<PAGE>
FILED PURSUANT TO RULE 424B(2)
FILE NUMBER:333-81953
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 13, 1999)
14,000,000 SHARES
[GRAPHIC OMITTED]
THE AES CORPORATION
Common Stock
We are offering all of these shares of common stock and will receive all of the
net proceeds of this offering.
We are offering these shares of common stock at the same time that our
subsidiary, AES Trust III, is offering $450 million aggregate principal amount
of its trust convertible preferred securities. The trust convertible preferred
securities are convertible into shares of our common stock. Our offering of
common stock is not contingent upon the closing of the offering of the trust
convertible preferred securities.
Our common stock is listed on the New York Stock Exchange under the symbol
"AES". On October 7, 1999, the closing price for our common stock, as reported
on the NYSE, was $57.1875 per share.
See "Risk Factors" on page 3 of the accompanying prospectus for a discussion of
certain factors that you should consider before buying our common stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURRACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Initial public offering price .............. $ 57.1875 $800,625,000
Underwriting discount ...................... $ 1.6440 $ 23,016,000
Proceeds, before expenses, to AES .......... $ 55.5435 $777,609,000
</TABLE>
The underwriters may, under certain circumstances, purchase up to an additional
2,100,000 shares at the initial public offering price less the underwriting
discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on October 14, 1999.
The joint lead managers are J.P. Morgan & Co., Goldman, Sachs & Co. and Salomon
Smith Barney.
JOINT BOOK-RUNNING MANAGERS
J.P. MORGAN & CO. GOLDMAN, SACHS & CO.
----------------
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE PAINEWEBBER INCORPORATED
BANC OF AMERICA SECURITIES LLC CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS MERRILL LYNCH & CO. C.E. UNTERBERG, TOWBIN
October 7, 1999
<PAGE>
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement
Special Note on Forward-Looking
Statements .................................... S-2
The Company ..................................... S-3
Recent Developments ............................. S-3
Use of Proceeds ................................. S-5
Capitalization .................................. S-6
Selected Consolidated Financial Data ............ S-7
Common Stock Price Ranges and Dividends ......... S-8
U.S. Federal Income Tax Considerations for
Non-U.S. Holders of Common Stock .............. S-9
Underwriting .................................... S-11
Legal Matters ................................... S-12
Experts ......................................... S-12
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus
About this Prospectus ........................... 2
Risk Factors .................................... 3
Where You Can Find More Information ............. 9
Incorporation of Documents by Reference ......... 9
Special Note on Forward-Looking
Statements .................................... 9
Use of Proceeds ................................. 10
Ratio of Earnings to Fixed Charges .............. 10
The Company ..................................... 10
Description of Capital Stock .................... 11
Common Stock .................................... 11
Description of Debt Securities .................. 17
Description of Stock Purchase Contracts and Stock
Purchase Units ................................ 26
Description of Securities Warrants .............. 26
Plan of Distribution ............................ 27
Legal Matters ................................... 28
Experts ......................................... 28
</TABLE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions related to AES, including, among other things:
o changes in company-wide operation and plant availability compared to
our historical performance;
o changes in our historical operating cost structure, including changes
in various costs and expenses;
o political and economic considerations in certain non-U.S. countries
where we are conducting or seeking to conduct business;
o restrictions on foreign currency convertibility and remittance abroad,
exchange rate fluctuations and developing legal systems;
o regulation and restrictions related to our business;
o legislation intended to promote competition in U.S. and non-U.S.
electricity markets;
o tariffs;
o changes in market prices for electricity in markets where we have not
fully contracted for our electricity sales;
o governmental approval processes;
o environmental matters;
o construction, operating and fuel risks;
o load growth, dispatch and transmission constraints;
o impact of the Year 2000 issue;
o conflict of interest with contracting parties and
o adherence to our principles.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
S-2
<PAGE>
THE COMPANY
We are a global power company committed to serving the world's need for
electricity in a socially responsible way.
We have been successful in growing our business and serving additional
customers by, in part, participating in competitive bidding under privatization
initiatives. We have been particularly interested in acquiring existing
businesses or assets in electricity markets that are promoting competition and
eliminating rate of return regulation. Sellers generally seek to complete such
transactions in less than one year, much quicker than the time periods
associated with greenfield development, and usually require payment in full on
transfer. We believe that our experience in competitive markets and our
worldwide integrated group structure, with our significant geographic coverage
and presence, enable us to react quickly and creatively in these situations.
Since 1994, our total net generating capacity in megawatts or MW has grown from
2,479 MW to 28,986 MW at June 30, 1999 (an increase of 1,069%), with the total
number of plants in operation increasing from 9 to 98. Additionally, our total
revenues have increased at a compound annual growth rate of 46% from $533
million in 1994 to $2,398 million in 1998, while net income has increased at a
compound annual growth rate of 33% from $100 million to $311 million over the
same period.
Our ownership portfolio of power facilities includes new plants
constructed for such purposes, so-called greenfield plants, as well as existing
power plants acquired through competitively bid privatization initiatives and
negotiated acquisitions. In the electricity generation business, we now own and
operate (entirely or in part) a diverse portfolio of electric power plants
(including those within integrated distribution companies) with, as of June 30,
1999, net capacity of 28,986 MW. Of that total, 42% are fueled by coal or
petroleum coke, 25% are fueled by natural gas, 28% are hydroelectric facilities
and 5% are fueled by oil. A majority of our sales of electricity are made to
customers (generally electric utilities or regional electric companies), on a
wholesale basis for further resale to end users. This is referred to as the
electricity "generation" business. Sales by these generation companies are
usually made under long-term contracts from power plants owned by our
subsidiaries and affiliates, although we do, in certain circumstances, make
sales into regional electricity markets without contracts.
RECENT DEVELOPMENTS
Our recent activities evidence our accelerated pace of acquiring and
developing assets and businesses. Importantly, our activity has been worldwide
and diversified over generation, transmission, distribution, and competitive
retail services. For example:
We announced on August 18, 1999 that a subsidiary of ours reached
agreement with National Power plc for the acquisition of the Drax Power Station,
Ltd. ("Drax") for \P1.875 billion (approximately $3 billion). Drax is a 3,960 MW
coal fired power station complete with flue gas desulphurisation located on an
1800 acre site in northern England. We believe it is the largest coal-fired
plant in western Europe and generates approximately 8% of the electricity
consumed in England and Wales. The acquisition of Drax will provide a foundation
upon which we intend to build our European franchise. Completion of the
transaction is subject to a number of conditions, including the receipt of
certain regulatory approvals and the approval of the shareholders of National
Power. Closing is expected to occur later this year.
We announced on November 23, 1998, a definitive agreement to acquire all
of CILCORP's 13,610,680 common shares at a price of $65 per share, or
approximately $885 million. CILCORP is an integrated electric and gas utility
based in central Illinois that combines two coal-fired generation plants
producing an aggregate 1,157 MW of capacity and an extensive transmission and
distribution network that serves 193,000 electricity customers and 203,000 gas
customers. On August 20, 1999, we received from the Securities and Exchange
Commission an exemption to the Public Utilities Holding Company Act of 1935,
enabling us to purchase CILCORP, while maintaining our existing ownership levels
in the United States power plants developed under the auspices of the 1978
Public Utility Regulatory Policy Act. CILCORP
S-3
<PAGE>
represents our first investment in a U.S. distribution company. We plan to
close the CILCORP acquisition early in the fourth quarter of 1999.
In May 1999, we completed the acquisition of six coal-fired, electric
generating plants from NGE Generation, a subsidiary of Energy East, Inc., for
approximately $950 million. The output of these plants is currently sold into
the merchant power market.
On August 10, 1999, we announced the acquisition of 51% of Eletronet, a
Brazilian telecommunications company which owns and operates approximately 5,000
kilometers of dark fiber optic cable attached to Brazil's national electric
network, for approximately $155 million. Eletronet was created in 1998 to
construct a national broadband telecommunications network attached to the
existing national electrical transmissions grid in Brazil. This purchase price
will be paid in installments through 2002. Eletronet plans to use the proceeds
of the sale of 51% of the company to expand this network to approximately 12,000
kilometers of fiber optic cable. The fiber optic cable is intended to be sold to
other telecommunication carriers. The other 49% of Eletronet is controlled by
Lightpar, a subsidiary of state-controlled Eletrobras. This investment will
leverage into the telecommunications sector our existing operations and
experience in the Brazilian utilities market.
We announced on May 18, 1999, the acquisition of energy services provider
New Energy Ventures for approximately $90 million in cash, stock and debt. The
new subsidiary, renamed NewEnergy, was purchased from UniSource Energy and New
Energy Holdings. It was formed in 1995 to serve customers in every state where a
competitive energy market is emerging. This technology-based energy company is
active in markets throughout the U.S. NewEnergy's services include energy buying
for customers, energy efficiency services and low-cost supply of energy-related
equipment and supplies. The acquisition of NewEnergy marks our entrance into the
energy retail marketing business.
On August 24, 1999 we announced the formation of Power Direct, a new
energy services subsidiary that will provide electricity and natural gas
services to retail customers in the United States. Power Direct's principal
focus will be residential and small to mid-sized commercial energy users, and
will complement NewEnergy's focus on larger commercial and industrial customers.
We announced on August 5, 1999 the completion of the acquisition of 50%
of Empresa Distribuidora de Electricidad del Este ("EDE Este") the distribution
company providing electricity to approximately 400,000 customers in the eastern
portion of the Dominican Republic, for approximately $109 million. We believe
our investment in EDE Este complements our existing investments in the Los Mina
generating facility.
EDE Este was funded through a $340 million bridge loan with a subsidiary,
AES Texas Funding LLC (the "Texas Bridge"). The Texas Bridge is secured by a
pledge of 15.8 million shares of our common stock to the borrower. One of our
subsidiaries, AES New York Funding LLC, is party to a $300 million loan which is
also secured by a pledge of 15.6 million shares of our common stock. If the
lenders to AES Texas Funding LLC or AES New York Funding LLC foreclose on these
loans, the lenders would be entitled to register and sell the number of shares
of our common stock that would be required to repay these loans in full. The
registration and sale of such shares in the public market would likely have an
adverse effect on the market price of our common stock.
None of the financial information included herein reflects or gives
effect to the pending acquisitions described above. We cannot assure you that
these acquisitions will be consummated or will perform as expected or that the
returns from such acquisitions will support the indebtedness we will incur to
acquire them.
S-4
<PAGE>
USE OF PROCEEDS
The net proceeds (before expenses) from this offering of common stock are
estimated to be $777,609,000 ($894,250,350 if the underwriters' overallotment
option is exercised in full). We intend to use the net proceeds (1) to fund a
portion of the purchase price of CILCORP, (2) to fund a portion of the purchase
price of Drax, (3) unless we obtain a waiver, to repay a portion of the $340
million Texas Bridge and (4) for general corporate purposes. Pending such uses,
we may use a portion of the proceeds to temporarily repay amounts outstanding
under our revolving credit agreement. The revolver bears interest at a weighted
average interest rate of LIBOR plus 2% and matures in December 2000. As of
September 24, 1999, $122 million was outstanding under the revolver.
AES Trust III is concurrently offering 9,000,000 of its preferred
securities. The proceeds (before expenses) to AES Trust III from the offering of
preferred securities are estimated to be $450 million ($517.5 million if the
underwriters' overallotment option is exercised in full) and will be invested by
AES Trust III in our junior subordinated debt securities. We intend to use the
net proceeds from the concurrent preferred securities offering (1) to fund a
portion of the purchase price for the Drax power station, (2) unless we obtain a
waiver, to repay a portion of the $340 million Texas Bridge and (3) for general
corporate purposes.
We expect to fund the remainder of the Drax and CILCORP acquisitions
through a combination of non-recourse project financing and additional debt
financing by AES. None of the foregoing sources of funds is committed.
Accordingly, we cannot assure you that such sources or any other sources will be
available on favorable terms or at all.
The offerings of common stock and preferred securities are not
conditioned on each other or conditioned on the consummation of the acquisition
of Drax or CILCORP and accordingly, if these acquisitions are not consummated,
we will use the net proceeds that would have been used for such acquisitions for
general corporate purposes.
One of our subsidiaries, AES Texas Funding LLC, is party to the $340
million Texas Bridge with an affiliate of Salomon Smith Barney Inc., as agent
and a lender, which is required to be prepaid out of the proceeds of certain
debt and equity issuances by us, including the issuance of common stock in this
offering and the concurrent offering of the preferred securities. We may seek a
waiver of the prepayment provision from the lenders under the Texas Bridge. If
we do not obtain this waiver, we will use up to $340 million of the net proceeds
of this offering to repay amounts outstanding under the Texas Bridge. The Texas
Bridge bears interest at a rate of LIBOR plus 2.75% and matures on March 6,
2000. Borrowings under the Texas Bridge were used to fund the purchase price of
EDE Este, a portion of the purchase price of Eletronet and for general corporate
purposes.
