06. Rights of Holders of Majority in Principal Amount
of Debentures to Direct Trustee and to Waive Defaults...............32
SECTION 6.07. Trustee to Give Notice of Defaults Known To It, But
May Withhold in Certain Circumstances...............................33
SECTION 6.08. Requirements of an Undertaking to Pay Costs in
Certain Suits Under Indenture or Against Trustee....................34
ARTICLE 7
CONCERNING THE TRUSTEE
SECTION 7.01. Upon Event of Default Occurring and Continuing,
Trustee Shall Exercise Powers Vested In It, and Use Same
Degree of Care and Skill In Their Exercise, as Prudent
Individual Would Use................................................34
SECTION 7.02. Subject to Provisions of Section 7.01......................36
SECTION 7.03. Trustee Not Liable for Recitals In Indenture Or In
Debentures..........................................................37
SECTION 7.04. Trustee, Paying Agent or Debenture Registrar May
Own Debentures......................................................38
SECTION 7.05. Moneys Received by Trustee to Be Held In Trust
Without Interest....................................................38
SECTION 7.06. Trustee Entitled to Compensation, Reimbursement and
Indemnity...........................................................38
SECTION 7.07. Right of Trustee to Rely on Certificate of Officers
of Company Where No Other Evidence Specifically Prescribed..........38
SECTION 7.08. Trustee Acquiring Conflicting Interest to Eliminate
Conflict or Resign..................................................39
SECTION 7.09. Requirements for Eligibility of Trustee....................45
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SECTION 7.10. Resignation of Trustee and Appointment of Successor........45
SECTION 7.11. Acceptance by Successor to Trustee.........................47
SECTION 7.12. Successor to Trustee by Merger, Consolidation or
Succession to Business..............................................48
SECTION 7.13. Limitations on Rights of Trustee as a Creditor to
Obtain Payment of Certain Claims Within Four Months Prior to
Default or During Default, or to Realize on Property as such
Creditor Thereafter.................................................48
ARTICLE 8
CONCERNING THE DEBENTURES
SECTION 8.01. Evidence of Action by Debentureholders.....................52
SECTION 8.02. Proof of Execution of Instruments and of Holding of
Debentures..........................................................53
SECTION 8.03. Who May Be Deemed Owners of Debentures.....................53
SECTION 8.04. Debentures Owned by a Company or Controlled or
Controlling Companies Disregarded for Certain Purposes..............54
SECTION 8.05. Instruments Executed by Debentureholders Bind
Future Holders......................................................54
ARTICLE 9
SUPPLEMENTAL INDENTURES
SECTION 9.01. Purposes for Which Supplemental Indenture May Be
Entered Into Without Consent of Debentureholders....................55
SECTION 9.02. Modification of Indenture with Consent of
Debentureholders....................................................56
SECTION 9.03. Effect of Supplemental Indentures..........................57
SECTION 9.04. Debentures May Bear Notation of Changes By
Supplemental Indentures.............................................57
SECTION 9.05. Opinion of Counsel.........................................57
ARTICLE 10
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 10.01. Satisfaction and Discharge of Indenture..................58
SECTION 10.02. Successor Corporation Substituted........................58
SECTION 10.03. Opinion of Counsel.......................................58
ARTICLE 11
SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS
SECTION 11.01. Satisfaction and Discharge of Indentures..................59
SECTION 11.02. Application of Trustee of Funds Deposited For
Payment of Debentures...............................................61
SECTION 11.03. Application by Trustee of Funds Deposited For
Payment of Debentures...............................................61
SECTION 11.04. Repayment of Moneys Held by Paying Agent.................61
SECTION 11.05. Repayment of Moneys Paid by Trustee......................62
iii
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ARTICLE 12
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 12.01. Incorporators, Stockholders, Officers and
Directors of Company Exempt From Individual Liability...............62
ARTICLE 13
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors and Assigns of Company Bound by
Indenture...........................................................63
SECTION 13.02. Acts of Board, Committee or Officer of Successor
Company Valid.......................................................63
SECTION 13.03. Surrender of Powers of Company...........................63
SECTION 13.04. Required Notices or Demands May be Served by Mail........63
SECTION 13.05. Indenture and Debentures to Be Construed in
Accordance with Laws of the State of New York.......................63
SECTION 13.06. Officer's Certificate and Opinion of Counsel to be
Furnished Upon Application or Demands by Company; Statements
To Be Included In Each Certificate or Opinion With Respect
to Compliance With Condition or Covenant............................63
SECTION 13.07. Payments Due on Sundays or Holidays......................64
SECTION 13.08. Provisions Required by Trust Indenture Act of 1939
to Control...........................................................64
SECTION 13.09. Indenture May Be Executed by its Counterparts............64
SECTION 13.10. Separability of Indenture Provisions.....................64
SECTION 13.11. Assignment by Company to Subsidiary......................65
SECTION 13.12. Holders of Preferred Securities as Third Party
Beneficiaries of the Indenture; Holders of Preferred
Securities May Institute Legal Proceedings Against the
Company in Certain Cases............................................65
ARTICLE 14
SUBORDINATION OF DEBENTURES
SECTION 14.01. Agreement to Subordinate.................................66
SECTION 14.02. Payments to Debentureholders.............................66
SECTION 14.03. Subrogation of Debentures................................68
SECTION 14.04. Authorization by Debentureholders........................69
SECTION 14.05. Notice to Trustee........................................69
SECTION 14.06. Trustee's Relation to Senior and Subordinated Debt.......70
SECTION 14.07. No Impairment to Subordination...........................70
iv
<PAGE>
THIS INDENTURE, is dated as of the first day of March, 1997, between The
AES Corporation, a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter sometimes referred to as the "Company"), and The
First National Bank of Chicago, as Trustee (hereinafter sometimes referred to as
the "Trustee"):
WHEREAS, for its lawful corporate purposes, the Company has fully
authorized the execution and delivery of this Indenture to provide for the
issuance of unsecured debentures (hereinafter referred to as the "Debentures"),
in an unlimited aggregate principal amount to be issued from time to time in one
or more series in accordance with the terms of this Indenture, as registered
Debentures without coupons, to be authenticated by the certificate of the
Trustee;
WHEREAS, to provide the terms and conditions upon which the Debentures are
to be authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture;
WHEREAS, the Debentures and the certificate of authentication to be borne
by the Debentures (the "Certificate of Authentication") are to be substantially
in such forms as may be approved by the Board of Directors (as defined below) or
set forth in any indenture supplemental to this Indenture;
AND WHEREAS, all acts and things necessary to make the Debentures issued
pursuant hereto, when executed by the Company and authenticated and delivered by
the Trustee in accordance with the terms of this Indenture, the valid, binding
and legal obligations of the Company, and to constitute a valid indenture and
agreement according to its terms, have been done and performed or will be done
and performed prior to the issuance of such Debentures, and the execution of
this Indenture has been and the issuance hereunder of the Debentures has been or
will be prior to issuance in all respects duly authorized, and the Company, in
the exercise of the legal right and power in it vested, executes this Indenture
and proposes to make, execute, issue and deliver the Debentures;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Debentures
are and are to be authenticated, issued and delivered, and in consideration of
the premises and of the acquisition and acceptance of the Debentures by the
holders thereof, the Company covenants and agrees with the Trustee, for the
equal and proportionate benefit (subject to the provisions of this Indenture) of
the respective holders from time to time of the Debentures, without any
discrimination, preference or priority of any one Debenture over any other by
reason of priority in the time of issue, sale or negotiation thereof, or
otherwise, except as provided herein, as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The terms defined in this Section (except as in
this Indenture otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture, any resolution of the Board of
Directors of the Company and of any indenture supplemental hereof shall have the
respective meanings specified in this Section. All other terms used in this
Indenture which are defined in the Trust Indenture Act of 1939, as amended, or
which are by reference in such Act defined in the Securities Act of 1933, as
amended (except as herein otherwise expressly provided or unless the context
otherwise requires), shall have the meanings assigned to such terms in said
Trust Indenture Act and in said Securities Act as in force at the date of this
instrument.
"AES Trust" means such statutory business trust created under the laws of
the State of Delaware specified in the applicable Board Resolution or
supplemental indenture establishing a particular series of Debentures pursuant
to Section 2.01 hereof.
"Affiliate" of the Company means any company at least a majority of whose
outstanding voting stock shall at the time be owned by the Company, or by one or
more direct or indirect subsidiaries of the Company or by the Company and one or
more direct or indirect subsidiaries of the Company. For the purposes only of
this definition of the term "Affiliate", the term "voting stock", as applied to
the stock of any company, shall mean stock of any class or classes having
ordinary voting power for the election of a majority of the directors of such
company, other than stock having such power only by reason of the occurrence of
a contingency.
"Authenticating Agent" means an authenticating agent with respect to all or
any of the series of Debentures, as the case may be, appointed with respect to
all or any series of the Debentures, as the case may be, by the Trustee pursuant
to Section 2.10.
"Bank Credit Agreement" means the Credit Agreement dated as of May 20, 1996
among the Company, the Banks named on the signature pages thereof and Morgan
Guaranty Trust Company of New York, as such Agreement has been and may be
amended, restated, supplemented or otherwise modified from time to time, and
includes any agreement extending the maturity of, or restructuring (including,
but not limited to, the inclusion of additional borrowers thereunder that are
Subsidiaries of the Company and whose obligations are guaranteed by the Company
thereunder) all or any portion of, the Debt under such Agreement or any
successor agreements and includes any agreement with one or more banks or other
lending institutions refinancing all or any portion of the Debt under such
Agreement or any successor agreements.
"Board of Directors" means the Board of Directors of the Company, or any
committee of such Board duly authorized to act hereunder.
2
<PAGE>
"Board Resolution" means a copy of one or more resolutions, certified by
the secretary or an assistant secretary of the Company to have been adopted or
consented to by the Board of Directors and to be in full force and effect, and
delivered to the Trustee.
"Business day", with respect to any series of Debentures, means any day
other than a day on which banking institutions in the Borough of Manhattan, the
City and State of New York, are authorized or obligated by law or executive
order to close.
"Certificate" means a certificate signed by the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company. The Certificate need not comply with the provisions of Section
13.06.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the assets of
the Company to any Person or group (as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934) of Persons, (ii) a Person or group (as so
defined) of Persons (other than management of the Company on the date of this
Indenture or their Affiliates) shall have become the beneficial owner of more
than 35% of the outstanding voting stock of the Company, or (iii) during any
one-year period, individuals who at the beginning of such period constitute the
Board of Directors (together with any new director whose election or nomination
was approved by a majority of the directors then in office who were either
directors at the beginning of such period or who were previously so approved)
cease to constitute a majority of the Board of Directors.
"Common Securities" means the common undivided beneficial interests in the
assets of the applicable AES Trust.
"Common Stock" means the common stock of the Company, par value $.01 per
share.
"Company" means The AES Corporation, a corporation duly organized and
existing under the laws of the State of Delaware, and, subject to the provisions
of Article Ten, shall also include its successors and assigns.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of the execution of this Indenture is located at One
First National Plaza, Suite 0126, Chicago, IL 60670-0126, Attention: Corporate
Trust Administration.
"Currency Agreement" means, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such Person or any of its Subsidiaries against
fluctuations in currency values to or under which such Person or any of its
Subsidiaries is a party or a beneficiary on the date hereof or becomes a party
or a beneficiary thereafter.
3
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"Debt" means, 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 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.
"Declaration of Trust" means the Declaration of Trust of the AES Trust, if
any, specified in the applicable Board Resolution or supplemental indenture
establishing a particular series of Debentures pursuant to Section 2.01 hereof.
"Debenture" or "Debentures" means any Debenture or Debentures, as the case
may be, authenticated and delivered under this Indenture.
"Debentureholder", "holder of Debentures", "registered holder", or other
similar term, means the person or persons in whose name or names a particular
Debenture shall be registered on the books of the Company kept for the purpose
in accordance with the terms of this Indenture.
"Default" means any event, act or condition which with notice or lapse of
time, or both, would constitute an Event of Default.
"Depositary" means with respect to Debentures of any series, for which the
Company shall determine that such Debentures will be issued as a Global
Debenture, The Depository Trust Company, New York, New York, another clearing
agency, or any successor registered as a clearing agency under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or other applicable
statute or regulation, which, in each case, shall be designated by the Company
pursuant to either Section 2.01 or 2.11.
"Designated Senior and Subordinated Debt" means (i) Debt under the Bank
Credit Agreement 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.
4
<PAGE>
"Event of Default", with respect to Debentures of a particular series means
any event specified in Section 6.01(a), continued for the period of time, if
any, therein designated.
"Global Debenture" means, with respect to any series of Debentures, a
Debenture executed by the Company and delivered by the Trustee to the Depositary
or pursuant to the Depositary's instruction, all in accordance with the
Indenture, which shall be registered in the name of the Depositary or its
nominee.
"Governmental Obligations" means securities that are (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged or (ii) obligations of a person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a) (2) of
the Securities Act of 1933, as amended) as custodian with respect to any such
Governmental Obligation or a specific payment of principal of or interest on any
such Governmental Obligation held by such custodian for the account of the
holder of such depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depository receipt.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
other obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantee Agreement" means the guarantee, if any, that the Company may
enter into that operates directly or indirectly for the benefit of holders of
Preferred Securities issued by a AES Trust.
"Indenture" means this instrument as originally executed, or, if amended or
supplemented as herein provided, as so amended or supplemented.
5
<PAGE>
"Interest Payment Date" when used with respect to any installment of
interest on a Debenture of a particular series means the date specified in such
Debenture or in a Board Resolution or in an indenture supplemental hereto with
respect to such series as the fixed date on which an installment of interest
with respect to Debentures of that series is due and payable.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement designed to protect such Person or any of its Subsidiaries
against fluctuations in interest rates to or under which such Person or any of
its Subsidiaries is a party or a beneficiary on the date hereof or becomes a
party or a beneficiary thereafter.
"Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Indenture, the Company shall be deemed to own
subject to a Lien any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"Officers' Certificate" means a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Controller
or an Assistant Controller or the Secretary or an Assistant Secretary of the
Company and who shall be satisfactory to the Trustee. Each such certificate
shall include the statements provided for in Section 13.06, if and to the extent
required by the provisions thereof.
"Opinion of Counsel" means an opinion in writing signed by legal counsel,
who may be an employee of or counsel for the Company and who shall be
satisfactory to the Trustee. Each such opinion shall include the statements
provided for in section 13.06, if and to the extent required by the provisions
thereof.
"Outstanding", when used with reference to Debentures of any series,
subject to the provisions of Section 8.01, means, as of any particular time, all
Debentures of that series theretofore authenticated and delivered by the Trustee
under this Indenture, except (a) Debentures theretofore canceled by the Trustee
or any paying agent, or delivered to the Trustee or any paying agent for
cancellation or which have previously been canceled; (b) Debentures or portions
thereof for the payment or redemption of which moneys or Governmental
Obligations in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or shall have been set
aside and segregated in trust for the holders of such Debentures by the Company
(if the Company shall act as its own paying agent); provided, however, that if
such Debentures or portions of such Debentures are to be redeemed prior to the
maturity thereof, notice of such redemption shall have been given as in Article
Three provided, or provision satisfactory to the Trustee shall have been made
for giving such notice; and (c)
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Debentures in lieu of or in substitution for which other Debentures shall have
been authenticated and delivered pursuant to the terms of Section 2.07.
"Person" means any individual, corporation, joint venture, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Predecessor Debenture" of any particular Debenture means every previous
Debenture evidencing all or a portion of the same debt as that evidenced by such
particular Debenture; and, for the purposes of this definition, any Debenture
authenticated and delivered under Section 2.07 in lieu of a lost, destroyed or
stolen Debenture shall be deemed to evidence the same debt as the lost,
destroyed or stolen Debenture.
"Preferred Securities" means the preferred undivided beneficial interests
in the assets of the applicable AES Trust.
"Property Trustee" means the entity performing the function of the Property
Trustee under the applicable Declaration of Trust of an AES Trust.
"Responsible Officer" when used with respect to the Trustee means the
chairman of the board of directors, the president, any vice president, the
secretary, the treasurer, any trust officer, any corporate trust officer or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Security Exchange" when used with respect to the Debentures of any series
which are held as trust assets of an AES Trust pursuant to the Declaration of
Trust of such AES Trust, means the distribution of the Debentures of such series
by such AES Trust in exchange for the Preferred Securities and Common Securities
of such AES Trust in dissolution of such AES Trust pursuant to the Declaration
of Trust of such AES Trust.
"Senior and Subordinated Debt" means 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 this Indenture; provided that such Senior and
Subordinated Debt shall not include (i) 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, (ii) any other Debt of the Company which by the
terms of the instrument creating or evidencing the same is specifically
designated as not being senior in right of payment to the Debentures, and in
particular the 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 (iii) redeemable
stock of the Company.
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"Subsidiary" means any corporation at least a majority of whose outstanding
voting stock shall at the time be owned by the Company or by one or more
subsidiaries or by the Company and one or more Subsidiaries. For the purposes
only of this definition of the term "Subsidiary", the term "voting stock", as
applied to the stock of any corporation, shall mean stock of any class or
classes having ordinary voting power for the election of a majority of the
directors of such corporation, other than stock having such power only by reason
of the occurrence of a contingency.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Trustee" means The First National Bank of Chicago, and, subject to the
provisions of Article Seven, shall also include its successors and assigns, and,
if at any time there is more than one person acting in such capacity hereunder,
"Trustee" shall mean each such person. The term "Trustee" as used with respect
to a particular series of the Debentures shall mean the trustee with respect to
that series.
"Trust Indenture Act", subject to the provisions of Section 9.01 and 9.02,
means the Trust Indenture Act of 1939, as amended and in effect at the date of
execution of this Indenture.
"Trust Securities" means the Common Securities and the Preferred Securities
of the applicable AES Trust.
ARTICLE 2
ISSUE, DESCRIPTION, TERMS, EXECUTION REGISTRATION AND EXCHANGE OF
DEBENTURES
SECTION 2.01. Designation, Terms, Amount, Authentication and Delivery of
Debentures. The aggregate principal amount of Debentures which may be
authenticated and delivered under this Indenture is unlimited.
The Debentures may be issued in one or more series up to the aggregate
principal amount of Debentures of that series from time to time authorized by or
pursuant to a Board Resolution or pursuant to one or more indentures
supplemental hereto, prior to the initial issuance of Debentures of a particular
series. Prior to the initial issuance of Debentures of any series, there shall
be established in or pursuant to a Board Resolution, and set forth in an
Officers' Certificate, or established in one or more indentures supplemental
hereto:
(1) the title of the Debentures of the series (which shall distinguish
the Debentures of the series from all other Debentures);
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(2) any limit upon the aggregate principal amount of the Debentures of
that series which may be authenticated and delivered under this
Indenture (except for Debentures authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Debentures of that series):
(3) the date or dates on which the principal of the Debentures of the
series is payable;
(4) the rate or rates at which the Debentures of the series shall bear
interest or the manner of calculation of such rate or rates, if any;
(5) the date or dates from which such interest shall accrue, the
Interest Payment Dates on which such interest will be payable or the
manner of determination of such Interest Payment Dates and the record
date for the determination of holders to whom interest is payable on
any such Interest Payment Dates;
(6) the right, if any, to extend or defer the interest payment periods
and the duration of such extension;
(7) the period or periods within which, the price or prices at which,
and the terms and conditions upon which, Debentures of the series may
be redeemed, in whole or in part, at the option of the Company;
(8) the obligation, if any, of the Company to redeem or purchase
Debentures of the series pursuant to any sinking fund or analogous
provisions (including payments made in cash in anticipation of future
sinking fund obligations) or at the option of a holder thereof and the
period or periods within which, the price or prices at which, and the
terms and conditions upon which, Debentures of the series shall be
redeemed or purchased, in whole or in part, pursuant to such
obligation;
(9) any exchangeability, conversion or prepayment provisions of the
Debentures;
(10) the form of the Debentures of the series including the form of
the Certificate of Authentication for such series;
(11) if other than denominations of $50 or any integral multiple
thereof, the denominations in which the Debentures of the series shall
be issuable;
(12) any and all other terms with respect to such series (which terms
shall not be inconsistent with the terms of this Indenture); and
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(13) whether the Debentures are issuable as a Global Debenture and, in
such case, the identity of the Depositary for such series.
(14) If the Debentures of such series are to be deposited as trust
assets in a AES Trust the name of the applicable AES Trust (which
shall distinguish such statutory business trust from all other AES
Trusts) into which the Debentures of such series are to be deposited
as trust assets and the date of its Declaration of Trust.
All Debentures of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided in or pursuant to any
such Board Resolution or in any indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
SECTION 2.02. Form of Debenture and Trustee's Certificate. The Debentures
of any series and the Trustee's certificate of authentication to be borne by
such Debentures shall be substantially of the tenor and purport as set forth in
one or more indentures supplemental hereto or as provided in a Board Resolution
and as set forth in an Officers' Certificate, and may have such letters, numbers
or other marks of identification or designation and such legends or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Indenture, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which Debentures
of that series may be listed, or to conform to usage.
SECTION 2.03. Date and Denominations of Debentures and Provisions for
Payment of Principal, Premium and Interest. The Debentures shall be issuable as
registered Debentures and in the denominations of $50 or any integral multiple
thereof, subject to Section 2.01(10). The Debentures of a particular series
shall bear interest payable on the dates and at the rate specified with respect
to that series. The principal of and the interest on the Debentures of any
series, as well as any premium thereon in case of redemption thereof prior to
maturity, shall be payable in the coin or currency of the United States of
America which at the time is legal tender for public and private debt, at the
office or agency of the Company maintained for that purpose in the Borough of
Manhattan, The City and State of New York. Each Debenture shall be dated the
date of its authentication. Interest on the Debentures shall be computed on the
basis of a 360-day year composed of twelve 30-day months.
The interest installment on any Debenture which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date for
Debentures of that series shall be paid to the person in whose name said
Debenture (or one or more Predecessor
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Debentures) is registered at the close of business on the regular record date
for such interest installment. In the event that any Debenture of a particular
series or portion thereof is called for redemption and the redemption date is
subsequent to a regular record date with respect to any Interest Payment Date
and prior to such Interest Payment Date, interest on such Debenture will be paid
upon presentation and surrender of such Debenture as provided in Section 3.03.
Any interest on any Debenture which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date for Debentures of the same
series (herein called "Defaulted Interest") shall forthwith cease to be payable
to the registered holder on the relevant regular record date by virtue of having
been such holder; and such Defaulted Interest shall be paid by the Company, at
its election, as provided in clause (1) or clause (2) below:
(1) The Company may make payment of any Defaulted Interest on
Debentures to the persons in whose names such Debentures (or their
respective Predecessor Debentures) are registered at the close of
business on a special record date for the payment of such Defaulted
Interest, which shall be fixed in the following manner: the Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each such Debenture and the date of
the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit prior
to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the persons entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a special record date for the payment of such Defaulted
Interest which shall not be more than 15 nor less than 10 days prior
to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such special record date
and, in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the special
record date therefor to be mailed, first class postage prepaid, to
each Debentureholder at his or her address as it appears in the
Debenture Register (as hereinafter defined), not less than 10 days
prior to such special record date. Notice of the proposed payment of
such Defaulted Interest and the special record date therefor having
been mailed as aforesaid, such Defaulted Interest shall be paid to the
persons in whose names such Debentures (or their Predecessor
Debentures) are registered on such special record date and shall be no
longer payable pursuant to the following clause (2).
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(2) The Company may make payment of any Defaulted Interest on any
Debentures in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Debentures may
be listed, and upon such notice as may be required by such exchange,
if, after notice given by the Company to the Trustee of the proposed
payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
Unless otherwise set forth in a Board Resolution or one or more indentures
supplemental hereto establishing the terms of any series of Debentures pursuant
to Section 2.01 hereof, the term "regular record date" as used in this Section
with respect to a series of Debentures with respect to any Interest Payment Date
for such series shall mean either the fifteenth day of the month immediately
preceding the month in which an Interest Payment Date established for such
series pursuant to Section 2.01 hereof shall occur, if such Interest Payment
Date is the first day of a month, or the last day of the month immediately
preceding the month in which an Interest Payment Date established for such
series pursuant to Section 2.01 hereof shall occur, if such Interest Payment
Date is the fifteenth day of a month, whether or not such date is business day.
Subject to the foregoing provisions of this Section, each Debenture of a
series delivered under this Indenture upon transfer of or in exchange for or in
lieu of any other Debenture of such series shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Debenture.
SECTION 2.04. Execution of Debentures. The Debentures shall, subject to the
provisions of Section 2.06, be printed on steel engraved borders or fully or
partially engraved, or legibly typed, as the proper officers of the Company may
determine, and shall be signed on behalf of the Company by the Chairman or Vice
Chairman of its Board of Directors or its President or one of its Vice
Presidents, under its corporate seal attested by its Secretary or one of its
Assistant Secretaries. The signature of the Chairman, Vice Chairman, President
or a Vice President and/or the signature of the Secretary or an Assistant
Secretary in attestation of the corporate seal, upon the Debentures, may be in
the form of a manual or facsimile signature of a present or any future Chairman,
Vice Chairman, President or Vice President and of a present or any future
Secretary or Assistant Secretary and may be imprinted or otherwise reproduced on
the Debentures and for that purpose the Company may use the manual or facsimile
signature of any person who shall have been a Chairman, Vice Chairman, President
or Vice President, or of any person who shall have been a Secretary or Assistant
Secretary, notwithstanding the fact that at the time the Debentures shall be
authenticated and delivered or disposed of such person shall have ceased to be
the Chairman, Vice Chairman, President or a Vice President, or the Secretary or
an Assistant Secretary, of the Company, as the case may be. The seal of the
Company may be in the form of a facsimile of the seal of the Company and may be
impressed, affixed, imprinted or otherwise reproduced on the Debentures.
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Only such Debentures as shall bear thereon a Certificate of Authentication
substantially in the form established for such Debentures, executed manually by
an authorized signatory of the Trustee, or by any Authenticating Agent with
respect to such Debentures, shall be entitled to the benefits of this Indenture
or be valid or obligatory for any purpose. Such certificate executed by the
Trustee, or by any Authenticating Agent appointed by the Trustee with respect to
such Debentures, upon any Debenture executed by the Company shall be conclusive
evidence that the Debenture so authenticated has been duly authenticated and
made available for delivery hereunder and that the holder is entitled to the
benefits of this Indenture.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Debentures of any series executed by the
Company to the Trustee for authentication, together with a written order of the
Company for the authentication and delivery of such Debentures, signed by its
President or any Vice President and its Treasurer or any Assistant Treasurer,
and the Trustee in accordance with such written order shall authenticate and
make available for delivery such Debentures.
In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 7.01) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form and
terms thereof have been established in conformity with the provisions of this
Indenture.
The Trustee shall not be required to authenticate such Debentures if the
issue of such Debentures pursuant to this Indenture will affect the Trustee's
own rights, duties or immunities under the Debentures and this Indenture or
otherwise in a manner which is not reasonably acceptable to the Trustee.
SECTION 2.05. Exchange of Debentures. (a) Debentures of any series may be
exchanged upon presentation thereof at the office or agency of the Company
designated for such purpose in the Borough of Manhattan, The City and State of
New York, for other Debentures of such series of authorized denominations, and
for a like aggregate principal amount, upon payment of a sum sufficient to cover
any tax or other governmental charge in relation thereto, all as provided in
this Section. In respect of any Debentures so surrendered for exchange, the
Company shall execute, the Trustee shall authenticate and such office or agency
shall make available for delivery in exchange therefor the Debenture or
Debentures of the same series which the Debentureholder making the exchange
shall be entitled to receive, bearing numbers not contemporaneously outstanding.
(b) The Company shall keep, or cause to be kept, at its office or agency
designated for such purpose in the Borough of Manhattan, The City and State of
New York, or such other location designated by the Company a register or
registers (herein referred to as the "Debenture Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall register the
Debentures and the transfers of
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Debentures as in this Article provided and which at all reasonable times shall
be open for inspection by the Trustee. The registrar for the purpose of
registering Debentures and transfer of Debentures as herein provided shall be
appointed as authorized by Board Resolution (the "Debenture Registrar").
Upon surrender for transfer of any Debenture at the office or agency of the
Company designated for such purpose in the Borough of Manhattan, The City and
State of New York, the Company shall execute, the Trustee shall authenticate and
such office or agency shall make available for delivery in the name of the
transferee or transferees a new Debenture or Debentures of the same series as
the Debenture presented for a like aggregate principal amount.
All Debentures presented or surrendered for exchange or registration of
transfer, as provided in this Section, shall be accompanied (if so required by
the Company or the Debenture Registrar) by a written instrument or instruments
of transfer, in form satisfactory to the Company or the Debenture Registrar,
duly executed by the registered holder or by his duly authorized attorney in
writing.
(c) No service charge shall be made for any exchange or registration of
transfer of Debentures, or issue of new Debentures in case of partial redemption
of any series, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge in relation thereto, other than exchanges
pursuant to Section 2.06, the second paragraph of Section 3.03 and Section 9.04
not involving any transfer.
(d) The Company shall not be required (i) to issue, exchange or register
the transfer of any Debentures during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of less
than all the outstanding Debentures of the same series and ending at the close
of business on the day of such mailing, nor (ii) to register the transfer of or
exchange any Debentures of any series or portions thereof called for redemption.
The provisions of this Section 2.05 are, with respect to any Global Debenture,
subject to Section 2.11 hereof.
SECTION 2.06. Temporary Debentures. Pending the preparation of definitive
Debentures of any series, the Company may execute, and the Trustee shall
authenticate and make available for delivery, temporary Debentures (printed,
lithographed or typewritten) of any authorized denomination, and substantially
in the form of the definitive Debentures in lieu of which they are issued, but
with such omissions, insertions and variations as may be appropriate for
temporary Debentures, all as may be determined by the Company. Every temporary
Debenture of any series shall be executed by the Company and be authenticated by
the Trustee upon the same conditions and in substantially the same manner, and
with like effect, as the definitive Debentures of such series. Without
unnecessary delay the Company will execute and will furnish definitive
Debentures of such series and thereupon any or all temporary Debentures of such
series may be surrendered in exchange therefor (without charge to the holders),
at the office or agency of the Company designated for the purpose in the Borough
of Manhattan, The
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City and State of New York, and the Trustee shall authenticate and such office
or agency shall make available for delivery in exchange for such temporary
Debentures an equal aggregate principal amount of definitive Debentures of such
series, unless the Company advises the Trustee to the effect that definitive
Debentures need not be executed and furnished until further notice from the
Company. Until so exchanged, the temporary Debentures of such series shall be
entitled to the same benefits under this Indenture as definitive Debentures of
such series authenticated and delivered hereunder.
SECTION 2.07. Mutilated, Destroyed, Lost or Stolen Debentures. In case any
temporary or definitive Debenture shall become mutilated or be destroyed, lost
or stolen, the Company (subject to the next succeeding sentence) shall execute,
and upon its request the Trustee (subject as aforesaid) shall authenticate and
make available for delivery, a new Debenture of the same series bearing a number
not contemporaneously outstanding, in exchange and substitution for the
mutilated Debenture, or in lieu of and in substitution for the Debenture so
destroyed, lost or stolen. In every case the applicant for a substituted
Debenture shall furnish to the Company and to the Trustee such security or
indemnity as may be required by them to save each of them harmless, and, in
every case of destruction, loss or theft, the applicant shall also furnish to
the Company and to the Trustee evidence to their satisfaction of the
destruction, loss or theft of the applicant's Debenture and of the ownership
thereof. The Trustee may authenticate any such substituted Debenture and make
available for delivery the same upon the written request or authorization of any
officer of the Company. Upon the issuance of any substituted Debenture, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
In case any Debenture which has matured or is about to mature shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a
substitute Debenture, pay or authorize the payment of the same (without
surrender thereof except in the case of a mutilated Debenture) if the applicant
for such payment shall furnish to the Company and to the Trustee such security
or indemnity as they may require to save them harmless, and, in case of
destruction, loss or theft, evidence to the satisfaction of the Company and the
Trustee of the destruction, loss or theft of such Debenture and of the ownership
thereof.
