As filed with the Securities and Exchange Commission on August 24, 2000
Registration No. 333-40870
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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The AES Corporation Delaware 54-1163725
AES Trust VII Delaware 54-6473190
(Exact name of Registrant (State or other jurisdiction (I.R.S. employer
as specified in its of incorporation or identification number)
charter) organization)
1001 North 19th Street
Arlington, Virginia 22209
(703) 522-1315
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
Barry J. Sharp
1001 North 19th Street
Arlington, Virginia 22209
(703) 522-1315
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Richard D. Truesdell, Jr.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
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Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
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If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities being offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED AUGUST 24, 2000
PROSPECTUS
9,200,000
$3.00 Trust Convertible Preferred Securities
AES Trust VII
(liquidation amount $50 per security)
fully and unconditionally guaranteed by and convertible into common stock of
[LOGO]
The AES Corporation
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The selling securityholders identified in this prospectus may offer, from
time to time, up to 9,200,000 $3.00 Trust Convertible Preferred Securities of
AES Trust VII, which we refer to in this prospectus as the preferred
securities, or certain other securities that the preferred securities are
exchangeable or convertible into. The preferred securities represent undivided
preferred beneficial ownership interests in the assets of AES Trust VII, which
we refer to in this prospectus as the Trust.
The Trust is a Delaware business trust, created for the sole purpose of
issuing the preferred securities and common securities of the Trust and using
the proceeds from the issuance to purchase our 6% Junior Subordinated
Convertible Debentures due 2008, which we refer to in this in this prospectus
as the junior subordinated debentures.
Each preferred security is convertible into 1.0811 shares of our common
stock at any time prior to the close of business on May 14, 2008. This
conversion ratio is subject to adjustment, as described in this prospectus.
The selling securityholders may sell these securities from time to time
directly to purchasers or through agents, underwriters or dealers. If required,
the names of any other selling securityholders, agents or underwriters involved
in the sale of these securities and any applicable agent's commission, dealer's
purchase price or underwriter's discount will be set forth in a supplement to
this prospectus.
We will not receive any proceeds from the sale of these securities by the
selling securityholders. We will not be paying any underwriting discounts or
commissions in the offering of these securities by the selling securityholders.
You should read this prospectus and any supplement carefully before you
invest.
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Our common stock trades on the New York Stock Exchange under the symbol
"AES". On August 23, 2000, the last reported sale price of our common stock was
$59.14.
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Investing in these securities involves certain risks. See "Risk Factors"
beginning on page 9.
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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 o, 2000.
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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. The selling securityholders 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.
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TABLE OF CONTENTS
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Page
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About This Prospectus........................................................2
Summary Information..........................................................3
The Offering.................................................................5
Risk Factors.................................................................9
Where You Can Find More Information.........................................19
Incorporation of Documents by Reference.....................................19
Special Note on Forward-Looking Statements..................................20
The Company.................................................................20
Use of Proceeds.............................................................20
Ratio of Earnings to Fixed Charges..........................................21
Price Range of AES Common Stock and Dividend Policy.........................21
AES Trust VII...............................................................22
Description of Preferred Securities.........................................24
Description of Preferred Securities Guarantees..............................40
Description of the Junior Subordinated Debentures...........................42
Relationship Between the Preferred Securities, the Junior
Subordinated Debentures and the Preferred Securities Guarantee............50
Certain United States Federal Income Tax Considerations.....................51
ERISA Considerations........................................................56
Selling Securityholders.....................................................57
Plan of Distribution........................................................60
Legal Matters...............................................................60
Experts.....................................................................61
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, the selling securityholders may sell the securities
described in this prospectus from time to time. This prospectus provides you
with a general description of the securities the selling securityholders may
offer. Each time the selling securityholders 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".
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SUMMARY INFORMATION
Questions and Answers
This summary provides a brief overview of the key aspects of the preferred
securities. You should carefully read this prospectus to understand fully the
terms of the preferred securities as well as the tax and other considerations
that are important to you in making a decision about whether to invest in the
preferred securities. You should pay special attention to the "Risk Factors"
section beginning on page 9 of this prospectus to determine whether an
investment in the preferred securities is appropriate for you.
What are the preferred securities?
Each preferred security represents an undivided beneficial interest in the
assets of AES Trust VII, which we refer to in this prospectus as the Trust.
Each preferred security will entitle the holder to receive cash distributions
as described in this prospectus.
Who is the Trust?
The Trust is a Delaware business trust and a subsidiary of The AES
Corporation, which we refer to in this prospectus as AES. Its principal place
of business is c/o The AES Corporation, 1001 North 19th Street, Arlington,
Virginia 22209, and its telephone number is (703) 522-1315. All of the common
securities of the Trust are owned by AES. The Trust used the proceeds from the
sale of the preferred securities and the common securities, which together we
refer to in this prospectus as the Trust securities, to the initial purchasers
to buy a series of junior subordinated deferrable interest debentures, which we
refer to as the junior subordinated debentures, from AES with the same
financial terms as the preferred securities.
Who is The AES Corporation?
We are a global power company. The mailing address of our principal
executive office is 1001 North 19th Street, Arlington, Virginia 22209 and our
telephone number is (703) 522-1315.
When will you receive distributions on the preferred securities?
The Trust's only source of cash to make payments on the preferred
securities are payments on the junior subordinated debt trust securities it
purchases from us. If you purchase the preferred securities, you are entitled
to receive cumulative cash distributions at an annual rate of $3.00 per
preferred security, accruing from May 17, 2000 and payable (except as described
below) quarterly in arrears on February 15, May 15, August 15 and November 15
of each year beginning on August 15, 2000.
When will payment of your distributions be deferred?
If we defer interest payments on the junior subordinated debentures, the
Trust will defer distributions on the preferred securities for up to 20
consecutive quarters. During any deferral period, with certain exceptions, we
will not be permitted to:
o declare or pay a dividend or make any distributions on our capital
stock or redeem, purchase, acquire or make a liquidation payment on
any of our capital stock or make any guarantee payments relating to
the foregoing; or
o make an interest, principal or premium payment on, or repurchase or
redeem any of our debt securities that rank equal with or junior to
the junior subordinated debentures.
When can the Trust redeem the preferred securities?
The Trust must redeem all of the outstanding trust securities on May 15,
2008. In addition, if we redeem any junior subordinated debentures before their
maturity, the Trust will use the cash it receives from the redemption to
redeem, on a pro rata basis, preferred securities and common securities having
a combined liquidation amount equal to the principal amount of the junior
subordinated debentures redeemed.
We can redeem some or all of the junior subordinated debentures before
their maturity on one or more occasions in whole or in part at the prices
specified in this prospectus at any time on or after May 19, 2003, and at any
time at 100% of their principal amount if certain changes in laws occur and
certain other conditions are satisfied, as more fully described under
"Description of the Preferred
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Securities--Special Event Redemption or Distribution".
What is AES's guarantee of the preferred securities?
We have irrevocably guaranteed that if a payment on the junior
subordinated debentures is made to the Trust but for any reason, the Trust does
not make the corresponding distribution or redemption payment to the holders of
the preferred securities, then we will make the payments directly to the
holders of the preferred securities. The guarantee does not cover payments when
the Trust does not have sufficient funds to make payments on the preferred
securities. Our obligations under the guarantee are subordinated as described
under "Description of the Preferred Securities Guarantee--Status of the
Preferred Securities Guarantee".
When could the junior subordinated debentures be distributed to you?
We have the right to dissolve the Trust at any time. If we dissolve the
Trust, the Trust will redeem the preferred securities by distributing the
junior subordinated debentures to holders of the preferred securities and the
common securities on a ratable basis.
Will holders of the preferred securities have any voting rights?
Generally, the holders of the preferred securities will not have any
voting rights. See "Description of the Preferred Securities".
In what form will the preferred securities be issued?
The preferred securities will be represented by one or more global
securities that will be deposited with and registered in the name of The
Depository Trust Company or its nominee. This means that you will not receive a
certificate for your preferred securities and that your broker will maintain
your position in the preferred securities.
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THE OFFERING
Securities Offered.......... 9,200,000 Trust Convertible Preferred Securities,
which we refer to in this prospectus as the
preferred securities, and the securities into
which the preferred securities may be exchanged
or converted.
Issuer...................... AES Trust VII, which we refer to in this
prospectus as the Trust, a Delaware business
trust. The only assets of the Trust will consist
of our 6% junior subordinated convertible
debentures due 2008, which we refer to in this
prospectus as the junior subordinated debentures.
Guarantor................... The AES Corporation, a Delaware corporation.
Distributions............... Distributions on the preferred securities will
accrue from May 17, 2000 and will be payable at
an annual rate of $3.00 per preferred security.
Subject to the deferral provisions described
below, distributions will be cumulative payable
quarterly in arrears on February 15, May 15,
August 15 and November 15, of each year,
commencing August 15, 2000. Because distributions
on the preferred securities are considered
interest for U.S. federal income tax purposes,
corporate holders thereof will not be entitled to
a dividends-received deduction.
Distribution Deferral
Provisions.................. The ability of the Trust to pay distributions on
the preferred securities depends only on the
receipt of interest payments from AES on the
junior subordinated debentures. As long as we do
not default in the payment of interest on the
junior subordinated debentures, we have the right
to defer payments of interest on the junior
subordinated debentures by extending the interest
payment period from time to time for extension
periods not exceeding 20 consecutive quarterly
interest periods, each which we refer to in this
prospectus as an extension period; provided that
we may not extend the interest payment periods
beyond the maturity of the junior subordinated
debentures. Quarterly distributions on the
preferred securities would be deferred by the
Trust, but would continue to accumulate quarterly
and accrue interest until the end of any such
extension period. Upon the termination of an
extension period, payment is due on all accrued
and unpaid amounts on the junior subordinated
debentures. Upon such payment, the Trust would be
required to pay all accumulated and unpaid
distributions. If a deferral of an interest
payment occurs, the holders of the preferred
securities will continue to accrue income for
U.S. federal income tax purposes in advance of
the corresponding cash distribution.
Rights Upon Deferral of
Distributions............... During any period in which interest payments on
the junior subordinated debentures are deferred,
interest will accrue on the junior subordinated
debentures and quarterly distributions will
continue to accumulate with interest thereon at
the distribution rate, compounded quarterly. We
have agreed not to declare or pay any dividend
on, or redeem, purchase, acquire or make a
distribution or liquidation payment with respect
to our common stock or preferred stock or make
any guarantee payments with respect thereto
during any extension period. The foregoing does
not apply to any stock
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dividends payable in common stock.
Conversion Rights........... Each preferred security is convertible at any
time prior to the close of business on May 14,
2008 (or, in the case of preferred securities
called for redemption, prior to the close of
business on the business day, as defined in this
prospectus under "Description of the Preferred
Securities--Distributions", prior to the
applicable redemption date) at the option of the
holder into shares of common stock, at the rate
of 1.0811 shares of common stock for each
preferred security (equivalent to a conversion
price of $46.25 per share of common stock),
subject to adjustment in certain circumstances.
The foregoing conversion rate and conversion
price give effect to the 2-for-1 common stock
dividend paid on June 1, 2000. The reported last
sale price of our common stock on the New York
Stock Exchange composite tape at the close of the
regular session of trading on August 23, 2000 was
$59.75 per share. In connection with any
conversion of a preferred security, the
conversion agent will exchange these preferred
securities for the appropriate principal amount
of the junior subordinated debentures held for
the Trust and immediately convert these junior
subordinated debentures into common stock. No
fractional shares of common stock will be issued
as a result of a conversion. Instead fractional
interest will be paid by us in cash.
Liquidation Amount.......... If the Trust is liquidated, you will be entitled
to receive $50 per preferred security plus an
amount equal to any accrued and unpaid
distributions thereon to the date of payment,
unless junior subordinated debentures are
distributed to holders.
Redemption.................. The junior subordinated debentures will be
redeemable for cash, at our option, in whole or
in part, from time to time on or after May 19,
2003 at the prices specified herein or at any
time in certain circumstances upon the occurrence
of certain changes in laws at a redemption price
equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest
thereon, including compounded interest, to the
date of redemption. If we redeem junior
subordinated debentures, the Trust must redeem,
at the redemption price, trust securities having
a liquidation amount equal to the principal
amount of the junior subordinated debentures so
redeemed. The preferred securities will not have
a stated maturity date, although they will be
subject to mandatory redemption upon the
repayment of the junior subordinated debentures
at their stated maturity (May 15, 2008), upon
acceleration, earlier redemption or otherwise.
Preferred Securities
Guarantee.................. We will irrevocably and unconditionally
guarantee, on a subordinated basis and to the
extent set forth herein, the payment in full of
(1) any accrued and unpaid distributions and the
amount payable upon redemption of the preferred
securities to the extent we have made a payment
to the property trustee of interest or principal
on the junior subordinated debentures and (2)
generally, the liquidation amount of the
preferred securities to the extent the Trust has
assets available for distribution to holders of
preferred securities. The preferred securities
guarantee will be unsecured and will be
subordinate and junior in right of payment to all
of our other liabilities and will rank pari passu
in right of payment with the
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most senior preferred stock we issue from time to
time.
Voting Rights............... Generally, holders of the preferred securities
will not have any voting rights. If (1) the
property trustee fails to enforce its rights
under the junior subordinated debentures or (2)
the guarantee trustee fails to enforce its rights
under the preferred securities guarantee, a
record holder of the preferred securities may
institute a legal proceeding directly against us
to enforce these rights without first instituting
any legal proceeding against any other person or
entity. Notwithstanding the foregoing, if an
event of default under the indenture occurs and
is continuing and is caused by our failure to pay
interest or principal on our junior subordinated
debentures or we have failed to make a guarantee
payment, a holder of the preferred securities may
directly institute a proceeding against us for
enforcement of that payment.
Special Event Distribution;
Tax Event Redemption........ Upon the occurrence of a special event, as
defined in this prospectus under "Risk
Factors--Special event redemption or
distribution", except in certain limited
circumstances, we may cause the Trust to be
dissolved and cause the junior subordinated
debentures to be distributed to the holders of
the preferred securities. In the case of a tax
event, as defined in this prospectus under "Risk
Factors--Special event redemption or
distribution", we may also elect to cause the
preferred securities to remain outstanding and
pay additional interest, if any, on the junior
subordinated debentures. In certain circumstances
upon the occurrence of a tax event, we may redeem
the junior subordinated debentures at 100% of the
principal amount thereof plus accrued and unpaid
interest thereon.