S-5
<PAGE>
CAPITALIZATION
The following table sets forth our short-term debt and our consolidated
capitalization as of June 30, 1999, and as adjusted to give effect to the
issuance of 14,000,000 shares of common stock in this offering and the
concurrent issuance of 9,000,000 preferred securities in the offering by AES
Trust III, but not giving effect to the application of any proceeds therefrom or
any overallotment options. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------
ACTUAL AS ADJUSTED
------------- ------------
IN MILLIONS, EXCEPT PAR
VALUE
<S> <C> <C>
SHORT-TERM DEBT:
Project financing debt (current portion) ................................. $ 676 $ 676
Revolving bank loan (current portion) .................................... -- --
-------- --------
Total short-term debt ................................................. $ 676 $ 676
======== ========
LONG-TERM DEBT:
Revolving bank loan ...................................................... $ 60 $ 60
Project financing debt ................................................... 4,687 4,687
9 1/2% Senior Notes due 2009 ............................................. 500 500
8% Senior Notes due 2008 ................................................. 200 200
10 1/4% Senior Subordinated Notes due 2006 ............................... 250 250
8 3/8% Senior Subordinated Notes due 2007 ................................ 325 325
8 1/2% Senior Subordinated Notes due 2007 ................................ 375 375
8 7/8% Senior Subordinated Debentures due 2027 ........................... 125 125
4 1/2% Convertible Junior Subordinated Debentures due 2005 ............... 150 150
Unamortized discounts on notes and debentures ............................ (6) (6)
-------- --------
Total long-term debt .................................................. 6,666 6,666
-------- --------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF THE AES CORPORATION ....................................... 550 1,000
-------- --------
MINORITY INTEREST ........................................................ 773 773
-------- --------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value: 500 shares authorized; 191 shares issued and
outstanding (205 on an as adjusted basis) ............................... 2 2
Additional paid-in capital ............................................... 1,757 2,535
Retained earnings ........................................................ 950 950
Accumulated other comprehensive loss ..................................... (1,195) (1,195)
-------- ---------
Total stockholders' equity ............................................ 1,514 2,292
-------- ---------
Total capitalization .................................................. $ 9,503 $10,731
======== =========
</TABLE>
S-6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data, which should be read in conjunction with our consolidated financial
statements and related notes to the consolidated financial statements
incorporated by reference in this prospectus supplement. The selected
consolidated financial data as of and for each of the five years in the period
ended December 31, 1998 have been derived from our audited consolidated
financial statements. The selected consolidated financial data presented below
as of June 30, 1998 and 1999 are derived from our unaudited consolidated
financial statements. The results of operations for the six months ended June
30, 1999 are not necessarily indicative of the results to be expected for the
full year. We believe that the unaudited information for the six months ended
June 30, 1998 and 1999 contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the operating
results for such periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ------------ ------------
IN MILLIONS, EXCEPT RATIO AND PER SHARE DATA
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales ......................................... $ 514 $ 672 $ 824 $ 1,361 $ 2,382
Services ...................................... 19 7 11 50 16
--------- --------- --------- -------- --------
Total revenues .............................. 533 679 835 1,411 2,398
--------- --------- --------- -------- --------
Operating cost and expenses:
Cost of sales ................................. 252 388 495 940 1,579
Cost of services .............................. 13 6 7 41 8
Selling, general and administrative
expenses .................................... 32 32 35 45 56
Provision to reduce contract receivables. -- -- 20 17 22
--------- --------- --------- -------- --------
Total operating costs and expenses .......... 297 426 557 1,043 1,665
--------- --------- --------- -------- --------
Operating income ............................... 236 253 278 368 733
Other income and (expense):
Interest expense .............................. (125) (127) (144) (244) (485)
Foreign currency exchange (loss) .............. -- -- -- (7) (1)
Interest income ............................... 22 27 24 41 67
Equity in pre-tax earnings (loss) of
affiliates .................................. 18 22 49 126 232
--------- --------- --------- --------- ----------
Income before income taxes, minority
interest and extraordinary item ............... 151 175 207 284 546
Income tax provision ........................... 50 65 74 77 145
Minority interest .............................. 3 3 8 19 94
--------- --------- --------- --------- ----------
Net income before extraordinary item ........... 98 107 125 188 307
Extraordinary item ............................. 2 -- -- (3) 4
--------- --------- --------- --------- ----------
Net income ..................................... $ 100 $ 107 $ 125 $ 185 $ 311
========= ========= ========= ========= ==========
Diluted earnings per share ..................... $ 0.67 $ 0.70 $ 0.80 $ 1.09 $ 1.69
========= ========= ========= ========= ==========
Weighted average number of common and
potential common shares ....................... 155.4 155.7 157.2 177.8 189.0
Ratio of earnings to fixed charges (1) ......... 2.10 x 2.20 x 1.88 x 1.46 x 1.65 x
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------
1998 1999
----------- ------------
IN MILLIONS, EXCEPT RATIO
AND PER SHARE DATA
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales ......................................... $ 1,132 $ 1,266
Services ...................................... 8 12
--------- --------
Total revenues .............................. 1,140 1,278
--------- --------
Operating cost and expenses:
Cost of sales ................................. 777 825
Cost of services .............................. 5 5
Selling, general and administrative
expenses .................................... 27 31
Provision to reduce contract receivables. 15 --
--------- --------
Total operating costs and expenses .......... 824 861
--------- --------
Operating income ............................... 316 417
Other income and (expense):
Interest expense .............................. (202) (276)
Foreign currency exchange (loss) .............. -- (2)
Interest income ............................... 31 33
Equity in pre-tax earnings (loss) of
affiliates .................................. 100 (54)
--------- ----------
Income before income taxes, minority
interest and extraordinary item ............... 245 118
Income tax provision ........................... 69 28
Minority interest .............................. 40 32
--------- ----------
Net income before extraordinary item ........... 136 58
Extraordinary item ............................. -- --
--------- ----------
Net income ..................................... $ 136 $ 58
========= ==========
Diluted earnings per share ..................... $ 0.75 $ 0.31
========= ==========
Weighted average number of common and
potential common shares ....................... 187.2 188.6
Ratio of earnings to fixed charges (1) ......... 1.71x 1.56x
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
-------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------- ---------- ----------
IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ............................... $1,915 $2,341 $3,622 $8,909 $10,781 $10,464 $11,243
Revolving bank loan (current) .............. -- 50 88 -- 8 174 --
Project financing debt (current) ........... 61 84 110 596 1,405 599 676
Revolving bank loan (long-term) ............ -- -- 125 27 225 225 60
Project financing debt (long-term) ......... 1,019 1,098 1,558 3,489 3,597 4,560 4,687
Other notes payable (long-term) ............ 125 125 325 1,069 1,419 1,069 1,919
Company-obligated mandatorily
redeemable convertible preferred
securities of subsidiary trusts
(TECONS) .................................. -- -- -- 550 550 550 550
Minority interest .......................... 21 158 213 525 732 646 773
Stockholders' equity ....................... 401 549 721 1,481 1,794 1,532 1,514
</TABLE>
- ---------------------
(1) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes
and minority interest, plus fixed charges, less capitalized interest, less
excess of earnings over dividends of less-than-fifty-percent-owned
companies. Fixed charges consist of interest (including capitalized
interest) on all indebtedness, amortization of debt discount and expense and
that portion of rental expense which AES believes to be representative of an
interest factor.
COMMON STOCK PRICE RANGES AND DIVIDENDS
Our common stock began trading on the New York Stock Exchange on October
16, 1996 under the symbol "AES". The following table sets forth for the periods
indicated the high and low sale prices for our common stock as reported on the
NYSE Composite Tape. In July 1997, we announced a two-for-one stock split, for
holders of record on July 28, 1997 which was paid on August 28, 1997. The prices
set forth below reflect adjustment for such stock split.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
1997
- ----
First Quarter ................................... $34.13 $22.38
Second Quarter .................................. 37.75 27.50
Third Quarter ................................... 45.25 34.63
Fourth Quarter .................................. 49.63 35.00
1998
- ----
First Quarter ................................... $54.31 $39.38
Second Quarter .................................. 58.00 45.63
Third Quarter ................................... 55.38 23.00
Fourth Quarter .................................. 47.38 32.00
1999
- ----
First Quarter ................................... $49.25 $32.81
Second Quarter .................................. 59.75 36.75
Third Quarter (through October 7, 1999) ......... 66.69 53.06
</TABLE>
No cash dividends have been paid on our common stock since December 22,
1993.
Our ability to declare and pay dividends, if any, is dependent, among
other things, on:
o the ability of our project subsidiaries to declare and pay dividends
and otherwise distribute cash to us;
S-8
<PAGE>
o our ability to service our parent company debt and
o our ability to meet certain criteria for paying dividends under our
corporate credit facility and under existing indentures of our debt
securities.
U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of our common stock by
a beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is
a person or entity that, for U.S. federal income tax purposes, is a
non-resident alien individual, a foreign corporation or a foreign estate or
trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders (including Non-U.S. Holders
who are pass-through entities) in light of their particular circumstances and
does not address any tax consequences arising under the laws of any state, local
or foreign jurisdiction. Prospective holders should consult their tax advisors
with respect to the particular tax consequences to them of owning and disposing
of our common stock, including the consequences under the laws of any state,
local or foreign jurisdiction.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Common Stock generally will be subject to withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. For purposes
of determining whether tax is to be withheld at a 30% rate or at a reduced rate
as specified by an income tax treaty, we ordinarily will presume that dividends
paid on or before December 31, 2000 to an address in a foreign country are paid
to a resident of such country absent knowledge that such presumption is not
warranted.
Under U.S. Treasury Regulations issued on October 6, 1997, which are
applicable to dividends paid after December 31, 2000 (the "New Regulations"), in
order to obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder
would generally be required to provide an Internal Revenue Service Form W-8
certifying such Non-U.S. Holder's entitlement to benefits under a treaty. The
New Regulations also provide, among others, special rules to determine whether,
for purposes of determining the applicability of a tax treaty, dividends paid to
a Non-U.S. Holder that is an entity should be treated as paid to the entity or
those holding an interest in that entity.
There will be no withholding tax on dividends paid to a Non-U.S. Holder
that are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the U.S. if a Form 4224 stating that the dividends are so
connected is filed with the Company or its paying agent. Instead, the
effectively connected dividends will be subject to regular U.S. income tax in
the same manner as if the Non-U.S. Holder were a U.S. resident unless a specific
treaty exemption applies. A non-U.S. corporation receiving effectively connected
dividends may also be subject to an additional "branch profits tax" which is
imposed, under certain circumstances, at a rate of 30% (or such lower rate as
may be specified by an applicable treaty) of the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.
Under the New Regulations, Form W-8 will replace Form 4224.
Generally, we must report to the U.S. Internal Revenue Service the amount
of dividends paid, the name and address of the recipient, and the amount, if
any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.
Dividends paid to a Non-U.S. Holder at an address within the U.S. may be
subject to
S-9
<PAGE>
backup withholding imposed at a rate of 31% if the Non-U.S. Holder fails to
establish that it is entitled to an exemption or to provide a correct taxpayer
identification number and certain other information to us or our paying agent.
Under current United States federal income tax law, backup withholding (imposed
at a rate of 31%) generally will not apply to dividends paid on or before
December 31, 2000 to a Non-U.S. Holder at an address outside the United States
(unless the payer has knowledge that the payee is a U.S. person). Under the New
Regulations, however, a Non-U.S. Holder will be subject to backup withholding
unless applicable certification requirements are met.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to U.S. federal income
tax with respect to gain realized on a sale or other disposition of common stock
unless (1) the gain is effectively connected with a trade or business of such
holder in the U.S., (2) in the case of certain Non-U.S. Holders who are
non-resident alien individuals and who hold the Common Stock as a capital asset,
such individuals are present in the United States for 183 or more days in the
taxable year of the disposition, (3) the Non-U.S. Holder is subject to tax
pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (4) the Company is or has been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period.
We believe that it is unlikely that it is, or will be treated as, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code. Even if we are treated as a United States real property
holding corporation, gain realized by a Non-U.S. Holder on a disposition of our
common stock will not be subject to a U.S. federal income tax so long as (1)
such Non-U.S. Holder is deemed to have beneficially owned less than or equal to
5% of the Common Stock and (2) our common stock is currently, and will be at the
time of disposition, "regularly traded" on an established securities market
(within the meaning of Section 897(c)(3) of the Code and the temporary Treasury
Regulations thereunder). There can be no assurance that our common stock
qualifies or will continue to qualify as "regularly traded" on an established
securities market.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of our common stock effected by or through a U.S. office of a broker
unless the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the U.S. through a non-U.S. office of a non-U.S.
broker. However, U.S. information reporting requirements (but not backup
withholding) will apply to a payment of disposition proceeds where the
transaction is effected outside the U.S. by or through an office outside the
U.S. of a broker that is either (1) a U.S. person, (2) a foreign person which
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the U.S., (3) a "controlled foreign corporation" for U.S.
federal income tax purposes, or (4) in the case of payments made after December
31, 2000, a foreign partnership with certain connections to the United States,
in each case unless the broker has documentary evidence that the holder is a
Non-U.S. Holder and that certain conditions are met or that the holder otherwise
establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of, or has
made certain lifetime transfers of, an interest in our common stock will be
required to include the value thereof in his gross estate for U.S. federal
estate tax purposes, and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise.