Every Debenture issued pursuant to the provisions of this Section in
substitution for any Debenture which is mutilated, destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether or
not the mutilated, destroyed, lost or stolen Debenture shall be found at any
time, or be enforceable by anyone, and shall be entitled to all the benefits of
this Indenture equally and proportionately with any and all other Debentures of
the same series duly issued hereunder. All Debentures shall be held and owned
upon the express condition that the foregoing provisions are exclusive with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Debentures, and shall preclude (to the extent lawful) any and all other rights
or remedies, notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
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SECTION 2.08. Cancellation of Surrendered Debentures. All Debentures
surrendered for the purpose of payment, redemption, exchange or registration of
transfer shall, if surrendered to the Company or any paying agent, be delivered
to the Trustee for cancellation, or, if surrendered to the Trustee, shall be
canceled by it, and no Debentures shall be issued in lieu thereof except as
expressly required or permitted by any of the provisions of this Indenture. On
written request of the Company, the Trustee shall deliver to the Company
canceled Debentures held by the Trustee. If the Company shall otherwise acquire
any of the Debentures, however, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Debentures
unless and until the same are delivered to the Trustee for cancellation.
SECTION 2.09. Provisions of Indenture and Debentures for Sole Benefit of
Parties and Debentureholders. Nothing in this Indenture or in the Debentures,
express or implied, shall give or be construed to give to any person, firm or
corporation, other than the parties hereto and the holders of the Debentures,
any legal or equitable right, remedy or claim under or in respect of this
Indenture, or under any covenant, condition or provision herein contained; all
such covenants, conditions and provisions being for the sole benefit of the
parties hereto and of the holders of the Debentures.
SECTION 2.10. Appointment of Authenticating Agent. So long as any of the
Debentures of any series remain outstanding there may be an Authenticating Agent
for any or all such series of Debentures which the Trustee shall have the right
to appoint. Said Authenticating Agent shall be authorized to act on behalf of
the Trustee to authenticate Debentures of such series issued upon exchange,
transfer or partial redemption thereof, and Debentures so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. All references in
this Indenture to the authentication of Debentures by the Trustee shall be
deemed to include authentication by an Authenticating Agent for such series
except for authentication upon original issuance or pursuant to Section 2.07
hereof. Each Authenticating Agent shall be acceptable to the Company and shall
be a corporation which has a combined capital and surplus, as most recently
reported or determined by it, sufficient under the laws of any jurisdiction
under which it is organized or in which it is doing business to conduct a trust
business, and which is otherwise authorized under such laws to conduct such
business and is subject to supervision or examination by Federal or State
authorities. If at any time any Authenticating Agent shall cease to be eligible
in accordance with these provisions, it shall resign immediately.
Any Authenticating Agent may at any time resign by giving written notice of
resignation to the Trustee and to the Company. The Trustee may at any time (and
upon request by the Company shall) terminate the agency of any Authenticating
Agent by giving written notice of termination to such Authenticating Agent and
to the Company. Upon resignation, termination or cessation of eligibility of any
Authenticating Agent, the Trustee may appoint an eligible successor
Authenticating Agent acceptable to the Company. Any successor Authenticating
Agent, upon acceptance of its appointment
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hereunder, shall become vested with all the rights, powers and duties of its
predecessor hereunder as if originally named as an Authenticating Agent pursuant
hereto.
SECTION 2.11. Global Debenture. (a) If the Company shall establish pursuant
to Section 2.01 that the Debentures of a particular series are to be issued as
one or more Global Debentures, then the Company shall execute and the Trustee
shall, in accordance with Section 2.04, authenticate and deliver, one or more
Global Debentures which (i) shall represent, and shall be denominated in an
aggregate amount equal to the aggregate principal amount of, all of the
Outstanding Debentures of such series, (ii) shall be registered in the name of
the Depositary or its nominee, (iii) shall be delivered by the Trustee to the
Depositary or pursuant to the Depositary's instruction and (iv) shall bear a
legend substantially to the following effect: "Except as otherwise provided in
Section 2.11 of the Indenture, this Debenture may be transferred, in whole but
not in part, only to another nominee of the Depositary or to a successor
Depositary or to a nominee of such successor Depositary."
(b) Notwithstanding the provisions of Section 2.05, the Global Debenture of
a series may be transferred, in whole but not in part and in the manner provided
in Section 2.05, only to another nominee of the Depositary for such series, or
to a successor Depositary for such series selected or approved by the Company or
to a nominee of such successor Depositary.
(c) If at any time the Depositary for a series of Debentures notifies the
Company that it is unwilling or unable to continue as Depositary for such series
or if at any time the Depositary for such series shall no longer be registered
or in good standing under the Exchange Act, or other applicable statute or
regulation and a successor Depositary for such series is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such condition, as the case may be, this Section 2.11 shall no longer be
applicable to the Debentures of such series and the Company will execute, and
subject to Section 2.05, the Trustee will authenticate and make available for
delivery Debentures of such series in definitive registered form without
coupons, in authorized denominations, and in an aggregate principal amount equal
to the principal amount of the Global Debentures of such series in exchange for
such Global Debenture. In addition, the Company may at any time determine that
the Debentures of any series shall no longer be represented by one or more
Global Debentures and that the provisions of this Section 2.11 shall no longer
apply to the Debentures of such series. In such event the Company will execute
and subject to Section 2.05, the Trustee, upon receipt of an Officers'
Certificate evidencing such determination by the Company, will authenticate and
deliver Debentures of such series in definitive registered form without coupons,
in authorized denominations, and in an aggregate principal amount equal to the
principal amount of the Global Debentures of such series in exchange for such
Global Debentures. Upon the exchange of the Global Debentures for such
Debentures in definitive registered form without coupons, in authorized
denominations, the Global Debentures shall be canceled by the Trustee. Such
Debentures in definitive registered form issued in exchange for the Global
Debentures pursuant to this Section 2.11(c) shall be registered in
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such names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Debentures to the
Depositary for delivery to the persons in whose names such Debentures are so
registered.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Debentures may use
"CUSIP" and "CINS" numbers (if then generally in use), and the Trustee shall use
CUSIP numbers or CINS numbers, as the case may be, in notices of redemption or
exchange as a convenience to Debentureholders and no representation shall be
made as to the correctness of such numbers either as printed on the Debentures
or as contained in any notice of redemption or exchange.
ARTICLE 3
REDEMPTION OF DEBENTURES AND SINKING FUND PROVISIONS
SECTION 3.01. Redemption of Debentures. The Company may redeem the
Debentures of any series issued hereunder on and after the dates and in
accordance with the terms established for such series pursuant to Section 2.01
hereof.
SECTION 3.02. Notice of Redemption. (a) In case the Company shall desire to
exercise such right to redeem all or, as the case may be, a portion of the
Debentures of any series in accordance with the right reserved so to do, it
shall give notice of such redemption to holders of the Debentures of such series
to be redeemed by mailing, first class postage prepaid, a notice of such
redemption not less than 30 days and not more than 60 days before the date fixed
for redemption of that series to such holders at their last addresses as they
shall appear upon the Debenture Register. Any notice which is mailed in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not the registered holder receives the notice. In any case, failure
duly to give such notice to the holder of any Debenture of any series designated
for redemption in whole or in part, or any defect in the notice, shall not
affect the validity of the proceedings for the redemption of any other
Debentures of such series or any other series. In the case of any redemption of
Debentures prior to the expiration of any restriction on such redemption
provided in the terms of such Debentures or elsewhere in this Indenture, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with any such restriction.
Each such notice of redemption shall specify the date fixed for redemption
and the redemption price at which Debentures of that series are to be redeemed,
and shall state that payment of the redemption price of such Debentures to be
redeemed will be made at the office or agency of the Company in the Borough of
Manhattan, the City and State of New York, upon presentation and surrender of
such Debentures, that interest accrued to the date fixed for redemption will be
paid as specified in said notice, that from and after
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said date interest will cease to accrue and that the redemption is for a sinking
fund, if such is the case. If less than all the Debentures of a series are to be
redeemed, the notice to the holders of Debentures of that series to be redeemed
in whole or in part shall specify the particular Debentures to be so redeemed.
In case any Debenture is to be redeemed in part only, the notice which relates
to such Debenture shall state the portion of the principal amount thereof to be
redeemed, and shall state that on and after the redemption date, upon surrender
of such Debenture, a new Debenture or Debentures of such series in principal
amount equal to the unredeemed portion thereof will be issued.
(b) If less than all the Debentures of a series are to be redeemed, the
Company shall give the Trustee at least 45 days' notice in advance of the date
fixed for redemption as to the aggregate principal amount of Debentures of the
series to be redeemed, and thereupon the Trustee shall select, by lot or in such
other manner as it shall deem appropriate and fair in its discretion and which
may provide for the selection of a portion or portions (equal to $50 or any
integral multiple thereof) of the principal amount of such Debentures of a
denomination larger than $50, the Debentures to be redeemed and shall thereafter
promptly notify the Company in writing of the numbers of the Debentures to be
redeemed, in whole or in part.
The Company may, if and whenever it shall so elect, by delivery of
instructions signed on its behalf by its President or any Vice President,
instruct the Trustee or any paying agent to call all or any part of the
Debentures of a particular series for redemption and to give notice of
redemption in the manner set forth in this Section, such notice to be in the
name of the Company or its own name as the Trustee or such paying agent may deem
advisable. In any case in which notice of redemption is to be given by the
Trustee or any such paying agent, the Company shall deliver or cause to be
delivered to, or permit to remain with, the Trustee or such paying agent, as the
case may be, such Debenture Register, transfer books or other records, or
suitable copies or extracts therefrom, sufficient to enable the Trustee or such
paying agent to give any notice by mail that may be required under the
provisions of this Section.
SECTION 3.03. Debentures Due and Payable. (a) If the giving of notice of
redemption shall have been completed as above provided, the Debentures or
portions of Debentures of the series to be redeemed specified in such notice
shall become due and payable on the date and at the place stated in such notice
at the applicable redemption price, together with interest accrued to the date
fixed for redemption and interest on such Debentures or portions of Debentures
shall cease to accrue on and after the date fixed for redemption, unless the
Company shall default in the payment of such redemption price and accrued
interest with respect to any such Debenture or portion thereof. On presentation
and surrender of such Debentures on or after the date fixed for redemption at
the place of payment specified in the notice, said Debentures shall be paid and
redeemed at the applicable redemption price for such series, together with
interest accrued thereon to the date fixed for redemption (but if the date fixed
for redemption is an Interest Payment Date, the interest installment payable on
such date shall be payable to the
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registered holder at the close of business on the applicable record date
pursuant to Section 2.03).
(b) Upon presentation of any Debenture of such series which is to be
redeemed in part only, the Company shall execute and the Trustee shall
authenticate and the office or agency where the Debenture is presented shall
make available for delivery to the holder thereof, at the expense of the
Company, a new Debenture or Debentures of the same series, of authorized
denominations in principal amount equal to the unredeemed portion of the
Debenture so presented.
SECTION 3.04. Sinking Funds for Debentures. The provisions of Sections
3.04, 3.05 and 3.06 shall be applicable to any sinking fund for the retirement
of Debentures of a series, except as otherwise specified as contemplated by
Section 2.01 for Debentures of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Debentures of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Debentures of any series is herein referred to as on "optional sinking
fund payment". If provided for by the terms of Debentures for any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 3.05. Each sinking fund payment shall be applied to the redemption of
Debentures of any series as provided for by the terms of Debentures of such
series.
SECTION 3.05. Satisfaction of Sinking Fund Payments With Debentures. The
Company (i) may deliver outstanding Debentures of a series (other than any
previously called for redemption) and (ii) may apply as a credit Debentures of a
series which have been redeemed either at the election of the Company pursuant
to the terms of such Debentures or through the application of permitted optional
sinking fund payments pursuant to the terms of such Debentures, in each case in
satisfaction of all or any part of any sinking fund payment with respect to the
Debentures of such series required to be made pursuant to the terms of such
Debentures as provided for by the terms of such series; provided that such
Debentures have not been previously so credited. Such Debentures shall be
received and credited for such purpose by the Trustee at the redemption price
specified in such Debentures for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.
SECTION 3.06. Redemption of Debentures for Sinking Fund. Not less than 45
days prior to each sinking fund payment date for any series of Debentures, the
Company will deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing sinking fund payment for that series pursuant to the
terms for that series, the portion thereof, if any, which is to be satisfied by
delivering and crediting Debentures of that series pursuant to Section 3.05 and
the basis for such credit and will, together with such Officers' Certificate,
deliver to the Trustee any Debentures to be so delivered. Not less than 30 days
before each such sinking fund payment date the Trustee shall select the
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Debentures to be redeemed upon such sinking fund payment date in the manner
specified in Section 3.02 and cause notice of the redemption thereof to be given
in the name of and at the expense of the Company in the manner provided in
Section 3.02. Such notice having been duly given, the redemption of such
Debentures shall be made upon the terms and in the manner stated in Section
3.03.
ARTICLE 4
PARTICULAR COVENANTS OF THE COMPANY
The Company covenants and agrees for each series of the Debentures as follows:
SECTION 4.01. Payment of Principal of (And Premium, if any) and Interest on
Debentures. The Company will duly and punctually pay or cause to be paid the
principal of (and premium, if any) and interest on the Debentures of that series
at the time and place and in the manner provided herein and established with
respect to such Debentures.
SECTION 4.02. Maintenance of Office or Agent for Payment of Debentures,
Designation of Office or Agency for Payment, Registration, Transfer and Exchange
of Debentures. So long as any series of the Debentures remain outstanding, the
Company agrees to maintain an office or agency in the Borough of Manhattan, The
City and State of New York, with respect to each such series and at such other
location or locations as may be designated as provided in this Section 4.02,
where (i) Debentures of that series may be presented for payment, (ii)
Debentures of that series may be presented as herein above authorized for
registration of transfer and exchange, and (iii) notices and demands to or upon
the Company in respect of the Debentures of that series and this Indenture may
be given or served, such designation to continue with respect to such office or
agency until the Company shall, by written notice signed by its President or a
Vice President and delivered to the Trustee, designate some other office or
agency for such purposes or any of them. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, notices and demands may be
made or served at the Corporate Trust Office of the Trustee, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
notices and demands.
SECTION 4.03. Duties of Paying Agent; Company as Payment Agent; and Holding
Sums of Trust. (a) If the Company shall appoint one or more paying agents for
all or any series of the Debentures, other than the Trustee, the Company will
cause each such paying agency to execute and deliver to the Trustee an
instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section:
(1) that it will hold all sums held by it as such agent for the
payment of the principal of (and premium, if any) or interest on the
Debentures of that
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series (whether such sums have been paid to it by the Company or by
any other obligor of such Debentures) in trust for the benefit of the
persons entitled thereto:
(2) that it will give the Trustee written notice of any failure by the
Company (or by any other obligor of such Debentures) to make any
payment of the principal of (and premium, if any) or interest on the
Debentures of that series when the same shall be due and payable;
(3) that it will, at any time during the continuance of any failure
referred to in the preceding paragraph (a)(2) above, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such paying agent; and
(4) that it will perform all other duties of paying agent as set forth
in this Indenture.
(b) If the Company shall act as its own paying agent with respect to any
series of the Debentures, it will on or before each due date of the principal of
(and premium, if any) or interest on Debentures of that series, set aside,
segregate and hold in trust for the benefit of the persons entitled thereto a
sum sufficient to pay such principal (and premium, if any) or interest so
becoming due on Debentures of that series until such sums shall be paid to such
persons or otherwise disposed of as herein provided and will promptly notify in
writing the Trustee of such action, or any failure (by it or any other obligor
on such Debentures) to take such action. Whenever the Company shall have one or
more paying agents for any series of Debentures, it will, prior to each due date
of the principal of (and premium, if any) or interest on any Debentures of that
series, deposit with the paying agent a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due, such sum to be held in trust for
the benefit of the persons entitled to such principal, premium or interest, and
(unless such paying agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
(c) Anything in this Section to the contrary notwithstanding, (i) the
agreement to hold sums in trust as provided in this Section is subject to the
provisions of Section 11.04, and (ii) the Company may at any time, for the
purpose of obtaining the satisfaction and discharge of this Indenture or for any
other purpose, pay, or direct any paying agent to pay, to the Trustee all sums
held in trust by the Company or such paying agent, such sums to be held by the
Trustee upon the same terms and conditions as those upon which such sums were
held by the Company or such paying agent; and, upon such payment by any paying
agent to the Trustee, such paying agent shall be released from all further
liability with respect to such money.
SECTION 4.04. Appointment to Fill Vacancy in Office of Trustee. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the
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manner provided in Section 7.10, a Trustee, so that there shall at all times be
a Trustee hereunder.
ARTICLE 5
DEBENTUREHOLDER'S LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
SECTION 5.01. Company to Furnish Trustee Information as to Names and
Addresses of Debentures. The Company will furnish or cause to be furnished to
the Trustee (a) on a quarterly basis on each regular record date (as defined in
Section 2.03) a list, in such form as the Trustee may reasonably require, of the
names and addresses of the holders of each series of Debentures as of such
regular record date, provided, that the Company shall not be obligated to
furnish or cause to furnish such list at any time that the list shall not differ
in any respect from the most recent list furnished to the Trustee by the Company
and (b) at such other times as the Trustee may request in writing within 30 days
after the receipt by the Company of any such request, a list of similar form and
content as of a date not more than 15 days prior to the time such list is
furnished; provided, however, no such list need be furnished for any series for
which the Trustee shall be the Debenture Registrar.
SECTION 5.02. Trustee to Preserve Information as to Names and Addresses of
Debentureholders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Debentures contained in the most recent list furnished to it as
provided in Section 5.01 and as to the names and addresses of holders of
Debentures received by the Trustee in its capacity as Debenture Registrar (if
acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in Section
5.01 upon receipt of a new list so furnished.
(c) In case three or more holders of Debentures of a series (hereinafter
referred to as "applicants") apply in writing to the Trustee, and furnish to the
Trustee reasonable proof that each such applicant has owned a Debenture for a
period of at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other holders
of Debentures of such series or holders of all Debentures with respect to their
rights under this Indenture or under such Debentures, and is accompanied by a
copy of the form of proxy or other communication which such applicants propose
to transmit, then the Trustee shall within five business days after the receipt
of such application, at its election, either:
(1) afford to such applicants access to the information preserved at
the time by the Trustee in accordance with the provisions of
subsection (a) of this Section 5.02; or
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(2) inform such applicants as to the approximate number of holders of
Debentures of such series or of all Debentures, as the case may be,
whose names and addresses appear in the information preserved at the
time by the Trustee, in accordance with the provisions of subsection
(a) of this Section 5.02, and as to the approximate cost of mailing to
such Debentureholders the form of proxy or other communication, if
any, specified in such application.
(d) If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each holder of such series or of all Debentures, as the case may be,
whose name and address appears in the information preserved at the time by the
Trustee in accordance with the provisions of subsection (a) of this Section
5.02, a copy of the form of proxy or other communication which is specified in
such request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after such tender, the
Trustee shall mail to such applicants and file with the Securities and Exchange
Commission (the "Commission"), together with a copy of the material to be
mailed, a written statement to the effect that, in the opinion of the Trustee,
such mailing would be contrary to the best interests of the holders of
Debentures of such series or of all Debentures, as the case may be, or would be
in violation of applicable law. Such written statement shall specify the basis
of such opinion. If the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed, shall enter an order
refusing to sustain any of such objections or if, after the entry of an order
sustaining one or more of such objections, the Commission shall find, after
notice and opportunity for hearing, that all the objections so sustained have
been met and shall enter an order so declaring, the Trustee shall mail copies of
such material to all such Debentureholders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise, the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(e) Each and every holder of the Debentures, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any paying agent nor any Debenture Registrar shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the holders of Debentures in accordance with the provisions of
subsection (b) of this Section, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under said subsection
(b).
SECTION 5.03. Annual and Other Reports to Be Filed by Company With Trustee.
(a) The Company covenants and agrees to file with the Trustee, within 15 days
after the Company is required to file the same with the Commission, copies of
the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations
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prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15 (d) of the Exchange Act; or, if the Company
is not required to file information, documents or reports pursuant to either of
such sections, then to file with the Trustee and the Commission in accordance
with the rules and regulations prescribed from time to time by the Commission,
such of the supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Exchange Act, in respect of a
security listed and registered on a national securities exchange as may be
prescribed from time to time in such rules and regulations. Delivery of such
reports, information and documents to the Trustee is for informational purposes
only and the Trustee's receipt of such shall not constitute constructive notice
of any information contained therein, including the Company's compliance with
any of its covenants hereunder (as to which the Trustee is entitled to rely
exclusively on Officers' Certificates).
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from time to
time by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or reputable over-night delivery service which provides for
evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within 30 days after the filing thereof with
the Trustee, such summaries of any information, documents and reports required
to be filed by the Company pursuant to subsections (a) and (b) of this Section
as may be required by rules and regulations prescribed from time to time by the
Commission.
(d) The Company covenants and agrees to furnish to the Trustee, on or
before May 15 in each calendar year in which any of the Debentures are
outstanding, or on or before such other day in each calendar year as the Company
and the Trustee may from time to time agree upon, a Certificate as to his or her
knowledge of the Company's compliance with all conditions and covenants under
this Indenture. For purposes of this subsection (d), such compliance shall be
determined without regard to any period of grace or requirement of notice
provided under this Indenture.
SECTION 5.04. Trustee to Transmit Annual Report to Debentureholders. (a) On
or before July 15 in each year in which any of the Debentures are outstanding,
the Trustee shall transmit by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register, a brief report dated as of the preceding May 15, with respect to any
of the following events which may have occurred within the previous twelve
months (but if no such event has occurred within such period no report need be
transmitted):
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(1) any change to its eligibility under Section 7.09, and its
qualifications under Section 7.08;
(2) the creation of or any material change to a relationship specified
in paragraphs (1) through (10) of subsection (c) of Section 7.08;
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof)
made by the Trustee (as such) which remain unpaid on the date of such
report, and for the reimbursement of which it claims or may claim a
lien or charge, prior to that of the Debentures, on any property or
funds held or collected by it as Trustee if such advances so remaining
unpaid aggregate more than 1/2 of 1% of the principal amount of the
Debentures outstanding on the date of such report;
(4) any change to the amount, interest rate, and maturity date of all
other indebtedness owing by the Company, or by any other obligor on
the Debentures, to the Trustee in its individual capacity, on the date
of such report, with a brief description of any property held as
collateral security therefor, except any indebtedness based upon a
creditor relationship arising in any manner described in paragraph
(2), (3), (4), or (6) of subsection (b) of Section 7.13;
(5) any change to the property and funds, if any, physically in the
possession of the Trustee as such on the date of such report;
(6) any release, or release and substitution, of property subject to
the lien of this Indenture (and the consideration thereof, if any)
which it has not previously reported;
(7) any additional issue of Debentures which the Trustee has not
previously reported; and
(8) any action taken by the Trustee in the performance of its duties
under this Indenture which it has not previously reported and which in
its opinion materially affects the Debentures or the Debentures of any
series, except any action in respect of a default, notice of which has
been or is to be withheld by it in accordance with the provisions of
Section 6.07.
(b) The Trustee shall transmit by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register, a brief report with respect to the character and amount of any
advances (and if the Trustee elects so to state, the circumstances surrounding
the making thereof) made by the Trustee as such since the date of the last
report transmitted pursuant to the provisions of subsection (a) of this Section
(or if no such report has yet been so transmitted, since the
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date of execution of this Indenture), for the reimbursement of which it claims
or may claim a lien or charge prior to that of the Debentures of any series on
property or funds held or collected by it as Trustee, and which it has not
previously reported pursuant to this subsection if such advances remaining
unpaid at any time aggregate more than 10% of the principal amount of Debentures
of such series outstanding at such time, such report to be transmitted within 90
days after such time.
(c) A copy of each such report shall, at the time of such transmission to
Debentureholders, be filed by the Trustee with the Company, with each stock
exchange upon which any Debentures are listed (if so listed) and also with the
Commission. The Company agrees to notify the Trustee when any Debentures become
listed on any stock exchange.
ARTICLE 6
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT
SECTION 6.01. Events of Default Defined. (a) Whenever used herein with
respect to Debentures of a particular series, "Event of Default" means any one
or more of the following events which has occurred and is continuing:
(1) default in the payment of any installment of interest upon any of
the Debentures of that series, as and when the same shall become due
and payable, and continuance of such default for a period of 30 days;
provided, however, that a valid extension of an interest payment
period by the Company in accordance with the terms of any indenture
supplemental hereto, shall not constitute a default in the payment of
interest for this purpose;
(2) default in the payment of the principal of (or premium, if any,
on) any of the Debentures of that series as and when the same shall
become due and payable whether at maturity, upon redemption, by
declaring or otherwise, or in any payment required by any sinking or
analogous fund established with respect to that series;
(3) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company with
respect to that series contained in such Debentures or otherwise
established with respect to that series of Debentures pursuant to
Section 2.01 hereof or contained in this Indenture (other than a
covenant or agreement which has been expressly included in this
Indenture solely for the benefit of one or more series of Debentures
other than such series) for a period of 90 days after the date on
which written notice of such failure,
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requiring the same to be remedied and stating that such notice is a
"Notice of Default" hereunder, shall have been given to the Company by
the Trustee, by registered or certified mail, or to the Company and
the Trustee by the holders of at least 25% in principal amount of the
Debentures of that series at the time outstanding;
(4) a decree or order by a court having jurisdiction in the premises
shall have been entered adjudging the Company as bankrupt or
insolvent, or approving as properly filed a petition seeking
liquidation or reorganization of the Company under the Federal
Bankruptcy Code or any other similar applicable Federal or State law,
and such decree or order shall have continued unvacated and unstayed
for a period of 90 days; or an involuntary case shall be commenced
under such Code in respect of the Company and shall continue
undismissed for a period of 90 days or an order for relief in such
case shall have been entered; or a decree or order of a court having
jurisdiction in the premises shall have been entered for the
appointment on the ground of insolvency or bankruptcy of a receiver or
custodian or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company or of its property, or for the winding up or
liquidation of its affairs, and such decree or order shall have
remained in force unvacated and unstayed for a period of 90 days; or
(5) the Company shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer or consent
seeking liquidation or reorganization under the Federal Bankruptcy
Code or any other similar applicable Federal or State law, or shall
consent to the filing of any such petition, or shall consent to the
appointment on the ground of insolvency or bankruptcy of a receiver or
custodian or liquidator or trustee or assignee in bankruptcy or
insolvency of it or of its property, or shall make an assignment for
the benefit of creditors.
(b) In each and every such case, unless the principal of all the Debentures
of that series shall have already become due and payable, either the Trustee or
the holders of not less than 25% in aggregate principal amount of the Debentures
of that series then outstanding hereunder, by notice in writing to the Company
(and to the Trustee if given by such Debentureholders), may declare the
principal of all the 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, anything contained in this Indenture or in the
Debentures of that series or established with respect to that series pursuant to
Section 2.01 hereof to the contrary notwithstanding.
(c) Section 6.01(b), however, is subject to the condition that if, at any
time after the principal of the Debentures of that series shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have
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been obtained or entered as hereinafter provided, the Company shall pay or shall
deposit with the Trustee a sum sufficient to pay all matured installments of
interest upon all the Debentures of that series and the principal of (and
premium, if any, on) any and all Debentures of that series which shall have
become due otherwise than by acceleration (with interest upon such principal and
premium, if any, and, to the extent that such payment is enforceable under
applicable law, upon overdue installments of interest, at the rate per annum
expressed in the Debentures of that series to the date of such payment or
deposit) and the amount payable to the Trustee under Section 7.06, and any and
all defaults under the Indenture, other than the nonpayment of principal on
Debentures of that series which shall not have become due by their terms, shall
have been remedied or waived as provided in Section 6.06 then and in every such
case the holders of a majority in aggregate principal amount of the Debentures
of that series then outstanding (subject to, in the case of any series of
Debentures held as trust assets of a AES Trust and with respect to which a
Security Exchange has not theretofore occurred, such consent of the holders of
the Preferred Securities and the Common Securities of such AES Trust as may be
required under the Declaration of Trust of such AES Trust), by written notice to
the Company and to the Trustee, may rescind and annul such declaration and its
consequences with respect to that series of Debentures; but no such rescission
and annulment shall extend to or shall affect any subsequent default, or shall
impair any right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures of that series under this Indenture and such proceedings
shall have been discontinued or abandoned because of such rescission or
annulment or for any other reason or shall have been determined adversely to the
Trustee, then and in every such case the Company and the Trustee shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company and the Trustee shall continue as
though no such proceedings had been taken.
(e) If, prior to a Security Exchange with respect to the Debentures of any
series, a Default with respect to the Debentures of such series shall have
occurred, the Company expressly acknowledges that under the circumstances set
forth in the applicable Declaration of Trust, any holder of Preferred Securities
of the applicable AES Trust may enforce directly against the Company the
applicable Property Trustee's rights hereunder. In furtherance of the foregoing
and for the avoidance of any doubt, the Company acknowledges that, under the
circumstances described in the applicable Declaration of Trust, any such holder
of Preferred Securities, in its own name, in the name of the applicable AES
Trust or in the name of the holders of the Preferred Securities issued by such
AES Trust, may institute or cause to be instituted a proceeding, including,
without limitation, any suit in equity, an action at law or other judicial or
administrative proceeding, to enforce the applicable Property Trustee's rights
hereunder directly against the Company as issuer of the applicable series of
Debentures, and may prosecute such proceeding to judgment or final decree, and
enforce the same against the Company.
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SECTION 6.02. Covenant of Company to Pay to Trustee Whole Amount Due on
Debentures on Default in Payment of Interest or Principal (and Premiums, if
any). (a) The Company covenants that (1) in case default shall be made in the
payment of any installment of interest on any of the Debentures of a series, or
any payment required by any sinking or analogous fund established with respect
to that series as and when the same shall have become due and payable, and such
default shall have continued for a period of 10 business days, or (2) in case
default shall be made in the payment of the principal of (or premium, if any,
on) any of the Debentures of a series when the same shall have become due and
payable, whether upon maturity of the Debentures of a series or upon redemption
or upon declaration or otherwise, then, upon demand of the Trustee, the Company
will pay to the Trustee, for the benefit of the holders of the Debentures of
that series, the whole amount that then shall have become due and payable on all
such Debentures for principal (and premium, if any) or interest, or both, as the
case may be, with interest upon the overdue principal (and premium, if any) and
(to the extent that payment of such interest is enforceable under applicable law
and without duplication of any other amounts paid by the Company or the
applicable AES Trust in respect thereof) upon overdue installments of interest
at the rate per annum expressed in the Debentures of that series; and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, and the amount payable to the Trustee under Section
7.06.
(b) In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or other obligor upon the
Debentures of that series and collect in the manner provided by law out of the
property of the Company or other obligor upon the Debentures of that series
wherever situated the moneys adjudged or decreed to be payable.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or other judicial
proceedings affecting the Company, any other obligor on such Debentures, or the
creditors or property of either, the Trustee shall have the power to intervene
in such proceedings and take any action therein that may be permitted by the
court and shall (except as may be otherwise provided by law) be entitled to file
such proofs of claim and other papers and documents as may be necessary or
advisable in order to have the claims of the Trustee and of the holders of
Debentures of such series allowed for the entire amount due and payable by the
Company or such other obligor under the Indenture at the date of institution of
such proceedings and for any additional amount which may become due and payable
by the Company or such other obligor after such date, and to collect and receive
any moneys or other property payable or deliverable on any such claim, and to
distribute the same after the deduction of the amount payable to the Trustee
under Section 7.06; and any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized by each of the holders of Debentures of such
series to make such payments to the Trustee, and, in the
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event that the Trustee shall consent to the making of such payments directly to
such Debentureholders, to pay to the Trustee any amount due it under Section
7.06.