Junior Subordinated
Debentures of AES........... The junior subordinated debentures will mature on
May 15, 2008 and will bear interest at the rate
of 6% per annum, payable quarterly in arrears. As
long as we are not in default with our interest
payments on the junior subordinated debentures,
we have the right to defer payments of interest
on the junior subordinated debentures by
extending the interest payment period from time
to time for an extension period not exceeding 20
consecutive quarterly interest periods. However,
no interest period may be extended beyond the
stated maturity of the junior subordinated
debentures. Prior to the termination of any
extension period, we may pay all or a portion of
the accrued distributions or may further defer
interest payments, provided the extension period,
as previously and further extended, does not
exceed 20 consecutive quarters. During any
extension period, no interest will become due,
but interest will continue to accrue and compound
quarterly. Upon termination of the extension
period, payment is due on all accrued and unpaid
amounts. After the payment of all amounts then
due, we may commence a new extension period,
subject to the conditions of this paragraph.
During any extension period, we will be
prohibited from paying dividends on any of our
common stock or preferred stock or making any
guarantee payments with respect thereto;
provided, among other things, that the foregoing
shall not apply to any stock dividends payable in
common stock.
The payment of principal and interest on the
junior subordinated debentures will rank junior
to all of our present and future senior
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and senior subordinated debt. In addition,
payment of principal and interest on the junior
subordinated debentures will be structurally
subordinated to the liabilities of our
subsidiaries. As of March 31, 2000, we had $2,656
million of senior and subordinated debt (which
includes $346 million of letters of credit)
outstanding. In addition, our subsidiaries had
debt and other obligations of $13,335 million, to
which the junior subordinated debentures are
effectively subordinated. The indenture, under
which the junior subordinated debentures will be
issued, does not limit the aggregate amount of
senior and subordinated debt that we may incur
and does not limit the liabilities of our
subsidiaries. The junior subordinated debentures
will have provisions with respect to interest,
optional redemption and conversion into common
stock and certain other terms substantially
similar to those of the preferred securities.
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RISK FACTORS
Purchasers of the securities should read this entire prospectus carefully.
Ownership of the securities involves certain risks. The following factors and
the other information in this prospectus should be considered carefully in
evaluating us and our business before purchasing the securities offered by this
prospectus.
Our high degree of leverage could affect our ability to fulfill our
obligations under our securities. We had approximately $13,715 million of
outstanding indebtedness at March 31, 2000. As a result, we might be
significantly limited in our ability to meet our debt service obligations, to
finance the acquisition, development or completion of additional projects, to
compete effectively or to operate successfully under adverse economic
conditions. As of March 31, 2000, we had a consolidated ratio of total debt to
total book capitalization (including current debt) of approximately 72%.
We are not required to pay you under the guarantee and the junior
subordinated debentures unless we first make other required payments and
satisfy a specified debt service coverage ratio. Our obligations under the
junior subordinated debentures will rank junior to all of our senior and senior
subordinated indebtedness, including, but not limited to, the amounts
outstanding under our current $850 million revolving credit facility. As of
March 31, 2000, we had approximately $1,581 million in aggregate principal
amount of senior debt (which includes $346 million of letters of credit) and
$2,656 million in aggregate principal amount of senior and senior subordinated
debt. This means that we cannot make any payments on the junior subordinated
debentures if we default on a payment of senior indebtedness or senior
subordinated indebtedness and do not cure the default within the applicable
grace period or if the senior indebtedness or senior subordinated indebtedness
becomes immediately due because of a default and has not yet been paid in full.
In addition, our obligations under the junior subordinated debentures will be
effectively subordinated to all existing and future liabilities of our
subsidiaries.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings, the holders of senior and senior
subordinated debt will be entitled to receive payment in full of all amounts
due under all senior and senior subordinated debt before the holders of the
junior subordinated debentures will be entitled to receive any payment on the
junior subordinated debentures.
No payments in respect of the junior subordinated debentures may be made
if
o a default has occurred and is continuing in a payment under the
senior and senior subordinated debt or
o during certain periods when an event of default under certain senior
and senior subordinated debt, respectively, permits the respective
lenders thereunder to accelerate the maturity thereof.
The preferred securities will rank
o subordinate and junior in right of payment to all our other
liabilities, including the junior subordinated debentures, except
those made pari passu by their terms and
o senior to all capital stock now or hereafter issued by us and to any
guarantee now or hereafter entered into by us in respect of any of
our capital stock.
See "Description of the Preferred Securities Guarantees--Status of the
Preferred Securities Guarantees". Moreover, we have agreed, in the terms of
certain of our indebtedness, not to make distributions on the preferred
securities if we are not satisfying a specified debt service coverage ratio.
The junior subordinated debentures will be effectively subordinated to the
indebtedness and other obligations of our subsidiaries. At March 31, 2000, the
indebtedness and obligations of our subsidiaries aggregated approximately
$13,335 million. Our ability to pay principal of, premium, if any, and interest
on the junior subordinated debentures will be dependent upon the receipt of
funds from our subsidiaries by way of dividends, fees, interest, loans or
otherwise. There are no terms in the junior subordinated debentures, the
preferred securities or the preferred securities guarantee that limit our or
our subsidiaries' ability to incur additional indebtedness.
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Most of our subsidiaries with interests in power generation facilities
currently are obligated, pursuant to loan agreements or indentures, to satisfy
certain restricted payment covenants before they may make distributions to us.
Moreover, the indenture for the junior subordinated debentures permits our
subsidiaries to maintain or add to such restrictions. Our subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the junior subordinated
debentures or the preferred securities or to make any funds available therefor,
whether by dividends, loans or other payments, and do not guarantee the payment
of interest on or principal of the junior subordinated debentures or the
preferred securities. Any right we have to receive any assets of any of our
subsidiaries upon any liquidation, dissolution, winding up, receivership,
reorganization, assignment for the benefit of creditors, marshaling of assets
and liabilities or any bankruptcy, insolvency or similar proceedings (and the
consequent right of the holders of the junior subordinated debentures and
preferred securities to participate in the distribution of, or to realize
proceeds from, those assets) will be effectively subordinated to the claims of
any such subsidiary's creditors (including trade creditors and holders of debt
issued by such subsidiary).
We are not required to pay you under the guarantee if the Trust does not
have cash available. The ability of the Trust to make payments on the preferred
securities is solely dependent upon us making the related payments on the
junior subordinated debentures when due. If we default on our obligations to
make payments on the junior subordinated debentures, the Trust will not have
sufficient funds to make payments on the preferred securities. In those
circumstances, you will not be able to rely upon the guarantee for payment of
these amounts.
Our ability to make distributions. The ability of the Trust to make
distributions and other payments on the preferred securities is solely
dependent upon us making interest and other payments on the junior subordinated
debentures deposited as trust assets as and when required. If we were not to
make distributions or other payments on the junior subordinated debentures for
any reason, including as a result of our election to defer the payment of
interest on the junior subordinated debentures by extending the interest period
on the junior subordinated debentures, the Trust will not make payments on the
preferred securities. In such an event, holders of the preferred securities
would not be able to rely on the preferred securities guarantee since
distributions and other payments on the preferred securities are subject to
this guarantee only if and to the extent that we have made a payment to the
Property Trustee, as defined in this prospectus under "AES Trust VII--Powers
and Duties and Trustees", of interest or principal on the junior subordinated
debentures deposited in the trust as trust assets. Instead, holders of
preferred securities would rely on the enforcement by the Property Trustee of
its rights as registered holder of the junior subordinated debentures against
us pursuant to the terms of the indenture, as defined in this prospectus under
"Description of the Junior Subordinated Debentures". However, if the Trust's
failure to make distributions on the preferred securities is a consequence of
the exercise by us of our right to extend the interest payment period for the
junior subordinated debentures, the Property Trustee will have no right to
enforce the payment of distributions on the preferred securities until an event
of default, as defined in this prospectus under "AES Trust VII--The Property
Trustee", under the declaration, as defined in this prospectus under "AES Trust
VII", shall have occurred.
The declaration provides that we shall pay for all debts and obligations
(other than with respect to the Trust securities) and all costs and expenses of
the Trust, including any taxes and all costs and expenses with respect thereto,
to which the Trust may become subject, except for United States withholding
taxes. No assurance can be given that we will have sufficient resources to
enable us to pay these debts, obligations, costs and expenses on behalf of the
Trust.
Option to extend interest payment period; tax impact of extension. So long
as we are not in default in the payment of interest on the junior subordinated
debentures, we have the right under the indenture to defer payments of interest
on the junior subordinated debentures by extending the interest payment period
from time to time on the junior subordinated debentures for an extension period
not exceeding 20 consecutive quarterly interest periods, referred to in this
prospectus as an "extension period," during which no interest shall be due and
payable. In this event, quarterly distributions on the preferred securities
would not be made by the Trust during any extension period. If we exercise the
right to extend an interest payment period, we may not during the extension
period declare or pay dividends on, or redeem, purchase, acquire or make a
distribution or
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liquidation payment with respect to, any of our common stock or preferred
stock; provided that:
o we will be permitted to pay accrued dividends upon the exchange or
redemption of any series of our preferred stock as may be outstanding
from time to time, in accordance with the terms of that stock and
o the foregoing will not apply to stock dividends paid by us.
Under our certificate of incorporation, we are authorized to issue up to
50,000,000 shares of preferred stock. As of May 1, 2000, no shares of our
preferred stock were outstanding. We may from time to time offer shares of our
preferred stock to the public.
Prior to the termination of any extension period, we may further extend
that extension period; provided that such extension period together with all
such previous and further extensions thereof may not exceed 20 consecutive
quarterly interest periods. Upon the termination of any extension period and
the payment of all amounts then due, we may commence a new extension period,
subject to the above requirements. We may also prepay at any time all or any
portion of the interest accrued during an extension period. Consequently, there
could be multiple extension periods of varying lengths throughout the term of
the junior subordinated debentures, not to exceed 20 consecutive quarters or to
cause any extension beyond the maturity of the junior subordinated debentures.
Because we have the right to extend the interest payment period for an
extension period of up to 20 consecutive quarterly interest periods on various
occasions, the junior subordinated debentures will be treated as issued with
"original issue discount" for United States federal income tax purposes. As a
result, holders of preferred securities will be required to include their pro
rata share of original issue discount in gross income as it accrues for United
States federal income tax purposes in advance of the receipt of cash.
Generally, all of a securityholder's taxable interest income with respect to
the junior subordinated debentures will be accounted for as "original issue
discount" and actual distributions of stated interest will not be separately
reported as taxable income.
Deferral of distributions would have adverse tax consequences for you and
may adversely affect the trading price of the preferred securities. If
distributions on the preferred securities are deferred, you will be required to
recognize interest income for United States federal income tax purposes in
respect of your ratable share of the interest on the junior subordinated
debentures held by the Trust before you receive any cash distributions relating
to this interest. In addition, you will not receive this cash if you sold the
preferred securities before the end of any deferral period or before the record
date relating to distributions which are paid. We have no current intention of
deferring interest payments on the junior subordinated debentures. However, if
we exercise our right in the future, the preferred securities may trade at a
price that does not fully reflect the value of accrued but unpaid interest on
the junior subordinated debentures. If you sell the preferred securities during
an interest deferral period, you may not receive the same return on investment
as someone else who continues to hold the preferred securities. In addition,
the existence of our right to defer payments of interest on the junior
subordinated debentures may mean that the market price for the preferred
securities, which represent an undivided beneficial interest in the junior
subordinated debentures, may be more volatile than other securities that do not
have these rights.
You should not rely on the distributions from the preferred securities
through their maturity date--they may be redeemed at any time if certain
changes in law occur. If certain changes, which are more fully described below,
in laws occur and are continuing, and certain other conditions which are more
fully described below are satisfied, the preferred securities could be redeemed
by the Trust within 90 days of the event at a redemption price of $50 per
preferred security plus any accrued and unpaid distributions. See "Description
of the Preferred Securities".
You should not rely on the distributions from the preferred securities
through their maturity date--they may be redeemed at our option. The junior
subordinated debentures may be redeemed, in whole, at any time, or in part,
from time to time, on or after May 19, 2003 at the redemption prices set forth
herein plus any accrued and unpaid interest to the redemption date. You should
assume that this redemption option will be exercised if we are able to
refinance at a lower interest rate or it is otherwise in our interest to redeem
the junior subordinated debentures. If the junior subordinated debentures are
redeemed, the Trust must redeem the preferred
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securities and the common securities having an aggregate liquidation amount
equal to the aggregate principal amount of junior subordinated debentures to be
redeemed. See "Description of the Preferred Securities" and "Description of the
Junior Subordinated Debentures".
There can be no assurance as to the market prices for the preferred
securities or the junior subordinated debentures; therefore, you may suffer a
loss. We and the Trust cannot give you any assurance as to the market prices
for the preferred securities or the junior subordinated debentures that may be
distributed in exchange for preferred securities. Accordingly, the preferred
securities that an investor may purchase, whether pursuant to the offer made by
this prospectus or in the secondary market, or the junior subordinated
debentures that a holder of preferred securities may receive in exchange for
preferred securities, may trade at a discount to the price that the investor
paid to purchase the preferred securities. As a result of the right to defer
payments on the preferred securities, the market price of the preferred
securities may be more volatile than the market prices of other securities to
which such optional deferrals do not apply.
There could be an adverse tax consequence to you if we terminate the Trust
and distribute junior subordinated debentures to holders, resulting in possible
tax and liquidity consequences to you. We have the right to dissolve the Trust
at any time, so long as we obtain any required regulatory approval. If we
decide to exercise our right to dissolve the Trust, it will redeem the
preferred securities and common securities by distributing the junior
subordinated debentures to holders of the preferred securities and common
securities on a ratable basis. Under current United States federal income tax
law, a distribution of junior subordinated debentures to you on the dissolution
of the Trust should not be a taxable event to you. However, if the Trust is
characterized for United States federal income tax purposes as an association
taxable as a corporation at the time it is dissolved or if there is a change in
law, the distribution of junior subordinated debentures to you may be a taxable
event to you.
There may be no trading market for the junior subordinated debentures if
the Trust distributes them to you. If the junior subordinated debentures are
distributed, we cannot assure you that a trading market will exist for those
securities.