S-10
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, the underwriters named below have severally agreed to purchase, and
we have agreed to sell each underwriter, the number of shares of common stock
set forth opposite their name below:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
------------
<S> <C>
J.P. Morgan Securities Inc. ............ 3,657,500
Goldman, Sachs & Co. ................... 3,657,500
Salomon Smith Barney Inc. .............. 2,660,000
Donaldson, Lufkin & Jenrette
Securities Corporation .............. 1,128,750
PaineWebber Incorporated ............... 1,128,750
Banc of America Securities LLC ......... 269,500
Credit Suisse First Boston
Corporation ......................... 269,500
Lehman Brothers Inc. ................... 269,500
Merrill Lynch, Pierce, Fenner &
Smith Incorporated .................. 269,500
C.E. Unterberg, Towbin ................. 269,500
Deutsche Bank Securities Inc. .......... 84,000
Dresdner Kleinwort Benson North
America LLC ......................... 84,000
Schroder & Co. Inc. .................... 84,000
Scott & Stringfellow, Inc. ............. 84,000
Warburg Dillon Read LLC ................ 84,000
---------
Total ......................... 14,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase our common stock included in this offering are subject
to approval of certain legal matters by counsel and other conditions. The
underwriters are obligated to take and pay for all of the shares of common stock
(other than those covered by the overallotment option described below) if any
are taken.
The underwriters have advised us that they propose initially to offer
such shares of common stock to the public at the price to public set forth on
the cover page of this prospectus supplement. After the initial public offering,
the public offering price may be changed.
We have granted to the underwriters an option, exercisable for 30 days
from the date hereof, to purchase up to an additional 2,100,000 shares of common
stock at the price to public less the underwriting discount set forth on the
cover page of this prospectus supplement. The underwriters may exercise such
option to purchase solely for the purpose of covering overallotments, if any,
made in connection with the offering.
We and certain of our directors and executive officers are agreeing that,
with certain exceptions (including issuances by us as consideration for
acquisitions or as collateral for loans related to certain acquisitions or
pursuant to the exercise or conversion of outstanding securities), without the
prior written consent of J.P. Morgan Securities Inc. and Goldman, Sachs & Co.,
we and certain of our directors and executive officers will not, directly or
indirectly, offer to sell, contract to sell, sell or otherwise dispose of, or
announce the offering of any shares of common stock or securities convertible
into or exchangeable or exercisable for shares of common stock, for a period of
90 days after the date of the underwriting agreement, provided that beginning 30
days after the date of the underwriting agreement, such officers and directors
may sell limited amounts of shares per day up to a total of 500,000 shares
(taken in the aggregate and as a group).
We have agreed to indemnify the underwriters against, or contribute to
payments that the underwriters may be required to make in respect of, certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The underwriters may engage in stabilizing transactions, syndicate
covering transactions and penalty bids in accordance with Rule 104 under the
Securities Exchange Act of 1934, as amended, in connection with the offering.
Stabilizing transactions permit bids to purchase the common stock so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the common stock in the open market following
completion of the offering to cover all or a portion of a syndicate short
position created by the underwriters selling more shares of common stock in
connection with the offering than they are committed to purchase from us. In
addition, the underwriters may impose "penalty bids" under contractual
arrangements between the underwriters and dealers participating in the offering
whereby they may reclaim from a dealer participating in the offering the selling
concession with respect to
S-11
<PAGE>
shares of common stock that are distributed in the offering but subsequently
purchased for the account of the underwriters in the open market. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
result in the maintenance of the price of the common stock at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required and, if any are undertaken, they may be
discontinued at any time.
Certain of the underwriters in this offering are acting as underwriters
in the preferred securities offering. In the ordinary course of the
underwriters' respective businesses, the underwriters and their affiliates have
engaged and may engage in commercial and investment banking transactions with us
and our affiliates.
In particular, an affiliate of Salomon Smith Barney Inc. is the agent and
a lender under the Texas Bridge and will receive a portion of the net proceeds
of the offering if amounts are repaid thereunder. See "Use of Proceeds." Because
more than 10% of the net proceeds of this offering may be paid to an affiliate
of an underwriter, the offering is being conducted in accordance with Rule
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc.
Frank Jungers, an Advisory Director for an affiliate of Donaldson, Lufkin
& Jenrette Securities Corporation, one of the underwriters, is also a director
and stockholder of AES. Mr. Jungers beneficially owns 1,117,591 shares of the
common stock.
Thomas I. Unterberg, a Managing Director of C.E. Unterberg, Towbin, one
of the underwriters, is also a member of AES' board of directors. Mr. Unterberg
currently beneficially owns 1,267,019 shares of the common stock.
LEGAL MATTERS
The validity of the shares offered hereby and certain matters relating
thereto and certain U.S. federal income taxation matters will be passed upon for
us by Davis Polk & Wardwell, New York, New York. Certain legal matters will be
passed upon for the underwriters by Cahill Gordon & Reindel (a partnership
including a professional corporation), New York, New York.
EXPERTS
See "Experts" in the accompanying prospectus.
S-12
<PAGE>
P R O S P E C T U S
$2,500,000,000
[GRAPHIC OMITTED]
THE AES CORPORATION
Debt Securities, Preferred Stock, Depositary Shares,
Common Stock, Stock Purchase Contracts,
Stock Purchase Units and Warrants
------------------
We will offer debt securities, preferred stock, depositary shares, common
stock, stock purchase contracts, stock purchase units or warrants from time to
time. Specific terms of these securities will be provided in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest.
------------------
Our common stock trades on the New York Stock Exchange under the symbol
"AES".
------------------
INVESTING IN THESE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
The date of this prospectus is July 13, 1999.
<PAGE>
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of this prospectus.
--------------------------------------
TABLE OF CONTENTS
--------------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
About this Prospectus ............................ 2
Risk Factors ..................................... 3
Where You Can Find More Information .............. 9
Incorporation of Documents by Reference .......... 9
Special Note on Forward-Looking
Statements .................................... 9
Use of Proceeds .................................. 10
Ratio of Earnings to Fixed Charges ............... 10
The Company ...................................... 10
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Description of Capital Stock ..................... 11
Description of Debt Securities ................... 17
Description of Stock Purchase Contracts and
Stock Purchase Units .......................... 26
Description of Securities Warrants ............... 26
Plan of Distribution ............................. 27
Legal Matters .................................... 28
Experts .......................................... 28
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total dollar
amount of $2,500,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may also add, update
or change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement together with additional information
described under the heading WHERE YOU CAN FIND MORE INFORMATION.
2
<PAGE>
RISK FACTORS
Purchasers of the Securities should read this entire Prospectus
carefully. Ownership of the Securities involves certain risks. The following
factors should be considered carefully in evaluating AES and its business before
purchasing the Securities offered by this Prospectus.
Our high degree of leverage could affect our ability to fulfill our
obligations under our securities. We had approximately $6,800 million of
outstanding indebtedness at March 31, 1999. As a result, we might be
significantly limited in our ability to meet our debt service obligations, to
finance the acquisition and development of additional projects, to compete
effectively or to operate successfully under adverse economic conditions. As of
March 31, 1999, we had a consolidated ratio of total debt to total book
capitalization (including current debt) of approximately 74%.
Holders of our Debt Securities will be subordinated to many of our other
creditors. The Senior Subordinated Debt Securities will be subordinated to all
Senior Debt, including, but not limited to, the amounts outstanding under our
current $600 million revolving credit facility. The Junior Subordinated Debt
Securities will be subordinated to all Senior and Senior Subordinated Debt of
the Company, including, but not limited to, the amounts outstanding under our
current $600 million revolving credit facility. As of March 31, 1999, we had
approximately $617 million in aggregate principal amount of Senior Debt and
$1,686 million in aggregate principal amount of Senior and Senior Subordinated
Debt.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency, or similar proceedings, the holders of Senior Debt will
be entitled to receive payment in full of all amounts due under all Senior Debt
before the holders of the Senior Subordinated Debt Securities will be entitled
to receive any payment in respect of the Senior Subordinated Debt Securities;
holders of Senior and Senior Subordinated Debt will be entitled to receive
payment in full of all amounts due under all Senior and Senior Subordinated Debt
before the holders of the Junior Subordinated Debt Securities will be entitled
to receive any payment in respect of the Junior Subordinated Debt Securities.
No payments in respect of the Senior Subordinated Debt Securities or
Junior Subordinated Debt Securities may be made if
o a default has occurred and is continuing in a payment under the Senior
Debt or Senior and Senior Subordinated Debt, respectively, or
o during certain periods when an event of default under certain Senior
Debt or Senior and Senior Subordinated Debt, respectively, permits the
respective lenders thereunder to accelerate the maturity thereof.
See "Description of Debt Securities -- Subordination of Senior
Subordinated Debt Securities" and "Description of Debt Securities --
Subordination of Junior Subordinated Debt Securities."
The Debt Securities will be effectively subordinated to the indebtedness
and other obligations (including trade payables) of our subsidiaries. At March
31, 1999, the indebtedness and obligations of our subsidiaries aggregated
approximately $5,213 million. Our ability to pay principal of, premium, if any,
and interest on the Debt Securities will be dependent upon the receipt of funds
from our subsidiaries by way of dividends, fees, interest, loans or otherwise.
Most of our subsidiaries with interests in power generation facilities currently
have in place, and the Indentures for the Debt Securities will, except to the
extent any prospectus supplement provides otherwise, permit our subsidiaries to
enter into, arrangements that restrict their ability to make distributions to us
by way of dividends, fees, interest, loans or otherwise. Our subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Debt Securities or to make any
funds available therefor, whether by dividends, loans or other payments, and do
not guarantee the payment of interest on or principal of the Debt Securities.
Any right we have to receive any assets of any of our subsidiaries upon any
liquidation, dissolution,
3
<PAGE>
winding up, receivership, reorganization, assignment for the benefit of
creditors, marshaling of assets and liabilities or any bankruptcy, insolvency or
similar proceedings (and the consequent right of the holders of the Debt
Securities to participate in the distribution of, or to realize proceeds from,
those assets) will be effectively subordinated to the claims of any such
subsidiary's creditors (including trade creditors and holders of debt issued by
such subsidiary).
We do a significant amount of our business outside the United States
which presents significant risks. Our involvement in the development of new
projects and the acquisition of existing plants in locations outside the United
States is increasing and most of our current development and acquisition
activities are for projects and plants outside the United States. We have
ownership interests in 104 power plants in operation or under construction, 87
of these are outside of the United States.
The financing, development and operation of projects outside the United
States entail significant political and financial uncertainties (including,
without limitation, uncertainties associated with first-time privatization
efforts in the countries involved, currency exchange rate fluctuations, currency
repatriation restrictions, currency inconvertibility, political instability,
civil unrest, and expropriation) and other credit quality, liquidity or
structuring issues that have the potential to cause substantial delays in
respect of or material impairment of the value of the project being developed or
operated, which we may not be capable of fully insuring or hedging against. The
ability to obtain financing on a commercially acceptable non-recourse basis in
developing nations may also require us to make higher investments than
historically have been the case. In addition, financing in countries with less
than investment grade sovereign credit ratings may also require substantial
participation by multilateral financing agencies. There can be no assurance that
such financing can be obtained when needed.
The uncertainty of the legal environment in certain countries in which we
are or in the future may be developing, constructing or operating could make it
more difficult for us to enforce our respective rights under agreements relating
to such projects. In addition, the laws and regulations of certain countries may
limit our ability to hold a majority interest in some of the projects that we
may develop or acquire. International projects we own may, in certain cases, be
expropriated by applicable governments. Although we may have legal recourse in
enforcing our rights under agreements and recovering damages for breaches
thereof, there can be no assurance that any such legal proceedings will be
successful.
Global competition is increasing and could adversely affect us. The
global power production market is characterized by numerous strong and capable
competitors, many of whom may have extensive and diversified developmental or
operating experience (including both domestic and international experience) and
financial resources similar to or greater than ours. Further, in recent years,
the power production industry has been characterized by strong and increasing
competition with respect to both obtaining power sales agreements and acquiring
existing power generation assets. In certain markets, these factors have caused
reductions in prices contained in new power sales agreements and, in many cases,
have caused higher acquisition prices for existing assets through competitive
bidding practices. The evolution of competitive electricity markets and the
development of highly efficient gas-fired power plants have also caused, or are
anticipated to cause, price pressure in certain power markets where we sell or
intend to sell power. There can be no assurance that the foregoing competitive
factors will not have a material adverse effect on us.
Development Uncertainties. The majority of the projects that we develop
are large and complex and the completion of any such project is subject to
substantial risks. Development can require us to expend significant sums for
preliminary engineering, permitting, legal and other expenses in preparation for
competitive bids which we may not win or before it can be determined whether a
project is feasible, economically attractive or capable of being financed.