(d) All rights of action and of asserting claims under this Indenture, or
under any of the terms established with respect to Debentures of that series,
may be enforced by the Trustee without the possession of any of such Debentures,
or the production thereof at any trial or other proceeding relative thereto, and
any such suit or proceeding instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment shall,
after provision for payment to the Trustee of any amounts due under Section
7.06, be for the ratable benefit of the holders of the Debentures of such
series.
In case of an Event of Default hereunder, the Trustee may in its discretion
proceed to protect and enforce the rights vested in it by this Indenture by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either at law or in equity or in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in the Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Debentures of that series or the rights of any holder thereof or to authorize
the Trustee to vote in respect of the claim of any Debentureholder in any such
proceeding.
SECTION 6.03. Application of Moneys Collected by Trustee. Any moneys
collected by the Trustee pursuant to Section 6.02 with respect to a particular
series of Debentures shall be applied in the order following, at the date or
dates fixed by the Trustee and, in case of the distribution of such moneys on
account of principal (or premium, if any) or interest, upon presentation of the
several Debentures of that series, and stamping thereon the payment, if only
partially paid, and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 7.06; and
SECOND: To the payment of the amounts then due and unpaid upon
Debentures of such series for principal (and premium, if any) and
interest, in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Debentures for
principal (and premium, if any) and interest, respectively.
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SECTION 6.04. Limitation on Suits by Holders of Debentures. No holder of
any Debenture of any series shall have any right by virtue or by availing of any
provision of this Indenture to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Indenture or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
such holder previously shall have given to the Trustee written notice of an
Event of Default and of the continuance thereof with respect to Debentures of
such series specifying such Event of Default, as hereinbefore provided, and
unless also the holders of not less than 25% in aggregate principal amount of
the Debentures of such series then outstanding shall have made written request
upon the Trustee to institute such action, suit or proceeding in its own name as
trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity, shall have failed to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by the taker and holder of every Debenture of such series
with every other such taker and holder and Trustee, that no one or more holders
of Debentures of such series shall have any right in any manner whatsoever by
virtue or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of the holders of any other of such Debentures, or to
obtain or seek to obtain priority over or preference to any other such holder,
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal, ratable and common benefit of all holders of
Debentures of such series. For the protection and enforcement of the provisions
of this Section, each and every Debentureholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
Notwithstanding any other provisions of this Indenture, however, the right
of any holder of any Debenture to receive payment of the principal of (and
premium, if any) and interest on such Debenture, as therein provided, on or
after the respective due dates expressed in such Debenture (or in the case of
redemption, on the redemption date), or to institute suit for the enforcement of
any such payment on or after such respective dates or redemption date, shall not
be impaired or affected without the consent of such holder.
SECTION 6.05. Remedies Cumulative; Delay or Omission in Exercise of Rights
Not Waiver of Default. (a) All powers and remedies given by this Article to the
Trustee or to the Debentureholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any others thereof or of any other powers
and remedies available to the Trustee or the holders of the debentures, by
judicial proceedings or otherwise, to enforce performance or observance of the
covenants and agreements contained in this Indenture or otherwise established
with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of the
Debentures to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 6.04, every power and remedy
given by this Article or by law to the Trustee or
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to the Debentureholders may be exercised from time to time, and as often as
shall be deemed expedient, by the Trustee or by the Debentureholders.
SECTION 6.06. Rights of Holders of Majority in Principal Amount of
Debentures to Direct Trustee and to Waive Defaults. The holders of a majority in
aggregate principal amount of the Debentures of any series at the time
outstanding, determined in accordance with Section 8.04 (with, in the case of
any series of Debentures held as trust assets of a AES Trust and with respect to
which a Security Exchange has not theretofore occurred, such consent of holders
of the Preferred Securities and the Common Securities of such AES Trust as may
be required under the Declaration of Trust of such AES Trust), shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee with respect to such series; provided, however, that such direction
shall not be in conflict with any rule of law or with this Indenture or unduly
prejudicial to the rights of holders of Debentures of any other series at the
time outstanding determined in accordance with Section 8.04 not parties thereto.
Subject to the provisions of Section 7.01, the Trustee shall have the right to
decline to follow any such direction if the Trustee in good faith shall, by a
Responsible Officer or Officers of the Trustee, determine that the proceeding so
directed would involve the Trustee in personal liability. The holders of a
majority in aggregate principal amount of the Debentures of any series at the
time outstanding affected thereby, determined in accordance with section 8.04
(with, in the case of any series of Debentures held as trust assets of a AES
Trust and with respect to which a Security Exchange has not theretofore
occurred, such consent of holders of the Preferred Securities and the Common
Securities of such AES Trust as may be required under the Declaration of Trust
of such AES Trust), may on behalf of the holders of all of the Debentures of
such series waive any past default in the performance of any of the covenants
contained herein or established pursuant to section 2.01 with respect to such
series and its consequences, except a default in the payment of the principal
of, or premium, if any, or interest on, any of the Debentures of that series as
and when the same shall become due by the terms of such Debentures otherwise
than by acceleration (unless such default has been cured and a sum sufficient to
pay all matured installments of interest and principal and any premium has been
deposited with the Trustee (in accordance with Section 6.01(c)) or a call for
redemption of Debentures of that series. Upon any such waiver, the default
covered thereby shall be deemed to be cured for all purposes of this Indenture
and the Company, the Trustee and the holders of the Debentures of such series
shall be restored to their former positions and rights hereunder, respectively;
but no such waiver shall extend to any subsequent or other default or impair any
right consequent thereon.
SECTION 6.07. Trustee to Give Notice of Defaults Known To It, But May
Withhold in Certain Circumstances. The Trustee shall, within 90 days after the
occurrence of a default with respect to a particular series, transmit by mail,
first class postage prepaid, to the holders of Debentures of that series, as
their names and addresses appear upon the Debenture Register, notice of all
defaults with respect to that series known to the Trustee, unless such defaults
shall have been cured before the giving of
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such notice (the term "defaults" for the purposes of this Section being hereby
defined to be the events specified in subsections (1), (2), (3), (4) and (5) of
Section 6.01(a), not including any periods of grace provided for therein and
irrespective of the giving of notice provided for by subsection (3) of Section
6.01(a)); provided, that, except in the case of default in the payment of the
principal of (or premium, if any) or interest on any of the Debentures of that
series or in the payment of any sinking fund installment established with
respect to that series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee, or a
trust committee of directors and/or Responsible Officers, of the Trustee in good
faith determine that the withholding of such notice is in the interests of the
holders of Debentures of that series; provided further, that in the case of any
default of the character specified in Section 6.01(a)(3) with respect to
Debentures of such series no such notice to the holders of the Debentures of
that series shall be given until at least 30 days after the occurrence thereof.
The Trustee shall not be deemed to have knowledge of any default, except
(i) a default under subsection (a)(1) or (a)(2) of Section 6.01 as long as the
Trustee is acting as paying agent for such series of Debentures or (ii) any
default as to which the Trustee shall have received written notice or a
Responsible Officer charged with the administration of this Indenture shall have
obtained written notice.
SECTION 6.08. Requirements of an Undertaking to Pay Costs in Certain Suits
Under Indenture or Against Trustee. All parties to this Indenture agree, and
each holder of any Debentures by his or her acceptance thereof shall be deemed
to have agreed, that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken or omitted by it as Trustee, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Debentureholder,
or group of Debentureholders, holding more than 10% in aggregate principal
amount of the outstanding Debentures of any series, or to any suit instituted by
any Debentureholder for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Debenture of such series, on or after the
respective due dates expressed in such Debenture or established pursuant to this
Indenture.
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ARTICLE 7
CONCERNING THE TRUSTEE
SECTION 7.01. Upon Event of Default Occurring and Continuing, Trustee Shall
Exercise Powers Vested In It, and Use Same Degree of Care and Skill In Their
Exercise, as Prudent Individual Would Use. (a) The Trustee, prior to the
occurrence of an Event of Default with respect to Debentures of a series and
after the curing of all Events of Default with respect to Debentures of that
series which may have occurred, shall undertake to perform with respect to
Debentures of such series such duties and only such duties as are specifically
set forth in this Indenture, and no implied covenants shall be read into this
Indenture against the Trustee. In case an Event of Default with respect to
Debentures of a series has occurred (which has not been cured or waived), the
Trustee shall exercise with respect to Debentures of that series such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(1) prior to the occurrence of an Event of Default with respect to
Debentures of a series and after the curing or waiving of all such
Events of Default with respect to that series which may have occurred:
(i) the duties and obligations of the Trustee shall with respect
to Debentures of such series be determined solely by the express
provisions of this Indenture, and the Trustee shall not be liable
with respect to Debentures of such series except for the
performance of such duties and obligations as are specifically
set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may with respect to Debentures of such series
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture; but in the case of any
such certificates or opinions which by any provision hereof are
specifically required to be
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furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture but need not confirm or
investigate the accuracy of mathematical calculations or other
facts stated therein;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the
Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the holders of not less than a majority in principal
amount of the Debentures of any series at the time outstanding
relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee under this Indenture with respect to
the Debentures of that series; and
(4) none of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Indenture or adequate indemnity against such risk is not reasonably
assured to it.
(5) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of
or affording protection to the Trustee shall be subject to the
provisions of this Article 7.
SECTION 7.02. Subject to Provisions of Section 7.01. Except as otherwise
provided in Section 7.01:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order,
approval, bond, security or other paper or document believed by it to
the genuine and to have been signed or presented by the proper party
or parties;
(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by a Board Resolution
or an instrument signed in the name of the Company by the President or
any
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Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer (unless other evidence in respect
thereof is specifically prescribed herein);
(c) The Trustee may consult with counsel of its selection and the
written advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action
taken or suffered or omitted hereunder in good faith and in reliance
thereon;
(d) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Debentureholders, pursuant to the
provisions of this Indenture, unless such Debentureholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or
thereby; nothing herein contained shall, however, relieve the Trustee
of the obligation, upon the occurrence of an Event of Default with
respect to a series of the Debentures (which has not been cured or
waived) to exercise with respect to Debentures of that series such of
the rights and powers vested in it by this Indenture, and to use the
same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his
own affairs;
(e) The Trustee shall not be liable for any action taken or
omitted to be taken by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture;
(f) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order,
approval, bond, security, or other papers or documents, unless
requested in writing so to do by the holders of not less than a
majority in principal amount of the outstanding Debentures of the
particular series affected thereby (determined as provided in Section
8.04); provided, however, that if the payment within a reasonable time
to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion
of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such costs, expenses or liabilities as a
condition to so proceeding. The reasonable expense of every such
examination shall be paid by the Company or, if paid by the Trustee,
shall be repaid by the Company upon demand; and
(g) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through
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agents or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION 7.03. Trustee Not Liable for Recitals In Indenture Or In
Debentures. (a) The recitals contained herein and in the Debentures (other than
the Certificate of Authentication on the Debentures) shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for the
correctness of the same.
(b) The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or application by the
Company of any of the Debentures or of the proceeds of such Debentures, or for
the use or application of any moneys paid over by the Trustee in accordance with
any provision of this Indenture or established pursuant to Section 2.01, or for
the use or application of any moneys received by any paying agent other than the
Trustee.
SECTION 7.04. Trustee, Paying Agent or Debenture Registrar May Own
Debentures. The Trustee or any paying agent or Debenture Registrar, in its
individual or any other capacity, may become the owner or pledgee of Debentures
with the same rights it would have if it were not Trustee, paying agent or
Debenture Registrar.
SECTION 7.05. Moneys Received by Trustee to Be Held In Trust Without
Interest. Subject to the provisions of Section 11.04, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any moneys received by it hereunder except such as it
may agree with the Company to pay thereon.
SECTION 7.06. Trustee Entitled to Compensation, Reimbursement and
Indemnity. (a) The Company covenants and agrees to pay to the Trustee from time
to time, and the Trustee shall be entitled to, such reasonable compensation as
the Company and the Trustee shall from time to time agree in writing (which
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) for all services rendered by it in the execution of
the trusts hereby created and in the exercise and performance of any of the
powers and duties hereunder of the Trustee, and the Company will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence or bad faith. The Company also covenants to indemnify
the Trustee (and its officers, agents, directors and employees) for, and to hold
it harmless against, any loss, liability or expense including taxes (other than
taxes based upon, measured by or determined by the income of the
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Trustee) incurred without negligence or bad faith on the part of the Trustee and
arising out of or in connection with the acceptance or administration of this
trust, including the costs and expenses of defending itself against any claim of
liability in the premises.
(b) The obligations of the Company under this Section to compensate and
indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
Such additional indebtedness shall be secured by a lien prior to that of the
Debentures upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Debentures.
SECTION 7.07. Right of Trustee to Rely on Certificate of Officers of
Company Where No Other Evidence Specifically Prescribed. Except as otherwise
provided in Section 7.01, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting to take any
action hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee, be deemed to be conclusively proved and established
by an Officers' Certificate delivered to the Trustee and such certificate, in
the absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted to be taken by
it under the provisions of this Indenture upon the faith thereof.
SECTION 7.08. Trustee Acquiring Conflicting Interest to Eliminate Conflict
or Resign. (a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section, with respect to the Debentures of any series and if the
Default to which such conflicting interest relates has not been cured, duly
waived or otherwise eliminated, within 90 days after ascertaining that it has
such conflicting interest, it shall either eliminate such conflicting interest,
except as otherwise provided herein, or resign with respect to the Debentures of
that series in the manner and with the effect specified in Section 7.10 and the
Company shall promptly appoint a successor Trustee in the manner provided
herein.
(b) In the event that the Trustee shall fail to comply with the provisions
of subsection (a) of this Section, with respect to the Debentures of any series
the Trustee shall, within ten days after the expiration of such 90-day period,
transmit notice of such failure by mail, first class postage prepaid, to the
Debentureholders of that series as their names and addresses appear upon the
registration books.
(c) For the purposes of this Section the Trustee shall be deemed to have a
conflicting interest with respect to the Debentures of any series if a Default
has occurred and is continuing and:
(1) the Trustee is trustee under this Indenture with respect to the
outstanding Debentures of any series other than that series, or is
trustee
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under another indenture under which any other securities, or
certificates of interest or participation in any other securities, of
the Company are outstanding, unless such other indenture is a
collateral trust indenture under which the only collateral consists of
Debentures issued under this Indenture; provided that there shall be
excluded from the operation of this paragraph the Debentures of any
series other than that series and any other indenture or indentures
under which other securities, or certificates of interest or
participation in other securities, of the Company are outstanding if
(i) this Indenture and such other indenture or indentures and all
series of securities issuable thereunder are wholly unsecured and rank
equally and such other indenture or indentures (and such series) are
hereafter qualified under the Trust Indenture Act, unless the
Commission shall have found and declared by order pursuant to
subsection (b) of Section 305 or subsection (c) of Section 307 of the
Trust Indenture Act, that differences exist between (A) the provisions
of this Indenture with respect to Debentures of that series and with
respect to one or more other series or (B) the provisions of this
Indenture and the provisions of such other indenture or indentures (or
such series), which are so likely to involve a material conflict of
interest as to make it necessary in the public interest or for the
protection of investors to disqualify the Trustee from acting as such
under this Indenture with respect to the Debentures of that series and
such other series or such other indenture or indentures, or (ii) the
Company shall have sustained the burden of proving, on application to
the Commission and after opportunity for hearing thereon, that the
trusteeship under this Indenture with respect to Debentures of that
series and such other series or such other indenture or indentures is
not so likely to involve a material conflict of interest as to make it
necessary in the public interest or for the protection of investors to
disqualify the Trustee from acting as such under this Indenture with
respect to Debentures of that series and such other series or under
such other indentures;
(2) the Trustee or any of its directors or executive officers is an
underwriter for the Company;
(3) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common control
with or an underwriter for the Company;
(4) the Trustee or any of its directors or executive officers is a
director, officer, partner, employee, appointee or representative of
the Company, or of an underwriter (other than the Trustee itself) for
the Company who is currently engaged in the business of underwriting,
except that (A) one individual may be a director and/or an executive
officer of the Trustee and a director and/or an executive officer of
the Company, but may not be at the same time an executive officer of
both the Trustee and the Company;
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(B) if and so long as the number of directors of the Trustee in office
is more than nine, one additional individual may be a director and/or
an executive officer of the Trustee and a director of the Company; and
(C) the Trustee may be designated by the Company or by an underwriter
for the Company to act in the capacity of transfer agent, registrar,
custodian, paying agent, fiscal agent, escrow agent, or depository, or
in any other similar capacity, or, subject to the provisions of
paragraph (1) of this subsection (c), to act as trustee whether under
an indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Company or by any director, partner,
or executive officer thereof, or 20% or more of such voting securities
is beneficially owned, collectively, by any two or more of such
persons; or 10% or more of the voting securities of the Trustee is
beneficially owned either by an underwriter for the Company or by any
director, partner, or executive officer thereof, or is beneficially
owned, collectively by any two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
subsection (c) defined), (A) 5% or more of the voting securities, or
10% or more of any other class of security, of the Company, not
including the Debentures issued under this Indenture and securities
issued under any other indenture under which the Trustee is also
trustee, or (B) 10% or more of any class of security of an underwriter
for the Company;
(7) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
subsection (c) defined), 5% or more of the voting securities of any
person who, to the knowledge of the Trustee, owns 10% or more of the
voting securities of, or controls directly or indirectly or is under
direct or indirect common control with, the Company;
(8) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
subsection (c) defined), 10% or more of any class of security of any
person who, to the knowledge of the Trustee, owns 50% or more of the
voting securities of the Company;
(9) the Trustee owns, on the date of Default upon the Debentures of
any series or any anniversary of such Default while such Default upon
the Debentures issued under this Indenture remains outstanding, in the
capacity of executor, administrator, testamentary or inter vivos
trustee, guardian, committee or conservator, or in any other similar
capacity, an aggregate of 25% or more of the voting securities, or of
any class of
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security, of any person, the beneficial ownership of a specified
percentage of which would have constituted a conflict of interest
under paragraph (6), (7), or (8) of this subsection (c). As to any
such securities of which the Trustee acquired ownership through
becoming executor, administrator or testamentary trustee of an estate
which includes them, the provisions of the preceding sentence shall
not apply, for a period of two years from the date of such
acquisition, to the extent that such securities in such estate do not
exceed 25% of such voting securities or 25% of any such class of
security. Promptly after the dates of any such Default upon the
Debentures issued under this Indenture and annually in each succeeding
year that the Debentures issued under this Indenture remain in
Default, the Trustee shall make a check of its holding of such
securities in any of the above-mentioned capacities as of such dates.
If the Company fails to make payment in full of principal of or
interest on any of the Debentures when and as the same becomes due and
payable, and such failure continues for 30 days thereafter, the
Trustee shall make a prompt check of its holding of such securities in
any of the above-mentioned capacities as of the date of the expiration
of such 30-day period, and after such date, notwithstanding the
foregoing provisions of this paragraph (9), all such securities so
held by the Trustee, with sole or joint control over such securities
vested in it, shall, but only so long as such failure shall continue,
be considered as though beneficially owned by the Trustee for the
purposes of paragraphs (6), (7) and (8) of this subsection (c); or
(10) except under the circumstances described in paragraph (1), (3),
(4), (5) or (6) of subsection (b) of Section 7.13 the Trustee shall be
or shall become a creditor of the Company.
For purposes of paragraph (1) of this subsection (c), and of Section 6.06,
the term "series of securities" or "securities" means a series, class or group
of securities issuable under an indenture pursuant to whose terms holders of one
such series may vote to direct the indenture trustee, or otherwise take action
pursuant to a vote of such holders, separately from holders of another such
series; provided, that, "series of securities" or "series" shall not include any
series of securities issuable under an indenture if all such series rank equally
and are wholly secured.
The specification of percentages in paragraphs (5) to (9), inclusive, of
this subsection (c) shall not be construed as indicating that the ownership of
such percentages of securities of a person is or is not necessary or sufficient
to constitute direct or indirect control for the purposes of paragraph (3) or
(7) of this subsection (c).
For the purposes of paragraphs (6), (7), (8) and (9) of this subsection (c)
only, (A) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not include
any note or other evidence of indebtedness issued to evidence an obligation to
repay moneys lent to a person by one or
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more banks, trust companies or banking firms, or any certificate of interest or
participation in any such note or evidence of indebtedness; (B) an obligation
shall be deemed to be in "default", when a default in payment of principal shall
have continued for 30 days or more and shall not have been cured; and (C) the
Trustee shall not be deemed to be the owner or holder of (i) any security which
it holds as collateral security (as trustee or otherwise) for any obligation
which is not in default as defined in clause (B) above, or (ii) any security
which it holds as collateral security under this Indenture, irrespective of any
Default hereunder, or (iii) any security which it holds as agent for collection,
or as custodian, escrow agent or depositary, or in any similar representative
capacity.
Except as above provided, the word "security" or securities" as used in
this Indenture shall mean any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral trust certificate, pre-organization
certificate or subscription, transferable share, investment contract, voting
trust certificate, certificate of deposit for a security, fractional undivided
interest in oil, gas, or other mineral rights, or, in general, any interest or
instrument commonly known as a "security", or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, or warrant or right to subscribe to or purchase, any of the foregoing.
(d) For the purposes of this Section:
(1) The term "underwriter" when used with reference to the Company
shall mean every person, who, within one year prior to the time as of
which the determination is made, has purchased from the Company with a
view to, or has offered or sold for the Company in connection with,
the distribution of any security of the Company, or has participated
or has had a direct or indirect participation in any such undertaking,
or has participated or has had a participation in the direct or
indirect underwriting of any such undertaking, but such term shall not
include a person whose interest was limited to a commission from an
underwriter or dealer not in excess of the usual and customary
distributors' or sellers' commission.
(2) The term "director" shall mean any member of the board of
directors of a corporation or any individual performing similar
functions with respect to any organization whether incorporated or
unincorporated.
(3) The term "person" shall mean an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
unincorporated organization or a government or political subdivision
thereof. As used in this paragraph, the term "trust" shall include
only a trust where the interest or interests of the beneficiary or
beneficiaries are evidenced by a security.
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(4) The term "voting security" shall mean any security presently
entitling the owner or holder thereof to vote in the direction or
management of the affairs of a person, or any security issued under or
pursuant to any trust, agreement or arrangement whereby a trustee or
trustees or agent or agents for the owner or holder of such security
are presently entitled to vote in the direction or management of the
affairs of a person.
(5) The term "Company" shall mean any obligor upon the Debentures.
(6) The term "executive officer" shall mean the chairman of the board
of directors, president, every vice president, every assistant vice
president, every trust officer, the cashier, the secretary, and the
treasurer of a corporation, and any individual customarily performing
similar functions with respect to any organization whether
incorporated or unincorporated.
(e) The percentages of voting securities and other securities specified in
this Section shall be calculated in accordance with the following provisions:
(1) A specified percentage of the voting securities of the Trustee,
the Company or any other person referred to in this Section (each of
whom is referred to as a "person" in this paragraph) means such amount
of the outstanding voting securities of such person as entitles the
holder or holders thereof to cast such specified percentage of the
aggregate votes which the holders of all the outstanding voting
securities of such person are entitled to cast in the direction or
management of the affairs of such person.
(2) A specified percentage of a class of securities of a person means
such percentage of the aggregate amount of securities of the class
outstanding.
(3) The term "amount", when used in regard to securities, means the
principal amount if relating to evidences of indebtedness, the number
of shares if relating to capital shares and the number of units if
relating to any other kind of security.
(4) The term "outstanding" means issued and not held by or for the
account of the issuer. The following securities shall not be deemed
outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking fund relating to
securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund relating to
another class of securities of the issuer, if the obligation
evidenced by such
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other class of securities is not in default as to principal or
interest or otherwise;
(iii) securities pledged by the issuer thereof as security for an
obligation of the issuer not in default as to principal or
interest or otherwise; and
(iv) securities held in escrow if placed in escrow by the issuer
thereof, provided, however, that any voting securities of an
issuer shall be deemed outstanding if any person other than the
issuer is entitled to exercise the voting rights thereof.
(5) A security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders thereof
substantially the same rights and privileges; provided, however, that,
in the case of secured evidences of indebtedness, all of which are
issued under a single indenture, differences in the interest rates or
maturity dates of various series thereof shall not be deemed
sufficient to constitute such series different classes; and provided,
further, that, in the case of unsecured evidences of indebtedness,
differences in the interest rates or maturity dates thereof shall not
be deemed sufficient to constitute them securities of different
classes, whether or not they are issued under a single indenture.
(f) Except in the case of a default in the payment of the principal of (or
premium, if any) or interest on any Debentures issued under this Indenture, or
in the payment of any sinking or analogous fund installment, the Trustee shall
not be required to resign as provided by this Section 7.08 if such Trustee shall
have sustained the burden of proving, on application to the Commission and after
opportunity for hearing thereon, that (i) the default under the Indenture may be
cured or waived during a reasonable period and under the procedures described in
such application and (ii) a stay of the Trustee's duty to resign will not be
inconsistent with the interests of Debentureholders. The filing of such an
application shall automatically stay the performance of the duty to resign until
the Commission orders otherwise.
Any resignation of the Trustee shall become effective only upon the
appointment of a successor trustee and such successor's acceptance of such an
appointment.
SECTION 7.09. Requirements for Eligibility of Trustee. There shall at all
times be a Trustee with respect to the Debentures issued hereunder which shall
at all times be a corporation organized and doing business under the laws of the
United States of America or any State or Territory thereof or of the District of
Columbia, or a corporation or other person permitted to act as trustee by the
Commission, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least 50 million dollars, and
subject to supervision or examination by Federal, State, Territorial, or
District of Columbia authority. If such corporation publishes reports of
condition at least
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annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. The
Company may not, nor may any person directly or indirectly controlling,
controlled by, or under common control with the Company, serve as Trustee. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 7.10.
SECTION 7.10. Resignation of Trustee and Appointment of Successor. (a) The
Trustee or any successor hereafter appointed, may at any time resign with
respect to the Debentures of one or more series by giving written notice thereof
to the Company and by transmitting notice of resignation by mail, first class
postage prepaid, to the Debentureholders of such series, as their names and
addresses appear upon the Debenture Register. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee with respect
to Debentures of such series by written instrument, in duplicate, executed by
order of the Board of Directors, one copy of which instrument shall be delivered
to the resigning Trustee and one copy to the successor trustee. If no successor
trustee shall have been so appointed and have accepted appointment within 30
days after the mailing of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee with respect to Debentures of such series, or any Debentureholder of
that series who has been a bona fide holder of a Debenture or Debentures for at
least six months may, subject to the provisions of Section 6.08, on behalf of
himself and all others similarly situated, petition any such court for the
appointment of a successor trustee. Such court may thereupon after such notice,
if any, as it may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with the provisions of subsection
(a) of Section 7.08 after written request therefor by the Company or
by any Debentureholder who has been a bona fide holder of a Debenture
or Debentures for at least six months; or
(2) the Trustee shall cease to be eligible in accordance with the
provisions of Section 7.09 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder; or
(3) the Trustee shall become incapable of acting, or shall be adjudged
bankrupt or insolvent, or a receiver of the Trustee or of its property
shall be appointed, or any public officer shall take charge or control
of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
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then, in any such case, the Company may remove the Trustee with respect to all
Debentures and appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor trustee. If
no successor trustee shall have been so appointed and have accepted appointment
within 30 days after the mailing of such notice of removal, the Trustee so
removed may petition any court of competent jurisdiction for the appointment of
a successor trustee with respect to Debentures of such series, or any
Debentureholder of that series who has been a bona fide holder of a Debenture or
Debentures for at least six months may, subject to the provisions of Section
6.08, on behalf of himself and all others similarly situated, petition any such
court for the removal of the Trustee and the appointment of a successor trustee.
Such court may thereupon after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures of any series at the time outstanding may at any time remove the
Trustee with respect to such series and appoint a successor trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Debentures of a series pursuant to any of
the provisions of this Section shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 7.11.
(e) Any successor trustee appointed pursuant to this Section may be
appointed with respect to the Debentures of one or more series or all of such
series, and at any time there shall be only one Trustee with respect to the
Debentures of any particular series.
SECTION 7.11. Acceptance by Successor to Trustee. (a) In case of the
appointment hereunder of a successor trustee with respect to all Debentures,
every such successor trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on the request of the Company or the
successor trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor trustee all the
rights, powers, and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor trustee all property and money held by
such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor trustee with
respect to the Debentures of one or more (but not all) series, the Company, the
retiring Trustee and each successor trustee with respect to the Debentures of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor trustee shall accept such appointment and which shall (1)
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor trustee all the rights,
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powers, trusts and duties of the retiring Trustee with respect to the Debentures
of that or those series to which the appointment of such successor trustee
relates, (2) contain such provisions as shall be deemed necessary or desirable
to confirm that all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Debentures of that or those series as to which the
retiring Trustee is not retiring shall continue to be vested in the retiring
Trustee, and (3) add to or change any of the provisions of this Indenture as
shall be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust, that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee and that no Trustee shall be responsible for any act or
failure to act on the part of any other Trustee hereunder; and upon the
execution and delivery of such supplemental indenture the resignation or removal
of the retiring Trustee shall become effective to the extent provided therein,
such retiring Trustee shall with respect to the Debentures of that or those
series to which the appointment of such successor trustee relates have no
further responsibility for the exercise of rights and powers or for the
performance of the duties and obligations vested in the Trustee under this
Indenture, and each such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Debentures of that or those series
to which the appointment of such successor trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor trustee, to the extent contemplated by
such supplemental indenture, the property and money held by such retiring
Trustee hereunder with respect to the Debentures of that or those series to
which the appointment of such successor trustee relates.
(c) Upon request of any such successor trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor trustee all such rights, power and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor trustee shall accept its appointment unless at the time of
such acceptance such successor trustee shall be qualified and eligible under
this Article.
(e) Upon acceptance of appointment by a successor trustee as provided in
this Section, the Company shall transmit notice of the succession of such
trustee hereunder by mail, first class postage prepaid, to the Debentureholders,
as their names and addresses appear upon the Debenture Register. If the Company
fails to transmit such notice within ten days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such notice to be
transmitted at the expense of the Company.
SECTION 7.12. Successor to Trustee by Merger, Consolidation or Succession
to Business. Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion
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or consolidation to which the Trustee shall be a party, or any corporation
succeeding to substantially all of the corporate trust business of the Trustee,
shall be the successor of the Trustee hereunder, provided such corporation shall
be qualified under the provisions of Section 7.08 and eligible under the
provisions of Section 7.09, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. In case any Debentures shall have been authenticated,
but not made available for delivery, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and make available for delivery the Debentures so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Debentures.