Since you have limited voting rights, you cannot prevent the Trust's
trustees from taking actions you may not agree with. You will have limited
voting rights. In particular, except for the limited exceptions described
below, only we can elect or remove any of the Trust's trustees.
Special event redemption or distribution. Upon the occurrence and during
the continuation of a tax event or investment company event, each as defined on
the next page, which may occur at any time, the Trust shall, unless the junior
subordinated debentures are redeemed in the limited circumstances described
below, be dissolved with the result that junior subordinated debentures having
an aggregate principal amount equal to the aggregate stated liquidation amount
of, and bearing accrued and unpaid distributions on, the preferred securities
and common securities would be distributed on a pro rata basis to the holders
of the preferred securities and common securities in liquidation of the Trust.
In the case of a tax event, in certain circumstances, we shall have the right
to redeem at any time the junior subordinated debentures in whole or in part,
in which event the Trust will redeem preferred securities and common securities
on a pro rata basis to the same extent as the junior subordinated debentures
are redeemed. There can be no assurance as to the market prices for preferred
securities or the junior subordinated debentures which may be distributed in
exchange for preferred securities if a dissolution and liquidation of the Trust
were to occur. Accordingly, the preferred securities that an investor may
purchase, or the junior subordinated debentures that the investor may receive
on dissolution and liquidation of the Trust, may trade at a discount to the
price that the investor paid to purchase the preferred securities offered
hereby. Because holders of preferred securities may receive junior subordinated
debentures upon the occurrence of a special event, as defined on the next page,
prospective purchasers of preferred securities are also making an investment
decision with regard to the junior subordinated debentures and should carefully
review all the information regarding the junior subordinated debentures
contained in this prospectus relating to junior subordinated debentures.
There can be no assurance that future federal legislative proposals will
not prevent us from deducting interest on the junior subordinated debentures.
This would constitute a tax event and could result in the distribution of any
junior subordinated debentures to holders of the preferred securities or, in
certain circumstances, the redemption
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of these securities by us and the distribution of the resulting cash in
redemption of the preferred securities.
"Tax event" means that the Regular Trustees, as defined in this prospectus
under "AES Trust VII--Powers and Duties and Trustees", shall have obtained an
opinion of a nationally recognized independent tax counsel experienced in such
matters, referred to as a "dissolution tax opinion," to the effect that on or
after May 11, 2000, as a result of
o any amendment to, or change in, the laws (or any regulations
thereunder) of the United States or any political subdivision or
taxing authority thereof or therein,
o any amendment to, or change in, an interpretation or application of
any such laws or regulations by any legislative body, court,
governmental agency or regulatory authority (including the enactment
of any legislation and the publication of any judicial decision or
regulatory determination),
o any interpretation or pronouncement that provides for a position with
respect to such laws or regulations that differs from the theretofore
generally accepted position or
o any action taken by any governmental agency or regulatory authority,
which amendment or change is enacted, promulgated, issued or
effective or which interpretation or pronouncement is issued or
announced or which action is taken, in each case on or after the date
of this prospectus, where there is more than an insubstantial risk
that
o the Trust is, or will be within 90 days of the date hereof, subject
to United States federal income tax with respect to income accrued or
received on the junior subordinated debentures,
o the Trust is, or will be within 90 days of the date hereof, subject
to more than a de minimis amount of other taxes, duties or other
governmental charges or
o interest payable by us to the Trust on the junior subordinated
debentures is not, or within 90 days of the date hereof will not be,
deductible by us for United States federal income tax purposes.
"Investment company event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended, commonly
referred to as the 1940 Act, that as a result of the occurrence of a change in
law or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the Trust is or will
be considered an "investment company" which is required to be registered under
the 1940 Act, which change in 1940 Act law becomes effective on or after May
11, 2000.
"Special event" means a tax event or an investment company event.
The preferred securities constitute a new issue of securities with no
established trading market. The preferred securities may trade at a price that
does not fully reflect the value of accrued but unpaid interest with respect to
the underlying junior subordinated debentures. A holder who disposes of his
preferred securities between record dates for payments of distributions thereon
will be required to include accrued but unpaid interest on the junior
subordinated debentures through the date of disposition in income as ordinary
income, and to add such amount to his adjusted tax basis in his pro rata share
of the underlying junior subordinated debentures deemed disposed of.
Accordingly, such a holder will recognize a capital loss to the extent the
selling price (which may not fully reflect the value of accrued but unpaid
interest) is less than the holder's adjusted tax basis (which will include
accrued but unpaid interest). Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
Potential market volatility during extension period. As described above,
we have the right to extend an interest payment period on the junior
subordinated debentures from time to time for a period not exceeding 20
consecutive quarterly interest periods. If we determine to extend an interest
payment period, or if we thereafter extend an extension period or prepay
interest accrued during an extension period as described above, the market
price of the preferred securities is likely to be affected. In addition, as a
result of these rights, the market price
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of the preferred securities (which represent an undivided interest in junior
subordinated debentures) may be more volatile than other securities on which
original issue discount accrues that do not have such rights. A holder that
disposes of its preferred securities during an extension period, therefore, may
not receive the same return on its investment as a holder that continues to
hold its preferred securities.
We do a significant amount of our business outside the United States which
presents significant risks. Our involvement in the development of new
businesses and the acquisition of existing plants in locations outside the
United States is increasing and a large portion of our current development and
acquisition activities are for projects and plants outside 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, regulation of the electricity business,
currency inconvertibility, tax law, 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, against
which we may not be capable of fully insuring or hedging. The ability to obtain
financing on a commercially acceptable non-recourse basis in developing nations
has become more difficult. Even when such non- recourse financing is available,
lenders may require us to make higher equity 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 businesses. In addition, the laws and regulations of certain
countries may limit our ability to hold a majority interest in some of the
businesses that we may develop or acquire. International businesses 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 or resolved in a timely manner.
Global competition is increasing and could adversely affect us. The global
power production market is characterized by numerous strong and capable
competitors, many of whom may have extensive and diversified developmental or
operating experience (including both domestic and international experience) and
financial resources similar to or greater than ours. Further, in recent years,
the power production industry has been characterized by strong and increasing
competition with respect to both obtaining power sales agreements and acquiring
existing power generation assets. In certain markets, these factors have caused
reductions in prices contained in new power sales agreements and, in many
cases, have caused higher acquisition prices for existing assets through
competitive bidding practices. The evolution of competitive electricity markets
and the development of highly efficient gas-fired power plants have also
caused, or are anticipated to cause, price pressure in certain power markets
where we sell or intend to sell power. There can be no assurance that the
foregoing competitive factors will not have a material adverse effect on us.
Development uncertainties. The majority of the projects that we develop
are large and complex and the completion of any such project is subject to
substantial risks. Development can require us to expend significant sums for
preliminary engineering, permitting, legal and other expenses in preparation
for competitive bids which we may not win or before it can be determined
whether a project is feasible, economically attractive or capable of being
financed. Successful development and construction is contingent upon, among
other things, negotiation of satisfactory engineering, construction, fuel
supply and power sales contracts with other project participants, receipt of
required governmental permits and consents and timely implementation and
satisfactory completion of construction. There can be no assurance that we will
be able to obtain new power sales contracts, overcome local opposition, if any,
obtain the necessary site agreements, fuel supply and ash disposal agreements,
construction contracts, steam sales contracts, licenses and certifications,
environmental and other permits and financing commitments necessary for the
successful development of our projects. There can be no
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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 junior subordinated debentures. 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", above.
Our acquisitions may not perform as expected. We have achieved a majority
of our growth through acquisitions and expect that we will continue to grow, in
part, through acquisitions. Although each of the acquired businesses had a
significant operating history at the time we acquired them, we have a limited
history of owning and operating many of these businesses. In addition, most of
these businesses were government owned and some were operated as part of a
larger integrated utility prior to their acquisition. There can be no assurance
that we will be successful in transitioning these to private ownership, that
such businesses will perform as expected or that the returns from such
businesses will support the indebtedness incurred to acquire them or the
capital expenditures needed to develop them.
We may not be able to raise sufficient capital to fund acquisitions and
greenfield projects or refinance existing debt. Each of our projects under
development and those independent power facilities we have committed to acquire
or may seek to acquire may require substantial capital investment. Continued
access to capital with acceptable terms is necessary to ensure the success of
future projects and acquisitions, and may be necessary to refinance certain
existing debt. 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, we are
frequently required to provide more sponsor equity for projects that sell their
electricity into the merchant market than for projects that sell their
electricity under long term contracts.
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
notes, senior subordinated notes, convertible debentures, convertible trust
preferred securities and common stock.
Our ability to arrange for financing on either a fully recourse or a
substantially non-recourse basis and the costs of such capital are dependent on
numerous factors, including general economic and capital market conditions, the
availability of bank credit, rating agency ratings, investor confidence, the
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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.
The performance of our generation business is dependent to a large degree
on certain of our larger projects and their customers. The nature of most of
our generation plants (based on revenues) 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 significant customer to fulfill its contractual
obligations could have a substantial negative impact on these 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.
Our revenues are becoming less predictable. Our business primarily
consists of businesses with long-term contracts or retail concessions, and we
expect the contract-based portfolio to be an effective hedge against future
energy and electricity market price risks. However, an increasing proportion of
our current and expected future revenues are derived from businesses without
significant long-term revenue contracts. Our increasing reliance on
non-contract businesses could cause our results of operations to become more
volatile.
Our distribution businesses are subject to greater regulatory scrutiny
than our generation business. Our distribution businesses face increased
regulatory and political scrutiny in the normal conduct of their operations.
This scrutiny may adversely impact our results of operations, to the extent
that such scrutiny or pressure prevents us from reducing losses as quickly as
we planned or denies us a rate increase called for by our concession
agreements. In general, these businesses have lower margins and are more
dependent on regulation to ensure expected annual rate increases for inflation
and increased power costs, among other things. There can be no assurance that
these rate reviews will be granted, or occur in a timely manner.
We are subject to significant government regulation. Our generation
business in the United States is subject to the provisions of various laws and
regulations, including the Public Utility Regulatory Policies Act of 1978, as
amended, commonly referred to as PURPA, and the Public Utility Holding Company
Act, as amended, commonly referred to as PUHCA. PURPA provides to qualifying
facilities, commonly referred to as QFs, certain exemptions from substantial
federal and state legislation, including regulation as public utilities. PUHCA
regulates public utility holding companies and their subsidiaries. It is
necessary for us to obtain approval under PUHCA in order to maintain majority
ownership in our domestic power plants that are QFs. Currently, a material
portion of our domestic revenues are received from QFs. Moreover, all of our
domestic non-QF plants are Exempt Wholesale Generators, commonly referred to as
EWGs. An EWG is a facility that has been authorized by the U.S. Federal Energy
Regulatory Commission, commonly referred to as the FERC, to sell wholesale
power at market-based rates. We enjoy exemptions under PUHCA related to our
foreign utility acquisitions and holdings. We cannot ensure that we will be
able to maintain appropriate PUHCA exemptions for all of our businesses. If we
decide to acquire another U.S. utility or utility assets, we may be required to
divest either all or part of CILCORP or take other steps resulting in a loss of
control or as may be required by the Securities and Exchange Commission. 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 FERC to
obtain status as an 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.
Pending electric utility industry restructuring proposals could have an
adverse effect on us. Several
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states have passed legislation that allows electricity customers to choose
their electricity supplier in a competitive electricity market (so-called
"retail access" or "customer choice" laws), and all but two of the remaining
states are considering such legislation. In addition to state restructuring
legislation, some members of Congress have proposed new federal legislation to
encourage customer choice and recovery of stranded assets. Several bills have
been submitted to Congress on electricity restructuring. In anticipation of
restructuring legislation, many U.S. utilities are seeking ways to lower their
costs in order to become more competitive. These include the costs that
utilities are required to pay under QF contracts. Many utilities are therefore
seeking ways to lower these contract prices by renegotiating the contracts, or
in some cases by litigation. In 1999, we renegotiated contracts for two of our
QFs--Thames (a partial prepayment) and Placerita (a complete buyout). The
Thames transaction has been approved by the Connecticut Department of Public
Utilities Commission.
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 margin for United States electricity
sellers. Falling electricity prices, the introduction of commodity markets for
electricity and uncertainty as to the future structure of the industry has
rendered the long-term power purchase contracts obsolete. As a result, in the
generation business we are increasingly dependent upon prices for electricity
determined in electricity spot markets. Such prices can be very volatile and
the effect on us of this volatility cannot be predicted.
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 power generators 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 interconnection. 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 that PUHCA is repealed, competition 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.
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
Securities and Exchange Commission and incorporated by reference herein. There
can be no assurance 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,
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local and foreign governmental authorities. These regulations generally involve
effluents into the water, emissions into the air, the use of water, wetlands
preservation, waste disposal, endangered species, and noise regulation, among
others. 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 4, 2000 our two founders, Roger W. Sant and Dennis W.
Bakke, and their immediate families together owned beneficially approximately
18.4% 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 4, 2000 all of our officers and directors and their immediate families
together owned beneficially approximately 24.9% of our outstanding common
stock. To the extent that they decide to vote together, these stockholders
would be able to influence or control significantly the election of our
directors, our management and policies and any action requiring stockholder
approval, including significant corporate transactions.
Our adherence to our "shared principles" could have an adverse impact on
our results of operations. A core part of our corporate culture is a commitment
to "shared principles": to act with integrity, to be fair, to have fun and to
be socially responsible. We seek to adhere to these principles not as a means
to achieve economic success, but because adherence is a worthwhile goal in and
of itself. However, if we perceive a conflict between these principles and
profits, we will try to adhere to our principles -- even though doing so might
result in diminished or foregone opportunities or financial benefits.
Shares eligible for future sale. From time to time, our subsidiaries incur
indebtedness that is secured by a pledge of shares of our common stock held by
that subsidiary. The sale of a substantial number of such shares in the public
market upon any foreclosure or otherwise could have an adverse effect on the
market price of our common stock.
Risk of fraudulent transfer. Various fraudulent conveyance laws have been
enacted for the protection of creditors and may be applied by a court on behalf
of any unpaid creditor or a representative of our creditors in a lawsuit to
subordinate or avoid the junior subordinated debentures in favor of our other
existing or future creditors. Under applicable provisions of the U.S.