Successful development and construction is contingent upon, among other things,
negotiation of satisfactory engineering, construction, fuel supply and power
sales contracts with other project participants, receipt of required
governmental permits and consents and timely implementation and satisfactory
completion of construction. There can be no assurance that we will be able to
obtain new
4
<PAGE>
power sales contracts, overcome local opposition, if any, obtain the necessary
site agreements, fuel supply and ash disposal agreements, construction
contracts, steam sales contracts, licenses and certifications, environmental and
other permits and financing commitments necessary for the successful development
of its projects. There can be no assurance that development efforts on any
particular project, or our efforts generally, will be successful. If these
development efforts are not successful, we may abandon a project under
development. At the time of abandonment, we would expense all capitalized
development costs incurred in connection therewith and could incur additional
losses associated with any related contingent liabilities. Our future growth is
dependent, in part, upon the demand for significant amounts of additional
electrical generating capacity and our ability to obtain contracts to supply
portions of this capacity. Any material unremedied delay in, or unsatisfactory
completion of, construction of our projects could, under certain circumstances,
have an adverse effect on our ability to meet our obligations, including the
payment of principal of, premium, if any, and interest on Debt Securities. We
may also be faced with certain development uncertainties arising out of doing
business outside of the United States. See "--We do a significant amount of our
business outside the United States which presents significant risks."
Our acquisitions may not perform as expected. We have achieved a majority
of our growth through acquisitions and expect that we will continue to grow, in
part, through acquisitions. Although each of the acquired businesses had a
significant operating history at the time we acquired them, we have a limited
history of owning and operating many of these businesses. In addition, most of
these businesses were government owned and some were operated as part of a
larger integrated utility prior to their acquisition. There can be no assurances
that we will be successful in transitioning these to private ownership, that
such businesses will perform as expected or that the returns from such
businesses will support the indebtedness incurred to acquire them or the capital
expenditures needed to develop them.
We may not be able to raise sufficient capital to fund future
acquisitions and projects. Each of our projects under development and those
independent power facilities we may seek to acquire may require substantial
capital investment. Continued access to capital with acceptable terms is
necessary to assure the success of future projects and acquisitions. We have
utilized project financing loans to fund the capital expenditures associated
with constructing and acquiring our electric power plants and related assets to
the extent possible. Project financing borrowings have been substantially
non-recourse to our other subsidiaries and affiliates and to us as the parent
company and are generally secured by the capital stock, physical assets,
contracts and cash flow of the related project subsidiary or affiliate. We
intend to continue to seek, where possible, such non-recourse project financing.
However, depending on market conditions and the unique characteristics of
individual projects, such financing may not be available or our traditional
providers of project financing, particularly multinational commercial banks, may
seek higher borrowing spreads and increased equity contributions.
Furthermore, because of the reluctance of commercial lending institutions
to provide non-recourse project financing (including financial guarantees) in
certain less developed economies, we have sought and will continue to seek, in
such locations, direct or indirect (through credit support or guarantees)
project financing from a limited number of multilateral or bilateral
international financial institutions or agencies. As a precondition to making
such project financing available, these institutions may also require
governmental guarantees of certain project and sovereign related risks.
Depending on the policies of specific governments, such guarantees may not be
offered and as a result, we may determine that sufficient financing will
ultimately not be available to fund the related project.
In addition to the project financing loans, if available, we provide a
portion, or in certain instances all, of the remaining long-term financing
required to fund development, construction, or acquisition. These investments
have generally taken the form of equity investments or loans, which are
subordinated to the project financing loans. The funds for these investments
have been provided by cash flows from operations and by the proceeds from
borrowings under our short-term credit facilities and issuances of senior
subordinated notes, convertible debentures and common stock.
5
<PAGE>
Our ability to arrange for financing on either a fully recourse or a
substantially non-recourse basis and the costs of such capital are dependent on
numerous factors, including general economic and capital market conditions, the
availability of bank credit, investor confidence, the continued success of
current projects and provisions of tax and securities laws which are conducive
to raising capital in this manner. Should future access to capital not be
available, we may decide not to build new plants or acquire existing facilities.
While a decision not to build new plants or acquire existing facilities would
not affect the results of operations of our currently operating facilities or
facilities under construction, such a decision would affect our future growth.
Our performance is dependent to a large degree on certain of our larger
projects and their utility customers. The nature of most of our power projects
is such that each facility generally relies on one power sales contract with a
single customer for the majority, if not all, of its revenues over the life of
the power sales contract. The prolonged failure of any one utility customer to
fulfill its contractual obligations could have a substantial negative impact on
our primary source of revenues. We have sought to reduce this risk in part by
entering into power sales contracts with utilities or other customers of strong
credit quality and by locating its plants in different geographic areas in order
to mitigate the effects of regional economic downturns.
We are subject to significant government regulation. Our cogeneration
operations in the United States are subject to the provisions of various laws
and regulations, including the Public Utility Regulatory Policies Act of 1978,
as amended ("PURPA") and the Public Utility Holding Company Act, as amended
("PUHCA"). PURPA provides to qualifying facilities ("QFs") certain exemptions
from substantial federal and state legislation, including regulation as public
utilities. PUHCA regulates public utility holding companies and their
subsidiaries. We are not and will not be subject to regulation as a holding
company under PUHCA as long as the domestic power plants we own are QFs under
PURPA. QF status is conditioned on meeting certain criteria, and would be
jeopardized, for example, by the loss of a steam customer. We believe that, upon
the occurrence of an event that would threaten the QF status of one of our
domestic plants, we would be able to react in a manner that would avoid the loss
of QF status (such as by replacing the steam customer). In the event we were
unable to avoid the loss of such status for one of our plants, to avoid public
utility holding company status, we could apply to the Federal Energy Regulatory
Commission ("FERC") to obtain status as an Exempt Wholesale Generator ("EWG"),
or could restructure the ownership of the project subsidiary. EWGs, however, are
subject to broader regulation by FERC and may be subject to state public utility
commissions regulation regarding non-rate matters. In addition, any
restructuring of a project subsidiary could result in, among other things, a
reduced financial interest in such subsidiary, which could result in a gain or
loss on the sale of the interest in such subsidiary, the removal of such
subsidiary from our consolidated income tax group or our consolidated financial
statements, or an increase or decrease in our results of operations.
The United States Congress is considering proposed legislation which
would repeal PURPA entirely, or at least repeal the obligation of utilities to
purchase from QFs. There is strong support for grandfathering existing QF
contracts if such legislation is passed, and also support for requiring
utilities to conduct competitive bidding for new electric generation if the
PURPA purchase obligation is eliminated. Various bills have also proposed repeal
of PUHCA. Repeal of PUHCA would allow both independent power producers and
vertically integrated utilities to acquire retail utilities in the United States
that are geographically widespread, as opposed to the current limitations of
PUHCA which require that retail electric systems be capable of physical
integration. In addition, registered holding companies would be free to acquire
non-utility businesses, which they may not do now, with certain limited
exceptions. In the event of a PUHCA repeal, competition for independent power
generators from vertically integrated utilities would likely increase. Repeal of
PURPA and/or PUHCA may or may not be part of comprehensive legislation to
restructure the electric utility industry, allow retail competition, and
deregulate most electric rates. The effect of any such repeal cannot be
predicted, although any such repeal could have a material adverse effect on us.
Pending electric utility industry restructuring proposals could have an
adverse effect on us.
6
<PAGE>
The FERC and many state utility commissions are currently studying a number of
proposals to restructure the electric utility industry in the United States.
Such restructuring would permit utility customers to choose their utility
supplier in a competitive electric energy market. The FERC issued a final rule
in April 1996 which requires utilities to offer wholesale customers and
suppliers open access on utility transmission lines, on a comparable basis to
the utilities' own use of the lines. The final rule is subject to rehearing and
may become the subject of court litigation. Many utilities have already filed
"open access" tariffs. The utilities contend that they should recover from
departing customers their fixed costs that will be "stranded" by the ability of
their wholesale customers (and perhaps eventually, their retail customers) to
choose new electric power suppliers. The FERC final rule endorses the recovery
of legitimate and verifiable "stranded costs." These may include the costs
utilities are required to pay under many QF contracts which the utilities view
as excessive when compared with current market prices. Many utilities are
therefore seeking ways to lower these contract prices or rescind the contracts
altogether, out of concern that their shareholders will be required to bear all
or part of such "stranded" costs. Some utilities have engaged in litigation
against QFs to achieve these ends.
In addition, future United States electric rates may be deregulated in a
restructured United States electric utility industry and increased competition
may result in lower rates and less profit for United States electricity sellers.
Falling electricity prices and uncertainty as to the future structure of the
industry is inhibiting United States utilities from entering into long-term
power purchase contracts. The effect on us of any such restructuring cannot be
predicted, although any such restructuring could have a material adverse effect
on us.
From time to time we are subject to material litigation and regulatory
proceedings. From time to time, we and our affiliates are parties to litigation
and regulatory proceedings. Investors should review the descriptions of such
matters contained in our Annual, Quarterly and Current Reports filed with the
Commission and incorporated by reference herein. There can be no assurances that
the outcome of such matters will not have a material adverse effect on our
consolidated financial position.
Our business is subject to stringent environmental regulations. Our
activities are subject to stringent environmental regulation by federal, state,
local and foreign governmental authorities. For example, the United States Clean
Air Act Amendments of 1990 impose more stringent standards than those previously
in effect, and require states to impose permit fees on certain emissions.
Congress and other foreign governmental authorities also may consider proposals
to restrict or tax certain emissions. These proposals, if adopted, could impose
additional costs on the operation of our power plants. There can be no assurance
that we would be able to recover all or any increased costs from our customers
or that our business, financial condition or results of operations would not be
materially and adversely affected by future changes in domestic or foreign
environmental laws and regulations. We have made and will continue to make
capital and other expenditures to comply with environmental laws and
regulations. There can be no assurance that such expenditures will not have a
material adverse effect on our financial condition or results of operations.
Our directors and officers have significant ownership interests in us and
can exert significant influence or control over matters requiring stockholder
approval. As of February 2, 1999, our two founders, Roger W. Sant and Dennis W.
Bakke, and their immediate families together owned beneficially approximately
21.7% of our outstanding Common Stock. As a result of their ownership interests,
Messrs. Sant and Bakke may be able to significantly influence or exert control
over our affairs, including the election of our directors. As of February 2,
1999, all of our officers and directors and their immediate families together
owned beneficially approximately 29.1% of our outstanding Common Stock. To the
extent that they decide to vote together, these stockholders would be able to
significantly influence or control the election of our directors, our management
and policies and any action requiring stockholder approval, including
significant corporate transactions.
Our adherence to our "shared principles" could have an adverse impact on
our results of
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operations. A core part of our corporate culture is a commitment to "shared
principles": to act with integrity, to be fair, to have fun and to be socially
responsible. We seek to adhere to these principles not as a means to achieve
economic success, but because adherence is a worthwhile goal in and of itself.
However, if we perceive a conflict between these principles and profits, we will
try to adhere to our principles -- even though doing so might result in
diminished or foregone opportunities or financial benefits.
Shares eligible for future sale. From time to time, our subsidiaries
incur indebtedness that is secured by a pledge of shares of our common stock
held by that subsidiary. The sale of a substantial number of such shares in the
public market upon any foreclosure or otherwise could have an adverse effect on
the market price of our common stock.
Risk of fraudulent transfer. Various fraudulent conveyance laws have been
enacted for the protection of creditors and may be applied by a court on behalf
of any unpaid creditor or a representative of our creditors in a lawsuit to
subordinate or avoid Debt Securities in favor of our other existing or future
creditors. Under applicable provisions of the U.S. Bankruptcy code or comparable
provisions of state fraudulent transfer or conveyance laws, if we at the time of
issuance of Debt Securities,
o incurred such indebtedness with intent to hinder, delay or defraud any
of our present or future creditors or contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in
part of others or
o received less than reasonably equivalent value or fair consideration
for issuing Debt Securities and we
o were insolvent,
o was rendered insolvent by reason of the issuance of the Debt
Securities,
o were engaged or about to engage in business or a transaction for which
our remaining assets constitute unreasonably small capital to carry on
our business or
o intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they mature, then, in each case, a court
of competent jurisdiction could void, in whole or in part, the Debt
Securities.
Among other things, a legal challenge of the Debt Securities on
fraudulent conveyance grounds may focus on the benefits, if any, realized by us
as a result of our issuance of the Debt Securities.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, we would be
considered insolvent if the sum of our debts, including contingent liabilities,
were greater than all of our assets at fair valuation or if the present fair
market value of our assets were less than the amount that would be required to
pay the probable liability on our existing debts, including contingent
liabilities, as they become absolute and mature. There can be no assurance that,
after providing for all prior claims, there will be sufficient assets to satisfy
the claims of the holders of the Debt Securities.