SECTION 7.13. Limitations on Rights of Trustee as a Creditor to Obtain
Payment of Certain Claims Within Four Months Prior to Default or During Default,
or to Realize on Property as such Creditor Thereafter. (a) Subject to the
provisions of subsection (b) of this Section, if the Trustee shall be or shall
become a creditor, directly or indirectly, secured or unsecured, of the Company
within three months prior to a default, as defined in subsection (b) of this
Section, or subsequent to such a default, then, unless and until such default
shall be cured, the Trustee shall set apart and hold in a special account for
the benefit of the Trustee individually, the holders of the Debentures and the
holders of other indenture securities (as defined in subsection (c) of this
Section):
(1) an amount equal to any and all reductions in the amount due and
owing upon any claim as such creditor in respect of principal or
interest, effected after the beginning of such three months' period
and valid as against the Company and its other creditors, except any
such reduction resulting from the receipt or disposition of any
property described in paragraph (2) of this subsection, or from the
exercise of any right of set-off which the Trustee could have
exercised if a petition in bankruptcy had been filed by or against the
Company upon the date of such default; and
(2) all property received by the Trustee in respect of any claim as
such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such three
months' period, or an amount equal to the proceeds of any such
property, if disposed of, subject, however, to the rights, if any, of
the Company and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made on account of any
such claim by any person (other than the Company) who is liable
thereon, and (ii) the proceeds of the bona fide sale of any such claim
by the Trustee to a third person, and (iii) distributions made in
cash, securities, or other property in respect of claims filed against
the Company in bankruptcy or
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receivership or in a case for reorganization pursuant to the Federal
Bankruptcy Code or applicable State law;
(B) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to the
beginning of such three months' period;
(C) to realize, for its own account, but only to the extent of the
claim hereinafter mentioned, upon any property held by it as security
for any such claim, if such claim was created after the beginning of
such three months' period and such property was received as security
therefor simultaneously with the creation thereof, and if the Trustee
shall sustain the burden of proving that at the time such property was
so received the Trustee had no reasonable cause to believe that a
default, as defined in subsection (c) of this Section, would occur
within three months; or
(D) to receive payment on any claim referred to in paragraph (B) or
(C), against the release of any property held as security for such
claim as provided in such paragraph (B) or (C), as the case may be, to
the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after
the beginning of such three months' period for property held as security at the
time of such substitution shall, to the extent of the fair value of the property
released, have the same status as the property released, and, to the extent that
any claim referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purpose of repaying or refunding any pre-existing
claim of the Trustee as such creditor, such claim shall have the same status as
such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in
such special account and the proceeds thereof shall be apportioned between the
Trustee, the Debentureholders and the holders of other indenture securities in
such manner that the Trustee, the Debentureholders and the holders of other
indenture securities realize, as a result of payments from such special account
and payments of dividends on claims filed against the Company in bankruptcy or
receivership or in a case for reorganization pursuant to the Federal Bankruptcy
Code or applicable State law, the same percentage of their respective claims,
figured before crediting to the claim of the Trustee anything on account of the
receipt by it from the Company of the funds and property in such special account
and before crediting to the respective claims of the Trustee, the
Debentureholders and the holders of other indenture securities dividends on
claims filed against the Company in bankruptcy or receivership or in a case for
reorganization pursuant to the Federal Bankruptcy Code or applicable State law,
but after crediting thereon receipts on account of the indebtedness represented
by their respective claims from all sources other than from such dividends and
from the funds and property so held in such special account. As used in this
paragraph, with respect to any claim, the term "dividends" shall
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include any distribution with respect to such claim, in bankruptcy or
receivership or in a case for reorganization pursuant to the Federal Bankruptcy
Code or applicable State law, whether such distribution is made in cash,
securities, or other property, but shall not include any such distribution with
respect to the secured portion, if any, of such claim. The court in which such
bankruptcy, receivership or a case for reorganization is pending shall have
jurisdiction (i) to apportion between the Trustee, the Debentureholders and the
holders of other indenture securities, in accordance with the provisions of this
paragraph, the funds and property held in such special account and the proceeds
thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to
the provisions of this paragraph due consideration in determining the fairness
of the distributions to be made to the Trustee, the Debentureholders and the
holders of other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.
Any Trustee who has resigned or been removed after the beginning of such
three months' period shall be subject to the provisions of this subsection (a)
as though such resignation or removal had not occurred. If any Trustee has
resigned or been removed prior to the beginning of such three months' period, it
shall be subject to the provisions of this subsection (a) if and only if the
following conditions exist:
(i) the receipt of property or reduction of claim which would have
given rise to the obligation to account, if such Trustee had continued
as trustee, occurred after the beginning of such three months' period;
and
(ii) such receipt of property or reduction of claim occurred within
three months after such resignation or removal.
(b) There shall be excluded from the operation of subsection (a) of this
Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year
or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of
preserving any property other than cash which shall at any time be
subject to the lien, if any, of this Indenture or of discharging tax
liens or other prior liens or encumbrances thereon, if notice of such
advance and of the circumstances surrounding the making thereof is
given to the Debentureholders at the time and in the manner provided
in this Indenture;
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(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, subscription agent, fiscal agent or
depositary, or other similar capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in subsection (c) of
this Section;
(5) the ownership of stock or of other securities of a Company
organized under the provisions of Section 25(a) of the Federal Reserve
Act, as amended, which is directly or indirectly a creditor of the
Company; or
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptance or obligations which fall within
the classification of self-liquidating paper as defined in subsection
(c) of this Section.
(c) As used in this Section:
(1) The term "default" shall mean any failure to make payment in full
of the principal of (or premium, if any) or interest upon any of the
Debenture or upon the other indenture securities when and as such
principal (or premium, if any) or interest becomes due and payable.
(2) The term "other indenture securities" shall mean securities upon
which the Company is an obligor (as defined in the Trust Indenture
Act) outstanding under any other indenture (A) under which the Trustee
is also trustee, (B) which contains provisions substantially similar
to the provisions of subsection (a) of this Section, and (C) under
which a default exists at the time of the apportionment of the funds
and property held in said special account.
(3) The term "cash transaction" shall mean any transaction in which
full payment for goods or securities sold is made within seven days
after delivery of the goods or securities in currency or in checks or
other orders drawn upon banks or bankers and payable upon demand.
(4) The term "self-liquidating paper" shall mean any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacture, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon , the goods, wares or
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merchandise or the receivables or proceeds arising from the sale of
the goods, wares or merchandise previously constituting the security,
provided the security is received by the Trustee simultaneously with
the creation of the creditor relationship with the Company arising
from the making, drawing, negotiating or incurring of the draft, bill
of exchange, acceptance or obligation.
(5) The term "Company" shall mean any obligor upon any of the
Debentures.
ARTICLE 8
CONCERNING THE DEBENTURES
SECTION 8.01. Evidence of Action by Debentureholders. Whenever in this
Indenture it is provided that the holders of a majority or specified percentage
in aggregate principal amount of the Debentures of a particular series may take
any action (including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action) the fact that at
the time of taking any such action the holders of such majority or specified
percentage of that series have joined therein may be evidenced by any instrument
or any number of instruments of similar tenor executed by such holders of
Debentures of that series in person or by agent or proxy appointed in writing.
If the Company shall solicit from the Debentureholders of any series any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for such series for the determination
of Debentureholders entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other action, but the Company shall have
no obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other action may be given
before or after the record date, but only the Debentureholders of record at the
close of business on the record date shall be deemed to be Debentureholders for
the purposes of determining whether Debentureholders of the requisite proportion
of outstanding Debentures of that series have authorized or agreed or consented
to such request, demand, authorization, direction, notice, consent, waiver or
other action, and for that purpose the outstanding Debentures of that series
shall be computed as of the record date; provided that no such authorization,
agreement or consent by such Debentureholders on the record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after the record date.
SECTION 8.02. Proof of Execution of Instruments and of Holding of
Debentures. Subject to the provisions of Section 7.01, proof of the execution of
any instrument by a Debentureholder (such proof will not require notarization)
or his agent or proxy and proof
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of the holding by any person of any of the Debentures shall be sufficient if
made in the following manner;
(a) The fact and date of the execution by any such person of any
instrument may be proved in any reasonable manner acceptable to the
Trustee.
(b) The ownership of Debentures shall be proved by the Debenture
Register of such Debentures or by a certificate of the Debenture
Registrar thereof.
(c) The Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
SECTION 8.03. Who May Be Deemed Owners of Debentures. Prior to the due
presentment for registration of transfer of any Debenture, the Company, the
Trustee, any paying agent and any Debenture Registrar may deem and treat the
person in whose name such Debenture shall be registered upon the books of the
Company as the absolute owner of such Debenture (whether or not such Debenture
shall be overdue and notwithstanding any notice of ownership or writing thereon
made by anyone other than the Debenture Registrar) for the purpose of receiving
payment of or on account of the principal of, premium, if any, and (subject to
Section 2.03) interest on such Debenture and for all other purposes; and neither
the Company nor the Trustee nor any paying agent nor any Debenture Registrar
shall be affected by any notice to the contrary.
SECTION 8.04. Debentures Owned by a Company or Controlled or Controlling
Companies Disregarded for Certain Purposes. In determining whether the holders
of the requisite aggregate principal amount of Debentures of a particular series
have concurred in any direction, consent or waiver under this Indenture,
Debentures of that series which are owned by the Company or any other obligor on
the Debentures of that series or by any Subsidiary of the Company or of such
other obligor on the Debentures of that series shall be disregarded and deemed
not to be outstanding for the purpose of any such determination, except that for
the purpose of determining whether the Trustee shall be protected in relying on
any such direction, consent or waiver, only Debentures of such series which the
Trustee actually knows are so owned shall be so disregarded. Debentures so owned
which have been pledged in good faith may be regarded as outstanding for the
purposes of this Section, if the pledgee shall establish to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Debentures and
that the pledgee is not a person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
such other obligor. In case of a dispute as to such right, any decision by the
Trustee taken upon the advice of counsel shall be full protection to the
Trustee.
SECTION 8.05. Instruments Executed by Debentureholders Bind Future Holders.
At any time prior to (but not after) the evidencing to the Trustee, as provided
in Section
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8.01, of the taking of any action by the holders of the majority or percentage
in aggregate principal amount of the Debentures of a particular series specified
in this Indenture in connection with such action, any holder of a Debenture of
that series which is shown by the evidence to be included in the Debentures the
holders of which have consented to such action may, by filing written notice
with the Trustee, and upon proof of holding as provided in Section 8.02, revoke
such action so far as concerns such Debenture. Except as aforesaid any such
action taken by the holder of any Debenture shall be conclusive and binding upon
such holder and upon all future holders and owners of such Debenture, and of any
Debenture issued in exchange therefor, on registration of transfer thereof or in
place thereof, irrespective of whether or not any notation in regard thereto is
made upon such Debenture. Any action taken by the holders of the majority or
percentage in aggregate principal amount of the Debentures of a particular
series specified in this Indenture in connection with such action shall be
conclusively binding upon the Company, the Trustee and the holders of all the
Debentures of that series.
ARTICLE 9
SUPPLEMENTAL INDENTURES
SECTION 9.01. Purposes for Which Supplemental Indenture May Be Entered Into
Without Consent of Debentureholders. In addition to any supplemental indenture
otherwise authorized by this Indenture, the Company, when authorized by a Board
Resolution, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as then in effect), without the consent of
the Debentureholders, for one or more of the following purposes:
(a) to evidence the succession of another corporation to the Company,
and the assumption by any such successor of the covenants of the
Company contained herein or otherwise established with respect to the
Debentures; or
(b) to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions for the protection of the
holders of the Debentures of all or any series as the Board of
Directors and the Trustee shall consider to be for the protection of
the holders of Debentures of all or any series, and to make the
occurrence, or the occurrence and continuance, of a default in any of
such additional covenants, restrictions, conditions or provisions a
default or an Event of Default with respect to such series permitting
the enforcement of all or any of the several remedies provided in this
Indenture as herein set forth; provided, however, that in respect of
any such additional covenant, restriction, condition or provision such
supplemental indenture may provide for a particular period of grace
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after default (which period may be shorter or longer than that allowed
in the case of other defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available to
the Trustee upon such default or may limit the right of the holders of
a majority in aggregate principal amount of the Debentures of such
series to waive such default; or
(c) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained herein or
in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture as shall
not be inconsistent with the provisions of this Indenture and shall
not adversely affect the interests of the holders of the Debentures of
any series; or
(d) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective
only when there is no Debenture outstanding of any series created
prior to the execution of such supplemental indenture which is
entitled to the benefit of such provision.
The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, and to make any further appropriate
agreements and stipulations which may be therein contained, but the Trustee
shall not be obligated to enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Any supplemental indenture authorized by the provisions of this Section may
be executed by the Company and the Trustee without the consent of the holders of
any of the Debentures at the time outstanding, notwithstanding any of the
provisions of Section 9.02.
SECTION 9.02. Modification of Indenture with Consent of Debentureholders.
With the consent (evidenced as provided in Section 8.01) of the holders of not
less than a majority in aggregate principal amount of the Debentures of each
series affected by such supplemental indenture or indentures at the time
outstanding (and, in the case of any series of Debentures held as trust assets
of an AES Trust and with respect to which a Security Exchange has not
theretofore occurred, such consent of holders of the Preferred Securities and
the Common Securities of such AES Trust as may be required under the Declaration
of Trust of such AES Trust), the Company, when authorized by a Board Resolution,
and the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as then in effect) for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of any supplemental indenture or of modifying in any manner the
rights of the holders of the Debentures of such series under this Indenture;
provided, however, that no such supplemental indenture
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shall (i) extend the fixed maturity of any Debentures of any series, or reduce
the principal amount thereof, or reduce the rate or extend the time of payment
of interest thereon, or reduce any premium payable upon the redemption thereof,
without the consent of the holder of each Debenture so affected or (ii) reduce
the aforesaid percentage of Debentures, the holders of which are required to
consent to any such supplemental indenture, without the consent of the holders
of each Debenture (and, in the case of any series of Debentures held as trust
assets of an AES Trust and with respect to which a Security Exchange has not
theretofore occurred, such consent of the holders of the Preferred Securities
and the Common Securities of such AES Trust as may be required under the
Declaration of Trust of such AES Trust) then outstanding and affected thereby.
Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Debentureholders (and, in
the case of any series of Debentures held as trust assets of an AES Trust and
with respect to which a Security Exchange has not theretofore occurred, such
consent of holders of the Preferred Securities and the Common Securities of such
AES Trust as may be required under the Declaration of Trust of such AES Trust)
required to consent thereto as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such supplemental
indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion but
shall not be obligated to enter into such supplemental indenture.
It shall not be necessary for the consent of the Debentureholders of any
series affected thereby under this Section to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall transmit by mail, first class postage prepaid, a notice, setting forth in
general terms the substance of such supplemental indenture, to the
Debentureholders of all series affected thereby as their names and addresses
appear upon the Debenture Register. Any failure of the Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 9.03. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture pursuant to the provisions of this Article or of Section
10.01, this Indenture shall, with respect to such series, be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this Indenture
of the Trustee, the Company and the holders of Debentures of the series affected
thereby shall thereafter be determined, exercised and enforced hereunder subject
in all respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall
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be and be deemed to be part of the terms and conditions of this Indenture for
any and all purposes.
SECTION 9.04. Debentures May Bear Notation of Changes By Supplemental
Indentures. Debentures of any series, affected by a supplemental indenture,
authenticated and delivered after the execution of such supplemental indenture
pursuant to the provisions of this Article or of Section 10.01, may bear a
notation in form approved by the Company, provided such form meets the
requirements of any exchange upon which such series may be listed, as to any
matter provided for in such supplemental indenture. If the Company shall so
determine, new Debentures of that series so modified as to conform, in the
opinion of the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared by the Company,
authenticated by the Trustee and delivered in exchange for the Debentures of
that series then outstanding.
SECTION 9.05. Opinion of Counsel. The Trustee, subject to the provisions of
Section 7.01, may receive an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article is authorized or
permitted by, and conforms to, the terms of this Article and that it is proper
for the Trustee under the provisions of this Article to join in the execution
thereof.
ARTICLE 10
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 10.01. Satisfaction and Discharge of Indenture. The Company shall
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 the
Company shall not permit any other Person to consolidate with or merge into the
Company, unless:
(a) either the Company shall be the continuing corporation, or
the corporation (if other than the Company) formed by such
consolidation or into which the Company is merged or to which the
properties and assets of the Company substantially as an entity are
transferred or leased shall be a corporation organized and existing
under the laws of the United States of America or any State thereof or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under
the Debentures and this Indenture; and
(b) immediately after giving effect to such transaction no Event
of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be
continuing.
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SECTION 10.02. Successor Corporation Substituted. The successor corporation
formed by such consolidation or into which the Company is merged or to which
such transfer or lease is made shall succeed to and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor corporation had been named as the Company
herein, and thereafter (except in the case of a lease to another Person) the
predecessor corporation shall be relieved of all obligations and covenants under
the Indenture and the Debentures and, in the event of such conveyance or
transfer, any such predecessor corporation may be dissolved and liquidated.
SECTION 10.03. Opinion of Counsel. The Trustee, subject to the provisions
of Section 7.01, may receive an Opinion of Counsel as conclusive evidence that
any such consolidation, merger, sale, conveyance, transfer or other disposition,
and any such assumption, comply with the provisions of this Article.
ARTICLE 11
SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS
SECTION 11.01. Satisfaction and Discharge of Indentures. (A) If at any time
(a) the Company shall have paid or caused to be paid the principal of and
interest on all the Debentures of any series Outstanding hereunder (other than
Debentures of such series which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 2.07) as and when the same
shall have become due and payable, or (b) the Company shall have delivered to
the Trustee for cancellation all Debentures of any series theretofore
authenticated (other than any Debentures of such series which shall have been
destroyed, lost or stolen and which shall have been replaced or paid as provided
in Section 2.07) or (c) (i) all the Debentures of series not theretofore
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption, and (ii) the Company shall have
irrevocably deposited or caused to be deposited with the Trustee as trust funds
the entire amount in cash (other than moneys repaid by the Trustee or any paying
agent to the Company in accordance with Section 11.04) or Government
Obligations, maturing as to principal and interest at such times and in such
amounts as will insure the availability of cash, or a combination thereof,
sufficient in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay (A) the principal and interest on all Debentures of such series
on each date that such principal or interest is due and payable and (B) any
mandatory sinking fund payments on the dates on which such payments are due and
payable in accordance with the terms of the Indenture and the Debentures of such
series; and if, in any such case, the Company shall also pay or cause to be paid
all other sums payable hereunder by the Company, then this Indenture shall cease
to be of further
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effect (except as to (i) rights of registration of transfer and exchange of
Debentures of such series and the Company's right of optional redemption, if
any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen
Debentures, (iii) rights of holders of Debentures to receive payments of
principal thereof and interest thereon, upon the original stated due dates
therefor (but not upon acceleration), and remaining rights of the
Debentureholders to receive mandatory sinking fund payments, if any, (iv) the
rights, obligations, duties and immunities of the Trustee hereunder, (v) the
rights of the holders of Debentures of such series as beneficiaries hereof with
respect to the property so deposited with the Trustee payable to all or any of
them, and (vi) the obligations of the Company under Section 4.02) and the
Trustee, on demand of the Company accompanied by an Officers' Certificate and an
Opinion of Counsel and at the cost and expense of the Company, shall execute
proper instruments acknowledging such satisfaction of and discharging this
Indenture; provided, that the rights of Holders of the Debentures to receive
amounts in respect of principal of and interest on the Debentures held by them
shall not be delayed longer than required by then-applicable mandatory rules or
policies of any securities exchange upon which the Debentures are listed. The
Company agrees to reimburse the Trustee for any costs or expenses thereafter
reasonably and properly incurred and to compensate the Trustee for any services
thereafter reasonably and properly rendered by the Trustee in connection with
this Indenture or the Debentures of such series.
(B) The following provisions shall apply to the Debentures of each series
unless specifically otherwise provided in a Board Resolution or indenture
supplemental hereto provided pursuant to Section 2.01. In addition to discharge
of the Indenture pursuant to the next preceding paragraph, the Company shall be
deemed to have paid and discharged the entire indebtedness on all the Debentures
of a series on the date of the deposit referred to in subparagraph (a) below,
and the provisions of this Indenture with respect to the Debentures of such
series shall no longer be in effect (except as to (i) rights of registration of
transfer and exchange of Debentures of such series and the Company's right of
optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed,
lost or stolen Debentures, (iii) rights of holders of Debentures to receive
payments of principal thereof and interest thereon, upon the original stated due
dates therefor (but not upon acceleration), and remaining rights of the holders
of Debentures to receive mandatory sinking fund payments, if any, (iv) the
rights, obligations, duties and immunities of the Trustee hereunder, (v) the
rights of the Holders of Debentures as beneficiaries hereof with respect to the
property so deposited with the Trustee payable to all or any of them and (vi)
the obligations of the Company under Section 4.02) and the Trustee, at the
expense of the Company, shall at the Company's request, execute proper
instruments acknowledging the same, if
(a) with reference to this provision the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee as
trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of the Debentures of
such series (i) cash in an amount, or (ii) Governmental Obligations
maturing as to principal and
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interest at such times and in such amounts as will insure the
availability of cash or (iii) a combination thereof, sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay (A) the principal and interest on all Debentures
of such series on each date that such principal or interest is due and
payable or is earlier redeemed (irrevocably provided for under
arrangements satisfactory to the Trustee), as the case may be, and (B)
any mandatory sinking fund payments on the dates on which such
payments are due and payable in accordance with the terms of the
Indenture and the Debentures of such series;
(b) 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;
(c) the Company has delivered to the Trustee an Opinion of Counsel
based on the fact that (x) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (y) since
the date hereof, there has been a change in the applicable Federal
income tax law, in either case to the effect that, and such opinion
shall confirm that, the holders of the Debentures of such series will
not recognize income, gain or loss for Federal income tax purposes as
a result of such deposit, defeasance and discharge and will be subject
to Federal income tax on the same amount and in the same manner and at
the same times, as would have been the case if such deposit,
defeasance and discharge had not occurred;
(d) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided for relating to the defeasance contemplated by this provision
have been complied with; and
(e) no event or condition shall exist that, pursuant to the provisions
of Section 14.02 or 14.03, would prevent the Company from making
payments of the principal of or interest on the Debentures of such
series on the date of such deposit.
SECTION 11.02. Application of Trustee of Funds Deposited For Payment of
Debentures. Subject to Section 11.04, all moneys deposited with the Trustee (or
other trustee) pursuant to Section 11.01 shall be held in trust and applied by
it to the payment, either directly or through any paying agent (including the
Company acting as its own paying agent), to the Holders of the particular
Debentures of such series for the payment or redemption of which such moneys
have been deposited with the Trustee, of all sums due and to become due thereon
for principal and interest; but such money need not be segregated from other
funds except to the extent required by law.
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SECTION 11.03. Application by Trustee of Funds Deposited For Payment of
Debentures. In connection with the satisfaction and discharge of this Indenture
with respect to Debentures of any series, all moneys then held by any paying
agent under the provisions of this Indenture with respect to such series of
Debentures shall, upon demand of the Company, be repaid to it or paid to the
Trustee and thereupon such paying agent shall be released from all further
liability with respect to such moneys.
SECTION 11.04. Repayment of Moneys Held by Paying Agent. Any moneys
deposited with or paid to the Trustee or any paying agent for the payment of the
principal of or interest on any Security of any series and not applied but
remaining unclaimed for two years after the date upon which such principal or
interest shall have become due and payable, shall, upon the written request of
the Company and unless otherwise required by mandatory provisions of applicable
escheat or abandoned or unclaimed property law, be repaid to the Company by the
Trustee for such series or such paying agent, and the Holder of the Debentures
of such series shall, unless otherwise required by mandatory provisions of
applicable escheat or abandoned or unclaimed property laws, thereafter look only
to the Company for any payment which such holder may be entitled to collect, and
all liability of the Trustee or any paying agent with respect to such moneys
shall thereupon cease; provided, however, that the Trustee or such paying agent,
before being required to make any such repayment with respect to moneys
deposited with it for any payment series, shall at the expense of the Company,
mail by first-class mail to holders of such Debentures at their addresses as
they shall appear on the Debenture Register, notice, that such moneys remain and
that, after a date specified therein, which shall not be less than thirty days
from the date of such mailing or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 11.05. Repayment of Moneys Paid by Trustee. The Company shall pay
and indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the Governmental Obligations deposited pursuant to Section
11.01 or the principal or interest received in respect of such obligations.
ARTICLE 12
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 12.01. Incorporators, Stockholders, Officers and Directors of
Company Exempt From Individual Liability. No recourse under or upon any
obligations, covenant or agreement of this Indenture, or of any Debenture, or
for any claim based thereon or otherwise in respect thereof, shall be had
against any incorporator, stockholder, officer or director, past, present or
future as such, of the Company or of any predecessor or successor corporation,
either directly or through the Company or any such predecessor or successor
corporation, whether by virtue of any constitution, statue or rule of law, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood
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that this Indenture and the obligations issued hereunder are solely corporate
obligations, and that no such personal liability whatever shall attach to, or is
or shall be incurred by, the incorporators, stockholders, officers or directors
as such, of the Company or of any predecessor or successor corporation, or any
of them, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Debentures or implied therefrom; and that any and all
such personal liability of every name and nature, either at common law or in
equity or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, stockholder, officer or director as such,
because the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Debentures or implied therefrom, are hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Indenture and the issuance of such Debentures.
ARTICLE 13
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors and Assigns of Company Bound by Indenture. All
the covenants, stipulations, promises and agreements in this Indenture contained
by or on behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 13.02. Acts of Board, Committee or Officer of Successor Company
Valid. Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at the
time be the lawful sole successor of the Company.
SECTION 13.03. Surrender of Powers of Company. The Company by instrument in
writing executed by authority of two-thirds of its Board of Directors and
delivered to the Trustee may surrender any of the powers reserved to the Company
and thereupon such power so surrendered shall terminate both as to the Company
and as to any successor corporation.
SECTION 13.04. Required Notices or Demands May be Served by Mail. Except as
otherwise expressly provided herein any notice or demand which by any provision
of this Indenture is required or permitted to be given or served by the Trustee
or by the holders of Debentures to or on the Company may be given or served by
being deposited first class postage prepaid in a post-office letterbox addressed
(until another address is filed in writing by the Company with the Trustee), as
follows: The AES Corporation, 1001 North 19th Street, Arlington, Virginia 22209,
Attention: General Counsel and Secretary. Any notice, election, request or
demand by the Company or any Debentureholder to or upon
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the Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or made in writing at the Corporate Trust Office of the
Trustee.
SECTION 13.05. Indenture and Debentures to Be Construed in Accordance with
Laws of the State of New York. This Indenture and each Debenture shall be deemed
to be a contract made under the laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of said State (without
regard to principles of conflicts of laws thereof).
SECTION 13.06. Officer's Certificate and Opinion of Counsel to be Furnished
Upon Application or Demands by Company; Statements To Be Included In Each
Certificate or Opinion With Respect to Compliance With Condition or Covenant.
(a) Upon any application or demand by the Company to the Trustee to take any
action under any of the provisions of this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate stating that all conditions precedent
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent have been complied with, except that in
the case of any such application or demand as to which the furnishing of such
documents is specifically required by any provision of this Indenture relating
to such particular application or demand, no additional certificate or opinion
need be furnished.
(b) Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
in this Indenture (other than the certificate provided pursuant to Section
5.03(d) of this Indenture) shall include (1) a statement that the person making
such certificate or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 13.07. Payments Due on Sundays or Holidays. Except as provided
pursuant to Section 2.01 pursuant to a Board Resolution, and as set forth in an
Officers' Certificate, or established in one or more indentures supplemental to
the Indenture, in any case where the date of maturity of interest or principal
of any Debenture or the date of redemption of any Debenture shall not be a
business day then payment of interest or principal (and premium, if any) may be
made on the next succeeding business day with the same force and effect as if
made on the nominal date of maturity or redemption, and no interest shall accrue
for the period after such nominal date.
SECTION 13.08. Provisions Required by Trust Indenture Act of 1939 to
Control. If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with
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the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture
Act, such imposed duties shall control.
SECTION 13.09. Indenture May Be Executed by its Counterparts. This
Indenture may be executed in any number of counterparts, each of which shall be
an original; but such counterparts shall together constitute but one and the
same instrument.
SECTION 13.10. Separability of Indenture Provisions. .In case any one or
more of the provisions contained in this Indenture or in the Debentures of any
series shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions of this Indenture or of such Debentures, but this Indenture
and such Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or therein.
SECTION 13.11. Assignment by Company to Subsidiary. The Company will have
the right at all times to assign any of its rights or obligations under this
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,
this Indenture is binding upon and inures to the benefit of the parties thereto
and their respective successors and assigns. This Indenture may not otherwise be
assigned by the parties hereto.
SECTION 13.12. Holders of Preferred Securities as Third Party Beneficiaries
of the Indenture; Holders of Preferred Securities May Institute Legal
Proceedings Against the Company in Certain Cases. The Company hereby
acknowledges that, to the extent specifically set forth herein, prior to a
Security Exchange with respect to the Debentures of any series held as trust
assets of a AES Trust, the holders of the Preferred Securities of such AES Trust
shall expressly be third party beneficiaries of this Indenture. The Company
further acknowledges that, prior to a Security Exchange with respect to
Debentures of any series held as trust assets of a AES Trust, if the Property
Trustee of such AES Trust fails to enforce its rights under this Indenture as
the holder of the Debentures of a series held as trust assets of such AES Trust,
any holder of the Preferred Securities of such AES Trust may institute legal
proceedings directly against the Company to enforce such Property Trustee's
rights under this Indenture without first instituting any legal proceedings
against such Property Trustee or any other person or entity; provided that, if
an Event of Default has occurred and is continuing and such event is attributed
to the failure of the Company to pay interest or principal on the 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 Preferred Securities of
such AES Trust may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Debentures having a principal
amount equal to the aggregate liquidation amount of the Preferred Securities of
such holder (a "Holder Direct Action") on or after the respective due date
specified in the Debentures. In connection with such Holder Direct Action, the
rights of the holders of the Common Securities of such AES Trust will be
subrogated to the rights of such holder of Preferred Securities to the extent
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of any payment made by the Company to such holders of Preferred Securities in
such Holder Direct Action. Except as provided in the preceding sentences, the
holders of Preferred Securities of such AES Trust will not be able to exercise
directly any other remedy available to the holders of the Debentures. Reference
to a "holder" of Preferred Securities or Common Securities herein shall mean a
"Holder" of such securities as defined in the Declaration of Trust.
ARTICLE 14
SUBORDINATION OF DEBENTURES
SECTION 14.01. Agreement to Subordinate. The Company covenants and agrees,
and each Debentureholder issued hereunder by his acceptance thereof likewise
covenants and agrees, that all Debentures shall be issued subject to the
provisions of this Article; and each person holding any Debenture, whether upon
original issue or upon transfer, assignment or exchange thereof accepts and
agrees that the Principal of and interest on all Debentures issued hereunder
shall, to the extent and in the manner herein set forth, be subordinated and
subject in right to the prior payment in full of all Senior and Subordinated
Debt.
SECTION 14.02. Payments to Debentureholders. No payments on account of
principal of, premium, if any, or interest on the Debentures shall be made if at
the time of such payment or immediately after giving effect thereto there shall
exist a default in any payment with respect to any Senior and Subordinated Debt,
and such event of default shall not have been cured or waived or shall not have
ceased to exist. 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 the
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 Debentures may be made by the Company for a period ("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 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.
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Upon any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, 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, all amounts due or
to become due upon all Senior and Subordinated Debt shall first be paid in full,
in cash or cash equivalents, or payment thereof provided for in accordance with
its terms, before any payment is made on account of the principal of, premium,
if any, or interest on the indebtedness evidenced by the Debentures, and upon
any such liquidation, dissolution, winding up, receivership, reorganization,
assignment, marshalling or proceeding, any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to which the Debentureholders or the Trustee under this Indenture would be
entitled, except for the provisions hereof, shall be paid by the Company or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the Debentureholders or by the
Trustee under this Indenture if received by them or it, directly to the holders
of Senior and Subordinated Debt (pro rata to such holders on the basis of the
respective amounts of Senior and Subordinated Debt held by such holders) or
their respective representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior and
Subordinated Debt may have been issued, as their respective interests may
appear, to the extent necessary to pay all Senior and Subordinated Debt in full
(including, without limitation, except to the extent, if any, prohibited by
mandatory provisions of law, post-petition interest, in any such proceedings),
after giving effect to any concurrent payment or distribution to or for the
holders of Senior and Subordinated Debt, before any payment or distribution is
made to the holders of the indebtedness evidenced by the Debentures or to the
Trustee under this Indenture.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee under this Indenture or the holders of the Debentures before all Senior
and Subordinated Debt is paid in full or provision is made for such payment in
accordance with its terms, such payment or distribution shall be held in trust
for the benefit of and shall be paid over or delivered to the holders of such
Senior and Subordinated Debt or their respective representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior and Subordinated Debt may have been issued, as
their respective interests may appear, for application to the payment of all
Senior and Subordinated Debt remaining unpaid until all such Senior and
Subordinated Debt shall have been paid in full in accordance with its terms,
after giving effect to any concurrent payment or distribution to or for the
holders of such Senior and Subordinated Debt.