Bankruptcy Code or comparable provisions of state fraudulent transfer or
conveyance laws, if we at the time of issuance of junior subordinated
debentures,
o incurred such indebtedness with intent to hinder, delay or defraud
any of our present or future creditors or contemplated insolvency
with a design to prefer one or more creditors to the exclusion in
whole or in part of others or
o received less than reasonably equivalent value or fair consideration
for issuing junior subordinated debentures and we
o were insolvent,
o were rendered insolvent by reason of the issuance of the junior
subordinated debentures,
o were engaged or about to engage in business or a transaction for
which our remaining assets constitute unreasonably small capital
to carry on our business or
o intended to incur, or believed that we would incur, debts beyond
our ability to pay such debts as they mature,
then, in each case, a court of competent jurisdiction could void, in whole
or in part, the junior subordinated debentures.
Among other things, a legal challenge of the junior subordinated
debentures on fraudulent conveyance grounds may focus on the benefits, if any,
realized by us as a result of our issuance of the junior
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subordinated debentures.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, we would be
considered insolvent if the sum of our debts, including contingent liabilities,
were greater than all of our assets at fair valuation or if the present fair
market value of our assets were less than the amount that would be required to
pay the probable liability on our existing debts, including contingent
liabilities, as they become absolute and mature. There can be no assurance
that, after providing for all prior claims, there will be sufficient assets to
satisfy the claims of the holders of the junior subordinated debentures.
Management believes that, for purposes of all such insolvency, bankruptcy
and fraudulent transfer or conveyance laws, the junior subordinated debentures
are being incurred without the intent to hinder, delay or defraud creditors and
for proper purposes and in good faith, and that we, after the issuance of the
junior subordinated debentures, will be solvent, will have sufficient capital
for carrying on our business and will be able to pay our debts as they mature.
There can be no assurance, however, that a court passing on such questions
would agree with management's view.
There is no prior public market for the securities that may be offered
pursuant to this prospectus -- as a result there could be significant price
volatility for such securities. Prior to the offering, there has been no public
market for the securities that may be offered pursuant to this prospectus.
There can be no assurance that an active trading market for any of these
securities will develop or be sustained. If such a market were to develop, such
securities could trade at prices that may be higher or lower than their initial
offering price depending upon many factors, including prevailing interest
rates, our operating results and the markets for similar securities.
Historically, the market for non-investment grade debt has demonstrated
substantial volatility in prices of securities similar to the securities
offered pursuant to this prospectus. There can be no assurance that the future
market for these securities will not be subject to similar volatility.
Accordingly, no assurance can be given as to the liquidity of the securities
offered by this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document that we file at the public reference rooms of the Securities and
Exchange Commission 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 Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange Commission also
maintains an Internet site at http://www.sec.gov, from where you can access our
filings.
This prospectus constitutes part of a registration statement on Form S-3
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, commonly referred to as 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 AES 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 Securities and Exchange 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 Securities and Exchange Commission 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 Securities and Exchange Commission
will automatically update and supersede this information. In particular, our
annual filing on Form 10-K will supersede all previously filed annual reports
on Form 10-K, quarterly reports on Form 10-Q and current
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reports on Form 8-K. We incorporate by reference the documents listed below and
any future filings made with the Securities and Exchange Commission under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934,
commonly referred to as the Exchange Act, until we sell all of the securities:
(a) annual report on Form 10-K for the year ended December 31, 1999;
(b) quarterly report on Form 10-Q for the quarter ended March 31, 2000;
and
(c) current reports on Form 8-K filed on May 8, 2000, May 12, 2000, June
21, 2000, July 27, 2000, July 28, 2000 and August 18, 2000.
You may request a copy of these filings at no cost, by writing or
telephoning the office of William R. Luraschi, Vice President 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 related to AES, including those risks set forth
under "Risk Factors" in this prospectus and those set forth under the caption
"Cautionary Statements and Risk Factors" in our annual report on Form 10-K,
which is incorporated by reference in this prospectus.
We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this prospectus might not occur.
THE COMPANY
We are a global power company committed to serving the world's needs for
electricity in a socially responsible way. Our electricity "generation"
business consists of sales to wholesale customers (generally electric
utilities, regional electric companies or wholesale commodity markets known as
"power pools") for further resale to end-users. We also sell electricity
directly to end-users such as commercial, industrial, governmental and
residential customers through our "distribution" business.
Sales within our generation business are made under long-term contracts
from power plants owned by our subsidiaries and affiliates, as well as directly
into power pools. We own new plants constructed for such purposes, which we
refer to in this prospectus as greenfield plants, as well as older power plants
acquired through competitively bid privatization initiatives or negotiated
acquisitions.
Electricity sales by our distribution businesses, including affiliates,
are generally made pursuant of the provisions of long-term electricity sale
concessions granted by the appropriate governmental authorities. In certain
cases, these distribution companies are "integrated", in that they also own
electric power plants for the purpose of generating a portion of the
electricity they sell.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the securities being
offered by the selling securityholders.
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RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges is as follows:
Six Months
Ended
Year Ended December 31, June 30,
-------------------------------- ----------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Ratio of earnings to
fixed charges............ 2.20 1.88 1.46 1.65 1.50 1.51
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 depreciation of previously capitalized interest, plus
fixed charges, less capitalized interest, less excess of earnings over
dividends of less-than-fifty-percent-owned companies, less minority interest in
pre-tax income of subsidiaries that have not incurred fixed charges, less
preference security dividend requirements of a consolidated subsidiary. Fixed
charges consist of interest (including capitalized interest) on all
indebtedness, amortization of debt discount and capitalized expenses,
preference security dividend requirements of a consolidated subsidiary, and
that portion of rental expense which we believe to be representative of an
interest factor.
During the period from January 1, 1995 until March 31, 2000, no shares of
preferred stock were issued or outstanding, and during that period we did not
pay any preferred stock dividends.
PRICE RANGE OF AES COMMON STOCK AND DIVIDEND POLICY
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 April 2000, we announced a two- for-one
stock split, in the form of a stock dividend, for holders of record on May 1,
2000 of our common stock, par value $.01 per share, which was payable on June
1, 2000. The prices set forth below have been adjusted for such stock split.
High Low
------ -------
1998
First Quarter......................................... $ 27.16 $ 19.69
Second Quarter........................................ 29.00 22.82
Third Quarter......................................... 27.69 11.50
Fourth Quarter........................................ 23.69 16.00
1999
First Quarter......................................... 24.63 16.41
Second Quarter........................................ 29.88 18.38
Third Quarter......................................... 33.35 26.53
Fourth Quarter........................................ 38.19 25.22
2000
First Quarter......................................... $ 44.72 $ 34.25
Second Quarter........................................ 49.63 35.56
Third Quarter (through August 23, 2000)............... 59.75 45.13
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
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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.
AES TRUST VII
AES Trust VII is a statutory business trust formed on May 10, 2000 under
the Delaware Business Trust Act, which we refer to in this prospectus as the
Business Trust Act, pursuant to a declaration of trust among certain of the
trustees of the Trust and AES and the filing of a certificate of trust with the
Secretary of State of the State of Delaware. Such declaration was amended and
restated in its entirety on May 17, 2000, and is referred to in this prospectus
as the declaration.
Trust Securities
The holders of the preferred securities own all of the issued and
outstanding preferred securities. We acquired common securities in an amount
equal to at least 3% of the total capital of the Trust and own, directly or
indirectly, all of the issued and outstanding common securities. The Trust
exists for the purpose of (1) issuing its preferred securities and common
securities, which together we refer to in this prospectus as Trust securities,
for cash and investing the proceeds thereof in an equivalent amount of junior
subordinated debentures and (2) engaging in such other activities as are
necessary, convenient and incidental thereto. The rights of the holders of the
Trust securities, including economic rights, rights to information and voting
rights, are as set forth in the declaration, the Business Trust Act and the
Trust Indenture Act of 1939, as amended, which we refer to in this prospectus
as the Trust Indenture Act. The declaration does not permit the incurrence by
the Trust of any indebtedness for borrowed money or the making of any
investment other than in the junior subordinated debentures. In the
declaration, we have agreed to pay for all debts and obligations (other than
with respect to the Trust securities) and all costs and expenses of the Trust,
including the fees and expenses of the trustees and any income taxes, duties
and other governmental charges, and all costs and expenses with respect
thereto, to which the Trust may become subject, except for United States
withholding taxes.
Powers and Duties and Trustees
The number of trustees of the Trust shall initially be five. Three of such
trustees, which we refer to in this prospectus as the Regular Trustees, are
individuals who are our employees or officers. The fourth such trustee will be
Bank One, National Association, which we refer to in this prospectus as Bank
One. Bank One is unaffiliated with us and will serve as the property trustee,
which we refer to in this prospectus as the Property Trustee, and act as the
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indenture trustee for purposes of the Trust Indenture Act. The fifth such
trustee is Bank One Delaware, Inc., which we refer to in this prospectus as the
Delaware trustee, and has its principal place of business in the State of
Delaware. Pursuant to the declaration, legal title to the junior subordinated
debentures purchased by the Trust will be held by the Property Trustee for the
benefit of the holders of the Trust securities, and the Property Trustee will
have to exercise all rights, powers and privileges under the indenture with
respect to the junior subordinated debentures. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
bank account, which we refer to in this prospectus as the property account, to
hold all payments in respect of the junior subordinated debentures purchased by
the Trust for the benefit of the holders of Trust securities. The Property
Trustee will promptly make distributions to the holders of the Trust securities
out of funds from the property account. The preferred securities guarantee, as
defined in this prospectus under "Description of the Preferred Securities
Guarantees", will be held by Bank One, acting in its capacity as indenture
trustee with respect thereto, for the benefit of the holders of the preferred
securities. As used in this prospectus, the term "Property Trustee" with
respect to the Trust refers to Bank One acting either in its capacity as a
trustee under the declaration and the holder of legal title to the junior
subordinated debentures purchased by the Trust or in its capacity as indenture
trustee under, and the holder of, the preferred securities guarantee, as the
context may require. AES as the direct or indirect owner of all of the common
securities of the Trust, will have the exclusive right (subject to the terms of
the declaration) to appoint, remove or replace trustees and to increase or
decrease the number of trustees provided that the number of trustees shall be,
except under certain circumstances, at least five and the majority of trustees
shall be Regular Trustees.
The duties and obligations of the trustees of the Trust shall be governed
by the declaration, the Business Trust Act and the Trust Indenture Act. Under
its declaration, the Trust shall not, and the trustees shall cause the Trust
not to, engage in any activity other than in connection with the purposes of
the Trust or other than as required or authorized by the related declaration.
In particular, the Trust shall not and the trustees shall cause the Trust not
to:
(a) invest any proceeds received by the Trust from holding the junior
subordinated debentures purchased by the Trust but shall promptly distribute
from the property account all such proceeds to holders of Trust securities
pursuant to the terms of the related declaration and of the Trust securities;
(b) acquire any assets other than as expressly provided in the related
declaration;
(c) possess Trust property for other than a Trust purpose;
(d) make any loans, other than loans represented by the junior
subordinated debentures;
(e) possess any power or otherwise act in such a way as to vary the assets
of the Trust or the terms of its Trust securities in any way whatsoever;
(f) issue any securities or other evidences of beneficial ownership of, or
beneficial interests in, the Trust other than its Trust securities;
(g) incur any indebtedness for borrowed money or
(h) do any of the following:
o direct the time, method and place of exercising any trust or power
conferred upon the Indenture Trustee, as defined in this prospectus
under "Description of the Junior Subordinated Debentures", with
respect to the junior subordinated debentures deposited in the Trust
as trust assets or upon the Property Trustee with respect to the
preferred securities,
o waive any past default that is waivable under the indenture or the
declaration,
o exercise any right to rescind or annul any declaration that the
principal of all of the junior subordinated debentures deposited in
the Trust as trust assets shall be due and payable or
o consent to any amendment, modification or termination of the
indenture or such junior subordinated debentures, in each case where
such consent shall be required, unless in the case of this clause (h)
the Property Trustee shall have received an unqualified opinion of
nationally recognized independent tax counsel
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recognized as expert in such matters to the effect that such action
will not cause the Trust to be classified for United States federal
income tax purposes as an association taxable as a corporation or a
partnership and that the Trust will continue to be classified as a
grantor trust for United States federal income tax purposes.
Books and Records
The books and records of the Trust will be maintained at the principal
office of the Trust and will be open for inspection by a holder of preferred
securities or his representative for any purpose reasonably related to his
interest in the Trust during normal business hours.
The Property Trustee
The Property Trustee, for the benefit of the holders of the Trust
securities of the Trust, is authorized under the declaration to exercise all
rights under the indenture with respect to the junior subordinated debentures
deposited in the Trust, as trust assets, including its rights as the holder of
such junior subordinated debentures to enforce our obligations under such
junior subordinated debentures upon the occurrence of an indenture event of
default. The Property Trustee shall also be authorized to enforce the rights of
holders of preferred securities under the preferred securities guarantee. If
the Trust's failure to make distributions on the preferred securities is a
consequence of our exercise of any right under the terms of the junior
subordinated debentures deposited in the Trust as trust assets to extend the
interest payment period for such junior subordinated debentures, the Property
Trustee will have no right to enforce the payment of distributions on such
preferred securities until an event of default under the declaration with
respect to the Trust securities, which we refer to in this prospectus as an
event of default or declaration event of default, shall have occurred. Holders
of at least a majority in liquidation amount of the preferred securities held
by the Trust will have the right to direct the Property Trustee with respect to
certain matters under the declaration and the preferred securities guarantee.
If the Property Trustee fails to enforce its rights under the indenture or
fails to enforce the preferred securities guarantee, to the extent permitted by
applicable law, any holder of preferred securities may, after a period of 30
days has elapsed from such holder's written request to the Property Trustee to
enforce such rights, institute a legal proceeding against us to enforce such
rights or the preferred securities guarantee, as the case may be. In addition,
the holders of at least 25% in aggregate liquidation preference of the
outstanding preferred securities would have the right to directly institute
proceedings for enforcement of payments to such holders of principal of, or
premium, if any, or interest on the junior subordinated debentures having a
principal amount equal to the aggregate liquidation preference of the preferred
securities of such holders, which we refer to in this prospectus as a direct
action. In connection with such direct action, we will be subrogated to the
rights of such holder of preferred securities under the declaration to the
extent of any payment made by us to such holders of preferred securities in
such direct action. Notwithstanding the foregoing, if an event of default has
occurred and is continuing and such event is attributable to our failure to pay
interest or principal on the junior subordinated debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, on
the redemption date), then a holder of preferred securities may directly
institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the junior subordinated debentures having a
principal amount equal to the aggregate liquidation amount of the preferred
securities of such holder, which we refer to in this prospectus as a holder
direct action, on or after the respective due date specified in the junior
subordinated debentures. In connection with such holder direct action, we will
be subrogated to the rights of such holder of preferred securities under the
declaration to the extent of any payment we make to such holder of preferred
securities in such holder direct action.