Management believes that, for purposes of all such insolvency, bankruptcy
and fraudulent transfer or conveyance laws, the Debt Securities are being
incurred without the intent to hinder, delay or defraud creditors and for proper
purposes and in good faith, and that we after the issuance of the Debt
Securities will be solvent, will have sufficient capital for carrying on our
business and will be able to pay our debts as they mature. There can be no
assurance, however, that a court passing on such questions would agree with
management's view.
There is no prior public market for many of the securities that may be
offered pursuant to this prospectus -- as a result there could be significant
price volatility for such securities. Prior to the offering, there has been no
public market for many of the securities that may be offered pursuant to this
prospectus. There can be no assurance that an active trading market for any of
such securities will develop or be sustained. If such a market were to develop,
such securities could trade at prices that may be higher or lower than their
initial offering price depending upon many factors, including prevailing
interest rates, our operating results and the markets for similar securities.
8
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at the
public reference rooms of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. You may obtain information
on the operation of the public reference rooms by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov,
from where you can access our filings. Our Internet address is
http://www.aesc.com.
This prospectus constitutes part of a Registration Statement on Form S-3
filed with the Commission under the Securities Act of 1933 (the "Securities
Act"). It omits some of the information contained in the Registration Statement,
and reference is made to the Registration Statement for further information on
our company and the securities offered hereby. Any statement contained in this
prospectus concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission is not necessarily
complete, and in each instance reference is made to the copy of the document
filed.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities:
(a) Annual Report on Form 10-K for the year ended December 31, 1998;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
(c) Current Reports on Form 8-K filed on March 18, 1999, April 12, 1999,
April 20, 1999, June 8, 1999 and June 11, 1999.
You may request a copy of these filings at no cost, by writing or
telephoning the office of William R. Luraschi, General Counsel and Secretary,
The AES Corporation, 1001 North 19th Street, Arlington, Virginia, telephone
number (703) 522-1315.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about AES, including, among other things:
o changes in company-wide operation and plan availability compared to our
historical performance; changes in our historical operating cost
structure, including changes in various costs and expenses;
o political and economic considerations in certain non-U.S. countries
where we are conducting or seeking to conduct business;
o restrictions on foreign currency convertibility and remittance abroad,
exchange rate fluctuations and developing legal systems;
o regulation and restrictions;
o legislation intended to promote competition in U.S. and non-U.S.
electricity markets;
o tariffs;
o governmental approval processes;
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<PAGE>
o environmental matters;
o construction, operating and fuel risks;
o load growth, dispatch and transmission constraints;
o impact of the Year 2000 issue;
o conflict of interest of contacting parties; and
o adherence to our principles.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
USE OF PROCEEDS
Unless otherwise indicated in a prospectus supplement, proceeds from the
sale of the securities will be used by the Company for general corporate
purposes and may be temporarily invested in short-term securities.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges is as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ----------
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges ......... 2.10 2.20 1.88 1.46 1.65 1.61
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
minority interest, plus fixed charges, less capitalized interest, less excess of
earnings over dividends of less-than-fifty-percent-owned companies. Fixed
charges consist of interest (including capitalized interest) on all
indebtedness, amortization of debt discount and expense and that portion of
rental expense which we believe to be representative of an interest factor.
During the period from January 1, 1994 until March 31, 1999, no shares of
preferred stock were issued or outstanding, and during that period the Company
did not pay any preferred stock dividends.
THE COMPANY
We help to meet the world's needs by supplying electricity to customers
in many countries in a socially responsible way.
We have been successful in growing our business and serving additional
customers by participating in competitive bidding under privatization
initiatives. We have been particularly interested in acquiring existing
businesses or assets in electricity markets that are promoting competition and
eliminating rate of return regulation. In such privatizations, sellers generally
seek to complete competitive solicitations in less than one year, much quicker
than the time periods associated with greenfield development, and usually
require payment in full on transfer. We believe that our experience in
competitive markets and our worldwide integrated group structure, with our
significant geographic coverage and presence, enable us to react quickly and
creatively in these situations. Since 1994, our total generating capacity in
megawatts or MW has grown from 2,479 MW to 24,076 MW at March 31, 1999 (an
increase of 871%), with the total number of plants in operation increasing from
9 to 89. Additionally, our total revenues have increased at a compound annual
growth rate of 46% from $533 million in 1994 to $2,398 million in 1998, while
net income has increased at a compound annual growth rate of 33% from $100
million to $311 million over the same period.
A majority of our sales of electricity are made to customers (generally
electric utilities or regional electric companies), on a wholesale basis for
further resale to end users. This is referred to as the electricity "generation"
business. Sales by these generation companies are usually made under long-term
contracts from power plants
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owned by our subsidiaries and affiliates, although we do, in certain
circumstances, make sales into regional electricity markets without contracts.
Our ownership portfolio of power facilities includes new plants constructed for
such purposes, so-called greenfield plants, as well as existing power plants
acquired through competitively bid privatization initiatives and negotiated
acquisitions. In the electricity generation business, we now own and operate
(entirely or in part) a diverse portfolio of electric power plants (including
those within integrated distribution companies) with a total capacity of 24,076
MW. Of that total, 29% are fueled by coal or petroleum coke, 24% are fueled by
natural gas, 33% are hydroelectric facilities, 6% are fueled by oil, and the
remaining 8% are capable of using multiple fossil fuels.
DESCRIPTION OF CAPITAL STOCK
Under our certificate of incorporation (the "Certificate of
Incorporation"), we are authorized to issue 500,000,000 shares of common stock,
par value $.01 per share, and 50,000,000 shares of preferred stock, no par
value.
The following summary contains a description of certain general terms of
the common stock and the preferred stock to which any prospectus supplement may
relate. Certain terms of any series of preferred stock offered by a prospectus
supplement will be described in the prospectus supplement relating thereto. If
indicated in the prospectus supplement, the terms of any series may differ from
the terms set forth below. The description of certain provisions of the common
stock and the preferred stock is subject to and qualified by reference to the
provisions of our certificate of incorporation, and, in the case of the
preferred stock, to the certificate of designation (the "Certificate of
Designation") relating to each particular series of preferred stock which will
be filed or incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part.
COMMON STOCK
As of April 30, 1999, there were 190,839,529 shares of common stock
outstanding.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably dividends as may be declared from time to time by
our board of directors out of funds legally available to pay dividends. If we
liquidate our business, the holders of common stock are entitled to share
ratably in all assets after we pay our liabilities and the liquidation
preference of any outstanding preferred stock. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable, and any
shares of common stock in respect of which this prospectus is being delivered
will be fully paid and non-assessable.
The transfer agent for our common stock is EquiServe.
PRICE RANGE OF AES COMMON STOCK AND COMMON STOCK DIVIDENDS
Our common stock began trading on the New York Stock Exchange on October
16, 1996 under the symbol "AES." The following table sets forth for the periods
indicated the intra-day high and low sale prices for the common stock as
reported on the Composite Tape. In July 1997, we announced a two for one stock
split, in the form of a stock dividend, for holders of record on July 28, 1997
of our common stock, par value $.01 per share, which was paid on August 28,
1997. The prices set forth below are adjusted for such stock split.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
1997
First Quarter .......... $34.13 $22.38
Second Quarter ......... 37.75 27.50
Third Quarter .......... 45.25 34.63
Fourth Quarter ......... 49.63 35.00
1998
First Quarter .......... $54.31 $39.38
Second Quarter ......... 58.00 45.63
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
Third Quarter ............. 55.38 23.00
Fourth Quarter ............ 47.38 32.00
1999
First Quarter ............. $ 49.25 $ 32.81
Second Quarter (through
June 24, 1999) ......... $ 59.75 $ 36.75
</TABLE>
No cash dividends have been paid on common stock since December 22, 1993
in order to provide capital for our equity investments in projects.
Our ability to declare and pay dividends is dependent, among other
things, on
o the ability of our project subsidiaries to declare and pay dividends
and otherwise distribute cash to us;
o our ability to service our parent company debt and
o our ability to meet certain criteria for paying dividends under our
corporate credit facility and under existing indentures of our debt
securities.
The ability of our subsidiaries to declare and pay dividends and
otherwise distribute cash to us is subject to certain limitations in the project
loans and other documents entered into by our project subsidiaries. These
limitations permit the payment of dividends out of current cash flow for
quarterly, semi-annual or annual periods only at the end of these periods and
only after payment of principal and interest on project loans due at the end of
these periods.
Cash dividend payments on common stock are limited to a certain
percentage of cash flow under our corporate credit agreement. The indentures
relating to our existing senior subordinated notes preclude the payment of cash
dividends if:
o at the time of a payment of cash dividends or after giving effect
thereto an event of default occurred;
o an event that would become an event of default occurred and is
continuing;
o certain fixed charge coverage ratios are not met; or
o if the payment of dividends, together with other restricted payments,
would exceed certain limits.
PREFERRED STOCK
As of April 30, 1999, there were no shares of Preferred Stock
outstanding.
Our board of directors has the authority to issue preferred stock in one
or more classes or series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, exchange rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any class or
series or the designation of such class or series, without any further action by
the stockholders. Preferred stock, if issued, will not be entitled to any
preemptive or similar rights. The prospectus supplement will describe the terms
of any preferred stock being offered, including:
o the specific designation, number of shares, seniority and purchase
price;
o any liquidation preference per share;
o any date of maturity;
o any redemption, repayment or sinking fund provisions;
o any dividend rate or rates and the dates on which any such dividends
will be payable (or the method by which such rates or dates will be
determined);
o any voting rights;
o if other than the currency of the United States, the currency or
currencies including composite currencies in which such preferred stock
is denominated and/or in which payments will or may be payable;
o the method by which amounts in respect of such preferred stock may be
calculated and any commodities, currencies or indices, or value, rate
or price, relevant to such calculation;
o whether such preferred stock is convertible or exchangeable and, if so,
the securities or rights into which such preferred stock is convertible
or exchangeable, and the terms and conditions upon which such
conversions or exchanges will be effected including conversion or
exchange prices or rates, the conversion or exchange period and any
other related provisions;
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<PAGE>
o the place or places where dividends and other payments on the preferred
stock will be payable; and
o any additional voting, dividend, liquidation, redemption and other
rights, preferences, privileges, limitations and restrictions.
All shares of preferred stock offered hereby, or issuable upon
conversion, exchange or exercise of securities, will, when issued, be fully paid
and non-assessable. Any shares of preferred stock that are issued would have
priority over the common stock with respect to dividend or liquidation rights or
both.
The transfer agent for each series of preferred stock will be described
in the applicable prospectus supplement.
DESCRIPTION OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BY-LAWS
Our Certificate of Incorporation and By-Laws contain several provisions
that may make the acquisition of control of the AES through a tender offer, open
market purchases, a proxy fight or otherwise more difficult. Below is a
description of certain of these provisions in the Certificate of Incorporation
and By-Laws.
Special Meetings of Stockholders. Our By-Laws provide that, unless
otherwise prescribed by law, special meetings of stockholders may be called by a
resolution adopted by a majority of the entire board of directors, by the
chairman of the board of directors or by the president. Only business as
specified in the notice of stockholders of the special meeting shall be
considered.
Stockholder Nomination of Directors. Our By-Laws contain a procedure for
stockholder nomination of directors. The By-Laws provide that any record owner
of stock entitled to be voted generally in the election of directors may
nominate one or more persons for election as a director at a stockholders
meeting only if written notice is given to our secretary of the intent to make a
nomination. The notice must be given, with respect to an annual meeting, not
later than 90 days in advance of the annual meeting. With respect to a special
meeting, the notice must be given not later than the close of business on the
seventh day following the earlier of
o the date on which notice of such special meeting is first given to
stockholders and
o the date on which a public announcement of such meeting is first made.
Each notice must include:
o the name and address of each stockholder who intends to appear in
person or by proxy to make the nomination and of the person or persons
to be nominated;
o a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming
them) pursuant to which the nomination is to be made by the
stockholder;
o other information regarding each nominee proposed as would have been
included in a proxy statement filed pursuant to Rule 14a-8 under the
Exchange Act; and
o the consent of each nominee to serve if elected.
The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with this procedure.
The procedure for stockholder nomination of directors described above may
have the effect of precluding a nomination for election of directors at a
particular meeting if the required procedure is not followed.
Elimination of Liability; Indemnification. Except as described below, the
Certificate of Incorporation eliminates the liability of members of our board of
directors to us or our stockholders for monetary damages resulting from breaches
of their fiduciary duties as directors. Directors remain liable for breaches of
their duty of loyalty to us or our stockholders, as well as for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law and transactions from which a director derives improper
personal benefit. The Certificate of Incorporation also does not release
directors of liability under Section 174 of the Delaware General Corporation Law
(the "GCL"), which makes directors personally liable for unlawful dividends or
unlawful stock repurchases or redemptions if the unlawful conduct is willful or
results from negligence.
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<PAGE>
Under our By-Laws, and in accordance with Section 145 of the GCL, we
shall indemnify to the fullest extent permitted by the GCL any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding. These include civil, criminal,
administrative or investigative proceedings by reason of the fact that the
person is or was a director or officer of or employed by us, or is or was
serving in that capacity or as an agent at the request of us for another entity.