For purposes of this Article, the words, "cash, property or securities"
shall not be deemed to include shares of stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of arrangement, reorganization or readjustment, the payment of which
is subordinated (at least to the
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extent provided in this Article with respect to the Debentures) to the payment
of all Senior and Subordinated Debt which may at the time be outstanding;
provided, that (i) the Senior and Subordinated Debt is assumed by the new
corporation, if any, resulting from any such arrangement, reorganization or
readjustment, and (ii) the rights of the holders of the Senior and Subordinated
Debt are not, without the consent of such holders, altered by such arrangement,
reorganization or readjustment. The consolidation of the Company with, or the
merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided in Article 10 shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section if
such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article 10. Nothing
in this Section shall apply to claims of, or payments to, the Trustee under or
pursuant to Article 7, except as provided therein. This Section shall be subject
to the further provisions of Section 14.05.
SECTION 14.03. Subrogation of Debentures. Subject to the payment in full of
all Senior and Subordinated Debt, the holders of the Debentures shall be
subrogated to the rights of the holders of Senior and Subordinated Debt to
receive payments or distributions of cash, property or securities of the Company
applicable to the Senior and Subordinated Debt until the principal of and
interest on the Debentures shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of the Senior and
Subordinated Debt of any cash, property or securities to which the holders of
the Debentures or the Trustee on their behalf would be entitled except for the
provisions of this Article, and no payment over pursuant to the provisions of
this Article to the holders of Senior and Subordinated Debt by holders of the
Debentures or the Trustee on their behalf shall, as between the Company, its
creditors other than holders of Senior and Subordinated Debt and the holders of
the Debentures, be deemed to be a payment by the Company to or on account of the
Senior and Subordinated Debt; and no payments or distributions of cash, property
or securities to or for the benefit of the Debentureholders pursuant to the
subrogation provision of this Article, which would otherwise have been paid to
the holders of Senior and Subordinated Debt shall be deemed to be a payment by
the Company to or for the account of the Debentures. It is understood that the
provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the holders of the Debentures, on the one hand,
and the holders of the Senior and Subordinated Debt, on the other hand.
Nothing contained in this Article or elsewhere in this Indenture or in the
Debentures is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior and Subordinated Debt, and the holders of the
Debentures, the obligation of the Company, which is absolute and unconditional,
to pay to the holders of the Debentures the principal of and interest on the
Debentures as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
holders of the Debentures and creditors of the Company other than the holders of
the Senior and Subordinated Debt, nor shall anything herein or therein
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prevent the holder of any Debenture or the Trustee on his behalf from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article of the holders of
Senior and Subordinated Debt in respect of cash, property or securities of the
Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Article 7, and the
holders of the Debentures shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such liquidation,
dissolution, winding up, receivership, reorganization, assignment or marshalling
proceedings are pending, or a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, delivered to the Trustee or to the holders of the Debentures, for
the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior and Subordinated Debt and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article.
SECTION 14.04. Authorization by Debentureholders. Each holder of a
Debenture by his acceptance thereof authorizes the Trustee in his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
provided in this Article and appoints the Trustee his attorney-in-fact for any
and all such purposes.
SECTION 14.05. Notice to Trustee. The Company shall give prompt written
notice to the Trustee and to any paying agent of any fact known to the Company
which would prohibit the making of any payment of moneys to or by the Trustee or
any paying agent in respect of the Debentures pursuant to the provisions of this
Article. Regardless of anything to the contrary contained in this Article or
elsewhere in this Indenture, the Trustee shall not be charged with knowledge of
the existence of any Senior and Subordinated Debt or of any default or event of
default with respect to any Senior and Subordinated Debt or of any other facts
which would prohibit the making of any payment of moneys to or by the Trustee,
unless and until the Trustee shall have received notice in writing at its
principal Corporate Trust Office to that effect signed by an officer of the
Company, or by a holder or agent of a holder of Senior and Subordinated Debt who
shall have been certified by the Company or otherwise established to the
reasonable satisfaction of the Trustee to be such holder or agent, or by the
trustee under any indenture pursuant to which Senior and Subordinated Debt shall
be outstanding, and, prior to the receipt of any such written notice, the
Trustee shall, subject to the provisions of Article 7, be entitled to assume
that no such facts exist; provided that if on a date at least three Business
days prior to the date upon which by the terms hereof any such moneys shall
become payable for any purpose (including, without limitation, the payment of
the principal of, or interest on any Debenture) the Trustee shall not have
received with respect to such moneys the notice provided for in this Section,
then, regardless of anything herein to the contrary, the Trustee shall have full
power and authority to receive such moneys and to apply the same to the purpose
for which they were received, and shall
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not be affected by any notice to the contrary which may be received by it on or
after such prior date.
Regardless of anything to the contrary herein, nothing shall prevent (a)
any payment by the Company or the Trustee to the Debentureholders of amounts in
connection with a redemption of Debentures if (i) notice of such redemption has
been given pursuant to Article 3 prior to the receipt by the Trustee of written
notice as aforesaid, and (ii) such notice of redemption is given not earlier
than 60 days before the redemption date, or (b) any payment by the Trustee to
the Debentureholders of amounts deposited with it pursuant to Article 11.
The Trustee shall be entitled to rely on the delivery to it of a written
notice by a person representing himself to be a holder of Senior and
Subordinated Debt (or a trustee on behalf of such holder) to establish that such
notice has been given by a holder of Senior and Subordinated Debt or a trustee
on behalf of any such holder. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any person
as a holder of Senior and Subordinated Debt to participate in any payment or
distribution pursuant to this Article, the Trustee may request such person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior and Subordinated Debt held by such person, the extent to which such
person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such person under this Article, and if such
evidence is not furnished the Trustee may defer any payment to such person
pending judicial determination as to the right of such person to receive such
payment.
SECTION 14.06. Trustee's Relation to Senior and Subordinated Debt. The
Trustee and any agent of the Company or the Trustee shall be entitled to all the
rights set forth in this Article with respect to any Senior and Subordinated
Debt which may at any time be held by it in its individual or any other capacity
to the same extent as any other holder of Senior and Subordinated Debt and
nothing in this Indenture shall deprive the Trustee or any such agent, of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Article 7.
With respect to the holders of Senior and Subordinated Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior and Subordinated Debt shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior and Subordinated Debt and,
subject to the provisions of Article 7, the Trustee shall not be liable to any
holder of Senior and Subordinated Debt if it shall pay over or deliver to
holders of Debentures, the Company or any other person moneys or assets to which
any holder of Senior and Subordinated Debt shall be entitled by virtue of this
Article or otherwise.
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SECTION 14.07. No Impairment to Subordination. No right of any present or
future holder of any Senior and Subordinated Debt to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
The First National Bank of Chicago, as Trustee, hereby accepts the trust in
this Indenture declared and provided, upon the terms and conditions herein above
set forth.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
THE AES CORPORATION
By /s/ BARRY J. SHARP
------------------------------------------------
Name: Barry J. Sharp
Title:Vice President and Chief Financial Officer
Attest:
By /s/ WILLIAM R. LURASCHI
------------------------------------------------
Name: William R. Luraschi
Title:General Counsel and SEcretary
THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE
By /s/ MARY FONTI
------------------------------------------------
Name: Mary Fonti
Title: Assistant Vice President
Attest:
By /s/ MELISSA WEISMAN
------------------------------------------------
Name:Melissa Weisman
Title: Vice President
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CONFORMED COPY
====================
THE AES CORPORATION
AND
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of March 31, 1997
TO
JUNIOR SUBORDINATED INDENTURE
Dated as of March 1, 1997
-------------------
5.375% Junior Subordinated Convertible Debentures
Due 2027
====================
<PAGE>
The First Supplemental INDENTURE, dated as of the thirty first day of
March, 1997 (the "First Supplemental Indenture"), between THE AES CORPORATION, a
corporation duly organized and existing under the laws of the State of Delaware
(hereinafter sometimes referred to as the "Company") and The First National Bank
of Chicago, a national banking association, as trustee (hereinafter sometimes
referred to as the "Trustee") under the Junior Subordinated Indenture dated as
of March 1, 1997 between the Company and the Trustee (the "Indenture") (except
as otherwise set forth herein, all terms used and not defined herein are used as
defined in the Indenture or in the Declaration of Trust);
WHEREAS, the Company executed and delivered the Indenture to the Trustee to
provide for the future issuance of its junior subordinated securities (the
"Debentures"), said Debentures to be issued from time to time in series as might
be determined by the Company under the Indenture, in an unlimited aggregate
principal amount which may be authenticated and delivered thereunder as in the
Indenture provided; and
WHEREAS, pursuant to the terms of the Indenture, the Company desires to
provide for the establishment of a new series of its Debentures to be known as
its 5.375% Junior Subordinated Convertible Debentures due 2027 (said series
being hereinafter referred to as the "Series 5.375% Debentures"), the form and
substance of such Series 5.375% Debentures and the terms, provisions and
conditions thereof to be set forth as provided in the Indenture and this First
Supplemental Indenture; and
WHEREAS, the Company has caused to be formed AES Trust I ("AES Trust I" or
the "Trust") as a statutory business trust under the Business Trust Act of the
State of Delaware (12 Del. Code ss. 3801 et seq.) pursuant to a declaration of
trust dated November 1, 1996 (the "Original Declaration") and the filing of a
restated certificate of trust with the Secretary of State of the State of
Delaware on March 27, 1997; and
WHEREAS, the Original Declaration is to be amended and restated in its
entirety pursuant to an Amended and Restated Declaration of Trust dated as of
March 31, 1997 (such Amended and Restated Declaration of Trust, as amended from
time to time, the "Declaration of Trust"); and
WHEREAS, AES Trust I desires to issue its $2.6875 Term Convertible
Securities, Series A (the "Preferred Securities" or "TECONS") and sell such
Preferred Securities to initial purchasers; and
WHEREAS, in connection with such purchases of Preferred Securities and the
related purchase by the Company of the Common Securities (as defined in the
Declaration of Trust) of AES Trust I, AES Trust I will purchase as trust assets
Series 5.375% Debentures; and
WHEREAS, pursuant to the Declaration of Trust, the legal title to the
Series 5.375% Debentures shall be owned and held of record in the name of The
First National
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Bank of Chicago or its successor under the Declaration of Trust, as Property
Trustee (the "Property Trustee"), in trust for the benefit of holders of the
Preferred Securities and the Common Securities; and
WHEREAS, upon the occurrence of a Special Event (as defined in the
Declaration of Trust) the Regular Trustees (as defined in the Declaration of
Trust) of AES Trust I shall, unless the Series 5.375% Debentures are redeemed as
described herein, dissolve AES Trust I and cause to be distributed to the
holders of Preferred Securities and Common Securities, on a Pro Rata basis
(determined as provided in the terms of the Preferred Securities and Common
Securities attached as Exhibits B and C to the Declaration of Trust), Series
5.375% Debentures and, in connection with a Liquidation Distribution (as defined
in the Declaration of Trust), the Regular Trustees may cause to be distributed
to holders of Preferred Securities and Common Securities, on such a Pro Rata
basis, Series 5.375% Debentures (each a "Dissolution Event"); and
WHEREAS, the Company desires and has requested the Trustee to join with it
in the execution and delivery of this First Supplemental Indenture, and all
requirements necessary to make this First Supplemental Indenture a valid
instrument, in accordance with its terms, and to make the Series 5.375%
Debentures when executed by the Company and authenticated and delivered by the
Trustee, the valid obligations of the Company, have been performed and
fulfilled, and the execution and delivery hereof have been in all respects duly
authorized;
NOW THEREFORE, in consideration of the purchase and acceptance of the
Series 5.375% Debentures by the holders thereof, and for the purpose of setting
forth, as provided in the Indenture, the form and substance of the Series 5.375%
Debentures and the terms, provisions and conditions thereof, the Company
covenants and agrees with the Trustee as follows:
ARTICLE ONE
GENERAL TERMS AND CONDITIONS OF
THE SERIES 5.375% DEBENTURES
SECTION 1.01. There shall be and is hereby authorized a series of
Debentures designated the "5.375% Junior Subordinated Convertible Debentures Due
2027", limited in aggregate principal amount to $257,732,000 (except as provided
in this Section 1.01 and 7.01). Upon exercise of the overallotment option set
forth in the Underwriting Agreement (as defined in the Declaration of Trust),
additional Series 5.375% Debentures in the aggregate principal amount of up to
$25,773,200 may be executed by the Company and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and deliver said
Series 5.375% Debentures to or upon the written order of the Company, which
order shall be accompanied by evidence satisfactory to the Trustee that the
overallotment option has been exercised. The Series 5.375% Debentures shall
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mature and the principal shall be due and payable together with all accrued and
unpaid interest thereon, including Compounded Interest (as hereinafter defined)
on March 31, 2027 (the "Maturity Date").
SECTION 1.02. (a) Except as provided in Section 1.02(b), the Series 5.375%
Debentures shall be issued in fully registered certificated form without
interest coupons in denominations of $50 or integral multiples thereof.
Principal and interest on the Series 5.375% Debentures issued in certificated
form will be payable, the transfer of such Series 5.375% Debentures will be
registrable and such Series 5.375% Debentures will be exchangeable for Series
5.375% Debentures bearing identical terms and provisions at the office or agency
of the Company in the Borough of Manhattan, The City and State of New York;
provided, however, that payment of interest may be made at the option of the
Company by check mailed to the registered holder at such address as shall appear
in the Debenture register and that the payment of principal with respect to the
Series 5.375% Debentures will only be made upon surrender of the Series 5.375%
Debentures to the Trustee. Notwithstanding the foregoing, so long as the
Property Trustee is the legal owner and record holder of the Series 5.375%
Debentures, the payment of the principal of and interest (including Compounded
Interest, if any) on the Series 5.375% Debentures held by the Property Trustee
will be made by the Company in immediately available funds on the payment date
therefor at such place and to the Property Account (as defined in the
Declaration of Trust) established and maintained by the Property Trustee
pursuant to the Declaration of Trust.
(b) In connection with a Dissolution Event:
(i) Series 5.375% Debentures in certificated form may be presented to
the Trustee by the Property Trustee in exchange for a Global
Debenture representing the Series 5.375% Debentures in an
aggregate principal amount equal to all Outstanding Series 5.375%
Debentures, to be registered in the name of the Depositary, or
its nominee, and delivered by the Trustee to the Depositary for
crediting to the accounts of its participants pursuant to the
instructions of the Regular Trustees (as defined in the
Declaration of Trust). The Company upon any such presentation
shall execute a Global Debenture representing the Series 5.375%
Debentures in such aggregate principal amount and deliver the
same to the Trustee for authentication and delivery in accordance
with the Indenture and this First Supplemental Indenture.
Payments on the Series 5.375% Debentures issued as a Global
Debenture will be made to the Depositary; and
(ii) if any Preferred Securities are held in non book-entry
certificated form, Series 5.375% Debentures in certificated form
may be presented to the Trustee by the Property Trustee and any
Preferred Security Certificate (as defined in
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the Declaration of Trust) which represents Preferred Securities
other than Preferred Securities held by the Clearing Agency (as
defined in the Declaration of Trust) or its nominee ("Non
Book-Entry Preferred Securities") will be deemed to represent
beneficial interests in Series 5.375% Debentures presented to the
Trustee by the Property Trustee having an aggregate principal
amount equal to the aggregate liquidation amount of the Non
Book-Entry Preferred Securities until such Preferred Security
Certificate are presented to the Debenture Registrar for transfer
or reissuance at which time such Preferred Security Certificate
will be canceled and a Series 5.375% Debenture, registered in the
name of the holder of the Preferred Security Certificate or the
transferee of the holder of such Preferred Security Certificate,
as the case may be, with an aggregate principal amount equal to
the aggregate liquidation amount of the Preferred Security
Certificate canceled will be executed by the Company and
delivered to the Trustee for authentication and delivery in
accordance with the Indenture and this First Supplemental
Indenture. On issue of such Series 5.375% Debentures, Series
5.375% Debentures with an equivalent aggregate amount that were
presented by the Property Trustee to the Trustee will be deemed
to have been canceled.
SECTION 1.03. Each Series 5.375% Debenture will bear interest at the rate
of 5.375% per annum from March 31, 1997 until the principal thereof becomes due
and payable, and on any overdue principal and (to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per annum, compounded quarterly, payable (subject to
the provisions of Article Three) quarterly in arrears on the last day of each
calendar quarter (each an "Interest Payment Date", commencing on June 30, 1997),
to the person in whose name such Series 5.375% Debenture or any predecessor
Series 5.375% Debenture is registered, at the close of business on the regular
record date for such interest installment, which, except as set forth below,
shall be, in respect of any Series 5.375% Debentures of which the Property
Trustee is the registered holder of or a Global Debenture, the close of business
on the business day next preceding that Interest Payment Date. Notwithstanding
the foregoing sentence, if the Preferred Securities are no longer in book-entry
only form or if pursuant to the provisions of Section 2.11(c) of the Indenture
the Series 5.375% Debentures are not represented by a Global Debenture, the
regular record dates for such interest installment shall be the close of
business on the fifteenth day of the month in which that Interest Payment Date
occurs. Any such interest installment not punctually paid or duly provided for
shall forthwith cease to be payable to the registered holders on such regular
record date, and may be paid to the person in whose name the Series 5.375%
Debenture (or one or more Predecessor Debentures) is registered at the close of
business on a special record date to be fixed by the Trustee for the payment of
such defaulted interest, notice whereof shall be given to the registered holders
of the Series 5.375% Debentures not less than 10 days prior to such special
record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Series 5.375% Debentures may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in the Indenture.
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The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Series 5.375% Debentures is not a business day, then
payment of interest payable on such date will be made on the next succeeding day
which 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.
If at any time AES Trust I 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, the Company will pay as additional interest ("Additional Interest") on the
Series 5.375% Debentures such additional amounts as shall be required so that
the net amounts received and retained by AES Trust I after paying any such
taxes, duties, assessments or other governmental charges will be equal to the
amounts AES Trust I would have received had no such taxes, duties, assessments,
or other governmental charges been imposed.
ARTICLE TWO
OPTIONAL REDEMPTION
OF THE SERIES 5.375% DEBENTURES
SECTION 2.01. Except as provided in Section 2.02 and subject to the
provisions below, Series 5.375% Debentures may not be redeemed by the Company
prior to March 31, 2000. Subject to the terms of Article Three of the Indenture,
the Company shall have the right to redeem the Series 5.375% Debentures, in
whole or in part, from time to time, on or after March 31, 2000, upon not less
than 30 nor more than 60 days notice to the Holder of the Series 5.375%
Debentures, at the following prices (expressed as percentages of the principal
amount of the Series 5.375% Debentures) (the "Optional Redemption Price"),
together with any accrued and unpaid interest thereon, including Compounded
Interest (as defined herein), if any, to, but excluding, the date of such
redemption, if redeemed during the 12-month period beginning March 31:
Year Redemption Price
---- ----------------
2000 103.359%
2001 102.688%
2002 102.016%
2003 101.344%
2004 100.672%
and 100% if redeemed on or after March 31, 2005.
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If the Series 5.375% Debentures are redeemed on any Interest Payment Date,
accrued and unpaid interest shall be payable to Holders of record on the
relevant record date.
The Company may not redeem any Series 5.375% Debentures unless all accrued
and unpaid interest thereon, including Compounded Interest, if any, has been
paid for all quarterly periods terminating on or prior to the date of notice of
redemption. So long as the corresponding Trust Securities are outstanding, the
proceeds from the redemption of the Series 5.375% Debentures will be used to
redeem the Trust Securities.
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 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 calender 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.
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 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.
SECTION 2.02. If, at any time, a Tax Event (as defined below) shall occur
or be continuing and (i) the Regular Trustees and the Company shall have
received an opinion (a "Redemption Tax Opinion") of a 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 Series 5.375% Debentures for United
States federal income tax purposes even if the Series 5.375% Debentures were
distributed to the holders of Preferred Securities and Common Securities in
liquidation of such holder's interest in AES Trust I as set forth in the
Declaration of Trust or (ii) the Regular Trustees shall have been informed by
such tax counsel that a No Recognition Opinion (as defined below) cannot be
delivered to AES Trust I, the Company shall have the right at any time, upon not
less than 30 nor more than
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60 days' notice, to redeem the Series 5.375% Debentures in whole or in part for
cash at a price equal to 100% of the principal amount thereof, together with any
accrued and unpaid interest thereon, including Compounded Interest, if any, to,
but excluding the date of redemption, within 90 days following the occurrence of
such Tax Event; provided, however, that, if at the time there is available to
the Company or the Regular Trustees on behalf of AES Trust I the opportunity to
eliminate, within such 90 day period, the Tax Event by taking some ministerial
action ("Ministerial Action"), such as filing a form or making an election, or
pursuing some other similar reasonable measure, which has no adverse effect on
AES Trust I, the Company or the holders of the Preferred Securities, the Company
or the Regular Trustees on behalf of AES Trust I will pursue such measure in
lieu of redemption and provided further that the Company shall have no right to
redeem the Series 5.375% Debentures while the Regular Trustees on behalf of AES
Trust I are pursuing any such Ministerial Action.
"Tax Event" means that the Company and the Regular Trustees shall have
obtained an opinion of nationally recognized independent tax counsel experienced
in such matters (a "Dissolution Tax Opinion") to the effect that on or after
March 24, 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 March 24, 1997 there is more than an insubstantial risk that (i) AES
Trust I 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
Series 5.375% Debentures, (ii) AES Trust I is, or will be within 90 days of the
date thereof, subject to more than a de minimis amount of taxes, duties or other
governmental charges or (iii) interest payable by the Company to AES Trust I on
the Series 5.375% 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.
"No Recognition Opinion" means an opinion of a nationally recognized
independent tax counsel experienced in such matters, which opinion may rely on
any then applicable published revenue ruling of the Internal Revenue Service, to
the effect that the holders of the Preferred Securities will not recognize any
gain or loss for United States federal income tax purposes as a result of a
dissolution of AES Trust I and distribution of the Series 5.375% Debentures as
provided in the Declaration of Trust.
SECTION 2.03. If the Series 5.375% Debentures are only partially redeemed
pursuant to this Article Two, the Series 5.375% Debentures will be redeemed pro
rata or
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by lot or by any other method utilized by the Trustee, provided that if at the
time of redemption, the Series 5.375% Debentures are registered as a Global
Debenture, the Depository shall determine by lot the principal amount of such
Series 5.375% Debentures held by each Debenture Holder to be redeemed in
accordance with its customary procedures. Notwithstanding the foregoing, if a
partial redemption of the Series 5.375% Debentures would result in the delisting
of the Preferred Securities by any national securities exchange or other
organization on which the Preferred Securities are then listed, the Company
shall not be permitted to effect such partial redemption and will only redeem
the Series 5.375% Debentures in whole.
ARTICLE THREE
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 3.01. So long as the Company is not in default in the payment of
interest on the Series 5.375% Debentures, the Company shall have the right, at
any time during the term of the Series 5.375% Debentures, from time to time to
extend the interest payment period of such Series 5.375% Debentures for up to 20
consecutive quarterly interest periods (the "Extended Interest Payment Period"),
at the end of which period the Company shall pay all interest accrued and unpaid
thereon (together with interest thereon at the rate of 5.375% per annum to the
extent permitted by applicable law, compounded quarterly ("Compounded
Interest")); provided that no Extended Interest Payment Period may extend beyond
the Maturity Date or redemption date of the Series 5.375% Debentures. During
such Extended Interest Payment Period the Company shall not declare or pay any
dividend 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 any stock dividends paid by the Company in Common Stock. Prior to the
termination of any such Extended Interest Payment Period, the Company may pay
all or any portion of the interest accrued on the Series 5.375% Debentures on
any Interest Payment Date to holders of record on the regular record date for
such Interest Payment Date or from time to time further extend such Period;
provided that such Period together with all such further extensions thereof
shall not exceed 20 consecutive quarterly interest periods. Upon the termination
of any Extended Interest Payment Period and upon the payment of all accrued and
unpaid interest then due, together with Compounded Interest, the Company may
select a new Extended Interest Payment Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extended Interest
Payment Period, except at the end thereof. At the end of the Extended Interest
Payment Period the Company shall pay all interest accrued and unpaid on the
Series 5.375% Debentures including any Compounded Interest which shall be
payable to the holders of the Series 5.375% Debentures in whose names the Series
5.375% Debentures are registered in the Debenture register on the first record
date after the end of the Extended Interest Payment Period.
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SECTION 3.02. (a) So long as the Property Trustee is the legal owner and
holder of record of the Series 5.375% Debentures, at the time the Company
selects an Extended Interest Payment Period, the Company shall give both the
Property Trustee and the Trustee written notice of its selection of such
Extended Interest Payment Period one business day prior to the earlier of (i)
the next succeeding date on which distributions on the Preferred Securities are
payable or (ii) the date AES Trust I is required to give notice of the record
date or the date such distributions are payable to the New York Stock Exchange
or other applicable self-regulatory organization or to holders of the Preferred
Securities, but in any event not less than one business day prior to such record
date. The Company shall cause AES Trust I to give notice of the Company's
selection of such Extended Interest Payment Period to the holders of the
Preferred Securities.
(b) If as a result of a Dissolution Event Series 5.375% Debentures have
been distributed to holders of Preferred Securities and Common Securities, at
the time the Company selects an Extended Interest Payment Period, the Company
shall give the holders of the Series 5.375% Debentures and the Trustee written
notice of its selection of such Extended Interest Payment Period at least 10
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 of the record or
payment date of such interest payment to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Series 5.375%
Debentures.
SECTION 3.03. The quarter in which any notice is given pursuant to Section
3.02 shall be counted as one of the quarters permitted in the maximum Extended
Interest Payment Period permitted under this Article Three.
ARTICLE FOUR
COVENANTS APPLICABLE TO SERIES 5.375% DEBENTURES
SECTION 4.01. So long as any Preferred Securities 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 payments with respect thereto if
at such time (i) the Company shall be in default with respect to its Guarantee
Payments (as defined in the Guarantee Agreement) or other payment obligations
under the Guarantee Agreement, (ii) there shall have occurred any Event of
Default under the Indenture with respect to the Series 5.375%
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Debentures or (iii) the Company shall have given notice of its election of an
Extended Interest Payment Period and such Period, or any extension thereof, is
continuing; provided that the foregoing will not apply to any stock dividends
paid by the Company in Common Stock.
SECTION 4.02. In connection with the distribution of the Series 5.375%
Debentures to the holders of the Preferred Securities upon a Dissolution Event,
the Company will use its best efforts to list such Series 5.375% Debentures on
the New York Stock Exchange or on such other exchange as the Preferred
Securities are then listed and traded.
SECTION 4.03. The Company covenants and agrees for the benefit of the
holders of the Preferred Securities to comply fully with all of its obligations
and agreements under the Declaration of Trust, including, without limitation,
its obligations under Article 4 thereof.
SECTION 4.04. Prior to the distribution of Series 5.375% Debentures to the
holders of Preferred Securities upon a Dissolution Event, the Company covenants
and agrees for the benefit of the holders of the Preferred Securities (i) not to
cause or permit the Common Securities to be transferred except as permitted by
the Declaration of Trust and (ii) that it will use reasonable efforts to cause
the Trust to continue to be treated as a grantor trust for United States federal
income tax purposes, except in connection with a distribution of the Series
5.375% Debentures as provided in the Declaration of Trust.
ARTICLE FIVE
CONVERSION OF DEBENTURES
SECTION 5.01. Subject to and upon compliance with the provisions of this
Article Five, the Series 5.375% Debentures are convertible at the option of the
Holder, at any time through the close of business on March 31, 2027 (or, in the
case of Series 5.375% Debentures called for redemption, prior to the close of
business on the Business Day prior to the corresponding redemption date) into
fully paid and nonassessable shares of
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Common Stock of the Company at an initial conversion rate of 0.6906 shares of
Common Stock for each $50 in aggregate principal amount of Series 5.375%
Debentures (equal to a conversion price (as adjusted from time to time, the
"Conversion Price") of $72.40 per share of Common Stock), subject to adjustment
as described in this Article Five. A Holder of Series 5.375% Debentures may
convert any portion of the principal amount of the Series 5.375% Debentures into
that number of fully paid and nonassessable shares of Common Stock obtained by
dividing the principal amount of the Series 5.375% Debentures to be converted by
such conversion price. All calculations under this Article Five shall be made to
the nearest cent or to the nearest 1/100th of a share, as the case may be.
SECTION 5.02. (a) In order to convert all or a portion of the Series 5.375%
Debentures, the Holder thereof shall deliver to the Conversion Agent an
irrevocable Notice of Conversion setting forth the principal amount of Series
5.375% Debentures to be converted, together with the name or names, if other
than the Holder, in which the shares of Common Stock should be issued upon
conversion and, if such Series 5.375% Debentures are definitive Series 5.375%
Debentures, surrender to the Conversion Agent the Series 5.375% Debentures to be
converted, duly endorsed or assigned to the Company or in blank. In addition, a
holder of Trust Securities may exercise its right under the Declaration of Trust
to convert such Trust Securities into Common Stock by delivering to the
Conversion Agent an irrevocable Notice of Conversion setting forth the
information called for by the preceding sentence and directing the Conversion
Agent to (i) exchange such Trust Security for a portion of the Series 5.375%
Debentures held by the Trust (at an exchange rate of $50 principal amount of
Series 5.375% Debentures for each Trust Security) and (ii) immediately convert
such Series 5.375% Debentures, on behalf of such holder, into Common Stock of
the Company pursuant to this Article Five and, if such Trust Securities are in
definitive form, surrendering such Trust Securities, duly endorsed or assigned
to the Company or in blank. So long as any Trust Securities are outstanding, the
Trust shall not convert any Series 5.375% Debentures except pursuant to a Notice
of Conversion delivered to the Conversion Agent by a holder of Trust Securities.
Any reference herein to a "holder" of Trust Securities shall mean a "Holder" of
such securities as defined in the Declaration of Trust.
If a Preferred Security is surrendered for conversion after the close of
business on any regular record date for payment of a Distribution and before the
opening of business on the corresponding Distribution payment date, then,
notwithstanding such conversion, the Distribution payable on such Distribution
payment date will be paid in cash to the person in whose name the Series 5.375%
Debenture is registered at the close of business on such record date, and (other
than a Series 5.375% Debenture or a portion of a Series 5.375% Debenture 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
Series 5.375% Debenture must be accompanied by payment of an amount equal to the
Distribution payable on such Distribution payment date. Except as otherwise
provided in the immediately preceding sentence, in the case of any Series 5.375%
Debenture which is converted, interest whose Maturity Date is after the date of
conversion
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of such Series 5.375% Debenture shall not be payable, and the Company shall not
make nor be required to make any other payment, adjustment or allowance with
respect to accrued but unpaid interest on the Series 5.375% Debenture being
converted, which shall be deemed to be paid in full. Each conversion shall be
deemed to have been effected immediately prior to the close of business on the
day on which the Notice of Conversion was received (the "Conversion Date") by
the Conversion Agent from the Holder or from a holder of the Preferred
Securities effecting a conversion thereof pursuant to its conversion rights
under the Declaration, as the case may be. The Person or Persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock as of the
Conversion Date. As promptly as practicable on or after the Conversion Date, the
Company shall issue and deliver at the office of the Conversion Agent, unless
otherwise directed by the Holder in the Notice of Conversion, a certificate or
certificates for the number of full shares of Common Stock issuable upon such
conversion, together with the cash payment, if any, in lieu of any fraction of
any share to the Person or Persons entitled to receive the same. The Conversion
Agent shall deliver such certificate or certificates to such Person or Persons.