DESCRIPTION OF THE PREFERRED SECURITIES
The preferred securities were issued pursuant to the terms of the
declaration. The Property Trustee, Bank One, but not the other trustees of the
Trust, will act as the indenture trustee for purposes of the Trust Indenture
Act. The terms of the preferred securities and the declaration include those
stated in the declaration and those made part of the declaration by the Trust
Indenture Act and the Business Trust Act.
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The following summarizes the material terms and provisions of the preferred
securities and is qualified in its entirety by reference to, the declaration,
the Business Trust Act and the Trust Indenture Act.
General
The declaration authorizes the Trust to issue the preferred securities,
which represent preferred undivided beneficial interests in the assets of the
Trust, and the common securities, which represent common undivided beneficial
interests in the assets of the Trust. We will own, directly or indirectly, all
of the common securities. The common securities and the preferred securities
rank pari passu with each other and will have equivalent terms except that (1)
if a declaration event of default occurs and is continuing, the rights of the
holders of the common securities to payment in respect of periodic
distributions, as defined in this prospectus under "--Distributions" below, and
payments upon liquidation, redemption or otherwise are subordinated to the
rights of the holders of the preferred securities and (2) holders of common
securities have the exclusive right (subject to the terms of the declaration)
to appoint, remove or replace trustees and to increase or decrease the number
of trustees. The declaration does not permit the issuance by the Trust of any
securities or other evidences of beneficial ownership of, or beneficial
interests in, the Trust other than the preferred securities and the common
securities, the incurrence of any indebtedness for borrowed money by the Trust
or the making of any investment other than in the junior subordinated
debentures. Pursuant to the declaration, the Property Trustee will own and hold
the junior subordinated debentures as trust assets for the benefit of the
holders of the preferred securities and the common securities. We guarantee the
payment of distributions out of moneys held by the Property Trustee and
payments on redemption of the preferred securities or liquidation of the Trust
on a subordinated basis as and to the extent described in this prospectus under
"Description of the Preferred Securities Guarantee". The Property Trustee will
hold the preferred securities guarantee for the benefit of holders of the
preferred securities. The preferred securities guarantee is a full and
unconditional guarantee from the time of issuance of the preferred securities,
but the preferred securities guarantee covers distributions and other payments
on the preferred securities only if and to the extent that we have made a
payment to the Property Trustee of interest or principal on the junior
subordinated debentures deposited in the Trust as trust assets. See "--Voting
Rights".
Distributions
Distributions on the preferred securities will be fixed at an annual rate
of $3.00 per preferred security. Distributions in arrears for more than one
quarter will bear interest thereon at the rate per annum of 6% (to the extent
permitted by law), compounded quarterly. The term "distributions" as used
herein includes any such interest payable unless otherwise stated. The amount
of distributions payable for any period will be computed on the basis of a
360-day year of twelve 30 day months.
Distributions on the preferred securities will be cumulative, will accrue
from May 17, 2000 and, except as otherwise described below, will be payable on
February 15, May 15, August 15 and November 15, of each year, commencing on
August 15, 2000, but only if, and to the extent that, interest payments are
made in respect of junior subordinated debentures held by the Property Trustee.
So long as we shall not be in default in the payment of interest on the
junior subordinated debentures, we have the right under the indenture to defer
payments of interest on the junior subordinated debentures by extending the
interest payment period from time to time on the junior subordinated debentures
for a period not exceeding 20 consecutive quarterly interest periods and, as a
consequence, the Trust would defer quarterly distributions on the preferred
securities (though such distributions would continue to accrue with interest
thereon at the rate of 6% per annum, compounded quarterly) during any such
extension period; provided that no such period may extend beyond the stated
maturity of the junior subordinated debentures. If we exercise the right to
extend an interest payment period, we may not declare or pay dividends on, or
redeem, purchase, acquire or make a distribution or liquidation payment with
respect to, any of our common stock or preferred stock during such extension
period; provided that the foregoing will not apply to any stock dividend by us
payable in common stock. Prior to the termination of any such extension period,
we may further extend such extension period; provided that such extension
period together with all such previous and further extensions thereof may not
exceed 20 consecutive quarterly interest periods. Upon the termination of any
extension period and the payment of all amounts then due, we may commence a new
extension period,
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subject to the above requirements. We may also prepay at any time all or any
portion of the interest accrued during an extension period. Consequently, there
could be multiple extension periods of varying lengths throughout the term of
the junior subordinated debentures, not to exceed 20 consecutive quarters or to
cause any extension beyond the maturity of the junior subordinated debentures.
See "Description of the Junior Subordinated Debentures--Interest" and "--Option
to Extend Interest Payment Period" and "Risk Factors". Payments of accrued
distributions will be payable to holders of preferred securities as they appear
on the books and records of the Trust on the first record date after the end of
an extension period.
Distributions on the preferred securities must be paid on the dates
payable to the extent that the Property Trustee has cash on hand in the
property account to permit such payment. The funds available for distribution
to the holders of the preferred securities will be limited to payments received
by the Property Trustee in respect of the junior subordinated debentures that
are deposited in the Trust as trust assets. See "Description of the Junior
Subordinated Debentures". If we do not make interest payments on the junior
subordinated debentures, the Property Trustee will not make distributions on
the preferred securities. Under the declaration, if and to the extent we do
make interest payments on the junior subordinated debentures deposited in the
Trust as trust assets, the Property Trustee is obligated to make distributions
on the Trust securities on a pro rata basis. We guarantee the payment of
distributions on the preferred securities on a subordinated basis as and to the
extent set forth under the "Description of the Preferred Securities
Guarantees". The preferred securities guarantee is a full and unconditional
guarantee from the time of issuance of the preferred securities but the
preferred securities guarantee covers distributions and other payments on the
preferred securities only if and to the extent that we have made a payment to
the Property Trustee of interest or principal on the junior subordinated
debentures deposited in the Trust as trust assets.
Distributions on the preferred securities will be made to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the preferred securities remain in book-entry
form, will be one business day prior to the relevant distribution payment date.
Distributions payable on any preferred securities that are not punctually paid
on any distribution payment date as a result of our having failed to make the
corresponding interest payment on the junior subordinated debentures will
forthwith cease to be payable to the person in whose name such preferred
securities is registered on the relevant record date, and such defaulted
distribution will instead be payable to the person in whose name such preferred
securities is registered on the special record date established by the Regular
Trustees, which record date shall correspond to the special record date or
other specified date determined in accordance with the indenture; provided,
however, that distributions shall not be considered payable on any distribution
payment date falling within an extension period unless we have elected to make
a full or partial payment of interest accrued on the junior subordinated
debentures on such distribution payment date. Distributions on the preferred
securities will be paid through the Property Trustee who will hold amounts
received in respect of the junior subordinated debentures in the property
account for the benefit of the holders of the preferred and common securities.
Subject to any applicable laws and regulations and the provisions of the
declaration, each such payment will be made as described under "--Book-Entry
Only Issuance--The Depository Trust Company" below. In the event that the
preferred securities do not continue to remain in book-entry form, the Regular
Trustees shall have the right to select relevant record dates which shall be
more than one business day prior to the relevant payment dates. The declaration
provides that the payment dates or record dates for the preferred securities
shall be the same as the payment dates and record dates for the junior
subordinated debentures. All distributions paid with respect to the Trust
securities shall be paid on a pro rata basis to the holders thereof entitled
thereto. If any date on which distributions are to be made on the preferred
securities is not a business day, then payment of the distribution to be made
on such date will be made on the next succeeding day that is a business day
(and without any interest or other payment in respect of any such delay) except
that, if such business day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding business day, in each case
with the same force and effect as if made on such date. "Business day" shall
mean any day other than Saturday, Sunday or any other day on which banking
institutions in the City of New York in the State of New York are permitted or
required by any applicable law to close.
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Conversion Rights
The preferred securities will be convertible at any time prior to the
close of business on May 14, 2008 (or in the case of the preferred securities
called for redemption, prior to the close of the business on the business day
prior to the redemption date), which we refer to in this prospectus as the
conversion expiration date, at the option of the holders thereof and in the
manner described below, into shares of common stock at an initial conversion
rate of 1.0811 shares of common stock for each preferred securities (equivalent
to a conversion price of $46.25 per share of common stock, which we refer to in
this prospectus as the initial conversion price), subject to adjustment as
described under "--Conversion Price Adjustments--General" and "--Conversion
Price Adjustments--Fundamental Change" below. The initial conversion rate and
conversion price set forth above give effect to the stock dividend paid on June
1, 2000. If a preferred security is surrendered for conversion after the close
of business on any regular record date for payment of a distribution and before
the opening of business on the corresponding distribution payment date, then,
notwithstanding such conversion, the distribution payable on such distribution
payment date will be paid in cash to the person in whose name the preferred
security is registered at the close of business on such record date, and (other
than a preferred security or a portion of a preferred security called for
redemption on a redemption date occurring after such record date and prior to
such distribution payment date) when so surrendered for conversion, the
preferred security must be accompanied by payment of an amount equal to the
distribution payable on such distribution payment date.
The terms of the preferred securities provide that a holder of a preferred
security wishing to exercise its conversion right shall surrender such
preferred security, together with an irrevocable conversion notice, to the
Property Trustee, as conversion agent, which we refer to in this prospectus as
the Conversion Agent, which shall, on behalf of such holder, exchange such
preferred security for an equivalent amount of junior subordinated debentures
and immediately convert such junior subordinated debentures into common stock.
Holders may obtain copies of the required form of the conversion notice from
the Conversion Agent. So long as a book-entry system for the preferred
securities is in effect, however, procedures for converting the preferred
securities into shares of common stock will differ, as described under
"--Book-Entry Only Issuance--The Depository Trust Company".
No fractional shares of common stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by us in
cash based on the market price of common stock on the date such preferred
securities are surrendered for conversion.
Conversion Price Adjustments-General
The initial conversion price is subject to adjustment (under formulas set
forth in the indenture) in certain events, including:
(i) the issuance of common stock as a dividend or distribution on
common stock;
(ii) certain subdivisions and combinations of common stock;
(iii) the issuance to all holders of common stock of certain rights
or warrants to purchase common stock at less than the then current market
price;
(iv) the distribution to all holders of common stock of (A) equity
securities of AES (other than common stock), (B) evidences of indebtedness
of AES and/or (C) other assets (including securities, but excluding (1)
any rights or warrants referred to in clause (iii) above, (2) any rights
or warrants to acquire any capital stock of any entity other than AES, (3)
any dividends or distributions in connection with the liquidation,
dissolution or winding-up of AES, (4) any dividends payable solely in cash
that may from time to time be fixed by the Board of Directors of AES and
(5) any dividends or distributions referred to in clause (i) above);
(v) distributions to all holders of common stock, consisting of cash,
excluding (a) any cash dividends on common stock to the extent that the
aggregate cash dividends per share of common stock in any consecutive
12-month period do not exceed the greater of (x) the amount per share of
common stock of the cash dividends paid on common stock in the immediately
preceding 12-month period, to the extent that such dividends for the
immediately preceding 12-month period did not require an adjustment of the
conversion price pursuant to this clause (v) (as adjusted to reflect
subdivisions or combinations of common stock), and (y) 15% of the average
of the
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daily Closing Price (as defined in the indenture) of common stock for the
ten consecutive Trading Days (as defined in the indenture) immediately
prior to the date of declaration of such dividend, and (b) any dividend or
distribution in connection with the liquidation, dissolution or winding up
of AES or a redemption of any rights issued under a rights agreement;
provided, however, that no adjustment shall be made pursuant to this
clause (v) if such distribution would otherwise constitute a fundamental
change, as defined in this prospectus under "--Conversion Price
Adjustments--Fundamental Change", and be reflected in a resulting
adjustment described below; and
(vi) payment in respect of a tender or exchange offer by AES or any
subsidiary of AES for common stock to the extent that the cash and value
of any other consideration included in such payment per share of common
stock exceed (by more than 10%, with any smaller excess being disregarded
in computing the adjustment provided hereby) the first reported sale price
per share of common stock on the Trading Day next succeeding the
Expiration Time (as defined in the indenture) for such tender or exchange
offer.
If any adjustment is required to be made as set forth in clause (v) above
as a result of a distribution which is a dividend described in subclause (a) of
clause (v) above, such adjustment would be based upon the amount by which such
distribution exceeds the amount of the dividend permitted to be excluded
pursuant to such subclause (a) of clause (v). If an adjustment is required to
be made as set forth in clause (v) above as a result of a distribution which is
not such a dividend, such adjustment would be based upon the full amount of
such distribution. If an adjustment is required to be made as set forth in
clause (vi) above, such adjustment would be calculated based upon the amount by
which the aggregate consideration paid for the common stock acquired in the
tender or exchange offer exceeds 110% of the value of such shares based on the
first reported sale price of common stock on the Trading Day next succeeding
the Expiration Time. In lieu of making such a conversion price adjustment in
the case of certain dividends or distributions, AES may provide that upon the
conversion of the preferred securities the holder converting such preferred
securities will receive, in addition to the common stock to which such holder
is entitled, the cash, securities or other property which such holder would
have received if such holder had, immediately prior to the record date for such
dividend or distribution, converted its preferred securities into common stock.
The initial conversion rate and conversion price set forth elsewhere in
this prospectus give effect to the stock dividend paid on June 1, 2000.
No adjustment in the conversion price will be required unless the
adjustment would require a change of at least 1% in the conversion price then
in effect; provided, however, that any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
We may, from time to time, to the extent permitted by law, reduce the
conversion price by any amount for any period of at least 20 business days (as
defined in the indenture), in which case we shall give at least 15 days' notice
of such reduction. In particular, we may, at our option, make such reduction in
the conversion price, in addition to those set forth above, as we deem
advisable to avoid or diminish any income tax to holders of common stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for tax purposes or for any other
reasons. See "Certain United States Federal Income Tax
Considerations--Adjustment of Conversion Price".