Our indemnification covers expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with the defense or
settlement of an action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to our
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe was unlawful. We will indemnify persons in a
derivative action under the same conditions, except that no indemnification is
permitted without judicial approval if the person is adjudged to be liable to us
in the performance of his or her duty. Derivative actions are actions by us or
in the right of us to procure a judgment in our favor. Agents of ours may be
similarly indemnified at the discretion of the board of directors.
Under Section 145 of the GCL, a similar duty of care is applicable in the
case of derivative actions, except that indemnification only extends to expenses
incurred in connection with the defense or settlement of a derivative action and
then, where the person is adjudged to be liable to us, only if and to the extent
that the Court of Chancery of the State of Delaware or the court in which the
action was brought determines that the person is fairly and reasonably entitled
to the indemnity and only for those expenses as the court deems proper.
Pursuant to our By-Laws, a person eligible for indemnification may have
the expenses incurred in connection with any matter described above paid in
advance of a final disposition by us. However, these advances will only be made
if the indemnified person undertakes to repay all advanced amounts if it is
determined that the person is not entitled to indemnification.
In addition, under our By-Laws, we may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of us
or of another corporation against any liability arising out of the person's
status as director, officer, employee or agent of us whether or not we would
have the power to indemnify such person against such liability under the
provisions of our By-Laws. We maintain directors' and officers' insurance.
DEPOSITARY SHARES
General. We may, at our option, elect to offer fractional shares of
preferred stock, rather than full shares of preferred stock. If we exercise this
option, we will issue to the public receipts for depositary shares, and each of
these depositary shares will represent a fraction (to be set forth in the
application prospectus supplement) of a share of a particular series of
preferred stock.
The shares of any series of preferred stock underlying the depositary
shares will be deposited under a deposit agreement between us and a bank or
trust company selected by us. The depositary will have its principal office in
the United States and a combined capital and surplus of at least $50,000,000.
Subject to the terms of the deposit agreement, each owner of a depositary share
will be entitled, in proportion, to the applicable fraction of a share of
preferred stock underlying that depositary share, to all the rights and
preferences of the preferred stock underlying that depositary share. Those
rights include dividend, voting, redemption and liquidation rights.
The depositary shares will be evidenced by depositary receipts issued
pursuant to the deposit agreement. Depositary receipts will be distributed to
those persons purchasing the fractional shares of preferred stock underlying the
depositary shares, in accordance with the terms of the offering. Copies of the
forms of deposit agreement and depositary receipt will be filed as exhibits to
the registration statement. The following summary of the deposit agreement, the
depositary shares and the depositary receipts is not complete. You should refer
to the forms of the deposit agreement and depositary receipts that will be filed
with the SEC in connection with the offering of the specific depositary shares.
Pending the preparation of definitive engraved depositary receipts, the
depositary may, upon our written order, issue temporary depositary receipts
substantially identical to the
14
<PAGE>
definitive depositary receipts but not in definitive form. These temporary
depositary receipts entitle their holders to all the rights of definitive
depositary receipts which are to be prepared without unreasonable delay.
Temporary depositary receipts will then be exchangeable for definitive
depositary receipts at our expense.
Dividends and Other Distributions. The depositary will distribute all
cash dividends or other cash distributions received with respect to the
preferred stock to the record holders of depositary shares relating to the
preferred stock in proportion to the number of depositary shares owned by those
holders.
If there is a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary shares
that are entitled to receive the distribution, unless the depositary determines
that it is not feasible to make the distribution. If this occurs, the depositary
may, with our approval, sell the property and distribute the net proceeds from
the sale to the applicable holders.
Redemption of Depositary Shares. If a series of preferred stock
represented by depositary shares is subject to redemption, the depositary shares
will be redeemed from the proceeds received by the depositary resulting from the
redemption, in whole or in part, of that series of preferred stock held by the
depositary. The redemption price per depositary share will be equal to the
applicable redemption fraction of the redemption price per share payable with
respect to that series of the preferred stock. Whenever we redeem shares of
preferred stock that are held by the depositary, the depositary will redeem, as
of the same redemption date, the number of depositary shares representing the
shares of preferred stock so redeemed. If fewer than all the depositary shares
are to be redeemed, the depositary shares to be redeemed will be selected by lot
or pro rata as may be determined by the depositary.
Voting the Preferred Stock. Upon receipt of notice of any meeting at
which the holders of the preferred stock are entitled to vote, the depositary
will mail the information contained in such notice to the record holders of the
depositary shares underlying the preferred stock. Each record holder of the
depositary shares on the record date (which will be the same date as the record
date for the preferred stock) will be entitled to instruct the depositary as to
the exercise of the voting rights pertaining to the amount of the preferred
stock represented by such holder's depositary shares. The depositary will then
try, as far as practicable, to vote the number of shares of preferred stock
underlying those depositary shares in accordance with such instructions, and we
will agree to take all actions which may be deemed necessary by the depositary
to enable the depositary to do so. The depositary will not vote the shares of
preferred stock to the extent it does not receive specific instructions from the
holders of depositary shares underlying the preferred stock.
Amendment and Termination of the Depositary Agreement. The form of
depositary receipt evidencing the depositary shares and any provision of the
deposit agreement may at any time be amended by agreement between us and the
depositary. However, any amendment which materially and adversely alters the
rights of the holders of depositary shares will not be effective unless the
amendment has been approved by the holders of at least a majority of the
depositary shares then outstanding. The deposit agreement may be terminated by
us or by the depositary only if (a) all outstanding depositary shares have been
redeemed or (b) there has been a final distribution of the underlying preferred
stock in connection with our liquidation, dissolution or winding up and the
preferred stock has been distributed to the holders of depositary receipts.
Charges of Depositary. We will pay all transfer and other taxes and
governmental charges arising solely from the existence of the depositary
arrangements. We will also pay charges of the depositary in connection with the
initial deposit of the preferred stock and any redemption of the preferred
stock. Holders of depositary receipts will pay other transfer and other taxes
and governmental charges and those other charges, including a fee for the
withdrawal of shares of preferred stock upon surrender of depositary receipts,
as are expressly provided in the deposit agreement to be for their accounts.
Miscellaneous. The depositary will forward to holders of depositary
receipts all reports and communications from us that we deliver to the
depositary and that we are required to furnish to the holders of the preferred
stock.
Neither we nor the depositary will be liable if either of us is prevented
or delayed by law or any circumstance beyond our control in performing our
respective obligations under the deposit agreement.
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Our obligations and those of the depositary will be limited to performance in
good faith of our respective duties under the deposit agreement. Neither we nor
the will be obligated to prosecute or defend any legal proceeding in respect of
any depositary shares or preferred stock unless satisfactory indemnity is
furnished. We and the depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting preferred stock
for deposit, holders of depositary receipts or other persons believed to be
competent and on documents believed to be genuine.
Resignation and Removal of Depositary. The depositary may resign at any
time by delivering notice to us of its election to resign. We may remove the
depositary at any time. Any resignation or removal will take effect upon the
appointment of a successor depositary and its acceptance of the appointment. The
successor depositary must be appointed within 60 days after delivery of the
notice of resignation or removal and must be a bank or trust company having its
principal office in the United States and having a combined capital and surplus
of at least $50,000,000.
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DESCRIPTION OF DEBT SECURITIES
The debt securities may consist of Senior Debt Securities, Subordinated
Debt Securities or Junior Subordinated Debt Securities. The Senior Debt
Securities will be issued under an indenture (the "Senior Debt Indenture") dated
as of December 8, 1998 between AES, as issuer, and The First National Bank of
Chicago, as trustee. The Senior Subordinated Debt Securities will be issued
under an indenture (the "Senior Subordinated Debt Indenture") dated as of July
1, 1996 between AES, as issuer, and The First National Bank of Chicago, as
trustee. The Junior Subordinated Debt Securities will be issued under an
indenture dated as of August 10, 1998 (the "Junior Subordinated Debt Indenture")
between AES, as issuer, and The First National Bank of Chicago, as trustee. The
Senior Debt Indenture, the Senior Subordinated Debt Indenture and the Junior
Subordinated Debt Indenture are collectively referred to herein as the
"Indentures."
The Indentures have been incorporated by reference or included herein as
exhibits to the registration statement of which this Prospectus is a part and
are also available for inspection at the office of the trustee. The Indentures
are subject to and governed by the Trust Indenture Act of 1939 (the "Trust
Indenture Act"). Section references contained herein are applicable to each of
the Indentures. The following summaries of the Indentures are not complete.
Where reference is made to particular provisions of the Indentures, these
provisions, including definitions of certain terms, are incorporated by
reference. The Indentures are substantially identical except for provisions
relating to subordination.
GENERAL
None of the Indentures limits the amount of debt securities which may be
issued thereunder. Each Indenture provides that debt securities issuable
thereunder may be issued up to the aggregate principal amount which may be
authorized by us from time to time. The prospectus supplement will describe the
terms of any debt securities being offered (the "Offered Debt Securities")
including:
o the designation, aggregate principal amount and authorized
denominations of the Offered Debt Securities;
o the date or dates on which the Offered Debt Securities mature;
o the rate or rates per annum at which the Offered Debt Securities will
bear interest and the method of calculating interest rates, if any;
o the dates on which any interest will be payable and the record dates
for any interest payments;
o any mandatory or optional redemption terms or prepayment, conversion,
sinking fund or exchangeability provisions;
o the place where the principal of and interest on the Offered Debt
Securities will be payable;
o if other than denominations of $1,000 or multiples thereof, the
denominations in which the Offered Debt Securities will be issuable;
o whether the Offered Debt Securities will be issued in the form of
Global Securities (as defined below) or certificates;
o additional provisions, if any, relating to the defeasance of the
Offered Debt Securities;
o the currency or currencies, if other than the currency of the United
States, in which payment of the principal of and interest on the
Offered Debt Securities will be payable;
o whether the Offered Debt Securities will be issuable in registered form
or bearer form ("Bearer Securities") or both and, if Bearer Securities
are issuable, any restrictions applicable to the exchange of one form
for another and the offer, sale and delivery of Bearer Securities;
o any applicable United States federal income tax consequences, including
whether and under what circumstances the Company will pay additional
amounts on Offered Debt Securities held by a person who is not a U.S.
Person (as defined in each prospectus supplement relating to any
particular series of debt securities offered thereby) in respect of any
tax, assessment or governmental charge
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withheld or deducted and, if so, whether we will have the option to
redeem these Offered Debt Securities rather than pay the additional
amounts;
o the dates on which premium, if any, will be payable;
o our right, if any, to defer payment of interest and the maximum length
of any deferral period;
o any listing on a securities exchange;
o the initial public offering price and
o other specific terms, including any additional events of default or
covenants provided for with respect to the Offered Debt Securities.
As described in each prospectus supplement relating to any particular
series of debt securities offered thereby, the indenture may contain covenants
limiting:
o the incurrence of debt by us;
o the incurrence of debt by subsidiaries of us;
o the making of certain payments by us and our subsidiaries;
o subsidiary mergers;
o business activities of us and our subsidiaries;
o the issuance of preferred stock of subsidiaries;
o asset dispositions;
o transactions with affiliates;
o liens and
o mergers and consolidations involving our company.
BOOK-ENTRY SYSTEMS
If so specified in any prospectus supplement relating to debt securities,
debt securities of any series may be issued under a book-entry system in the
form of one or more global securities (each, a "Global Security"). Each Global
Security will be deposited with, or on behalf of, a depositary, which will be
The Depository Trust Company, New York, New York (the "Depositary"). The Global
Securities will be registered in the name of the Depositary or its nominee. The
Depositary has advised us that the Depositary is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York banking law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. The Depositary was created to hold
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants through electronic book-entry
changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations, some of which (and/or their
representatives) own the Depositary. Access to the Depositary's book-entry
system is also available to others, such as banks, brokers, dealers, and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
When a Global Security is issued in registered form, the Depositary will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the debt securities represented by each Global Security to
the participants' accounts. The accounts to be credited will be designated by
the underwriters, dealers, or agents, if any. If debt securities are offered and
sold directly by us, we will designate the accounts to be credited. Ownership of
beneficial interests in the Global Security will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests by participants in the Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, the
participants' records. The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of the securities in definitive
form. These laws may impair the ability to transfer beneficial interests in a
Global Security.
So long as the Depositary or its nominee is the owner of record of a
Global Security, we consider the Depositary or its nominee the sole owner or
holder of the debt securities
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represented by the Global Security for all purposes under the Indenture under
which the debt securities are issued. Except as set forth below, owners of
beneficial interests in a Global Security will not be entitled to have the debt
security represented by the Global Security registered in their names, and will
not receive or be entitled to receive physical delivery of the debt securities
in definitive form and will not be considered the owners or holders thereof
under the Indenture under which these debt securities are issued. Accordingly,
each person owning a beneficial interest in a Global Security must rely on the
procedures of the Depositary. Persons who are not participants must rely on the
procedures of the participant through which they own their interest. We
understand that under existing industry practices, if we request any action of
holders or if any owner of a beneficial interest in a Global Security desires to
give or take any action which a holder is entitled to give or take under the
applicable Indenture, the Depositary would authorize the participants holding
the relevant beneficial interests to give or take such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instruction of
beneficial owners holding through them.