(b) The Company's delivery upon conversion of the fixed number of shares of
Common Stock into which the Series 5.375% Debentures are convertible (together
with the cash payment, if any, in lieu of fractional shares) shall be deemed to
satisfy the Company's obligation to pay the principal amount at maturity of the
portion of Series 5.375% Debentures so converted and any unpaid interest
(including Compounded Interest) accrued on such Series 5.375% Debentures at the
time of such conversion.
(c) No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof, the Company shall pay to the Conversion Agent a
cash adjustment in an amount equal to the same fraction of the Closing Price of
such fractional interest on the date on which the Series 5.375% Debentures were
duly surrendered to the Conversion Agent for conversion, or, if such day is not
a day on which any securities are traded on the national securities exchange or
quotation system used to determine the Closing Price (a "Trading Day"), on the
next Trading Day, and the Conversion Agent in turn will make such payment, if
any, to the Holder of the Series 5.375% Debentures or the holder of the
Preferred Securities so converted.
(d) In the event of the conversion of any Series 5.375% Debenture in part
only, a new Series 5.375% Debenture or Series 5.375% Debentures for the
unconverted portion thereof will be issued in the name of the Holder thereof
upon the cancellation thereof in accordance with Section 2.05 of the Indenture.
(e) In effecting the conversion transactions described in this Section
5.02, the Conversion Agent is acting as agent of the holders of Preferred
Securities (in the exchange of Preferred Securities for Series 5.375%
Debentures) and as agent of the Holders of Series 5.375% Debentures (in the
conversion of Series 5.375% Debentures into Common Stock), as the case may be.
The Conversion Agent is hereby authorized (i) to exchange Series 5.375%
Debentures held by the Trust from time to time for Preferred Securities in
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connection with the conversion of such Preferred Securities in accordance with
this Article Five and (ii) to convert all or a portion of the Series 5.375%
Debentures into Common Stock and thereupon to deliver such shares of Common
Stock in accordance with the provisions of this Article Five and to deliver to
the Trust a new Series 5.375% Debenture or Series 5.375% Debentures for any
resulting unconverted principal amount.
SECTION 5.03. (a) The Conversion Price shall be adjusted from time to time
as follows:
(i) In case the Company shall pay or make a dividend or other
distribution on Common Stock in shares of Common Stock, then the
Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction the
numerator of which shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the denominator of which shall be the sum of such
number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this
subparagraph (i), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Company (except to the extent such dividend or distribution is being
made with respect to such shares) but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock.
(ii) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, then the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller amount of
shares of Common Stock, then the Conversion Price in effect at the
opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(iii) In case the Company shall issue rights or warrants to all
holders of Common Stock entitling them (for a period expiring
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within 45 days after the record date fixed for a distribution of such
rights or warrants) to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market Price (as
hereinafter defined) per share (determined as provided in subparagraph
(vii) below) of Common Stock on the date fixed for the determination
of shareholders entitled to receive such rights or warrants (other
than pursuant to a dividend reinvestment plan), then the Conversion
Price in effect at the opening of business on the day following the
date fixed for such determination shall be reduced by multiplying such
Conversion Price by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding at the close of business
on the date fixed for such determination plus the number of shares of
Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription or
purchase would purchase at such Current Market Price and the
denominator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination plus
the number of shares of Common Stock so offered for subscription or
purchase, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such
determination. For the purposes of this subparagraph (iii), the number
of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares
issuable in respect of scrip certificates issued in lieu of fractions
of shares of Common Stock. The Company agrees not to issue any rights
or warrants in respect of shares of Common Stock held in the treasury
of the Company. To the extent that shares of Common Stock are not
delivered after the expiration of such rights or warrants, the
Conversion Price shall be readjusted to the Conversion Price which
would then be in effect had the adjustments made in respect of the
issuance of such rights or warrants been made on the basis of delivery
of only the number of shares of Common Stock actually delivered.
(iv) Subject to the second paragraph of this subparagraph (iv), in
case the Company shall, by dividend or otherwise, distribute to all
holders of Common Stock (A) shares of capital stock of the Company
(other than Common Stock), (B) evidence of indebtedness of the Company
and/or (C) other assets (including securities, but excluding (1) any
rights or warrants referred to in subparagraph (iii) above, (2) any
rights or warrants to obtain capital stock of a company other than the
Company or any subsidiary of the Company (including any rights
offerings of the Company with respect to capital stock of companies in
which the Company has an
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investment (a "Rights Offering")), (3) dividends or distributions in
connection with the liquidation, dissolution or winding-up of the
Company, (4) dividends payable solely in cash that may from time to
time be fixed by the Board of Directors of the Company and (5)
dividends or distributions referred to in subparagraph (i) above),
then in each case (unless the Company makes the election referred to
in the next sentence) the Conversion Price shall be adjusted so that
the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business
on such record date by a fraction the numerator of which shall be the
Current Market Price per share (determined as provided in subparagraph
(vii) below) of the Common Stock on such record date (the "Reference
Date") less the then fair market value on the Reference Date (as
determined in good faith by the Board of Directors of the Company,
whose determination shall be conclusive and shall be described in a
statement filed with the Depositary and the Trustee) of the portion of
the shares of capital stock of the Company, evidences of indebtedness
or other assets so distributed (and for which an adjustment to the
Conversion Price has not been made previously pursuant to the terms of
this Article Five) applicable to one share of Common Stock and the
denominator shall be such Current Market Price per share of the Common
Stock, such adjustment to become effective immediately prior to the
opening of business on the day following the Reference Date. However,
the Company may elect, in its sole discretion, in lieu of the
foregoing adjustment, to make adequate provision so that each holder
of Securities shall have the right to receive upon conversion thereof
the amount and kind of shares of capital stock, evidences of
indebtedness or other assets such holder would have received had such
holder converted such shares on such record date. If the Board of
Directors of the Company determines the fair market value of any
distribution for purposes of this subparagraph (iv) by reference to
the actual or when issued trading market for any securities (including
shares of capital stock or evidence of indebtedness of the Company)
comprising a distribution of securities, it must in doing so consider
the price in such market over the period used in computing the Current
Market Price of the Common Stock.
For purposes of this subparagraph (iv), any dividend or distribution
that includes both (x) any of the items described in clauses (A), (B)
or (C) of the first paragraph of this subparagraph (iv) and (y) Common
Stock or rights or warrants to subscribe for or purchase Common Stock
of the type referred to in subparagraph (iii) shall be deemed to be
(1) a dividend or distribution of shares of capital stock of the
Company (other than Common Stock), evidences of
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indebtedness of the Company or other assets of the type referred to in
clause (C) of the first paragraph of this subparagraph (iv) (making
any Conversion Price reduction required by this subparagraph (iv))
immediately followed by (2) a dividend or distribution of such Common
Stock or rights or warrants to purchase Common Stock of the type
referred to in subparagraph (iii) (making any further Conversion Price
reduction required by subparagraph (i) or (iii) of this Section
5.03(a)), except (A) the Reference Date of such dividend or
distribution as defined in this subparagraph (iv) shall be substituted
as "the date fixed for the determination of shareholders entitled to
receive such rights or warrants" and "the date fixed for such
determination" within the meaning of subparagraphs (i) and (iii) of
this Section 5.03(a) and (B) any shares of Common Stock included in
such dividend or distribution shall not be deemed "outstanding at the
close of business on the date fixed for such determination" within the
meaning of subparagraph (i) of this Section 5.03(a).
The occurrence of a distribution or the occurrence of any other event
as a result of which holders of Series 5.375% Debentures converting
such notes into Common Stock hereunder will not be entitled to receive
rights issued pursuant to any shareholder protective rights agreement
now or hereafter in effect (the "Other Rights") in the same amount and
manner as if such holders had converted such shares immediately prior
to the occurrence of such distribution or other event shall be deemed
a distribution of Other Rights for the purposes of conversion
adjustments pursuant to this subparagraph (iv). In lieu of making any
adjustment to the Conversion Price under this subparagraph (iv) as a
result of such a distribution of Other Rights, the Company may elect,
in its sole discretion, to provide that Other Rights shall be issuable
in the same amount and manner upon conversion of the Series 5.375%
Debentures without regard to whether the shares of Common Stock
issuable upon conversion of the Series 5.375% Debentures were issued
before or after such distribution or other event.
(v) In case the Company shall, by dividend or otherwise, at any time
distribute cash to all holders of Common Stock, excluding (A) any cash
dividends on Common Stock to the extent that the aggregate cash
dividends per share of Common Stock in any consecutive 12-month period
do not exceed the greater of (x) the amount per share of Common Stock
of the cash dividends paid on the 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
to the Conversion Price
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pursuant to this subparagraph (v) (as adjusted to reflect subdivisions
or combinations of the Common Stock) and (y) 15% of the average of the
daily Closing Prices (as hereinafter defined) of the Common Stock for
the ten consecutive Trading Days 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, whether voluntary or involuntary; or any redemption of any
Other Rights; provided, however, that no adjustment shall be made
pursuant to this subparagraph (v) if such distribution would otherwise
constitute a Fundamental Change (as hereinafter defined) and be
reflected in a resulting adjustment to the Conversion Price as
provided in this Article Five) then, in each case (unless the Company
makes the election referred to in the proviso following this clause),
the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect at the
close of business on such record date by a fraction the numerator of
which shall be the Closing Price of a share of Common Stock on such
record date less the amount of cash so distributed (to the extent not
excluded as provided above) applicable to one share of Common Stock,
and the denominator shall be the Closing Price of a share of Common
Stock, such reduction to become effective immediately prior to the
opening of business on the day following such record date; provided,
however, that the Company may elect, in its sole discretion, in lieu
of the foregoing adjustment, to make adequate provision so that each
holder of Securities shall thereafter have the right to receive upon
conversion the amount of cash such holder would have received had such
holder converted each Security on such record date. If any adjustment
is required to be made as set forth in this subparagraph (v) as a
result of a distribution which is a dividend described in clause (A)
of this subparagraph (v), such adjustment will be based upon the
amount by which such distribution exceeds the amount of the dividend
permitted to be excluded pursuant to such clause (A) of this
subparagraph (v). If an adjustment is required to be made pursuant to
this subparagraph (v) as a result of a distribution which is not such
a dividend, such adjustment would be based upon the full amount of
such distribution.
(vi) In case of the consummation of a tender or exchange offer (other
than an odd-lot tender offer) made by the Company or any subsidiary of
the Company for all or any portion of the outstanding shares of Common
Stock to the extent that the cash and fair market value (as determined
in good faith by the Board of Directors of the Company, whose
determination shall be conclusive and shall be described in a
resolution of such Board) of any other consideration
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included in such payment per share of Common Stock at the last time
(the "Expiration Time") tenders or exchanges may be made pursuant to
such tender or exchange offer (as amended) exceed by more than 10%,
with any smaller excess being disregarded in computing the adjustment
to the Conversion Price provided in this subparagraph (vi), the first
reported sale price per share of Common Stock on the Trading Day next
succeeding the Expiration Time, then the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
Expiration Time by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding (including any tendered
or exchanged shares) on the Expiration Time multiplied by the first
reported sale price of the Common Stock on the Trading Day next
succeeding the Expiration Time and the denominator shall be the sum of
(x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to shareholders based on the acceptance (up to
any maximum specified in the terms of the tender or exchange offer) of
all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock outstanding (less any
Purchased Shares) on the Expiration Time and the first reported sale
price of the Common Stock on the Trading Day next succeeding the
Expiration Time, such reduction to become effective immediately prior
to the opening of business on the day following the Expiration Time.
(vii) For the purpose of any computation under this Article Five, the
"Current Market Price per share" of Common Stock on any day shall be
deemed to be the average of the daily Closing Prices (as hereinafter
defined) per share of Common Stock for the ten consecutive Trading
Days prior to and including the date in question; provided, however,
that (1) if the "ex" date (as hereinafter defined) for any event
(other than the issuance, distribution or Fundamental Change requiring
such computation) that requires an adjustment to the Conversion Price
pursuant to this Article Five (the "Other Event") occurs during such
ten consecutive Trading Days and prior to the "ex" date for the
issuance, distribution or Fundamental Change requiring such
computation (the "Current Event"), the Closing Price for each Trading
Day prior to the "ex" date for such Other Event shall be adjusted by
multiplying such Closing Price by the same fraction by which the
Conversion Price is so required to be adjusted as a result of such
Other Event, (2) if the "ex" date for any Other Event occurs on or
after the "ex" date for the
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<PAGE>
Current Event and on or prior to the date in question, the Closing
Price for each Trading Day on and after the "ex" date for such Other
Event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the Conversion Price is so
required to be adjusted as a result of such Other Event (provided that
in the event that such fraction is required to be determined at a date
subsequent to the date in question and with reference to events taking
place subsequent to the date in question, the Board of Directors of
the Company or, to the extent permitted by applicable law, a duly
authorized committee thereof, whose determination shall be conclusive
and described in a resolution of the Board of Directors of the Company
or such duly authorized committee thereof, as the case may be, shall
in good faith estimate such fraction based on assumptions it deems
reasonable regarding such events taking place subsequent to the date
in question, and such estimated fraction shall be used for purposes of
such adjustment until such time as the actual fraction by which the
Conversion Price is so required to be adjusted as a result of such
Other Event is determined), and (3) if the "ex" date for the Current
Event is on or prior to the date in question, after taking into
account any adjustment required pursuant to clause (1) or (2) of this
proviso, the Closing Price for each Trading Day on or after such "ex"
date shall be adjusted by adding thereto the amount of any cash and
the fair market value (as determined in good faith by the Board of
Directors of the Company or, to the extent permitted by applicable
law, a duly authorized committee thereof in a manner consistent with
any determination of such value for purposes of this Article Five,
whose determination shall be conclusive and described in a resolution
of the Board of Directors of the Company or such duly authorized
committee thereof, as the case may be) of the shares of capital stock,
evidences of indebtedness or other assets being distributed applicable
to one share of Common Stock as of the close of business on the day
before such "ex" date. For purposes of this subparagraph (vii), the
term "ex" date, (1) when used with respect to any issuance,
distribution or Fundamental Change, means the first date on which the
Common Stock trades regular way on the relevant exchange or in the
relevant market from which the Closing Price was obtained without the
right to receive such issuance, such distribution or the cash,
securities, property or other assets distributable in such Fundamental
Change to holders of the Common Stock, (2) when used with respect to
any subdivision or combination of shares of Common Stock, means the
first date on which the Common Stock trades regular way on such
exchange or in such market after the time at which such subdivision or
combination becomes effective and (3) when used with respect to
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<PAGE>
any tender or exchange offer means the first date on which the Common
Stock trades regular way on such exchange or in such market after the
Expiration Time of such offer.
(viii) No adjustment in the Conversion Price shall be required
pursuant to this Section 5.03(a) unless the adjustment would require a
change of at least 1% of such price; provided, however, that any
adjustments which by reason of this subparagraph (viii) are not
required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations shall be made to the
nearest cent (with .005 being rounded upward) or to the nearest
1/100th of a share (with .005 of a share being rounded upward), as the
case may be. Notwithstanding anything to the contrary in this Article
Five, 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, in which case the Company shall give at least
15 days' notice of such reduction to the holders of Series 5.375%
Debentures and the Trustee. In addition, the Company may, at its
option, make such reductions in the Conversion Price in addition to
those set forth in this Article Five, as it considers to be advisable
in order to avoid or diminish any income tax to any holders of shares
of Common Stock resulting from any dividend or distribution of stock
or issuance of rights or warrants to purchase or subscribe for stock
or from any event treated as such for income tax purposes or for any
other reasons.
(ix) In any case in which this Article Five provides that an
adjustment shall become effective immediately after a record date for
an event, the Company may defer until the occurrence of such event (A)
issuing to the holder of any Series 5.375% Debentures converted after
such record date and before the occurrence of such event the
additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the
Common Stock issuable upon such conversion before giving effect to
such adjustment and (B) paying to such holder any amount in cash in
lieu of any fractional shares pursuant to this Article Five.
(x) For purposes of this Article Five, "Common Stock" includes any
stock of any class of the Company which has no preference in respect
of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and
which is not subject to redemption by the Company. However, subject to
the provisions of this Article Five, shares issuable on conversion of
Series 5.375% Debentures shall
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<PAGE>
include only shares of the class designated as the Company Common
Stock on the date of the initial issuance of Series 5.375% Debentures
by the Company or shares of any class or classes resulting from any
reclassification or reclassification thereof and which have no
preference in respect of dividends or of amounts payable in the event
of any voluntary or involuntary liquidation, dissolution or winding-up
of the Company and which are not subject to redemption by the Company;
provided, however, that if at any time there shall be more than one
such resulting class, the shares of each such class then so issuable
shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all
such reclassifications.
(b) Whenever the Conversion Price is adjusted as herein provided:
(i) the Company shall compute the adjusted Conversion Price and shall
prepare a certificate signed by the Chief Financial Officer or the
Treasurer of the Company setting forth the adjusted Conversion Price
and showing in reasonable detail the facts upon which such adjustment
is based, and such certificate shall forthwith be filed with the
Trustee and the transfer agent for the Preferred Securities and the
Series 5.375% Debentures; and
(ii) a notice stating the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall as soon as
practicable be mailed by the Company to all record holders of
Preferred Securities and the Series 5.375% Debentures at their last
addresses as they appear upon the stock transfer books of the Company
and the Trust.
SECTION 5.04. (a) 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
shares of Common Stock (other than a change in the par value or as a result of a
subdivision or combination of the Common Stock), (ii) any consolidation of the
Company with, or merger of the Company into, any other corporation or any merger
of another corporation into the Company as a result of which holders of Common
Stock shall be entitled to receive securities or other property or assets
(including cash) with respect to or in exchange for Common Stock (other than a
merger which does not result in a reclassification, conversion, exchange or
cancellation of outstanding shares of 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 the holders of Common Stock shall be
entitled to receive other securities, cash or other property, then appropriate
provision shall be made as part of the terms of such transaction or series of
transactions so that the holder of each Series 5.375%
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Debenture then outstanding shall have the right thereafter to convert such
Series 5.375% Debenture only into (A) if any such transaction does not
constitute a Common Stock Fundamental Change (as hereinafter defined), the kind
and amount of the securities, cash or other property that would have been
receivable upon such recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of shares of Common
Stock into which such Series 5.375% Debenture might have been converted
immediately prior to such recapitalization, reclassification, consolidation,
merger, sale, transfer or share exchange, after, in the case of a Non-Stock
Fundamental Change (as hereinafter defined), giving effect to any adjustment in
the Conversion Price required by the provisions which follow in subparagraph (i)
of Section 5.04(c), and (B) in the case of a Common Stock Fundamental Change (as
hereinafter defined), common stock of the kind received by holders of Common
Stock as a result of such Common Stock Fundamental Change in an amount
determined pursuant to the provisions which follow in subparagraph (ii) of
Section 5.04(c). The company formed by such consolidation or resulting from such
merger or which acquires such assets or which acquires the Common Stock, as the
case may be, shall enter into a supplemental indenture with the Trustee,
satisfactory in form to the Trustee, the provisions of which provide for
adjustments which, for events subsequent to the effective date of such
supplemental indenture, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Article Five. The above provisions shall
similarly apply to successive recapitalization, reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
(b) Notwithstanding any other provisions in this Article Five to the
contrary, if any Fundamental Change (as hereinafter defined) occurs, then the
Conversion Price in effect will be adjusted immediately following such
Fundamental Change as described below in Section 5.04(c). In addition, in the
event of a Common Stock Fundamental Change, each Series 5.375% Debenture shall
be convertible solely into common stock of the kind received by holders of
Common Stock as the result of such Common Stock Fundamental Change as more
specifically provided below in Section 5.04(c).
(c) For purposes of calculating any adjustment to be made pursuant to this
Article Five in the event of a Fundamental Change, immediately following such
Fundamental Change (and for such purposes a Fundamental Change shall be deemed
to occur on the earlier of (a) the occurrence of such Fundamental Change and (b)
the date, if any, fixed for determination of shareholders entitled to receive
the cash, securities, property or other assets distributable in such Fundamental
Change to holders of the Common Stock):
(i) in the case of a Non-Stock Fundamental Change, the Conversion
Price per share of Common Stock shall be the lower of (A) the
Conversion Price in effect immediately prior to such Non-Stock
Fundamental Change, but after giving effect to any other adjustments
effected pursuant to this Article Five, and (B) the product of (1) the
greater of the Applicable Price (as hereinafter defined) or the then
applicable Reference Market Price (as hereinafter defined) and (2) a
fraction the numerator of which shall be $100
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and the denominator of which shall be the amount set forth below
(based on the date on which such Non-Stock Fundamental Change occurs).
For the twelve month period beginning March 31:
Year Denominator
---- -----------
1997 105.375%
1998 104.703%
1999 104.031%
2000 103.359%
2001 102.687%
2002 102.015%
2003 101.343%
2004 100.671%
and thereafter, 100.00;
(ii) in the case of a Common Stock Fundamental Change, the Conversion
Price per share of Common Stock shall be the Conversion Price in effect
immediately prior to such Common Stock Fundamental Change, but after giving
effect to any other adjustments effected pursuant to this Article Five,
multiplied by a fraction, the numerator of which is the Purchaser Stock
Price (as hereinafter defined) and the denominator of which is the
Applicable Price; provided, however, that in the event of a Common Stock
Fundamental Change in which (A) 100% of the value of the consideration
received by a holder of Common Stock is common stock of the successor,
acquiror or other third party (and cash, if any, paid with respect to any
fractional interests in such common stock resulting from such Common Stock
Fundamental Change) and (B) all of the Common Stock shall have been
exchanged for, converted into or acquired for common stock (and cash, if
any, with respect to fractional interests) of the successor, acquiror or
other third party, the Conversion Price per share of Common Stock
immediately following such Common Stock Fundamental Change shall be the
Conversion Price in effect immediately prior to such Common Stock
Fundamental Change divided by the number of shares of common stock of the
successor, acquiror, or other third party received by a holder of one share
of Common Stock as a result of such Common Stock Fundamental Change.
(d) The following definitions shall apply to terms used in this Article
Five:
(i) "Applicable Price" shall mean (A) in the event of a Non-Stock
Fundamental Change in which the holders of Common Stock receive only cash,
the amount of cash receivable by a holder of one share of Common Stock and
(B) in the event of any other Fundamental Change, the average of the
Closing Prices for one share of Common Stock during the ten Trading Days
immediately prior to the
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record date for the determination of the holders of Common Stock entitled
to receive cash, securities, property or other assets in connection with
such Fundamental Change or, if there is no such record date, prior to the
date upon which the holders of Common Stock shall have the right to receive
such cash, securities, property or other assets.
(ii) "Closing Price" with respect to any securities on any day shall
mean the closing sale price, regular way, on such day or, in case no such
sale takes place on such day, the average of the reported closing bid and
asked prices, regular way, in each case on the New York Stock Exchange or,
if such security is not listed or admitted to trading on such Exchange, on
the principal national securities exchange or quotation system on which
such security is quoted or listed or admitted to trading or, if not quoted
or listed or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked prices of such
security on the over-the-counter market on the date in question as reported
by the National Quotation Bureau Incorporated, or a similarly generally
accepted reporting service or, if not so available, in such manner as
furnished by any New York Stock Exchange member firm selected from time to
time by the Board of Directors of the Company for that purpose or a price
determined in good faith by the Board of Directors of the Company.
(iii) "Common Stock Fundamental Change" shall mean any Fundamental
Change in which more than 50% of the value (as determined in good faith by
the Board of Directors of the Company) of the consideration received by the
holders of Common Stock pursuant to such transactions 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 shall not be a Common Stock Fundamental Change unless either (A) the
Company continues to exist after the occurrence of such Fundamental Change
and the outstanding Preferred Securities continue to exist as outstanding
Preferred Securities, or (B) the outstanding Preferred Securities continue
to exist as Preferred Securities and are convertible into common stock of
the successor to the Company.
(iv) "Fundamental Change" shall mean the occurrence of any transaction
or event or series of transactions or events pursuant to which all or
substantially all of the Common Stock shall be 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
shall be deemed to have occurred when substantially all of the Common Stock
has been exchanged for, converted into, or acquired for or constitutes
solely the right to
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receive cash, securities, property or other assets, but the adjustment
shall be based upon the consideration which the holders of Common Stock
received in such transaction or event as a result of which more than 50% of
the Common Stock shall have been exchanged for, converted into, or acquired
for or shall constitute solely the right to receive cash, securities,
property or other assets.
(v) "Non-Stock Fundamental Change" shall mean any Fundamental Change
other than a Common Stock Fundamental Change.
(vi) "Purchaser Stock Price" shall mean, with respect to any Common
Stock Fundamental Change, the average of the Closing Prices for one share
of the common stock received by holders of Common Stock in such Common
Stock Fundamental Change during the ten Trading Days immediately prior to
the record date for the determination of the holders of Common Stock
entitled to receive such common stock or, if there is no such record date,
prior to the date upon which the holders of Common Stock shall have the
right to receive such common stock.
(vii) "Reference Market Price" shall initially mean $39.08 (which is
an amount equal to 66-2/3% of the last reported sale price for the Common
Stock on the New York Stock Exchange on March 24, 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 shall also be adjusted so
that the ratio of the Reference Market Price to the Conversion Price after
giving effect to any such adjustment shall always be the same as the ratio
of the initial Reference Market Price to the initial Conversion Price set
forth in this Article Five.
(e) In determining the amount and type of consideration received by a
holder of Common Stock in the event of a Fundamental Change, consideration
received by a holder of Common Stock pursuant to a statutory right of appraisal
will be disregarded.
SECTION 5.05. In case:
(i) the Company shall declare a dividend (or any other distribution)
on Common Stock that would cause an adjustment to the Conversion Price of
the Series 5.375% Debentures pursuant to the terms of any of the
subparagraphs above (including such an adjustment that would occur but for
the terms of the first sentence of Section 5.03(a)(viii) above); or
(ii) the outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock or combined into a smaller number
of shares of Common Stock; or
(iii) the Company shall authorize the granting to the holders of
Common Stock generally of rights or warrants (for a period expiring within
45 days after the record date fixed for a distribution of such rights and
warrants) to subscribe for or
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purchase any shares of the Company's capital stock or other capital stock
of any class or of any other rights (including any Rights Offerings); or
(iv) of any reclassification of Common Stock (other than a subdivision
or combination of the outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which the Company is a party and
for which approval of any shareholders of the Company is required, or of
the sale or transfer of all or substantially all of the assets of the
Company or a compulsory share exchange; or
(v) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then the Company shall (i) if any Preferred Securities are outstanding, cause to
be filed with the transfer agent for the Preferred Securities, and shall cause
to be mailed to the holders of record of the Preferred Securities, at their last
addresses as they shall appear upon the stock transfer books of the Trust or
(ii) shall cause to be mailed to all Holders at their last addresses as they
shall appear in the books and records of the Trust, at least 15 days prior to
the applicable record or effective date hereinafter specified, a notice stating
(A) the date on which a record (if any) is to be taken for the purpose of such
dividend, distribution, rights or warrants or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, rights or warrants are to be determined or (B) the
date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up (but no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the corporate action required
to be specified in such notice).
SECTION 5.06. The Company shall reserve, free from pre-emptive rights, out
of its authorized but unissued shares, sufficient shares to provide for the
conversion of the Series 5.375% Debentures from time to time as such Series
5.375% Debentures are presented for conversion, provided, that nothing contained
herein shall be construed to preclude the Company from satisfying its
obligations in respect of the conversion of Series 5.375% Debentures by delivery
of repurchased shares of Common Stock which are held in the treasury of the
Company.
If any shares of Common Stock to be reserved for the purpose of conversion
of Series 5.375% Debentures hereunder require registration with or approval of
any governmental authority under any Federal or State law before such shares may
be validly issued or delivered upon conversion, then the Company covenants that
it will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be, provided, however, that nothing in
this Section 5.06 shall be deemed to affect
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in any way the obligations of the Company to convert Series 5.375% Debentures
into Common Stock as provided in this Article Five.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the Common Stock, the
Company will take all corporate action which may, in the Opinion of Counsel, be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be issued
upon conversion of Series 5.375% Debentures will upon issue be fully paid and
non-assessable by the Company and free of pre-emptive rights.
SECTION 5.07. Notwithstanding the foregoing provisions, the issuance of any
shares of Common Stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under any such plan, and
the issuance of any shares of Common Stock or options or rights to purchase such
shares pursuant to any employee benefit plan or program of the Company or
pursuant to any option, warrant, right or exercisable, exchangeable or
convertible security outstanding as of March 31, 1997, shall not be deemed to
constitute an issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Company to which any of the adjustment provisions
described above applies. There shall also be no adjustment of the Conversion
Price in case of the issuance of any stock (or securities convertible into or
exchangeable for stock) of the Company except as specifically described in this
Article Five.
SECTION 5.08. In case the Company shall, by dividend or otherwise, declare
or make a distribution on the Common Stock referred to in Section 5.03(a)(iv) or
5.03(a)(v) (including, without limitation, dividends or distributions referred
to in the last sentence of Section 5.03(a)(vi)), the Holder of the Series 5.375%
Debentures, upon the conversion thereof subsequent to the close of business on
the date fixed for the determination of stockholders entitled to receive such
distribution and prior to the effectiveness of the Conversion Price adjustment
in respect of such distribution, shall also be entitled to receive for each
share of Common Stock into which the Series 5.375% Debentures are converted, the
portion of the shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash and assets so distributed applicable
to one share of Common Stock; provided, however, that, at the election of the
Company (whose election shall be evidenced by a resolution of the Board of
Directors) with respect to all Holders so converting, the Company may, in lieu
of distributing to such Holder any portion of such distribution not consisting
of cash or securities of the Company, pay such Holder an amount in cash equal to
the fair market value thereof (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors). If any conversion of Series 5.375% Debentures
described in the immediately preceding sentence occurs prior to the payment date
for a distribution to holders of Common Stock which the Holder of Series 5.375%
Debentures
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so converted is entitled to receive in accordance with the immediately preceding
sentence, the Company may elect (such election to be evidenced by a resolution
of the Board of Directors) to distribute to such Holder a due bill for the
shares of Common Stock, rights, warrants, evidences of indebtedness, shares of
capital stock, cash or assets to which such Holder is so entitled, provided,
that such due bill (a) meets any applicable requirements of the principal
national securities exchange or other market on which the Common Stock is then
traded and (b) requires payment or delivery of such shares of Common Stock,
rights, warrants, evidences of indebtedness, shares of capital stock, cash or
assets no later than the date of payment or delivery thereof to holders of
shares of Common Stock receiving such distribution.
ARTICLE SIX
FORM OF SERIES 5.375% DEBENTURES
SECTION 6.01. The Series 5.375% Debentures and the Trustee's Certificate of
Authentication to be endorsed thereon are to be substantially in the following
forms:
(FORM OF FACE OF DEBENTURE)
[IF THE NOTE IS TO BE A GLOBAL DEBENTURE, INSERT - This Debenture is a
Global Debenture within the meaning of the Indenture hereinafter referred to and
is registered in the name of a Depositary or a nominee of a Depositary. This
Debenture is exchangeable for Debentures registered in the name of a person
other than the Depositary or its nominee only in the limited circumstances
described in the Indenture, and no transfer of this Debenture (other than a
transfer of this Debenture as a whole 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) may be registered except in limited circumstances.
Unless this Debenture is presented by an authorized representative to The
Depository Trust Company (55 Water Street, New York, New York) to the issuer or
its agent for registration of transfer, exchange or payment, and any Debenture
issued is registered in the name of Cede & Co. or such other name as requested
by an authorized representative of The Depository Trust Company and any payment
hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede &
Co., has an interest herein.]