Conversion Price Adjustments--Fundamental Change
In the event that we shall be a party to any transaction or series of
transactions constituting a fundamental change, including, without limitation,
(i) any recapitalization or reclassification of common stock (other than a
change in par value or as a result of a subdivision or combination of common
stock); (ii) any consolidation or merger of AES with or into another
corporation as a result of which holders of common stock shall be entitled to
receive securities or other property or assets (including cash) with respect to
or in exchange for common stock (other than a merger which does not result in a
reclassification, conversion, exchange or cancellation of the outstanding
common stock); (iii) any sale or transfer of all or substantially all of our
assets; or (iv) any compulsory share exchange, pursuant to any of which holders
of common stock shall be entitled to receive other securities, cash or other
property, then appropriate provision shall be made so that the holder of each
preferred security then outstanding shall have the right thereafter to convert
such preferred
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securities only into (x) if any such transaction does not constitute a common
stock fundamental change, as defined in this prospectus under this subsection,
the kind and amount of the securities, cash or other property that would have
been receivable upon such recapitalization, reclassification, consolidation,
merger, sale, transfer or share exchange by a holder of the number of shares of
common stock issuable upon conversion of such preferred security immediately
prior to such recapitalization, reclassification, consolidation, merger, sale,
transfer or share exchange, after, in the case of a non-stock fundamental
change, as defined in this prospectus under this subsection, giving effect to
any adjustment in the conversion price in accordance with clause (i) of the
following paragraph, and (y) if any such transaction constitutes a common stock
fundamental change, shares of common stock of the kind received by holders of
common stock as result of such common stock fundamental change in an amount
determined in accordance with clause (ii) of the following paragraph. The
company formed by such consolidation or resulting from such merger or which
acquires such assets or which acquires the common stock, as the case may be,
shall enter into a supplemental indenture with the Indenture Trustee,
satisfactory in form to the Indenture Trustee and executed and delivered to the
Indenture Trustee, the provisions of which shall establish such right. Such
supplemental indenture shall provide for adjustments which, for events
subsequent to the effective date of such supplemental indenture shall be as
nearly equivalent as practical to the relevant adjustments provided for in the
preceding paragraphs and in this paragraph.
Notwithstanding any other provision in the preceding paragraphs, if any
fundamental change occurs, the conversion price in effect will be adjusted
immediately after that fundamental change as follows:
(i) in the case of a non-stock fundamental change, the conversion
price per share of common stock immediately following such non-stock
fundamental change will be the lower of (A) the conversion price in effect
immediately prior to such non-stock fundamental change, but after giving effect
to any other prior adjustments effected pursuant to the preceding paragraphs,
and (B) the result obtained by multiplying the greater of the applicable price,
as defined in this prospectus under this subsection, or the then applicable
reference market price, as defined in this prospectus under this subsection, by
a fraction of which the numerator will be 100 and the denominator of which will
be an amount based on the date such non-stock fundamental change occurs. For
the 12-month period beginning May 15, 2000, the denominator will be 106.00, and
the denominator will decrease by 0.75 during each successive 12-month period;
provided, that the denominator shall in no event be less than 100.
(ii) in the case of a common stock fundamental change, the conversion
price per share of common stock immediately following the common stock
fundamental change will be the conversion price in effect immediately prior to
the common stock fundamental change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, multiplied by a
fraction, the numerator of which is the purchaser stock price (as defined
below) and the denominator of which is the applicable price; provided, however,
that in the event of a common stock fundamental change in which (A) 100% of the
value of the consideration received by a holder of common stock (subject to
certain limited exceptions) is shares of common stock of the successor,
acquiror or other third party (and cash, if any, paid with respect to any
fractional interests in the shares of common stock resulting from the common
stock fundamental change) and (B) all of the common stock (subject to certain
limited exceptions) shall have been exchanged for, converted into, or acquired
for, shares of common stock (and cash, if any, with respect to fractional
interests) of the successor, acquiror or other third party, the conversion
price per share of common stock immediately following the common stock
fundamental change shall be the conversion price in effect immediately prior to
the common stock fundamental change divided by the number of shares of common
stock of the successor, acquiror, or other third party received by a holder of
one share of common stock as a result of the common stock fundamental change.
The foregoing conversion price adjustments are designed, in "fundamental
change" transactions where all or substantially all of the common stock is
converted into securities, cash, or property and not more than 50% of the value
received by the holders of common stock consists of stock listed or admitted
for listing subject to notice of issuance on a national securities exchange or
quoted on the Nasdaq National Market of the Nasdaq Stock Market, Inc. (a
"non-stock fundamental change," as defined in this prospectus under this
subsection, to increase the securities, cash or property into which each
preferred securities is convertible.
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In a fundamental change transaction where all or substantially all the
common stock is converted into securities, cash, or property and more than 50%
of the value received by the holders of common stock (subject to certain
limited exceptions) consists of listed or Nasdaq National Market traded common
stock (a "common stock fundamental change," as defined in this prospectus under
this subsection), the foregoing adjustments are designed to provide in effect
that (a) where common stock is converted partly into such common stock and
partly into other securities, cash, or property, each preferred securities will
be convertible solely into a number of shares of such common stock determined
so that the initial value of such shares (measured as described in the
definition of purchaser stock price in this prospectus under this subsection)
equals the value of the shares of common stock into which such preferred
securities was convertible immediately before the transaction (measured as
aforesaid) and (b) where common stock is converted solely into such common
stock, each preferred securities will be convertible into the same number of
shares of such common stock receivable by a holder of the number of shares of
common stock into which such preferred security was convertible immediately
before such transaction.
In determining the amount and type of consideration received by a holder
of common stock in the event of a fundamental change, consideration received by
a holder of common stock pursuant to a statutory right of appraisal will be
disregarded.
"Applicable price" means (i) in the event of a non-stock fundamental
change in which the holders of common stock receive only cash, the amount of
cash receivable by a holder of one share of common stock and (ii) in the event
of any other fundamental change, the average of the Closing Prices (as defined
in the supplemental indenture) for one share of common stock during the ten
Trading Days immediately prior to the record date for the determination of the
holders of common stock entitled to receive cash, securities, property or other
assets in connection with such fundamental change or, if there is no such
record date, prior to the date on which the holders of the common stock will
have the right to receive such cash, securities, property or other assets.
"Common stock fundamental change" means any fundamental change in which
more than 50% of the value (as determined in good faith by our board of
directors) of the consideration received by holders of common stock (subject to
certain limited exceptions) pursuant to such transaction consists of shares of
common stock that, for the ten consecutive Trading Days immediately prior to
such fundamental change has been admitted for listing or admitted for listing
subject to notice of issuance on a national securities exchange or quoted on
the Nasdaq National Market, provided, however, that a fundamental change will
not be a common stock fundamental change unless either (i) we continue to exist
after the occurrence of such fundamental change and the outstanding preferred
securities continue to exist as outstanding preferred securities or (ii) the
outstanding preferred securities continue to exist as preferred securities and
are convertible into shares of common stock of our successor.
"Fundamental change" means the occurrence of any transaction or event or
series of transactions or events pursuant to which all or substantially all of
the common stock is exchanged for, converted into, acquired for or constitutes
solely the right to receive cash, securities, property or other assets (whether
by means of an exchange offer, liquidation, tender offer, consolidation,
merger, combination, reclassification, recapitalization or otherwise);
provided, however, in the case of a plan involving more than one such
transaction or event for purposes of adjustment of the conversion price, such
fundamental change will be deemed to have occurred when substantially all of
the common stock has been exchanged for, converted into, or acquired for or
constitutes solely the right to receive cash, securities, property or other
assets but the adjustment shall be based upon the consideration that the
holders of common stock received in the transaction or event as a result of
which more than 50% of the common stock shall have been exchanged for,
converted into, or acquired for, or shall constitute solely the right to
receive such cash, securities, properties or other assets.
"Non-stock fundamental change" means any fundamental change other than a
common stock fundamental change.
"Purchaser stock price" means, with respect to any common stock
fundamental change, the average of the Closing Prices for one share of common
stock received by holders of common stock in such common stock fundamental
change during the ten Trading Days immediately prior to the record date for the
determination of the holders of common stock entitled to receive such shares of
common stock or, if there is no such record date, prior to the date upon which
the holders of common stock shall have the
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right to receive such shares of common stock.
"Reference market price" will initially mean $24.79 (which is 66 2/3% of
the last reported sale price per share of our common stock on the New York
Stock Exchange on May 11, 2000, adjusted for the stock dividend paid on June 1,
2000) and, in the event of any adjustment to the conversion price other than as
a result of a fundamental change, the reference market price will also be
adjusted so that the ratio of the reference market price to the conversion
price after giving effect to any adjustment will always be the same as the
ratio of the initial reference market price to the initial conversion price of
the preferred securities.
Conversions of the preferred securities may be effected by delivering them
to our office or agency maintained for such purpose in the Borough of
Manhattan, the City of New York.
Conversion price adjustments may, in certain circumstances, result in
constructive distributions that could be taxable as dividends under the
Internal Revenue Code of 1986, as amended, commonly referred to as the Code, to
holders of preferred securities or to holders of common stock issued upon
conversion thereof. See "Certain United States Federal Income Tax
Considerations--Adjustment of Conversion Price".
No adjustment in the conversion price will be required unless the
adjustment would require a change of at least 1% in the conversion price then
in effect; provided, however, that any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
Special Event Redemption or Distribution
If, at any time, a tax event or an investment company event (each as
defined in this prospectus under this subsection, and each a "special event")
shall occur and be continuing, the Trust shall, unless the junior subordinated
debentures are redeemed in the limited circumstances described below, be
dissolved with the result that, after satisfaction of creditors of the Trust,
junior subordinated debentures with an aggregate principal amount equal to the
aggregate stated liquidation amount of the preferred securities and the common
securities would be distributed on a pro rata basis to the holders of the
preferred securities and the common securities in liquidation of such holders'
interests in the Trust, within 90 days following the occurrence of such special
event; provided, however, that in the case of the occurrence of a tax event, as
a condition of such dissolution and distribution, the Regular Trustees shall
have received an opinion of nationally recognized independent tax counsel
experienced in such matters, which we refer to in this prospectus as a no
recognition opinion, which opinion may rely on any then applicable published
revenue rulings of the Internal Revenue Service, to the effect that the holders
of the preferred securities will not recognize any gain or loss for United
States federal income tax purposes as a result of such dissolution and
distribution of junior subordinated debentures; and, provided, further, that,
if at the time there is available to the Trust the opportunity to eliminate,
within such 90 day period, the special event by taking some ministerial action,
such as filing a form or making an election, or pursuing some other similar
reasonable measure, which has no adverse effect on the Trust or AES or the
holders of the preferred securities, the Trust will pursue such measure in lieu
of dissolution. Furthermore, if in the case of the occurrence of a tax event,
(i) the Regular Trustees have received an opinion, which we refer to in this
prospectus as a redemption tax opinion, of nationally recognized independent
tax counsel experienced in such matters that, as a result of a tax event, there
is more than an insubstantial risk that we would be precluded from deducting
the interest on the junior subordinated debentures for United States federal
income tax purposes even if the junior subordinated debentures were distributed
to the holders of preferred securities and common securities in liquidation of
such holders' interests in the Trust as described above or (ii) the Regular
Trustees shall have been informed by such tax counsel that a no recognition
opinion cannot be delivered to the Trust, we shall have the right, upon not
less than 30 nor more than 60 days notice, to redeem the junior subordinated
debentures in whole or in part for cash at a redemption price equal to 100% of
the principal amount to be redeemed plus any accrued and unpaid interest
thereon within 90 days following the occurrence of such tax event, and promptly
following such redemption preferred securities and common securities with an
aggregate liquidation amount equal to the aggregate principal amount of the
junior subordinated debentures so redeemed will be redeemed by the Trust at the
redemption price on a pro rata basis; provided, however, that if at the time
there is available to us or the Regular Trustees the opportunity to eliminate,
within such 90 day period, the tax event by taking
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some ministerial action, such as filing a form or making an election, or
pursuing some other similar reasonable measure, which has no adverse effect on
the Trust, us or the holders of the preferred securities, we will pursue such
measure in lieu of redemption and provided further that we shall have no right
to redeem the junior subordinated debentures while the Regular Trustees on
behalf of the Trust are pursuing any such ministerial action. The common
securities will be redeemed on a pro rata basis with the preferred securities,
except that if an event of default under the declaration has occurred and is
continuing, the preferred securities will have a priority over the common
securities with respect to payment of the redemption price.
"Tax event" means that the Regular Trustees shall have obtained an opinion
of a nationally recognized independent tax counsel experienced in such matters,
which we refer to in this prospectus as a dissolution tax opinion, to the
effect that on or after the date of this prospectus as a result of (a) any
amendment to, or change in, the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or
therein, (b) any amendment to, or change in, an interpretation or application
of any such laws or regulations by any legislative body, court, governmental
agency or regulatory authority (including the enactment of any legislation and
the publication of any judicial decision or regulatory determination), (c) any
interpretation or pronouncement that provides for a position with respect to
such laws or regulations that differs from the theretofore generally accepted
position or (d) any action taken by any governmental agency or regulatory
authority, which amendment or change is enacted, promulgated, issued or
effective or which interpretation or pronouncement is issued or announced or
which action is taken, in each case on or after the date of this prospectus,
there is more than an insubstantial risk that (i) the Trust is, or will be
within 90 days of the date hereof, subject to United States federal income tax
with respect to income accrued or received on the junior subordinated
debentures, (ii) the Trust is, or will be within 90 days of the date hereof,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges or (iii) interest payable by us to the Trust on the junior
subordinated debentures is not, or within 90 days of the date hereof will not
be, deductible by us for United States federal income tax purposes.
"Investment company event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended, commonly
referred to as the 1940 Act, that as a result of the occurrence of a change in
law or regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, which we refer to in this prospectus as a change in 1940 Act law,
there is more than an insubstantial risk that the Trust is or will be
considered an "investment company" which is required to be registered under the
1940 Act, which change in 1940 Act law becomes effective on or after the date
of this prospectus.