Payments of principal, premium, if any, and interest on debt securities
represented by a Global Security registered in the name of the Depositary or its
nominee will be made to the Depositary or nominee, as the registered owner. None
of AES, the trustee or any other agent of us or agent of the trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Security or for maintaining, supervising, or reviewing any records relating to
such beneficial ownership interests.
We have been advised by the Depositary that the Depositary will credit
participants' accounts with payments of principal, premium, if any, or interest
on the payment date thereof in amounts proportionate to their respective
beneficial interests in the principal amount of the Global Security as shown on
the records of the Depositary. We expect that payments by participants to owners
of beneficial interests in the Global Security held through such participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in "street
name," and will be the responsibility of such participants.
A Global Security may not be transferred except as a whole:
o by the Depositary to a nominee or successor of the Depositary or
o by a nominee of the Depositary to another nominee of the Depositary.
A Global Security representing all but not part of an offering of debt
securities hereby is exchangeable for debt securities in definitive form of like
tenor and terms if:
o The Depositary notifies us that it is unwilling or unable to continue
as depositary for the Global Security or if at any time the Depositary
is no longer eligible to be in good standing as a clearing agency
registered under the Exchange Act, and we do not appoint a successor
depositary within 90 days after we receive notice or become aware of
the ineligibility or
o We in our sole discretion at any time determine not to have all of the
debt securities represented in an offering of Offered Debt Securities
by a Global Security and notify the trustee thereof.
A Global Security exchangeable pursuant to the preceding sentence shall
be exchangeable for debt securities registered in the names and in the
authorized denominations as the Depositary for the Global Security shall direct.
The debt securities of a series may also be issued in the form of one or more
bearer global debt securities (a "Bearer Global Security") that will be
deposited with a common depositary for Euro-clear and CEDEL, or with a nominee
for that depositary identified in the prospectus supplement relating to the
series. The specific terms and procedures, including the specific terms of the
depositary arrangement, with respect to any portion of a series of debt
securities to be represented by a Bearer Global Security will be described in
the prospectus supplement.
SENIOR DEBT SECURITIES
The payment of principal, premium, if any, and interest on the Senior
Debt Securities will, to
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the extent and in the manner set forth in the Senior Debt Indenture, rank
equally with all unsecured and unsubordinated debt.
SUBORDINATION OF SENIOR SUBORDINATED DEBT SECURITIES
The payment of principal, premium, if any, and interest on the Senior
Subordinated Debt Securities will, to the extent and in the manner set forth in
the Senior Subordinated Debt Indenture, be subordinated in right of payment to
the prior payment in full, in cash equivalents, of all Senior Debt.
Upon any payment or distribution of assets to our creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings, the holders of all Senior Debt
will first be entitled to receive payment in full of all amounts due or to
become due thereon before the holders of the Senior Subordinated Debt Securities
will be entitled to receive any payment in respect of the principal, premium, if
any, or interest on the Senior Subordinated Debt Securities.
No payments of principal, premium, if any, or interest in respect of the
Senior Subordinated Debt Securities may be made by us if a default in any
payment with respect to Senior Debt has occurred and is continuing. In addition,
during the continuance of any other event of default (other than a payment
default) with respect to Designated Senior Debt pursuant to which the maturity
thereof may be accelerated, no payments of principal, premium, if any, or
interest in respect of the Senior Subordinated Debt Securities may be made by us
for a period (the "Payment Blockage Period") beginning on the date of delivery
of written notice of the holders and ending 179 days thereafter (unless the
Payment Blockage Period shall be terminated by written notice to the trustee
from the holders of Designated Senior Debt or from an agent of these holders, or
the 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 Senior Subordinated
Debt Securities during any period of 360 consecutive days. No event of default
which existed or was continuing on the date of the beginning of any Payment
Blockage Period shall be the basis for the beginning of any subsequent Payment
Blockage Period by the holders of Designated Senior Debt, unless such event of
default shall have been cured or waived for a period of not less than 90 days.
Due to this subordination, in the event of insolvency, funds that would
otherwise be payable to holders will be paid to the holders of Senior Debt to
the extent necessary to pay the Senior Debt in full, and we may be unable to
meet fully our obligations with respect to the Senior Subordinated Debt
Securities.
"Debt" is defined to mean, with respect to any person at any date of
determination (without duplication):
o all indebtedness for borrowed money;
o all obligations evidenced by bonds, debentures, notes or other similar
instruments;
o all obligations in respect of letters of credit or bankers' acceptance
or other similar instruments (or reimbursement obligations with respect
thereto);
o all obligations to pay the deferred purchase price of property or
services, except trade payables;
o all obligations as lessee under capitalized leases;
o all Debt of others secured by a lien on any asset of the person,
whether or not the Debt is assumed by that person; provided that, for
purposes of determining the amount of any Debt of the type described in
this clause, if recourse with respect to that Debt is limited to that
asset, the amount of that Debt shall be limited to the lesser of the
fair market value of the asset or the amount of the Debt;
o all Debt of others guaranteed by that person to the extent that Debt is
guaranteed by such person;
o all redeemable stock valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends;
and,
o to the extent not otherwise included in this definition, all
obligations under currency agreements and interest rate agreements.
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"Designated Senior Debt" is defined to mean:
o Debt under the Credit Agreement dated as of August 2, 1996 (the "Credit
Agreement") among The AES Corporation, the banks named on the signature
pages thereof and the Morgan Guaranty Trust Company of New York, as
agent for the banks, as such Credit Agreement has been and may be
amended, restated, supplemented or otherwise modified from time to
time; and
o Debt constituting Senior Debt which, at the time of its determination
o has an aggregate principal amount of at least $30 million; and
o is specifically designated by us as "Designated Senior Debt."
"Senior Debt" is defined to mean the principal of, premium, if any, and
interest on all of our Debt whether created, incurred or assumed before, on or
after the date of the Senior Subordinated Debt Indenture; provided that Senior
Debt shall not include:
o our 8.875% Senior Subordinated Debentures due 2027, 8.50% Senior
Subordinated Notes due 2007, 8.375% Senior Subordinated Notes Due 2007
and our 10.25% Senior Subordinated Notes due 2006 which rank equally
with the Senior Subordinated Debt Securities;
o our Debt to any affiliate;
o Debt of ours that, when incurred, and without respect to any election
under Section 1111(b) of Title 11, U.S. Code, was without recourse;
o any other Debt of ours which by the terms of the instrument creating or
evidencing the same are specifically designated as not being senior in
right of payment to the Senior Subordinated Debt Securities; and
o our redeemable stock.
SUBORDINATION OF JUNIOR SUBORDINATED DEBT SECURITIES
The payment of principal, premium, if any, and interest on the Junior
Subordinated Debt Securities will, to the extent and in the manner set forth in
the Junior Subordinated Debt Indenture, be subordinated in right of payment to
the prior payment in full, in cash or cash equivalents, of all our Senior and
Subordinated Debt.
Upon any payment or distribution of assets to our creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings, the holders of all Senior and
Subordinated Debt will first be entitled to receive payment in full of all
amounts due or to become due thereon before the holders of the Junior
Subordinated Debt Securities will be entitled to receive any payment in respect
of the principal, premium, if any, or interest on the Junior Subordinated Debt
Securities.
No payments of principal, premium, if any, or interest in respect of the
Junior Subordinated Debt Securities may be made by us if a default in any
payment with respect to Senior and Subordinated Debt has occurred and is
continuing. 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, no
payments on account of principal, premium, if any, or interest may be made by us
during a Payment Blockage Period in respect of these Junior Subordinated Debt
Securities (unless the Payment Blockage Period is terminated by written notice
to the trustee from the holders of Designated Senior and Subordinated Debt or
from an agent of such holders, or the event of default has been cured or waived
or has ceased to exist). Only one Payment Blockage Period may be commenced with
respect to the Junior Subordinated Debt Securities during any period of 360
consecutive days. No event of default which existed or was continuing on the
date of the beginning of any Payment Blockage Period with respect to the
Designated Senior and Subordinated Debt initiating the Payment Blockage Period
shall be the basis for the beginning 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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Due to this subordination, in the event of insolvency, funds that would
otherwise be payable to holders of Junior Subordinated Debt Securities will be
paid to the holders of Senior and Subordinated Debt to the extent necessary to
pay the Debt in full, and we may be unable to meet fully our obligations with
respect to the Junior Subordinated Debt Securities.
"Designated Senior and Subordinated Debt" is defined to mean
o Debt under the Credit Agreement; and
o Debt constituting Senior and Subordinated Debt which, at the time of
its determination
- has an aggregate principal amount of at least $30 million; and
- is specifically designated in the instrument as "Designated Senior
and Subordinated Debt" by us.
"Senior and Subordinated Debt" is defined to mean the principal, premium,
if any, and interest on all of our Debt whether created, incurred or assumed
before, on or after the date of the Junior Subordinated Debt Indenture; provided
that Senior and Subordinated Debt shall not include
o our Debt to any affiliate;
o Debt of ours that, when incurred and without respect to any election
under Section 1111(b) of Title 11, U.S. Code, was without recourse;
o any other Debt of ours which by the terms of the instrument creating or
evidencing the same are specifically designated as not being senior in
right of payment to the Junior Subordinated Debt Securities, and in
particular the Junior Subordinated Debt Securities shall rank equally
with all other debt securities and guarantees issued to an AES Trust or
any other trust, partnership or other entity affiliated with us which
is a financing vehicle of ours in connection with an issuance of
preferred securities by that financing entity and
o our redeemable stock.
EVENTS OF DEFAULT
An Event of Default, as defined in the Indentures and applicable to debt
securities issued thereunder, will occur with respect to the debt securities of
any series issued under the Indentures if:
1. we default in paying principal or premium, if any, on any debt
security when due, upon acceleration, redemption, mandatory
repurchase, or otherwise;
2. we default in paying interest on any debt security when it becomes
due, and the default continues for a period of 30 days;
3. we default in performing or breach any other covenant or agreement in
the Indentures and the default or breach continues for a period of 60
consecutive days after written notice by the trustee or by the
holders of 25% or more in aggregate principal amount of the debt
securities of all series issued under an Indenture;
4. a court having jurisdiction enters a decree or order for
o relief in respect of AES or any of our Material Subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency, or other
similar law now or hereafter in effect;
o appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or similar official of AES or any of our Material
Subsidiaries or for all or substantially all of the property and assets
of AES or any of our Material Subsidiaries or
o the winding up or liquidation of the affairs of the Company or any of
its Material Subsidiaries and, in each case, such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days;
5. AES or any of its Material Subsidiaries
o commences a voluntary case under any applicable bankruptcy, insolvency,
or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case under any such law,
o consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator, or similar
official of AES or any of its Material Subsidiaries or for all or
substantially all of the property and assets of AES or any of its
Material Subsidiaries or
o effects any general assignment for the benefit of creditors; or
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6. any other Events of Default set forth in the applicable prospectus
supplement occur.
If an Event of Default (other than an Event of Default specified in
clause (4) or (5) with respect to AES) occurs with respect to the debt
securities of any series and continues, then the trustee or the holders of at
least 25% in principal amount of the outstanding debt securities may, by written
notice to us, and the trustee at the request of at least 25% in principal amount
of the outstanding debt securities will, declare the principal, premium, if any,
and accrued interest on the outstanding debt securities to be immediately due
and payable. Upon a declaration of acceleration, the principal, premium, if any,
and accrued interest shall be immediately due and payable.
If an Event of Default specified in clause (4) or (5) above occurs with
respect to AES, the principal, premium, if any, and accrued interest on the debt
securities shall be immediately due and payable, subject to the prior payment in
full of all Senior Debt, without any declaration or other act on the part of the
trustee or any holder. The holders of at least a majority in principal amount of
the outstanding debt securities may, by written notice to us and to the trustee,
waive all past defaults with respect to debt securities and rescind and annul a
declaration of acceleration with respect to debt securities of that series and
its consequences if:
o all existing Events of Default applicable to debt securities of that
series, other than the nonpayment of the principal, premium, if any,
and interest on the debt securities that have become due solely by that
declaration of acceleration, have been cured or waived and
o the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction.
For information as to the waiver of defaults, see "--Modification and
Waiver."