29
<PAGE>
No. $
CUSIP NO. ____________
THE AES CORPORATION
____% JUNIOR SUBORDINATED DEBENTURE
DUE 2027
The AES Corporation, a corporation duly organized and existing under the
laws of the State of Delaware (herein referred to as the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to , or registered assigns, the
principal sum of _________ Dollars on March 31, 2027, and to pay interest on
said principal sum from March 31, 1997 or from the most recent interest payment
date (each such date, an "Interest Payment Date") to which interest has been
paid or duly provided for, quarterly (subject to deferral as set forth herein)
in arrears commencing March 31, 1997 at the rate of 5.375% per annum plus
Compounded Interest, if any, until the principal hereof shall have become due
and payable, and on any overdue principal and premium, if any, and (without
duplication and to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest at the same rate per
annum. The amount of interest payable on any Interest Payment Date shall be
computed on the basis of a 360-day year twelve 30-day months. In the event that
any date on which interest is payable on this Debenture is not a business day,
then payment of interest payable on such date will be made on the next
succeeding day which 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. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this Debenture (or one or more Predecessor
Debentures, as defined in said Indenture) is registered at the close of business
on the regular record date for such interest installment, [which shall be the
close of business on the day next preceding such Interest Payment Date, provided
if the Preferred Securities of AES Trust I are no longer in book-entry only
form, the regular record dates shall be the close of business on the fifteenth
(15th) day of the month in which such Interest Payment Date occurs] [IF PURSUANT
TO THE PROVISIONS OF SECTION 2.11(c) OF THE INDENTURE THE Series 5.375%
DEBENTURES ARE NOT REPRESENTED BY A GLOBAL DEBENTURE -- which shall be the close
of business on the fifteenth (15th) day of the month in which such Interest
Payment Date occurs.] Any such interest installment not punctually paid or duly
provided for shall forthwith cease to be payable to the registered holders on
such regular record date, and may be paid to the person in whose name this
Debenture (or one or more Predecessor Debentures) is registered at the close of
business on a special record date to be fixed by the Trustee for the payment of
such defaulted interest, notice whereof shall be given to the registered holders
of this series of Debentures not less than 10 days prior to
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such special record date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Debentures may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture. The principal of (and
premium, if any) and the interest on this Debenture shall be payable at the
office or agency of the Company maintained for that purpose in the Borough of
Manhattan, The City and State of New York, in any coin or currency of the United
States of America which at the time of payment is legal tender for payment of
public and private debts; provided, however, that payment of interest may be
made at the option of the Company by check mailed to the registered holder at
such address as shall appear in the Debenture register and that the payment of
principal will only be made upon the surrender of this Debenture to the Trustee.
Notwithstanding the foregoing, so long as the owner and record holder of this
Debenture is the Property Trustee (as defined in the Indenture referred to on
the reverse hereof), the payment of the principal of (and premium, if any) and
interest (including Compounded Interest, if any) on this Debenture will be made
at such place and to such account of the Property Trustee as may be designated
by the Property Trustee.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior and Subordinated Debt, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Debenture, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided and (c) appoints the Trustee his attorney-in-fact for
any and all such purposes. Each Holder hereof, by his acceptance hereof, hereby
waives all notice of the acceptance of the subordination provisions contained
herein and in the Indenture by each holder of Senior and Subordinated Debt,
whether now outstanding or hereafter incurred, and waives reliance by each such
Holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the reverse side hereof
and such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
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IN WITNESS WHEREOF, the Company has caused this Instrument to be executed.
Dated:
The AES Corporation
By
-----------------------------------
Attest:
By
-----------------------------------
Secretary
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures of the series of Debentures described in
the within-mentioned Indenture.
The First Bank of Chicago --------------------------------
as Trustee or as Authentication Agent
By By
----------------------------------- ------------------------------
Authorized Signatory Authorized Signatory
<PAGE>
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Debentures"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of March 1, 1997 duly executed and delivered between
the Company and The First National Bank of Chicago, a national banking
association, as Trustee (herein referred to as the "Trustee"), as supplemented
by the First Supplemental Indenture dated as of March 31, 1997 between the
Company and the Trustee (said Indenture as so supplemented being hereinafter
referred to as the "Indenture"), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders of the Debentures, and, to the extent
specifically set forth in the Indenture, the holders of Senior and Subordinated
Debt and Preferred Securities. By the terms of the Indenture, the Debentures are
issuable in series which may vary as to amount, date of maturity, rate of
interest and in other respects as in the Indenture provided. This series of
Debentures is designated the 5.375% Junior Subordinated Debentures due 2027 and
is limited in aggregate principal amount as specified in said First Supplemental
Indenture.
Except as provided in the next paragraph, the Debentures may not be
redeemed by the Company prior to March 31, 2000. The Company shall have the
right to redeem this Debenture at the option of the Company, without premium or
penalty, in whole or in part at any time on or after March 31, 2000 (an
"Optional Redemption"), upon not less than 30 nor move than 60 days notice to
the Holder of the Series 5.375% Debentures, at the following prices (as
expressed as percentages of the principal amount of the Debentures) (the
"Optional Redemption Price"), together with any accrued but unpaid interest,
including any Compounded Interest, if any, to, but including, the date of such
redemption, if redeemed during the 12-month period beginning March 31:
Year Redemption Price
---- ----------------
2000 103.359%
2001 102.688%
2002 102.016%
2003 101.344%
2004 100.672%
and 100% if redeemed on or after March 31, 2005.
If the Series 5.375% Debentures are redeemed on any Interest Payment Date,
accrued and unpaid interest shall be payable to Holders of record on the
relevant record date.
The Company may not redeem any Series 5.375% Debentures unless all accrued
and unpaid interest thereon, including Compounded Interest, if any, has been
paid for all quarterly periods terminating on or prior to the date of notice of
redemption. So long as
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<PAGE>
the corresponding Trust Securities are outstanding, the proceeds from the
redemption of the Series 5.375% Debentures will be used to redeem the Trust
Securities.
If the Debentures are only partially redeemed by the Company pursuant to an
Optional Redemption, the Debentures will be redeemed pro rata or by lot or by
any other method utilized by the Trustee; provided if, at the time of
redemption, the Debentures are registered as a Global Debenture, the Depository
shall determine the principal amount of such Debentures held by each holder of
Debentures to be redeemed in accordance with its customary procedures.
If, at any time, a Tax Event (as defined below) shall occur or be
continuing after receipt of a Dissolution Tax Opinion (as defined below) and (i)
the Regular Trustees and the Company shall have received an opinion (a
"Redemption Tax Opinion") of a 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 Series 5.375% Debentures for United States federal income tax
purposes even if the Series 5.375% Debentures were distributed to the holders of
Preferred Securities and Common Securities in liquidation of such holder's
interest in AES Trust I as set forth in the Declaration of Trust or (ii) the
Regular Trustees shall have been informed by such tax counsel that a No
Recognition Opinion (as defined below) cannot be delivered to AES Trust I, the
Company shall have the right at any time, upon not less than 30 nor more than 60
days' notice, to redeem the Series 5.375% Debentures in whole or in part for
cash at a price equal to 100% of the principal amount thereof, together with any
accrued and unpaid interest thereon, including Compounded Interest if any, to,
but excluding the date of redemption, within 90 days following the occurrence of
such Tax Event; provided, however, that, if at the time there is available to
the Company or the Regular Trustees on behalf of AES Trust I the opportunity to
eliminate, within such 90 day period, the Tax Event by taking some ministerial
action ("Ministerial Action"), such as filing a form or making an election, or
pursuing some other similar reasonable measure, which has no adverse effect on
AES Trust I, the Company or the holders of the Preferred Securities, the Company
or the Regular Trustees on behalf of AES Trust I will pursue such measure in
lieu of redemption and provided further that the Company shall have no right to
redeem the Series 5.375% Debentures while the Regular Trustees on behalf of AES
Trust I are pursuing any such Ministerial Action.
"Tax Event" means that the Company and the Regular Trustees shall have
obtained an opinion of nationally recognized independent tax counsel experienced
in such matters (a "Dissolution Tax Opinion") to the effect that on or after
March 24, 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
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<PAGE>
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 March 24, 1997, there is more
than an insubstantial risk that (i) AES Trust I 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 Series 5.375% Debentures, (ii) AES Trust I is,
or will be within 90 days of the date thereof, subject to more than a de minimis
amount of taxes, duties or other governmental charges or (iii) interest payable
by the Company to AES Trust I on the Series 5.375% 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.
"No Recognition Opinion" means an opinion of a nationally recognized
independent tax counsel experienced in such matters, which opinion may rely on
any then applicable published revenue ruling of the Internal Revenue Service, to
the effect that the holders of the Preferred Securities will not recognize any
gain or loss for United States federal income tax purposes as a result of a
dissolution of AES Trust I and distribution of the Series 5.375% Debentures as
provided in the Declaration of Trust.
If the Debentures are only partially redeemed by the Company pursuant to an
Optional Redemption or as a result of a Tax Event as described above, the
Debentures will be redeemed pro rata or by lot or in some other equitable manner
determined by the Trustee. Notwithstanding the foregoing, if a partial
redemption of the Series 5.375% Debentures would result in the delisting of the
Preferred Securities by any national securities exchange or other organization
on which the Preferred Securities are then listed, the Company shall not be
permitted to effect such partial redemption and will only redeem the Series
5.375% Debentures in whole.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures of this series for unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Debenture upon compliance by the Company with certain
conditions set forth therein.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Debentures of each series affected at the time
outstanding, as defined in the Indenture (and, in the case of any series of
Debentures held as trust assets of an AES Trust and with
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<PAGE>
respect to which a Security Exchange has not theretofore occurred, such consent
of holders of the Preferred Securities and the Common Securities of such AES
Trust) as may be required under the Declaration of Trust of such AES Trust to
execute supplemental indentures for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental indenture or of modifying in any manner the rights of the
Holders of the Debentures; provided, however, that no such supplemental
indenture shall (i) extend the fixed maturity of any Debentures of any series,
or reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any premium payable upon the redemption
thereof, without the consent of the holder of each Debenture so affected or (ii)
reduce the aforesaid percentage of Debentures, the holders of which are required
to consent to any such supplemental indenture, without the consent of the
holders of each Debenture (and, in the case of any series of Debentures held as
trust assets of an AES Trust and with respect to which a Security Exchange has
not theretofore occurred, such consent of the holders of the Preferred
Securities and the Common Securities of such AES Trust as may be required under
the Declaration of Trust of such AES Trust) then outstanding and affected
thereby. The Indenture also contains provisions permitting the Holders of a
majority in aggregate principal amount of the Debentures of a series at the time
outstanding affected thereby (subject, in the case of any series of Debentures
held as trust assets of an AES Trust and with respect to which a Securities
Exchange has not theretofore occurred, to such consent of holders of Preferred
Securities and Common Securities of such AES Trust as may be required under the
Declaration of Trust of such AES Trust), on behalf of the Holders of the
Debentures of such series, to waive any past default in the performance of any
of the covenants contained in the Indenture, or established pursuant to the
Indenture with respect to such series, and its consequences, except a default in
the payment of the principal of or premium, if any, or interest on any of the
Debentures of such series. Any such consent or waiver by the registered Holder
of this Debenture (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such Holder and upon all future Holders and owners
of this Debenture and of any Debenture issued in exchange herefor or in place
hereof (whether by registration of transfer or otherwise), irrespective of
whether or not any notation of such consent or waiver is made upon this
Debenture.
Subject to Section 13.12 of the Indenture, no reference herein to the
Indenture (other than such Section) and no provision of this Debenture or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of and premium, if any, and interest on
this Debenture at the time and place at the rate and in the money herein
prescribed.
So long as the Company is not in default in the payment of interest on the
Debentures, the Company shall have the right, at any time during the term of the
Debentures, from time to time to extend the interest payment period of such
Debentures for up to 20 consecutive quarterly interest periods (the "Extended
Interest Payment Period"), at the end of which period the Company shall pay all
interest then accrued and unpaid (together with interest thereon at the rate of
5.375% per annum to the extent permitted by applicable law, compounded quarterly
("Compounded Interest")); provided
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<PAGE>
that no Extended Interest Payment Period may extend beyond the date of maturity
or any redemption date of the Debentures. During such Extended Interest Payment
Period the Company shall not declare or pay any dividend 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 any stock
dividends, paid by the Company in Common Stock. Prior to the termination of any
such Extended Interest Payment Period, the Company may pay all or any portion of
the interest accrued on the Debentures on any Interest Payment Date to holders
of record on the regular record date for such Interest Payment Date or from time
to time further extend such Extended Interest Payment Period, provided that such
Period together with all such further extensions thereof shall not exceed 20
consecutive quarterly interest periods. At the termination of any such Extended
Interest Payment Period and upon the payment of all accrued and unpaid interest
then due, together with Compounded Interest, the Company may select a new
Extended Interest Payment Period, subject to the foregoing requirements. No
interest on this Debenture shall be due and payable during an Extended Interest
Payment Period, except at the end thereof. At the end of the Extended Interest
Payment Period the Company shall pay all interest accrued and unpaid on the
Series 5.375% Debentures including any Compounded Interest which shall be
payable to the holders of the Series 5.375% Debentures in whose names the Series
5.375% Debentures are registered in the Debenture register on the first record
date after the end of the Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered holder hereof on the
Debenture register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Company in the Borough
of Manhattan, The City and State of New York accompanied by a written instrument
or instruments of transfer in form satisfactory to the Company or the Trustee
duly executed by the registered holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Debentures of authorized denominations
and for the same aggregate principal amount and series will be issued to the
designated transferee or transferees. No service charge will be made for any
such transfer, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any paying agent and any Debenture Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any paying agent nor any Debenture Registrar
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in
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<PAGE>
respect of the Indenture, against any incorporator, stockholder, officer or
director, past, present or future, as such, of the Company or of any predecessor
or successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of the consideration
for the issuance hereof, expressly waived and released.
The Holder of any Debenture has the right, exercisable at any time through
the close of business (New York time) on March 31, 2027 (or, in the case of a
Debenture called for redemption, prior to the close of business on the Business
Day prior to the corresponding redemption date), to convert the principal amount
thereof (or any portion thereof that is an integral multiple of $50) into shares
of Common Stock at the initial conversion rate of 0.6906 shares of Common Stock
for each Debenture (equivalent to a Conversion Price of $72.40 per share of
Common Stock), subject to adjustment under certain circumstances.
To convert a Debenture, a Holder must (a) complete and sign a conversion
notice substantially in the form attached hereto, (b) surrender the Debenture to
a Conversion Agent, (c) furnish appropriate endorsements or transfer documents
if required by the Conversion Agent and (d) pay any transfer or similar tax, if
required. If a Debenture 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 Debenture is
registered at the close of business on such record date, and (other than a
Debenture or a portion of a Debenture 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 Debenture must be accompanied by
payment of an amount equal to the Distribution payable on such Distribution
payment date. The number of shares issuable upon conversion of a Debenture is
determined by dividing the principal amount of the Debenture converted by the
Conversion Price in effect on the Conversion Date. No fractional shares will be
issued upon conversion but a cash adjustment will be made for any fractional
interest. The outstanding principal amount of any Debenture shall be reduced by
the portion of the principal amount thereof converted into shares of Common
Stock.
[If certificated Debentures -- The Debentures of this series are issuable
only in registered form without coupons in denominations of $50 and any integral
multiple thereto.] [If Global Debenture -- This Global Debenture is exchangeable
for Debentures in definitive form under certain limited circumstances set forth
in the Indenture. Debentures of this series so issued are issuable only in
registered form without coupons in denominations of $50 or any integral multiple
thereof.] As provided in the Indenture and subject to certain limitations [If
Global Debenture -- herein and] therein set forth, Debentures of this series [If
Global Debenture -- so issued] are exchangeable for a like aggregate principal
amount of Debentures of this series of a different authorized denomination, as
requested by the Holder surrendering the same.
39
<PAGE>
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
40
<PAGE>
[FORM OF ELECTION TO CONVERT]
ELECTION TO CONVERT
To: The AES Corporation
The undersigned owner of this Convertible Debenture hereby irrevocably
exercises the option to convert this Debenture, or the portion below designated,
into Common Stock of THE AES CORPORATION, in accordance with the terms of the
Indenture referred to in this Debenture, and directs that the shares issuable
and deliverable upon conversion, together with any check in payment for
fractional shares, be issued in the name of and delivered to the undersigned,
unless a different name has been indicated in the assignment below. If shares
are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto.
Date: ________, ____
in whole Portions of Debenture to be converted ($50 or integral
multiples thereof):
$
-------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and Address, Including Zip
Code, and Social Security or Other Identifying Number
-------------------------------
-------------------------------
-------------------------------
Signature Guarantee:*_______
- --------
* Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Conversion Agent, which requirements include
membership of participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Conversion Agent in addition to, or in substitution for,
STAMP, all in accordance with the Securities and Exchange Act of 1934, as
amended.
41
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Debenture to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints _________________ ____________________________________
________________________________________________________________________________
___________________________________________________ agent to transfer this
Debenture on the books of the Trust. The agent may substitute another to act for
him or her.
Date:_______________________________________
Signature:__________________________________
(Sign exactly as your name appears on the other side of this Debenture)
Signature Guarantee*:_________________________________________________
- --------
* Signature must be guaranteed by an "eligible guarantor institution" that is
a bank, stockbroker, savings and loan association or credit union meeting
the requirements of the Conversion Agent, which requirements include
membership of participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Conversion Agent in addition to, or in substitution for,
STAMP, all in accordance with the Securities and Exchange Act of 1934, as
amended.
42
<PAGE>
ARTICLE SEVEN
ORIGINAL ISSUE OF SERIES 5.375% DEBENTURES
SECTION 7.01. Except as provided in Section 1.01 and this Section 7.01,
Series 5.375% Debentures in the aggregate principal amount equal to $257,732,000
may, upon execution of this First Supplemental Indenture, be executed by the
Company and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and make available for delivery said Debentures to or
upon the written order of the Company, signed by its Chairman, its President, or
any Vice President and its Treasurer or an Assistant Treasurer, without any
further action by the Company. Upon exercise of the overallotment option set
forth in the Underwriting Agreement, additional Series 5.375% Debentures in the
aggregate principal amount of up to $25,773,200 may be executed by the Company
and delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and make available for delivery said Series 5.375% Debentures
executed as aforesaid by the Company, to or upon the written order of the
Company, which order shall be accompanied by evidence satisfactory to the
Trustee that the overallotment option has been exercised.
ARTICLE EIGHT
MISCELLANEOUS PROVISIONS
SECTION 8.01. Except as otherwise expressly provided in this First
Supplemental Indenture or in the form of Series 5.375% Debenture or otherwise
clearly required by the context hereof or thereof, all terms used herein or in
said form of Series 5.375% Debenture that are defined in the Indenture shall
have the several meanings respectively assigned to them thereby.
SECTION 8.02. The Indenture, as supplemented by this First Supplemental
Indenture, is in all respects ratified and confirmed. This First Supplemental
Indenture shall be deemed part of the Indenture in the manner and to the extent
herein and therein provided.
SECTION 8.03. The recitals herein contained are made by the Company and not
by the Trustee, and the Trustee assumes no responsibility for the correctness
thereof. The Trustee makes no representation as to the validity or sufficiency
of this First Supplemental Indenture.
SECTION 8.04. This First Supplemental Indenture may be executed in any
number of counterparts each of which shall be an original; but such counterparts
shall together constitute but one and the same instrument.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, on the date or dates indicated in the
acknowledgments and as of the day and year first above written.
THE AES CORPORATION
By /s/ BARRY J. SHARP
------------------------------------------------
Name: Barry J. Sharp
Title:Vice President and Chief Financial Officer
Attest:
By /s/ WILLIAM R. LURASCHI
------------------------------------------------
Name: William R. Luraschi
Title:General Counsel and SEcretary
THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE
By /s/ MARY FONTI
------------------------------------------------
Name: Mary Fonti
Title: Assistant Vice President
Attest:
By /s/ MELISSA WEISMAN
------------------------------------------------
Name:Melissa Weisman
Title: Vice President
44
CONFORMED COPY
================================================================================
THE AES CORPORATION
GUARANTEE AGREEMENT
---------------------------
Dated as of March 31, 1997
---------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
----------------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions................................................1
ARTICLE 2
TRUST INDENTURE ACT
SECTION 2.01. Trust Indenture Act; Application...........................4
SECTION 2.02. Lists of Holders of Preferred Securities...................5
SECTION 2.03. Reports by the Guarantee Trust.............................5
SECTION 2.04. Periodic Reports to Guarantee Trust........................5
SECTION 2.05. Evidence of Compliance with Conditions Precedent...........5
SECTION 2.06. Events of Default; Waiver..................................5
SECTION 2.07. Disclosure of Information..................................6
SECTION 2.08. Conflicting Interest.......................................6
ARTICLE 3
POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE
SECTION 3.01. Powers and Duties of the Guarantee Trustee.................6
SECTION 3.02. Certain Rights and Duties of the Guarantee Trustee.........7
SECTION 3.03. Not Responsible for Recitals or Issuance of Guarantee......9
ARTICLE 4
GUARANTEE TRUSTEE
SECTION 4.01. Qualifications............................................10
SECTION 4.02. Appointment, Removal and Resignation of Guarantee
Trustee.........................................................10
ARTICLE 5
GUARANTEE
SECTION 5.01. Guarantee.................................................11
SECTION 5.02. Waiver of Notice..........................................11
SECTION 5.03. Obligations Not Affected..................................11
SECTION 5.04. Enforcement of Guarantee..................................13
SECTION 5.05. Guarantee of Payment......................................13
SECTION 5.06. Subrogation...............................................13
SECTION 5.07. Independent Obligations...................................13
ARTICLE 6
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.01. Limitation of Transactions................................14
SECTION 6.02. Subordination.............................................14
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Page
ARTICLE 7
TERMINATION
SECTION 7.01. Termination...............................................14
ARTICLE 8
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 8.01. Exculpation...............................................15
SECTION 8.02. Indemnification...........................................15
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Successors and Assigns....................................16
SECTION 9.02. Amendments................................................16
SECTION 9.03. Notices...................................................16
SECTION 9.04. Genders...................................................17
SECTION 9.05. Benefit...................................................17
SECTION 9.06. Governing Law.............................................17
SECTION 9.07. Counterparts..............................................17
SECTION 9.08. Exercise of Overallotment Option..........................17
ii
<PAGE>
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of March 31, 1997, is executed and
delivered by The AES Corporation, a Delaware corporation (the "Guarantor"), and
The First National Bank of Chicago, a national banking association, as the
initial Guarantee Trustee (as defined herein) for the benefit of the Holders (as
defined herein) from time to time of the Preferred Securities (as defined
herein) of AES Trust I, a Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of March 31, 1997 among the trustees of the Issuer
named therein, The AES Corporation, as Sponsor, and the Holders from time to
time of undivided beneficial interests in the assets of the Issuer, the Issuer
may issue up to $275,000,000 aggregate liquidation amount of its $2.6875 Term
Convertible Securities, Series A (the "Preferred Securities") representing
undivided beneficial interests in the assets of the Issuer and having the terms
set forth in Exhibit B to the Declaration, of which $250,000,000 liquidation
amount of Preferred Securities are being issued as of the date hereof. Up to the
remaining $25,000,000 liquidation amount of Preferred Securities may be issued
by the Issuer if and to the extent that the over-allotment option granted by the
Guarantor and the Issuer pursuant to the Underwriting Agreement (as defined in
the Declaration) is exercised by the Underwriters named in the Underwriting
Agreement.
WHEREAS, as incentive for the Holders to purchase Preferred Securities, the
Guarantor desires to irrevocably and unconditionally agree, to the extent set
forth herein, to pay to the Holders of the Preferred Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by the initial purchasers
thereof of Preferred Securities, which purchase the Guarantor hereby agrees
shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee
Agreement for the benefit of the Holders from time to time of the Preferred
Securities.
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) Capitalized terms used in this Guarantee
Agreement but not defined in the preamble above have the respective meanings
assigned to them in this Section 1.01;
<PAGE>
(b) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and Sections are
to Articles and Sections of this Guarantee Agreement unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Guarantee Agreement unless otherwise defined in this Guarantee
Agreement or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Commission" means the Securities and Exchange Commission.
"Common Securities" means the securities representing undivided beneficial
interests in the assets of the Issuer, having the terms set forth in Exhibit C
to the Declaration.
"Common Stock" means the common stock of the Guarantor, par value $.01 per
share.
"Covered Person" means any Holder of Preferred Securities.
"Debentures" means the series of Junior Subordinated Debentures issued by
the Guarantor under the Indenture to the Property Trustee and entitled the
"5.375% Junior Subordinated Convertible Debentures due 2027".
"Distributions" means the periodic distributions and other payments payable
to Holders of Preferred Securities in accordance with the terms of the Preferred
Securities set forth in Exhibit B to the Declaration.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee Agreement.
"Guarantee Payments" shall mean the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions and the
2
<PAGE>
redemption price, including all accrued and unpaid Distributions to the date of
redemption (the "Redemption Price"), with respect to the Preferred Securities
called for redemption by the Issuer but only if and to the extent that in each
case the Guarantor has made a payment to the Property Trustee of interest or
principal on the Debentures and (ii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Issuer (other than in connection
with the distribution of Debentures to Holders or the redemption of all the
Preferred Securities upon the maturity or redemption of the Debentures as
provided in the Declaration), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid Distributions on the Preferred Securities to
the date of payment, to the extent the Issuer has funds available therefor, or
(b) the amount of assets of the Issuer remaining available for distribution to
Holders in liquidation of the Issuer (in either case, the "Liquidation
Distribution").
"Guarantee Trustee" means The First National Bank of Chicago, a national
banking association, until a Successor Guarantee Trustee has been appointed and
accepted such appointment pursuant to the terms of this Guarantee Agreement and
thereafter means each such Successor Guarantee Trustee.
"Holder" shall mean any holder, as registered on the books and records of
the Issuer, of any Preferred Securities; provided, however, that in determining
whether the holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor or any entity directly or indirectly controlling or
controlled by or under direct or indirect common control with the Guarantor.
"Indemnified Person" means the Guarantee Trustee, any Affiliate of the
Guarantee Trustee, and any officers, directors, shareholders, members, partners,
employees, representatives or agents of the Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of March 1,
1997 between the Guarantor and The First National Bank of Chicago, as trustee,
as supplemented by the First Supplemental Indenture thereto dated as of March
31, 1997, pursuant to which the Debentures are to be issued.
"Majority in liquidation amount of the Preferred Securities" means, except
as otherwise required by the Trust Indenture Act, Holder(s) of outstanding
Preferred Securities voting together as a single class, who are the record
owners of Preferred Securities whose liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued
and unpaid Distributions to the date upon which the voting percentages are
determined) represents more than 50% of the liquidation amount of all
outstanding Preferred Securities.
3
<PAGE>
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Securities" has the meaning set forth in the first WHEREAS
clause above.
"Property Trustee" means the Person acting as Property Trustee under the
Declaration.
"Redemption Price" has the meaning set forth in the definition of
"Guarantee Payments."
"Responsible Officer" means, with respect to the Guarantee Trustee, the
chairman of the board of directors, the president, any vice-president, any
assistant vice-president, the secretary, any assistant secretary, the treasurer,
any assistant treasurer, any trust officer or assistant trust officer or any
other officer of the Guarantee Trustee customarily performing functions similar
to those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as a Guarantee Trustee under Section
4.01(a).
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE 2
TRUST INDENTURE ACT
SECTION 2.01. Trust Indenture Act; Application. (a) This Guarantee
Agreement is subject to the provisions of the Trust Indenture Act that are
required to be part of this Guarantee Agreement and shall, to the extent
applicable, be governed by such provisions;
(b) if and to the extent that any provision of this Guarantee Agreement
limits, qualifies or conflicts with the duties imposed by ss.ss. 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control; and
4
<PAGE>
(c) the application of the Trust Indenture Act to this Guarantee Agreement
shall not affect the nature of the Preferred Securities as equity securities
representing undivided beneficial interests in the assets of the Issuer.
SECTION 2.02. Lists of Holders of Preferred Securities. (a) The Guarantor
shall provide the Guarantee Trustee with such information as is required under
ss. 312(a) of the Trust Indenture Act at the times and in the manner provided in
ss. 312(a); and
(b) the Guarantee Trustee shall comply with its obligations under ss.ss.
310(b), 311 and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Guarantee Trust. Within 60 days after May 15
of each year, commencing May 1998 the Guarantee Trustee shall provide to the
Holders of the Preferred Securities such reports as are required by ss. 313 of
the Trust Indenture Act, if any, in the form, in the manner and at the times
provided by ss. 313 of the Trust Indenture Act. The Guarantee Trustee shall also
comply with the requirements of ss. 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to Guarantee Trust. The Guarantor shall
provide to the Guarantee Trustee, the Commission and the Holders of the
Preferred Securities, as applicable, such documents, reports and information as
required by ss. 314(a)(1)-(3) (if any) of the Trust Indenture Act and the
compliance certificates required by ss. 314(a)(4) and (c) of the Trust Indenture
Act, any such certificates to be provided in the form, in the manner and at the
times required by ss. 314(a)(4) and (c) of the Trust Indenture Act (provided
that any certificate to be provided pursuant to ss. 314(a)(4) of the Trust
Indenture Act shall be provided within 120 days of the end of each fiscal year
of the Issuer).
SECTION 2.05. Evidence of Compliance with Conditions Precedent. The
Guarantor shall provide to the Guarantee Trustee such evidence of compliance
with any conditions precedent, if any, provided for in this Guarantee Agreement
which relate to any of the matters set forth in ss. 314(c) of the Trust
Indenture Act. Any certificate or opinion required to be given pursuant to ss.
314(c) shall comply with ss. 314(e) of the Trust Indenture Act.
SECTION 2.06. Events of Default; Waiver. (a) Subject to Section 2.06(b),
Holders of Preferred Securities may by vote of at least a Majority in
liquidation amount of the Preferred Securities, (A) direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon by the Guarantee
Trustee or (B) on behalf of the Holders of all Preferred Securities waive any
past Event of Default and its consequences. Upon such waiver, any such default
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to
5
<PAGE>
any subsequent or other default or Event of Default or impair any right
consequent thereon.
(b) The right of any Holder of Preferred Securities to receive payment of
the Guarantee Payments in accordance with this Guarantee Agreement, or to
institute suit for the enforcement of any such payment, shall not be impaired
without the consent of each such Holder.
SECTION 2.07. Disclosure of Information. The disclosure of information as
to the names and addresses of the Holders of the Preferred Securities in
accordance with ss. 312 of the Trust Indenture Act, regardless of the source
from which such information was derived, shall not be deemed to be a violation
of any existing law, or any law hereafter enacted which does not specifically
refer to ss. 312 of the Trust Indenture Act, nor shall the Guarantee Trustee be
held accountable by reason of mailing any material pursuant to a request made
under ss. 312(b) of the Trust Indenture Act.
SECTION 2.08. Conflicting Interest. The Declaration shall be deemed to be
specifically described in this Guarantee Agreement for the purposes of clause
(i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE 3
POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE
SECTION 3.01. Powers and Duties of the Guarantee Trustee. (a) This
Guarantee Agreement shall be held by the Guarantee Trustee in trust for the
benefit of the Holders of the Preferred Securities. The Guarantee Trustee shall
not transfer its right, title and interest in the Guarantee Agreement to any
Person except a Successor Guarantee Trustee on acceptance by such Successor
Guarantee Trustee of its appointment to act as Guarantee Trustee or to a Holder
of Preferred Securities exercising his or her rights pursuant to Section 5.04.
The right, title and interest of the Guarantee Trustee to the Guarantee
Agreement shall vest automatically in each Person who may hereafter be appointed
as Guarantee Trustee in accordance with Article 4. Such vesting and cessation of
title shall be effective whether or not conveyancing documents have been
executed and delivered.