On the date fixed for any distribution of junior subordinated debentures,
upon dissolution of the trust, (i) the preferred securities and the common
securities will no longer be deemed to be outstanding, (ii) the depositary or
its nominee, as the record holder of the preferred securities, will receive a
registered global certificate or certificates representing the junior
subordinated debentures to be delivered upon such distribution, and (iii) any
certificates representing preferred securities not held by the depositary or
its nominee will be deemed to represent junior subordinated debentures having
an aggregate principal amount equal to the aggregate stated liquidation amount
of, with an interest rate identical to the distribution rate of, and accrued
and unpaid interest equal to accrued and unpaid distributions on, such
preferred securities, until such certificates are presented to us or our agent
for transfer or reissuance.
There can be no assurance as to the market price for the junior
subordinated debentures which may be distributed in exchange for preferred
securities if a dissolution and liquidation of the Trust were to occur.
Accordingly, the junior subordinated debentures which the investor may
subsequently receive on dissolution and liquidation of the Trust, may trade at
a discount to the price of the preferred securities exchanged.
Mandatory Redemption
Upon the repayment of the junior subordinated debentures, whether at
maturity, upon redemption or otherwise, the proceeds from such repayment or
payment will be promptly applied to redeem preferred securities and common
securities having an aggregate liquidation amount equal to the junior
subordinated debentures so repaid, upon not less than 30 nor more
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than 60 days' notice, at the redemption price. The common securities will be
entitled to be redeemed on a pro rata basis with the preferred securities,
except that if an event of default under the declaration has occurred and is
continuing, the preferred securities will have a priority over the common
securities with respect to payment of the redemption price. Subject to the
foregoing, if fewer than all outstanding preferred securities and common
securities are to be redeemed, the preferred securities and common securities
will be redeemed on a pro rata basis. In the event fewer than all outstanding
preferred securities are to be redeemed, preferred securities registered in the
name of and held by the Depositary Trust Company or its nominee will be
redeemed as described under "--Redemption Procedures".
Redemption Procedures
The Trust may not redeem any outstanding preferred securities unless all
accrued and unpaid distributions have been paid on all preferred securities for
all quarterly distribution periods terminating on or prior to the date of
notice of redemption.
If the Trust gives a notice of redemption in respect of preferred
securities (which notice will be irrevocable) then, by 12:00 noon, New York
City time, on the redemption date and provided that we have paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the junior subordinated debentures, the Trust will
irrevocably deposit with the depositary funds sufficient to pay the applicable
redemption price and will give the depositary irrevocable instructions and
authority to pay the redemption price to the holders of the preferred
securities. See "--Book-Entry Only Issuance --The Depository Trust Company." If
notice of redemption shall have been given and funds deposited as required,
then, immediately prior to the close of business on the date of such deposit,
distributions will cease to accrue on the preferred securities called for
redemption, such preferred securities shall no longer be deemed to be
outstanding and all rights of holders of such preferred securities so called
for redemption will cease, except the right of the holders of such preferred
securities to receive the redemption price, but without interest on such
redemption price. Neither the trustees nor the Trust shall be required to
register or cause to be registered the transfer of any preferred securities
which have been so called for redemption. If any date fixed for redemption of
preferred securities is not a business day, then payment of the redemption
price payable on such date will be made on the next succeeding day that is a
business day (and without any interest or other payment in respect of any such
delay) except that, if such business day falls in the next calendar year, such
payment will be made on the immediately preceding business day, in each case
with the same force and effect as if made on such date fixed for redemption. If
we fail to repay junior subordinated debentures on maturity or on the date
fixed for this redemption or if payment of the redemption price in respect of
preferred securities is improperly withheld or refused and not paid by the
Property Trustee or by us pursuant to the preferred securities guarantee
described under "Description of the Preferred Securities Guarantee",
distributions on such preferred securities will continue to accrue, from the
original redemption date of the preferred securities to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the redemption price.
In the event that fewer than all of the outstanding preferred securities
are to be redeemed, the preferred securities will be redeemed as described
below under "--Book-Entry Only Issuance--The Depository
Trust Company."
If a partial redemption of the preferred securities would result in the
delisting of the preferred securities by any national securities exchange or
other organization on which the preferred securities are then listed, we,
pursuant to the indenture, will only redeem junior subordinated debentures in
whole and, as a result, the Trust may only redeem the preferred securities in
whole.
Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), we or any of our
subsidiaries may at any time and from time to time purchase outstanding
preferred securities by tender, in the open market or by private agreement.
Liquidation Distribution Upon Dissolution
In the event of any voluntary or involuntary dissolution of the Trust, the
holders of the preferred securities and common securities at the date of
dissolution of the Trust will be entitled to receive on a pro rata basis solely
out of the assets of the Trust, after satisfaction of liabilities of creditors
(to the extent not satisfied by us as provided in the
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declaration), an amount equal to the aggregate of the stated liquidation amount
of $50 per Trust security plus accrued and unpaid distributions thereon to the
date of payment, such amount being the liquidation distribution, unless, in
connection with such dissolution, junior subordinated debentures in an
aggregate principal amount equal to the aggregate stated liquidation amount of
such Trust securities and bearing accrued and unpaid interest in an amount
equal to the accrued and unpaid distributions on such Trust securities, shall
be distributed on a pro rata basis to the holders of the preferred securities
and common securities in exchange therefor.
If, upon any such dissolution, the liquidation distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate liquidation distribution, then the amounts payable directly by
the Trust on the preferred securities and the common securities shall be paid
on a pro rata basis. The holders of the common securities will be entitled to
receive distributions upon any such dissolution on a pro rata basis with the
holders of the preferred securities, except that if an event of default under
the declaration has occurred and is continuing, the preferred securities shall
have a priority over the common securities with respect to payment of the
liquidation distribution.
Pursuant to the declaration, the Trust shall dissolve, and its affairs
shall be wound up, upon the first to occur of the following: (1) on November 1,
2018, the expiration of the term of the Trust; (2) when all of the Trust
securities shall have been called for redemption and the amounts necessary for
redemption thereof shall have been paid to the holders of Trust securities in
accordance with the terms of the Trust securities; or (3) when all of the
junior subordinated debentures shall have been distributed to the holders of
Trust securities in exchange for all of the Trust securities in accordance with
the terms of the Trust securities.
No Merger, Consolidation or Amalgamation of the Trust
Except in connection with a distribution of the junior subordinated
debentures in connection with the dissolution of the Trust, the Trust may not
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets to, any corporation or other
entity.
Declaration Events of Default
An indenture event of default, as defined in this prospectus under
"Description of the Junior Subordinated Debentures--Indenture Events of
Default", will constitute an event of default; provided that pursuant to the
declaration, the holder of the common securities will be deemed to have waived
any such event of default with respect to the common securities until all
events of default with respect to the preferred securities have been cured or
waived. Until all such events of default with respect to the preferred
securities have been so cured or waived, the Property Trustee will be deemed to
be acting solely on behalf of the holders of the preferred securities, and only
the holders of the preferred securities will have the right to direct the
Property Trustee with respect to certain matters under the declaration and
consequently under the indenture. In the event that any event of default with
respect to the preferred securities is waived by the holders of the preferred
securities as provided in the declaration, the holders of common securities
pursuant to the declaration have agreed that such waiver also constitutes a
waiver of such event of default with respect to the common securities for all
purposes under the declaration without any further act, vote or consent of the
holders of the common securities. See "--Voting Rights" below.
Upon the occurrence of an event of default, the Property Trustee as the
holder of all of the junior subordinated debentures will have the right under
the indenture to declare the principal of and interest on the junior
subordinated debentures to be immediately due and payable. In addition, the
Property Trustee will have the power to exercise all rights, powers and
privileges under the indenture. See "Description of the Junior Subordinated
Debentures".
Registration Rights
In connection with the initial offering of the preferred securities, we
and the Trust agreed with the initial purchasers, for the benefit of the
holders of the preferred securities, that we and the Trust would use our
reasonable best efforts, and at our cost, to file on or before the 90th day
following the date of original issuance of the preferred securities a shelf
registration statement with respect to resales of the preferred securities, the
preferred securities guarantee, the junior subordinated debentures and the
shares of common stock issuable upon conversion, which we refer to in this
prospectus as the registrable securities, and to keep this registration
statement effective until
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the earlier of (i) the sale pursuant to such registration statement or Rule 144
under the Securities Act of all the registrable securities and (ii) two years
after the date of the original issuance of the preferred securities. The
registration statement of which this prospectus forms a part constitutes the
shelf registration statement contemplated by this agreement. Holders will be
required to provide certain information to us to be included in the
registration statement in order to use the prospectus, as may be supplemented
from time to time, for resales. We shall provide to each holder copies of the
prospectus, notify each holder when this registration statement has become
effective and take certain other actions as are required to permit resales. In
the event that (i) this shelf registration statement is not declared effective
on or prior to the 180th day following the date of original issuance of the
preferred securities or (ii) if use of this shelf registration statement for
resales is suspended for any time during the two-year period after the date of
original issuance of the preferred securities for a period in excess of 30 days
during any three-month period or 60 days during any 12-month period (each, a
"permitted black-out period"), then additional interest (in addition to amounts
otherwise due on the preferred securities) will accrue at an annual rate of
0.50% on the preferred securities, if clause (i) applies, from the 181st day
following the date of original issuance of the preferred securities until this
registration statement is declared effective and, if clause (ii) applies, then
during the period, other than any permitted black-out period, use of this
registration statement is so suspended.
Voting Rights
Except as provided below, under "--Modification and Amendment of the
Declaration" and "Description of the Preferred Securities Guarantee" below and
as otherwise required by the Business Trust Act, the Trust Indenture Act and
the declaration, the holders of the preferred securities will have no voting
rights.
Subject to the requirements of this paragraph, the holders of a majority
in aggregate liquidation amount of the preferred securities have the right (i)
on behalf of all holders of preferred securities, to waive any past default
that is waivable under the declaration and (ii) to direct the time, method and
place of conducting any proceeding for any remedy available to the Property
Trustee, or exercising any trust or power conferred upon the Property Trustee
under the declaration, including the right to direct the Property Trustee, as
the holder of the junior subordinated debentures, to (A) direct the time,
method and place of conducting any proceeding for any remedy available to the
Indenture Trustee, as defined in this prospectus under "Description of the
Junior Subordinated Debentures", or executing any trust or power conferred on
the Indenture Trustee with respect to the junior subordinated debentures, (B)
waive any past default that is waivable under Section 6.06 of the indenture, or
(C) exercise any right to rescind or annul a declaration that the principal of
all the junior subordinated debentures shall be due and payable; provided that
where a consent under the indenture would require the consent of (a) holders of
junior subordinated debentures representing a specified percentage greater than
a majority in principal amount of the junior subordinated debentures or (b)
each holder of junior subordinated debentures affected thereby, no such consent
shall be given by the Property Trustee without the prior consent of, in the
case of clause (a) above, holders of preferred securities representing such
specified percentage of the aggregate liquidation amount of the preferred
securities or, in the case of clause (b) above, each holder of all preferred
securities affected thereby. The Property Trustee shall not revoke any action
previously authorized or approved by a vote of the holders of preferred
securities. The Property Trustee shall notify all holders of record of
preferred securities of any notice of default received from the Indenture
Trustee with respect to the junior subordinated debentures. Other than with
respect to directing the time, method and place of conducting any proceeding
for any remedy available to the Property Trustee or the Indenture Trustee as
set forth above, the Property Trustee shall be under no obligation to take any
of the foregoing actions at the direction of the holders of the preferred
securities unless the Property Trustee shall have obtained an opinion of
nationally recognized independent tax counsel recognized as expert in such
matters to the effect that the Trust will not be classified for United States
federal income tax purposes as an association taxable as a corporation or a
partnership on account of such action and will be treated as a grantor trust
for United States federal income tax purposes following such action. If the
Property Trustee fails to enforce its rights under the declaration (including,
without limitation, its rights, powers and privileges as a holder of the junior
subordinated debentures under the indenture), any holder of preferred
securities may, to the extent permitted by applicable law, after a period of 30
days
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has elapsed from such holder's written request to the Property Trustee to
enforce such rights, institute a legal proceeding directly against us to
enforce the Property Trustee's rights under the declaration, without first
instituting a legal proceeding against the Property Trustee or any other
person. In addition, in case of an event of default which is attributed to our
failure to pay interest or principal on the junior subordinated debentures, a
holder of preferred securities may directly institute a proceeding for
enforcement of payment to such holder of the principal of, or interest on, the
junior subordinated debentures having a principal amount equal to the aggregate
liquidation amount of the preferred securities of such holder. See
"--Declaration Events of Default".
A waiver of an indenture event of default by the Property Trustee at the
direction of holders of the preferred securities will constitute a waiver of
the corresponding event of default under the declaration in respect of the
Trust securities.
In the event the consent of the Property Trustee as the holder of the
junior subordinated debentures is required under the indenture with respect to
any amendment, modification or termination of the indenture or the junior
subordinated debentures, the Property Trustee shall request the direction of
the holders of the Trust securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in liquidation amount of
the Trust securities voting together as a single class; provided, however, that
where any such amendment, modification or termination under the indenture would
require the consent of holders of junior subordinated debentures representing a
specified percentage greater than a majority in principal amount of the junior
subordinated debentures, the Property Trustee may only give such consent at the
direction of the holders of Trust securities representing such specified
percentage of the aggregate liquidation amount of the Trust securities; and,
provided, further, that the Property Trustee shall be under no obligation to
take any such action in accordance with the directions of the holders of the
Trust securities unless the Property Trustee has obtained an opinion of
nationally recognized independent tax counsel recognized as expert in such
matters to the effect that the Trust will not be classified for United States
federal income tax purposes as an association taxable as a corporation or a
partnership on account of such action and will be treated as a grantor trust
for United States federal income tax purposes following such action.
Any required approval or direction of holders of preferred securities may
be given at a separate meeting of holders of preferred securities convened for
such purpose, at a meeting of all of the holders of Trust securities or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which holders of preferred securities are entitled to vote, to be
mailed to each holder of record of preferred securities who have not consented
in writing. Each such notice will include a statement setting forth (i) the
date of such meeting; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote; and (iii)
instructions for the delivery of proxies.
No vote or consent of the holders of preferred securities will be required
for the Trust to redeem and cancel preferred securities or distribute junior
subordinated debentures in accordance with the declaration.