The holders of at least a majority in principal amount of the outstanding
debt securities may 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. However, the trustee may refuse to follow any
direction that conflicts with law or the applicable Indenture, that may involve
the trustee in personal liability, or that the trustee determines in good faith
may be unduly prejudicial to the rights of holders of debt securities who did
not join in giving that direction and the trustee may take any other action it
deems proper that is not inconsistent with the direction received from holders
of outstanding debt securities. A holder may not pursue any remedy with respect
to the applicable Indenture or the debt securities of any series unless:
o the holder gives the trustee written notice of a continuing Event of
Default;
o the holders of at least 25% in principal amount of outstanding debt
securities make a written request to the trustee to pursue the remedy;
o the holder or holders offer and, if requested, provide the trustee
indemnity satisfactory to the trustee against any costs, liability or
expense;
o the trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity and
o with that 60-day period, the holders of at least a majority in
principal amount of the outstanding debt securities do not give the
trustee a direction that is inconsistent with the request.
However, these limitations do not apply to the right of any holder of a
debt security to receive payment of the principal, premium, if any, or interest
on, that debt security or to bring suit for the enforcement of any payment, on
or after the due date expressed in the debt securities, which right shall not be
impaired or affected without the consent of the holder.
Each of the Indentures requires that certain of our officers certify, on
or before a date not more than four months after the end of each fiscal year,
that to the best of those officers' knowledge, we have fulfilled all our
obligations under the Indenture. We are also obligated to notify the trustee of
any default or defaults in the performance of any covenants or agreements under
any of the Indentures.
"Material Subsidiary" of a Person is defined to mean, as of any date, any
Subsidiary that would constitute a "significant subsidiary" within the meaning
of Article 1 of Regulation S-X of the Securities Act of 1933.
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"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which a majority of the capital stock or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by such Person.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
MODIFICATION AND WAIVER
The Indentures may be amended or supplemented without the consent of any
holder of debt securities to:
o cure ambiguities, defects, or inconsistencies;
o comply with the terms in "Restriction on Mergers, Consolidations and
Sales of Assets" described below;
o comply with any requirements of the Commission in connection with the
qualification of the Indentures under the Trust Indenture Act of 1939;
o evidence and provide for the acceptance of appointment with respect to
the debt securities by a successor Trustee;
o establish the form or forms of debt securities of any series;
o provide for uncertificated debt securities and to make all appropriate
changes for such purpose; and
o make any change that does not adversely affect the rights of any
holder.
Other modifications and amendments of the Indentures may be made with the
consent of the holders of not less than a majority in principal amount of the
outstanding debt securities of each series affected by the amendment (all such
series voting together as a single class). However, no modification or amendment
may, without the consent of each holder affected:
o change the stated maturity of the principal of, or any sinking fund
obligation or any installment of interest on, any debt security;
o reduce the principal amount, premium, if any, or interest on, any debt
security;
o reduce the above-stated percentage of outstanding debt securities, the
consent of whose holders is necessary to modify or amend that Indenture
with respect to the debt securities of any series issued under that
Indenture;
o reduce the percentage or principal amount of outstanding debt
securities, the consent of whose holders is necessary for waiver of
compliance with certain provisions of that Indenture or for waiver of
certain defaults.
A supplemental indenture which changes or eliminates any covenant or
other provision of an Indenture which has expressly been included solely for the
benefit of one or more particular series of debt securities issued under an
Indenture, or which modifies the rights of holders of debt securities of that
series with respect to that covenant or provision, shall be deemed not to affect
the rights under the applicable Indenture of the holders of debt securities of
any other series issued under the Indenture or of the coupons appertaining to
those debt securities. It is not necessary for the consent of the holders under
this section of an Indenture to approve the particular form of any proposed
amendment, supplement, or waiver, but it is sufficient if the consent approves
the substance thereof. After an amendment, supplement, or waiver under this
section of an Indenture becomes effective, we will give to the holders affected
thereby a notice briefly describing the amendment, supplement, or waiver. We
will mail supplemental indentures to holders upon request. Any failure of us to
mail a notice, or any defect therein, will not affect the validity of any
supplemental indenture or waiver.
RESTRICTION ON MERGERS, CONSOLIDATIONS
AND SALES OF ASSETS
Pursuant to the Indentures, we may not consolidate with, merge with or
into, or transfer all or substantially all of our assets to any Person unless:
o AES shall be the continuing Person, or, if AES is not the continuing
Person, the Person formed by such consolidation or into which we merged
or to which properties and assets of ours are transferred is a solvent
corporation organized and existing under the laws of the United States
or any State
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thereof or the District of Columbia and expressly assumes in writing
all the obligations of ours under the Notes,
o immediately after giving effect to such transaction no Event of Default
has occurred and is continuing and
o other conditions as may be established in connection with the issuance
of the applicable Debt Securities are met.
DEFEASANCE AND DISCHARGE
The Indentures provide that we are deemed to have paid and will be
discharged from all obligations in respect of the debt securities of any series
on the 123rd day after the deposit referred to below has been made, and that the
provisions of an Indenture will no longer be in effect with respect to the debt
securities issued thereunder (except for, among other matters, certain
obligations to register the transfer or exchange of the Debt Securities of such
series, to replace stolen, lost or mutilated Debt Securities of such series, to
maintain paying agencies and to hold monies for payment in trust) if, among
other things,
o we have deposited with the trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and
principal in respect thereof, will provide money in an amount
sufficient to pay the principal, premium, if any, and accrued interest
on the applicable debt securities, on the due date thereof or earlier
redemption (irrevocably provided for under arrangements satisfactory to
the trustee), as the case may be, in accordance with the terms of the
Indenture and the applicable debt securities,
o we have delivered to the trustee
- either
-- an opinion of counsel to the effect that holders will not
recognize income, gain or loss for federal income tax
purposes as a result of the exercise of our option under this
"Defeasance" provision 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 the deposit, defeasance
and discharge had not occurred, which opinion of counsel must
be based upon a ruling of the Internal Revenue Service to the
same effect unless there has been a change in applicable
federal income tax law or related treasury regulations after
the date of the Indenture that a ruling is no longer required
or
-- a ruling directed to the trustee received from the Internal
Revenue Service to the same effect as the aforementioned
opinion of counsel and
o an opinion of counsel to the effect that the creation of the defeasance
trust does not violate the Investment Company Act of 1940 and after the
passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the U.S. Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law,
o immediately after giving effect to that deposit on a pro forma basis,
no Event of Default has occurred and is continuing on the date of the
deposit or during the period ending on the 123rd day after the date of
the deposit, and the deposit will not result in a breach or violation
of, or constitute a default under, any other agreement or instrument to
which we are a party or by which we are bound,
o we are not prohibited from making payments in respect of the applicable
debt securities by the subordination provisions contained in an
Indenture and
o if at that time the applicable debt securities are listed on a national
securities exchange, we have delivered to the trustee an opinion of
counsel to the effect that the debt securities will not be delisted as
a result of a deposit, defeasance and discharge.
As more fully described in the prospectus supplement, the Indentures also
provide for defeasance of certain covenants.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
We may issue Stock Purchase Contracts, which represent contracts
obligating holders to purchase from us a specified number of shares of common
stock at a future date or dates. The price per share of common stock may be
fixed at the time the stock purchase contracts are issued or may be determined
by reference to a specific formula described in the stock purchase contracts.
The stock purchase contracts may be issued separately or as a part of units
("Stock Purchase Units") consisting of a stock purchase contract and debt
securities or debt obligations of third parties, including U.S. Treasury
securities, securing the holders' obligations to purchase the common stock under
the stock purchase contracts. The stock purchase contracts may require us to
make periodic payments to the holders of the stock purchase units or vice versa,
and these payments may be unsecured or prefunded on some basis. The stock
purchase contracts may require holders to secure their obligations thereunder in
a specified manner.
The prospectus supplement will describe the terms of any stock purchase
contracts or stock purchase units. The description in the prospectus supplement
will not be complete and will be qualified by reference to the stock purchase
contracts, and, if applicable, additional arrangements, relating to the stock
purchase contracts or stock purchase units.
DESCRIPTION OF SECURITIES WARRANTS
We may issue securities warrants for the purchase of debt securities,
preferred stock or common stock. Securities warrants may be issued independently
or together with debt securities, preferred stock or common stock and may be
attached to or separate from any offered securities. Each series of securities
warrants will be issued under a separate warrant agreement to be entered into
between us and a bank or trust company, as warrant agent. The securities warrant
agent will act solely as our agent in connection with the securities warrants
and will not assume any obligation or relationship of agency or trust for or
with any registered holders of securities warrants or beneficial owners of
securities warrants. This summary of some provisions of the securities warrants
is not complete. You should refer to the securities warrant agreement, including
the forms of securities warrant certificate presenting the securities warrants,
relating to the specific securities warrants being offered for the complete
terms of the securities warrant agreement and the securities warrants. That
securities warrant agreement, together with the terms of securities warrant
certificate and securities warrants, will be filed with the SEC in connection
with the offering of the specific securities warrants.
The particular terms of any issue of securities warrants will be
described in the prospectus supplement relating to the issue. Those terms may
include:
o the designation, aggregate principal amount, currencies, denominations
and terms of the series of debt securities purchasable upon exercise of
securities warrants to purchase debt securities and the price at which
the debt securities may be purchased upon exercise;
o the designation, number of shares, stated value and terms (including,
without limitation, liquidation, dividend, conversion and voting
rights) of the series of preferred stock purchasable upon exercise of
securities warrants to purchase shares of preferred stock and the price
at which such number of shares of preferred stock of such series may be
purchased upon such exercise;
o the number of shares of common stock purchasable upon the exercise of
securities warrants to purchase shares of common stock and the price at
which such number of shares of common stock may be purchased upon such
exercise;
o the date on which the right to exercise the securities warrants will
commence and the date on which the right will expire;
o United States Federal income tax consequences applicable to the
securities warrants; and
o any other terms of the securities warrants.
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Securities warrants for the purchase of preferred stock and common stock
will be offered and exercisable for U.S. dollars only. Securities warrants will
be issued in registered form only. The exercise price for securities warrants
will be subject to adjustment in accordance with the applicable prospectus
supplement.
Each securities warrant will entitle its holder to purchase the principal
amount of debt securities or the number of shares of preferred stock or common
stock at the exercise price set forth in, or calculable as set forth in, the
applicable prospectus supplement. The exercise price may be adjusted upon the
occurrence of certain events as set forth in the prospectus supplement. After
the close of business on the expiration date, unexercised securities warrants
will become void. We will specify the place or places where, and the manner in
which, securities warrants may be exercised in the applicable prospectus
supplement.
Prior to the exercise of any securities warrants to purchase debt
securities, preferred stock or common stock, holders of the securities warrants
will not have any of the rights of holders of the debt securities, preferred
stock or common stock purchasable upon exercise, including:
o in the case of securities warrants for the purchase of debt securities,
the right to receive payments of principal of, any premium or interest
on the debt securities purchasable upon exercise or to enforce
covenants in the applicable indenture; or
o in the case of securities warrants for the purchase of preferred stock
or common stock, the right to vote or to receive any payments of
dividends on the preferred stock or common stock purchasable upon
exercise.
PLAN OF DISTRIBUTION
We may sell the securities in any of three ways (or in any combination
thereof):
o through underwriters or dealers;
o directly to a limited number of purchasers or to a single purchaser; or
o through agents.
The prospectus supplement will set forth the terms of the offering of
such securities, including
o the name or names of any underwriters, dealers or agents and the
respective amounts of securities underwritten or purchased by each of
them,
o the initial public offering price of the securities and the proceeds to
us and any discounts, commissions or other items constituting
compensation from us and any discounts, commissions or concessions
allowed or reallowed or paid to dealers and any securities exchanges on
which the securities may be listed.
Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
If underwriters are used in the sale of any securities, the securities
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The securities may be either offered to the public through
underwriting syndicates represented by managing underwriters, or directly by
underwriters. Unless otherwise described in the prospectus supplement, the
obligations of the underwriters to purchase the securities will be subject to
certain conditions and the underwriters will be obligated to purchase all of the
securities if any are purchased.
If a dealer is utilized in the sale of any offered securities, we will
sell those securities to the dealer, as principal. The dealer may then resell
the offered securities to the public at varying prices to be determined by the
dealer at the time of resale.
Offered Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of Offered Securities in respect of which this Prospectus is delivered will
be named, and any commissions payable by
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the Company to such agent will be set forth, in the Prospectus Supplement.
Unless otherwise indicated in the Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment.
We may authorize underwriters, dealers or agents to solicit offers by
certain purchasers to purchase the securities from us at the public offering
price set forth in the prospectus supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
These contracts will be subject only to those conditions set forth in the
prospectus supplement, and the prospectus supplement will set forth the
commission payable for solicitation of such contracts.
Agents and underwriters may be entitled to indemnification by us against
certain civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the agents or underwriters may be
required to make in respect thereof. Agents and underwriters may be customers
of, engage in transactions with, or perform services for the Company in the
ordinary course of business.
LEGAL MATTERS
The legality of the Securities offered hereby will be passed upon for the
Company by Davis Polk & Wardwell, New York, New York.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998, incorporated in this
prospectus by reference from The AES Corporation's Current Report on Form 8-K
dated March 18, 1999, and the related financial statement schedules incorporated
in this prospectus by reference from The AES Corporation's Annual Report on Form
10-K for the year ended December 31, 1998, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
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