(b) If an Event of Default occurs and is continuing, the Guarantee Trustee
shall enforce this Guarantee Agreement for the benefit of the Holders of the
Preferred Securities.
6
<PAGE>
(c) This Guarantee Agreement and all moneys received by the Property
Trustee hereunder in respect of the Guarantee Payments will not be subject to
any right, charge, security interest, lien or claim of any kind in favor of, or
for the benefit of that Guarantee Trustee or its agents or their creditors.
(d) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default known to the Guarantee Trustee, transmit by mail, first class
postage prepaid, to the holders of the Preferred Securities, as their names and
addresses appear upon the register, notice of all Events of Default, unless such
defaults shall have been cured before the giving of such notice; provided, that,
the Guarantee Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee, or a trust committee of
directors and/or Responsible Officers, of the Guarantee Trustee in good faith
determine that the withholding of such notice is in the interests of the Holders
of the Preferred Securities. The Guarantee Trustee shall not be deemed to have
knowledge of any default except any default as to which the Guarantee Trustee
shall have received written notice or a Responsible Officer charged with the
administration of this Guarantee Agreement shall have obtained written notice.
(e) The Guarantee Trustee shall continue to serve as a Trustee unless a
Successor Guarantee Trustee has been appointed and accepted that appointment in
accordance with Article 4.
SECTION 3.02. Certain Rights and Duties of the Guarantee Trustee. (a) The
Guarantee Trustee, before the occurrence of an Event of Default and after the
curing of all Events of Default that may have occurred, shall undertake to
perform only such duties as are specifically set forth in this Guarantee
Agreement, and no implied covenants shall be read into this Guarantee Agreement
against the Guarantee Trustee. In case an Event of Default has occurred (that
has not been cured or waived pursuant to Section 2.06(a)), the Guarantee Trustee
shall exercise such of the rights and powers vested in it by this Guarantee
Agreement, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(b) No provision of this Guarantee Agreement shall be construed to relieve
the Guarantee Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the curing or
waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee
Agreement, and the Guarantee Trustee shall not be liable except for
the performance of such duties and obligations as are
7
<PAGE>
specifically set forth in this Guarantee Agreement, and no implied
covenants or obligations shall be read into this Guarantee Agreement
against the Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee Trustee,
the Guarantee Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Guarantee Trustee and
conforming to the requirements of this Guarantee Agreement; but in the
case of any such certificates or opinions that by any provision hereof
are specifically required to be furnished to the Guarantee Trustee,
the Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer of the Guarantee Trustee,
unless it shall be proved that the Guarantee Trustee was negligent in
ascertaining the pertinent facts;
(iii) the Guarantee Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of Preferred Securities as provided herein
relating to the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee, or exercising any trust or power
conferred upon the Guarantee Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require the Guarantee
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable ground
for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Guarantee Agreement or
adequate indemnity against such risk or liability is not reasonably assured
to it.
(c) Subject to the provisions of Section 3.02(a) and (b):
(i) whenever in the administration of this Guarantee Agreement, the
Guarantee Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder,
the Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and rely
upon a certificate, which shall comply with the provisions of ss. 314(e) of
the Trust Indenture Act, signed by any authorized officer of the Guarantor;
8
<PAGE>
(ii) the Guarantee Trustee (A) may consult with counsel (which may be
counsel to the Guarantor or any of its Affiliates and may include any of
its employees) selected by it in good faith and with due care and the
written advice or opinion of such counsel with respect to legal matters
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon and in accordance with such advice and opinion and (B)
shall have the right at any time to seek instructions concerning the
administration of this Guarantee Agreement from any court of competent
jurisdiction;
(iii) the Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Guarantee Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney appointed
by it in good faith and with due care;
(iv) the Guarantee Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Guarantee Agreement at the
request or direction of any Holders of Preferred Securities, unless such
Holders shall have offered to the Guarantee Trustee reasonable security and
indemnity against the costs, expenses (including its attorneys' fees and
expenses) and liabilities that might be incurred by it in complying with
such request or direction; provided that nothing contained in this clause
(iv) shall relieve the Guarantee Trustee of the obligation, upon the
occurrence of an Event of Default (which has not been cured or waived) to
exercise such of the rights and powers vested in it by this Guarantee
Agreement, and to use the same degree of care and skill in this exercise,
as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs; and
(v) any action taken by the Guarantee Trustee or its agents hereunder shall
bind the Holders of the Preferred Securities and the signature of the
Guarantee Trustee or its agents alone shall be sufficient and effective to
perform any such action; and no third party shall be required to inquire as
to the authority of the Guarantee Trustee to so act, or as to its
compliance with any of the terms and provisions of this Guarantee
Agreement, both of which shall be conclusively evidenced by the Guarantee
Trustee's or its agent's taking such action.
SECTION 3.03. Not Responsible for Recitals or Issuance of Guarantee. The
recitals contained in this Guarantee shall be taken as the statements of the
Guarantor and the Guarantee Trustee does not assume any responsibility for their
correctness. The Guarantee Trustee makes no representations as to the validity
or sufficiency of this Guarantee Agreement.
9
<PAGE>
ARTICLE 4
GUARANTEE TRUSTEE
SECTION 4.01. Qualifications. (a) There shall at all times be a Guarantee
Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of the
United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least $50,000,000, and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the supervising
or examining authority referred to above, then for the purposes of this
section 4.01(a)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published.
If at any time the Guarantee Trustee shall cease to satisfy the
requirements of clauses (i)-(ii) above, the Guarantee Trustee shall immediately
resign in the manner and with the effect set out in Section 4.02. If the
Guarantee Trustee has or shall acquire any "conflicting interest" within the
meaning of ss. 310(b) of the Trust Indenture Act, the Guarantee Trustee and the
Guarantor shall in all respects comply with the provisions of ss. 310(b) of the
Trust Indenture Act.
SECTION 4.02. Appointment, Removal and Resignation of Guarantee Trustee.
(a) Subject to Section 4.02(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor except following the
occurrence and during the continuation of an Event of Default.
(b) The Guarantee Trustee shall not be removed in accordance with Section
4.02(a) until a Successor Guarantee Trustee possessing the qualifications to act
as Guarantee Trustee under Section 4.01(a) has been appointed and has accepted
such appointment by written instrument executed by such Successor Guarantee
Trustee and delivered to the Guarantor and the Guarantee Trustee being removed.
10
<PAGE>
(c) The Guarantee Trustee appointed to office shall hold office until his
successor shall have been appointed or until its removal or resignation.
(d) The Guarantee Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument (a "Resignation Request") in writing
signed by the Guarantee Trustee and delivered to the Guarantor, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that no such resignation of the Guarantee
Trustee shall be effective until a Successor Guarantee Trustee possessing the
qualifications to act as Guarantee Trustee under Section 4.01(a) has been
appointed and has accepted such appointment by instrument executed by such
Successor Guarantee Trustee and delivered to Guarantor and the resigning
Guarantee Trustee.
(e) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.02 delivery to the Guarantor
of a Resignation Request, the resigning Guarantee Trustee may petition any court
of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such
court may thereupon after such notice, if any, as it may deem proper and
prescribe, appoint a Successor Guarantee Trustee.
ARTICLE 5
GUARANTEE
SECTION 5.01. Guarantee. The Guarantor irrevocably and unconditionally
agrees to pay in full to the Holders the Guarantee Payments (without duplication
of amounts theretofore paid by the Issuer) regardless of any defense, right of
set-off or counterclaim which the Issuer may have or assert. The Guarantor's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holders or by causing the Issuer to pay
such amounts to the Holders.
SECTION 5.02. Waiver of Notice. The Guarantor hereby waives notice of
acceptance of this Guarantee Agreement and of any liability to which it applies
or may apply, presentment, demand for payment, any right to require a proceeding
first against the Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
SECTION 5.03. Obligations Not Affected. The obligations, covenants,
agreements and duties of the Guarantor under this Guarantee Agreement shall in
11
<PAGE>
no way be affected or impaired by reason of the happening from time to time of
any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied
agreement, covenant, term or condition relating to the Preferred Securities
to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions (other than an extension of time for payment
of Distributions that results from the extension of any interest payment
period on the Debentures), Redemption Price, Liquidation Distribution (as
defined in the Declaration) or any other sums payable under the terms of
the Preferred Securities or the extension of time for the performance of
any other obligation under, arising out of, or in connection with, the
Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the Issuer
or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the
intent of this Section 5.03 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.
12
<PAGE>
SECTION 5.04. Enforcement of Guarantee. The Guarantor and the Guarantee
Trustee expressly acknowledge that (i) this Guarantee Agreement will be
deposited with the Guarantee Trustee to be held for the benefit of the Holders;
(ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on
behalf of the Holders; (iii) Holders representing not less than a Majority in
liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available in
respect of this Guarantee Agreement including the giving of directions to the
Guarantee Trustee, or exercising any trust or other power conferred upon the
Guarantee Trustee under this Guarantee Agreement, and (iv) notwithstanding the
foregoing, if the Guarantor has failed to make any Guarantee Payment hereunder,
any Holder of Preferred Securities may institute a legal proceeding directly
against the Guarantor to enforce its rights under this Guarantee Agreement,
without first instituting a legal proceeding against the Issuer, the Guarantee
Trustee, or any other Person.
SECTION 5.05. Guarantee of Payment. This Guarantee Agreement creates a
guarantee of payment and not merely of collection. This Guarantee Agreement will
not be discharged except by payment of the Guarantee Payments in full (without
duplication of amounts theretofore paid by the Issuer).
SECTION 5.06. Subrogation. The Guarantor shall be subrogated to all (if
any) rights of the Holders against the Issuer in respect of any amounts paid to
the Holders by the Guarantor under this Guarantee Agreement; provided, however,
that the Guarantor shall not (except to the extent required by mandatory
provisions of law) be entitled to enforce or exercise any rights which it may
acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Guarantee Agreement,
if, at the time of any such payment, any amounts are due and unpaid under this
Guarantee Agreement. If any amount shall be paid to the Guarantor in violation
of the preceding sentence, the Guarantor agrees to hold such amount in trust for
the Holders and to pay over such amount to the Holders.
SECTION 5.07. Independent Obligations. The Guarantor acknowledges that its
obligations hereunder are independent of the obligations of the Issuer with
respect to the Preferred Securities and that the Guarantor shall be liable as
principal and as debtor hereunder to make Guarantee Payments pursuant to the
terms of this Guarantee Agreement notwithstanding the occurrence of any event
referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof.
13
<PAGE>
ARTICLE 6
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.01. Limitation of Transactions. So long as any Preferred
Securities remain outstanding, the Guarantor will 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 or make any
guarantee payment with respect thereto if at such time (i) the Guarantor shall
be in default with respect to its Guarantee Payments or other payment
obligations hereunder, (ii) there shall have occurred any event of default under
the Declaration or (iii) the Guarantor shall have given notice of its selection
of an Extension Period (as defined in the Indenture) and such period, or any
extension thereof, is continuing; provided that the foregoing will not apply to
any stock dividends paid by the Guarantor in Common Stock. In addition, so long
as any Preferred Securities remain outstanding, the Guarantor (i) will remain
the sole direct or indirect owner of all of the outstanding Common Securities
and shall not cause or permit the Common Securities to be transferred except to
the extent such transfer is permitted under Section 9.01 of the Declaration;
provided that any permitted successor of the Guarantor under the Indenture may
succeed to the Guarantor's ownership of the Common Securities and (ii) will use
reasonable efforts to cause the Issuer to continue to be treated as a grantor
trust for United States federal income tax purposes except in connection with a
distribution of Debentures as provided in the Declaration.
SECTION 6.02. Subordination. This Guarantee Agreement will constitute an
unsecured obligation of the Guarantor and will rank (i) subordinate and junior
in right of payment to all other liabilities of the Guarantor, including the
Debentures, except those made pari passu herewith or subordinate hereto 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 Guarantor and with respect to
obligations under other guarantee agreements which the Guarantor may enter into
from time to time to the extent that such agreements shall be entered into in
substantially the form hereof and provide for comparable guarantees by the
Guarantor of payment on preferred securities issued by other AES Trusts.
ARTICLE 7
TERMINATION
SECTION 7.01. Termination. This Guarantee Agreement shall terminate and be
of no further force and effect upon full payment of the Redemption Price of all
Preferred Securities, or upon the distribution of Debentures to Holders of
Preferred Securities and Common Securities in exchange for all of the Preferred
14
<PAGE>
Securities and Common Securities, or upon full payment of the amounts payable in
accordance with the Declaration upon liquidation of the Issuer. Notwithstanding
the foregoing, this Guarantee Agreement will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must restore payment
of any sums paid with respect to the Preferred Securities or this Guarantee
Agreement.
ARTICLE 8
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 8.01. Exculpation. (a) No Indemnified Person shall be liable,
responsible or accountable in damages or otherwise to the Guarantor or any
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Guarantee Agreement 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 negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Guarantor and upon such information, opinions, reports
or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.02. Indemnification. (a) To the fullest extent permitted by
applicable law, the Guarantor 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 and in a manner such Indemnified Person reasonably believed
to be within the scope of authority conferred on such Indemnified Person by this
Guarantee Agreement, 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 negligence or willful misconduct with respect to such acts
or omissions.
(b) To the fullest extent permitted by applicable 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
15
<PAGE>
Guarantor prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by the Guarantor 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 in Section
8.02(a).
(c) The provisions of this Article shall survive the termination of this
Guarantee Agreement or the resignation or removal of the Guarantee Trustee.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Successors and Assigns. All guarantees and agreements
contained in this Guarantee Agreement shall bind the successors, assignees,
receivers, trustees and representatives of the Guarantor and shall inure to the
benefit of the Holders of the Preferred Securities then outstanding. Except in
connection with a consolidation, merger or sale involving the Guarantor that is
permitted under Article Ten of the Indenture, the Guarantor shall not assign its
obligations hereunder.
SECTION 9.02. Amendments. Except with respect to any changes which do not
adversely affect the rights of Holders (in which case no consent of Holders will
be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in liquidation amount of the
Preferred Securities. The provisions of Section 12.02 of the Declaration
concerning meetings of Holders shall apply to the giving of such approval.
SECTION 9.03. Notices. Any notice, request or other communication required
or permitted to be given hereunder shall be in writing, duly signed by the party
giving such notice, and delivered, telecopied or mailed by first class mail as
follows:
(a) if given to the Guarantor, to the address set forth below or such other
address as the Guarantor may give notice of to the Holders:
The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209
Facsimile No.: (703) 528-4510
Attention: General Counsel and Secretary
16
<PAGE>
(b) if given to the Guarantee Trustee, to the address set forth below or
such other address as the Guarantee Trustee may give notice to the Holders:
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Administration
Telecopy: (312) 407-1708
(c) if given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Issuer.
All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 9.04. Genders. The masculine, feminine and neuter genders used
herein shall include the masculine, feminine and neuter genders.
SECTION 9.05. Benefit. This Guarantee Agreement is solely for the benefit
of the Holders and subject to Section 3.01(a) is not separately transferable
from the Preferred Securities.
SECTION 9.06. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS).
SECTION 9.07. Counterparts. This Guarantee Agreement may be executed in
counterparts, each of which shall be an original; but such counterparts shall
together constitute one and the same instrument.
SECTION 9.08. Exercise of Overallotment Option. If and to the extent that
Preferred Securities are issued by the Issuer upon exercise of the overallotment
option referred to the second WHEREAS clause, the Guarantor agrees to give
prompt notice thereof to the Guarantee Trustee but the failure to give such
notice shall not relieve the Guarantor of any of its obligations hereunder.
17
<PAGE>
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
The AES Corporation
By: /s/ BARRY J. SHARP
-------------------------------
Name:Barry J. Sharp
Title: Vice President and Chief
Financial Officer
The First National Bank of Chicago
As Guarantee Trustee
By: /s/ MARY FONTI
-------------------------------
Name: Mary Fonti
Title:Assistant Vice President
18
Exhibit 4.15
The Company has numerous other instruments governing long-term
indebtedness that are not registered, none of which exceeds ten percent of the
total assets of the Registrant and its subsidiaries on a consolidated basis, and
the Company hereby agrees to furnish a copy of any of such agreements to the
Commission upon request.
Exhibit 11
THE AES CORPORATION
- -------------------
STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1995 1996 1997
- -----------------------------------------------------------------------------------------------------
($ in millions, except per share amounts)
BASIC
<S> <C> <C> <C>
WEIGHTED AVERAGE SHARES
OUTSTANDING 149.9 151.5 166.6
------------- ------------- -------------
NET INCOME $ 107 $ 125 $ 188
============= ============= =============
PER SHARE AMOUNT $0.71 $0.83 $1.13
============= ============= =============
DILUTED
Weighted Average Number of Shares
of Common Stock Outstanding 149.9 151.5 166.6
Net effect of Dilutive Stock Options and
Warrants Based on the Treasury Stock
Method Using Ending Market Price 1.5 2.7 4.4
Stock Units Allocated to the Deferred
Compensation Plans for
Executives and Directors 0.5 0.5 0.5
Effect of Convertible Debt - Based on
the If-Converted Method 3.8 2.5 6.3
------------- ------------- -------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 155.7 157.2 177.8
============= ============= =============
NET INCOME $ 107 $ 125 $ 188
Additional Contribution to Net Income if
Convertible Debt is fully converted 2 1 10
------------- ------------- -------------
ADJUSTED NET INCOME $ 109 $ 126 $ 198
============= ============= =============
PER SHARE AMOUNT $0.70 $0.80 $1.11
============= ============= =============
</TABLE>
Exhibit 12
THE AES CORPORATION AND SUBSIDIARIES
STATEMENT RE: CALCULATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, unaudited)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COMPUTATION OF EARNINGS:
Income from continuing operations
before income taxes $ 89 $ 142 $ 164 $ 185 $ 244
Adjustment for undistributed equity
earnings, net of distributions (11) (6) 3 (20) (57)
Interest expense 125 122 122 138 228
Depreciation of previously capitalized interest 4 4 4 4 4
Net amortization of issuance costs 3 4 5 6 16
-------- ------- --------- -------- -----------
Earnings $ 210 $ 266 $ 298 $ 313 $ 435
======== ======= ========= ======== ===========
COMPUTATION OF FIXED CHARGES:
Interest expensed and capitalized amounts
(including construction related fixed charges) $ 127 $ 124 $ 132 $ 165 $ 295
Net amortization of issuance costs (including
capitalized amounts) 3 4 5 6 16
-------- ------- --------- -------- -----------
Fixed charges $ 130 $ 128 $ 137 $ 171 $ 311
======== ======= ======== ======== ==========
Ratio of earnings to fixed charges 1.62 x 2.08 x 2.18 x 1.83 x 1.40 x
</TABLE>
Exhibit 21
Subsidiaries of The AES Corporation
<TABLE>
<CAPTION>
Subsidiary Name Jurisdiction or Incorporation
--------------- -----------------------------
<S> <C>
AES - MS Pty Ltd. Australia
AES Acquisition Co. Ltd. Bermuda
AES Alamitos, L.L.C. Delaware
AES Allegheny, Inc. Delaware
AES America's Holdings, Inc. Delaware
AES Americas International Holdings, Limited Bermuda
AES Americas Investments, Inc. Delaware
AES Argentina Operations, Ltd. Cayman Islands
AES Argentina, Inc. Delaware
AES Australia Holding B.V. Netherlands
AES Australian Energy Finance Pty Limited Australia
AES Balboa, Inc. Delaware
AES Bandeirante, Ltd. Cayman Islands
AES Barry Operations Ltd. United Kingdom
AES Barry, Ltd. United Kingdom
AES Beaver Valley, Inc. Delaware
AES Borsodi Avamtermelo Kft Hungary
AES Brasil Ltda. Brazil
AES Brazil Holdings, Inc. Delaware
AES Brazil International Holdings, Limited Bermuda
AES Bucks County, Inc. Delaware
AES California Management Co., Inc. Delaware
AES Campos Novos Inc. Cayman Islands
AES Canada, Inc. Delaware
AES Caribbean Holdings, Inc. Delaware
AES Caribbean Services, Inc. Delaware
AES Cayman Guaiba, Ltd. Cayman Islands
AES Cayman I Cayman Islands
AES Cayman II Cayman Islands
AES Cayman Islands Holdings, Ltd. Cayman Islands
AES Cayman Pampas, Ltd. Cayman Islands
AES Cemig Empreendimentos Inc. Cayman Islands
AES Cemig Funding Corporation Delaware
AES Cemig Holdings, Inc. Delaware
AES Chigen Company (L) Limited Malaysia
AES China Generating Co. Ltd. Bermuda
AES Connecticut Management, Inc. Delaware
AES Constructors, Inc. Delaware
AES Coral Reef, LLC Cayman Islands
AES Deepwater, Inc. Delaware
AES Distribucion Dominicana, Ltd. Cayman Islands
AES Dominican Holdings, Inc. Delaware
AES El Salvador, Ltd. Cayman Islands
AES Electric Investments, Limited Bermuda
AES Elsta B.V. Netherlands
AES Energen, Ltd. Cayman Islands
AES Energy (Asia) Pte Ltd. Singapore
AES Energy Canada, Inc. Canada
AES Energy Mexico, Inc. Delaware
<PAGE>
AES Energy of Colombia, Inc. Delaware
AES Energy, Ltd. Bermuda
AES Engineering, Inc. Cayman Islands
AES Europe S.A. France
AES Forca, Ltd. Cayman Islands
AES FSC Corporation Barbados
AES Gas Power, Inc. Delaware
AES Global Power Holdings, B.V. Netherlands
AES GPH, L.L.C. Delaware
AES Guaiba Empreedementos Ltda. Brazil
AES Guaiba II Empreedementos Ltda. Brazil
AES Harriman Cove, Inc. Delaware
AES Hawaii Management Company, Inc. Delaware
AES Hawaii, Inc. Delaware
AES Hazleton, Inc. Delaware
AES HGP, Inc. Delaware
AES HLP, Inc. Delaware
AES Holdings Limited Cayman Islands
AES Hungary Limited United Kingdom
AES Intercon II, Ltd. Cayman Islands
AES Intercon, Ltd. Cayman Islands
AES Interenergy, Ltd. Cayman Islands
AES International Development, Ltd. Cayman Islands
AES International Holdings II, Ltd. British Virgin Islands
AES International Holdings, Inc. Delaware
AES International Holdings, Ltd. British Virgin Islands
AES Investments II, Ltd. Cayman Islands
AES Investments Limited Cayman Islands
AES Jericoacoara Ltda. Brazil
AES Joshua Tree, Inc. Delaware
AES Juniata, Inc. Delaware
AES Kingston, Inc. Canada
AES Lal Pir Limited Pakistan
AES Las Mareas, Inc. Delaware
AES Latin America, Inc. Delaware
AES Latrobe Valley, BV Netherlands
AES Light II, Inc. Delaware
AES Light, Inc. Delaware
AES Los Mina Finance Company Cayman Islands
AES Los Mina Holdings, Inc. Delaware
AES Mayan Holdings, S. de R.L. de C.V. Mexico
AES Medway Electric Limited United Kingdom
AES Medway Operations Limited United Kingdom
AES Merida B.V. Netherlands
AES Merida III, S. de R. L. de C. V. Mexico
AES Merida Management Services, S. de R.L. de C.V. Mexico
AES Merida Operations Cayman Islands
AES Mexico Development, S. de R.L. de C.V. Mexico
AES Mexico Farms, Inc. Delaware
AES Miskolc, Inc. Delaware
AES Monterey, Inc. Delaware
AES Mt. Stuart B.V. Netherlands
AES Ocean Springs, Ltd. Cayman Islands
AES Oklahoma Management Co., Inc. Delaware
<PAGE>
AES Orissa Operations Private Limited India
AES Pak Gen (Pvt) Company Pakistan
AES Pak Gen Holdings, Inc. Mauritius
AES Pakistan (Holdings) Limited United Kingdom
AES Pakistan (Pvt) Ltd. Pakistan
AES Pakistan Holdings Mauritius
AES Pakistan Operations, Ltd. Delaware
AES Partington Ltd. United Kingdom
AES Pasadena, Inc. Delaware
AES Piedmont II, Inc. Delaware
AES Piedmont, Inc. Delaware
AES Placerita, Inc. Delaware
AES Power North, Inc. Delaware
AES Power, Inc. Delaware
AES Prachinburi Holdings B.V. Netherlands
AES Rio Diamante, Inc. Delaware
AES Rio Ozama Holdings, Ltd. Cayman Islands
AES Riverside, Inc. Delaware
AES San Nicolas, Inc. Delaware
AES Shady Point, Inc. Delaware
AES Silk Road Ltd. United Kingdom
AES Silk Road, Inc. Delaware
AES South City, L.L.C. Delaware
AES ST Ekibastuz, LLP Kazakhstan
Companhia Centro-Oeste de Distribuicao de Energia Eletrica (D.B.A.
"AES Sul") Brazil
AES Sul Distribuidora Gaucha de Energia S.A. Brazil
AES Summit Generation Ltd. United Kingdom
AES Suntree Power Ltd. Ireland
AES Terneuzen Engineering B.V. Netherlands
AES Terneuzen Management Services B.V. Netherlands
AES Thames, Inc. Delaware
AES Transpower, Inc. Delaware
AES Transpower, Inc. Mauritius
AES Treasure Cove, Ltd. Cayman Islands
AES Trust I Delaware
AES Trust II Delaware
AES Turbine Equipment, Inc. Delaware
AES Tyneside Ltd. United Kingdom
AES UK Energy Holdings Ltd. United Kingdom
AES UK Holdings, Ltd. United Kingdom
AES Victoria Holdings BV Netherlands
AES Victoria Partners B.V. Netherlands
AES Warrior Run, Inc. Delaware
AES Western Maryland Management Co., Inc. Delaware
AES WR Limited Partnership Delaware
AES Yucatan, S. de R.L. de C.V. Mexico
AES/Sonat Adelanto, Inc. Delaware
AES/Sonat Power, L.L.C. Virginia
AESEBA Funding Corporation Delaware
AESEBA S.A. Argentina
Altai Power LLP Kazakhstan
Anhui Liyuan - AES Power Co., Ltd. China
Australian Power Holdings Netherlands
<PAGE>
Australian Power Partners B.V. Netherlands
Bitacora B.V. Netherlands
Borsod Energetikia, Kft. Hungary
BV Partners Delaware
Cavanal Minerals, Inc. Delaware
Central Termica San Nicolas S.A. Argentina
Cloghan Limited Northern Ireland
Cloghan Point Holdings Limited Northern Ireland
CMS Generation San Nicolas Company Michigan
Coal Creek Minerals, Inc. Delaware
DOC Dominicana, S.A. Dominican Republic
DOC Guatemala S.A. Guatemala
Dominican Power Metering, Ltd. Cayman Islands
Dominican Power Partners LDC Cayman Islands
Emerald Power Holdings C.V. Netherlands
Empresa Distribuidora de Energia Norte S.A. Argentina
Empresa Distribuidora de Energia Sur S.A. Argentina
European Power Holdings B.V. Netherlands
Gippsland Australia
Global Power Holdings CV Netherlands
Hazelwood Finance Limited Partnership Australia
Hefei Zhongli Energy Co. Ltd. China
Hidroelectrica Rio Juramento S.A. Argentina
Hidrotermica San Juan S.A. Argentina
Hunan Xiangci-AES Hydro Power Company Ltd. China
Indian Queens Power Ltd. United Kingdom
Inversora AES Americas S.A. Argentina
Inversora de San Nicolas S.A. Argentina
Jiaozuo Wan Fang Power Company Ltd. China
Kingston Cogen Limited Partnership Canada
Kingston Northern Lights, Inc. Canada
Kingston Power Partners, Inc. Canada
Kokomo Holdings Ltd. Cayman Islands
Loy Yang Finance Corporation Pty Ltd Australia
Morwell Australia
Mountain Minerals, Inc. Delaware
Mt. Stuart General Partnership Australia
Nogradszen Kft Hungary
Northern/AES Energy, LLC Minnesota
Placerita Oil Co., Inc. Delaware
Sichuan Fuling Aixi Power Company Ltd. China
Tau Power Holdings BV Netherlands
Terneuzen Cogen B.V. Netherlands
Tisza Eromu Rt. Hungary
Twin Rivers Power, Inc. Delaware
UK Asset Management Services, Ltd. United Kingdom
UK Energy Holdings Limited United Kingdom
UK Power Finance Ltd United Kingdom
Wuxi AES CAREC Gas Turbine Power Company Limited China
Wuxi AES Zhong Hang Power Company Limited China
Zarnowicka Elektrownia Gazowa S.A. Poland
</TABLE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in The AES Corporation's
Registration Statement No. 33-44498 on Form S-8, Registration Statement No.
33-49262 on Form S-8, Registration Statement No. 333-26225 on Form S-8,
Registration Statement No. 333-28883 on Form S-8, Registration Statement No.
333-28885 on Form S-8, Registration Statement No. 333-38535 on Form S-8,
Registration Statement No. 33-95406 on Form S-3, Registration Statement No.
333-39857 on Form S-3, Registration Statement No. 333-46189 on Form S-3, and
Registration Statement No. 333-44845 on Form S-4 of our report dated January 28,
1998, except for Note 16, as to which the date is February 10, 1998, appearing
in this Annual Report on Form 10-K of The AES Corporation for the year ended
December 31, 1997.
DELOITTE & TOUCHE LLP
Washington, DC
March 30, 1998
Exhibit 24
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities stated opposite
their respective names below, hereby constitute and appoint BARRY J. SHARP and
WILLIAM R. LURASCHI and each of them severally, the attorneys-in-fact of the
undersigned with full power to them and each of them to sign for and in the name
of the undersigned in the capacities indicated below the Company's Annual Report
on Form 10-K and any and all amendments and supplements thereto.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Roger W. Sant Chairman of the Board and Director January 28, 1998
- -----------------
(Roger W. Sant)
/s/ Dennis W. Bakke President, Chief Executive Officer January 28, 1998
- -------------------
(Dennis W. Bakke) and Director
/s/ Vicki-Ann Assevero Director January 28, 1998
(Vicki-Ann Assevero)
/s/ Dr. Alice F. Emerson Director January 28, 1998
- ------------------------
(Dr. Alice F. Emerson)
/s/ Frank Jungers Director January 28, 1998
(Frank Jungers)
/s/ Robert F. Hemphill, Jr. Director January 28, 1998
- ---------------------------
(Robert F. Hemphill, Jr.)
/s/ John H. McArthur Director January 28, 1998
- --------------------
(John H. McArthur)
/s/ Dr. Henry R. Linden Director January 28, 1998
- -----------------------
Dr. Henry R. Linden)
/s/ Hazel R. O'Leary Director January 28, 1998
- --------------------
(Hazel R. O'Leary)
/s/ Thomas I. Unterberg Director January 28, 1998
- -----------------------
(Thomas I. Unterberg)
/s/ Robert H. Waterman, Jr. Director January 28, 1998
- ---------------------------
(Robert H. Waterman, Jr.)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 302
<SECURITIES> 127
<RECEIVABLES> 360
<ALLOWANCES> (37)
<INVENTORY> 95
<CURRENT-ASSETS> 1190
<PP&E> 4522
<DEPRECIATION> (373)
<TOTAL-ASSETS> 8909
<CURRENT-LIABILITIES> 1204
<BONDS> 4585
550
0
<COMMON> 2
<OTHER-SE> 1479
<TOTAL-LIABILITY-AND-EQUITY> 8909
<SALES> 1361
<TOTAL-REVENUES> 1411
<CGS> 940
<TOTAL-COSTS> 1043
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 244
<INCOME-PRETAX> 263
<INCOME-TAX> 56
<INCOME-CONTINUING> 188
<DISCONTINUED> 0
<EXTRAORDINARY> 3
<CHANGES> 0
<NET-INCOME> 185
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.09
</TABLE>