Notwithstanding that holders of preferred securities are entitled to vote
or consent under any of the circumstances described above, any of the preferred
securities at such time that are owned by us or by any entity directly or
indirectly controlling or controlled by or under direct or indirect common
control with us shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
The procedures by which persons owning preferred securities registered in
the name of and held by the Depositary Trust Company or its nominee may
exercise their voting rights are described in this prospectus under
"--Book-Entry Only Issuance --The Depository Trust Company" below. Holders of
the preferred securities will have no rights to increase or decrease the number
of trustees or to appoint, remove or replace a trustee, which rights are vested
exclusively in the holders of the common securities.
Modification and Amendment of the Declaration
The declaration may be modified and amended on approval of a majority of
the Regular Trustees, provided, that, if any proposed modification or amendment
provides for, or the Regular Trustees otherwise propose to effect, (a) any
action that would adversely affect the powers, preferences or special
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rights of the Trust securities, whether by way of amendment to the declaration
or otherwise, or (b) the dissolution, winding-up or termination of the Trust
other than pursuant to the terms of the declaration, then the holders of the
outstanding Trust securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in liquidation amount of the
Trust securities, provided that if any amendment or proposal referred to above
would adversely affect only the preferred securities or the common securities,
then only the affected class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of a majority in liquidation amount of such class of Trust securities.
Notwithstanding the foregoing, (i) no amendment or modification may be
made to the declaration unless the Regular Trustees shall have obtained (a)
either a ruling from the Internal Revenue Service or a written unqualified
opinion of nationally recognized independent tax counsel experienced in such
matters to the effect that such amendment will not cause the Trust to be
classified for United States federal income tax purposes as an association
taxable as a corporation or a partnership and to the effect that the Trust will
continue to be treated as a grantor trust for purposes of United States federal
income taxation and (b) a written unqualified opinion of nationally recognized
independent counsel experienced in such matters to the effect that such
amendment will not cause the Trust to be an "investment company" which is
required to be registered under the 1940 Act; (ii) certain specified provisions
of the declaration may not be amended without the consent of all of the holders
of the Trust securities; (iii) no amendment which adversely affects the rights,
powers and privileges of the Property Trustee shall be made without the consent
of the Property Trustee; (iv) Article 4 of the declaration relating to our
obligation to purchase the common securities and to pay certain obligations and
expenses of the Trust may not be amended without our consent; and (v) the
rights of holders of common securities under Article 5 of the declaration to
increase or decrease the number of, and to appoint, replace or remove, trustees
shall not be amended without the consent of each holder of common securities.
The declaration further provides that it may be amended without the
consent of the holders of the Trust securities to (i) cure any ambiguity; (ii)
correct or supplement any provision in the declaration that may be defective or
inconsistent with any other provision of the declaration; (iii) to add to our
covenants, restrictions or obligations; and (iv) to conform to changes in, or a
change in interpretation or application of certain 1940 Act requirements by the
Securities and Exchange Commission, which amendment does not adversely affect
the rights, preferences or privileges of the holders.
Debts and Obligations of the Trust
In the declaration, we have agreed to pay for all debts and obligations
(other than with respect to the Trust securities) and all costs and expenses of
the Trust, including the fees and expenses of its trustees and any taxes and
all costs and expenses with respect thereto, to which the Trust may become
subject, except for United States withholding taxes. Our foregoing obligations
under the declaration are for the benefit of, and shall be enforceable by, any
person to whom any such debts, obligations, costs, expenses and taxes are owed,
which we refer to in this prospectus as a creditor, whether or not such
creditor has received notice thereof. Any such creditor may enforce such
obligations directly against us and we have irrevocably waived any right or
remedy to require that any such creditor take any action against the Trust or
any other person before proceeding against us. We have agreed in the
declaration to execute such additional agreements as may be necessary or
desirable in order to give full effect to the foregoing.
Book-Entry Only Issuance-The Depository Trust Company
The Depository Trust Company, commonly referred to as the DTC, will act as
securities depositary for the preferred securities. The preferred securities
will be issued only as fully registered securities registered in the name of
DTC or its nominee. One or more fully-registered global preferred securities
certificates representing the total aggregate number of preferred securities,
will be issued and will be deposited with DTC. The preferred securities will be
subject to certain restrictions on transfer and will bear a legend to such
effect as described under "Notice to Investors".
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in a global preferred
securities.
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DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its participants, which we
refer to in this prospectus as participants, deposit with DTC. DTC also
facilitates the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants,
which we refer to in this prospectus as direct participants, include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations. DTC is owned by a number of its direct participants and by
the New York Stock Exchange, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly, which we refer to in this
prospectus as indirect participants. The rules applicable to DTC and its
participants are on file with the Securities and Exchange Commission.
Upon issuance of a preferred securities global certificate, DTC will
credit on its book-entry registration and transfer system the number of
preferred securities represented by such preferred securities global
certificate to the accounts of institutions that have accounts with DTC.
Ownership of beneficial interests in a preferred securities global certificate
will be limited to participants or persons that may hold interests through
participants. The ownership interest of each actual purchaser of each preferred
securities, which we refer to in this prospectus as beneficial owner, is in
turn to be recorded on the direct and indirect participants' records.
Beneficial owners will not receive written confirmation from DTC of their
purchases, but beneficial owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the direct or indirect participants through which the beneficial
owners purchased preferred securities. Transfers of ownership interests in the
preferred securities are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners.
DTC has no knowledge of the actual beneficial owners of the preferred
securities; DTC's records reflect only the identity of the direct participants
to whose accounts such preferred securities are credited, which may or may not
be the beneficial owners. The participants will remain responsible for keeping
account of their holdings on behalf of their customers. So long as DTC, or its
nominee, is the owner of a preferred securities global certificate, DTC or such
nominee, as the case may be, will be considered the sole owner and holder of
record of the preferred securities represented by such preferred securities
global certificate for all purposes.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
preferred securities are being redeemed, DTC will reduce pro rata (subject to
adjustment to eliminate fractional preferred securities) the amount of interest
of each direct participant in the preferred securities to be redeemed.
Although voting with respect to the preferred securities is limited, in
those instances in which a vote is required, neither DTC nor Cede & Co. itself
will consent or vote with respect to preferred securities. Under its usual
procedures, DTC would mail an omnibus proxy to the Trust as soon as possible
after the record date. The omnibus proxy assigns Cede & Co.'s consenting or
voting rights to those direct participants to whose accounts the preferred
securities are credited on the record date (identified in a listing attached to
the omnibus proxy).
Distribution payments on the preferred securities represented by a
preferred series global certificate will be made by the Property Trustee to
DTC. DTC's practice is to credit direct participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payments on
such payment date. Payments by
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participants to beneficial owners will be governed by standing instructions and
customary practices and will be the responsibility of such participants and not
of DTC, the Trust or AES, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to direct
participants is the responsibility of DTC, and disbursement of such payments to
the beneficial owners is the responsibility of direct and indirect
participants.
Except as provided herein, a beneficial owner in a global preferred
securities certificate will not be entitled to receive physical delivery of
preferred securities. Accordingly, each beneficial owner must rely on the
procedures of DTC to exercise any rights under the preferred securities.
DTC may discontinue providing its services as securities depository with
respect to the preferred securities at any time by giving reasonable notice to
the Trust. Under such circumstances, if a successor securities depository is
not obtained, preferred securities certificates will be required to be printed
and delivered. Additionally, the Trust may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor depository). In that
event, certificates for the preferred securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we and the trust believe to be reliable,
but we and the Trust take no responsibility for the accuracy thereof.
Conversion Agent, Registrar, Transfer Agent and Paying Agent
The Property Trustee will act as Conversion Agent. In addition, in the
event the preferred securities do not remain in book-entry only form, the
following provisions will apply:
Payment of distributions and payments on redemption of the preferred
securities will be payable, the transfer of the preferred securities will be
registrable, and preferred securities will be exchangeable for preferred
securities of other denominations of a like aggregate liquidation amount, at
the corporate trust office of the Property Trustee in New York, New York;
provided that payment of distributions may be made at the option of the Regular
Trustees on behalf of the Trust by check mailed to the address of the persons
entitled thereto and that the payment on redemption of any preferred securities
will be made only upon surrender of such preferred securities to the Property
Trustee.
Bank One or one of its affiliates will act as registrar and transfer agent
for the preferred securities. Bank One will also act as paying agent and, with
the consent of the Regular Trustees, may designate additional paying agents.
Registration of transfers of preferred securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as we or the Trust may require) in respect of any tax or other
governmental charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of preferred securities after such preferred securities have been
called for redemption.
Information Concerning the Property Trustee
The Property Trustee, prior to a default with respect to the Trust
securities, undertakes to perform only such duties as are specifically set
forth in the declaration and, after default, shall exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provision, the Property Trustee is under no obligation
to exercise any of the powers vested in it by the declaration at the request of
any holder of preferred securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The Property Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its
duties if the Property Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
We and certain of our affiliates maintain a deposit account and banking
relationship with the Property Trustee.
Governing Law
The declaration and the preferred securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
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Miscellaneous
The Regular Trustees are authorized and directed to take such action as
they deem reasonable in order that the Trust will not be deemed to be an
"investment company" required to be registered under the 1940 Act or that the
Trust will not be classified for United States federal income tax purposes as
an association taxable as a corporation or a partnership and will be treated as
a grantor trust for United States federal income tax purposes. In this
connection, the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust or the declaration,
that the Regular Trustees determine in their discretion to be reasonable and
necessary or desirable for such purposes, as long as such action does not
adversely affect the interests of holders of the Trust securities.
We and the Regular Trustees on behalf of the Trust will be required to
provide to the Property Trustee annually a certificate as to whether or not we
and the Trust, respectively, is in compliance with all the conditions and
covenants under the declaration.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the preferred
securities guarantee that we executed and delivered for the benefit of the
holders from time to time of preferred securities. The preferred securities
guarantee is held by Bank One, acting in its capacity as indenture trustee with
respect thereto, for the benefit of holders of the preferred securities. The
terms of the preferred securities guarantee are those set forth in the
preferred securities guarantee and those made part of such preferred securities
guarantee by the Trust Indenture Act. This description summarizes the material
terms of the preferred securities guarantee and is qualified in its entirety by
reference to the preferred securities guarantee (a copy of which may be
obtained from the trustee) and the Trustee Indenture Act. Section and Article
references used herein are references to the provisions of the preferred
securities guarantee.
General
Pursuant to the preferred securities guarantee, we have irrevocably and
unconditionally agreed, to the extent set forth therein, to pay in full, to the
holders of the preferred securities, the guarantee payments (as defined in this
paragraph) (without duplication of amounts theretofore paid by the Trust), to
the extent not paid by the Trust, regardless of any defense, right of set-off
or counterclaim that the Trust may have or assert. The following payments or
distributions with respect to preferred securities to the extent not paid or
made by the Trust, which we refer to in this prospectus as the guarantee
payments, will be subject to the preferred securities guarantee (without
duplication): (i) any accrued and unpaid distributions on preferred securities,
and the redemption price, including all accrued and unpaid distributions to the
date of redemption, with respect to any preferred securities called for
redemption by the Trust but if and only to the extent that in each case we have
made a payment to the Property Trustee of interest or principal on the junior
subordinated debentures deposited in the Trust as trust assets and (ii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of such junior subordinated
debentures to the holders of preferred securities or the redemption of all of
the preferred securities upon the maturity or redemption of such junior
subordinated debentures) the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on the preferred securities to
the date of payment, to the extent the Trust has funds available therefor or
(b) the amount of assets of the Trust remaining available for distribution to
holders of the preferred securities in liquidation of the Trust. Our obligation
to make a guarantee payment may be satisfied by direct payment of the required
amounts by us to the holders of preferred securities or by causing the Trust to
pay such amounts to such holders.
The preferred securities guarantee is a guarantee from the time of
issuance of the preferred securities, but the preferred securities guarantee
covers distributions and other payments on the preferred securities only if and
to the extent that we have made a payment to the Property Trustee of interest
or principal on the junior subordinated debentures deposited in the Trust as
trust assets. If we do not make interest or principal payments on the junior
subordinated debentures deposited in the Trust as
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trust assets, the Property Trustee will not make distributions of the preferred
securities and the Trust will not have funds available therefor.
Our obligations under the declaration, the preferred securities guarantee
issued with respect to preferred securities, the junior subordinated debentures
purchased by the Trust and the indenture in the aggregate provide a full and
unconditional guarantee on a subordinated basis by us of payments due on the
preferred securities.
Certain Covenants of AES
In the preferred securities guarantee, we have agreed that, so long as any
preferred securities issued by the Trust remain outstanding, we will not (A)
declare or pay any dividends on, or redeem, purchase, acquire or make a
distribution or liquidation payment with respect to, any of its common stock or
preferred stock or make any guarantee payment with respect thereto or (B) make
any payment of interest, premium (if any) or principal on any debt securities
issued by us which rank pari passu with or junior to the junior subordinated
debentures, if at such time (i) we shall be in default with respect to its
guarantee payments or other payment obligations under the preferred securities
guarantee, (ii) there shall have occurred any declaration event of default
under the declaration or (iii) in the event that junior subordinated debentures
are issued to the Trust in connection with the issuance of Trust securities, we
shall have given notice of its election to defer payment of interest on such
junior subordinated debentures by extending the interest payment period as
provided in the terms of the junior subordinated debentures and such period, or
any extension thereof, is continuing; provided that the foregoing will not
apply to stock dividends paid by us in our common stock. In addition, so long
as any preferred securities remain outstanding, we have agreed (i) to remain
the sole direct or indirect owner of all of the outstanding common securities
issued by the Trust and shall not cause or permit the common securities to be
transferred except to the extent permitted by the declaration; provided that
any permitted successor of AES under the indenture may succeed to our ownership
of the common securities issued by the applicable the Trust and (ii) to use
reasonable efforts to cause such the Trust to continue to be treated as a
grantor trust for United States federal income tax purposes except in
connection with a distribution of junior subordinated debentures.
Amendments and Assignment
Except with respect to any changes that do not adversely affect the rights
of holders of preferred securities (in which case no consent will be required),
the preferred securities guarantee may be amended only with the prior approval
of the holders of not less than a majority in liquidation amount of the
outstanding preferred securities issued by the Trust. All guarantees and
agreements contained in the preferred securities guarantee shall bind our
successors, assignees, receivers, trustees and representatives and shall inure
to the benefit of the holders of the preferred securities then outstanding.
Except in connection with a consolidation, merger or sale involving AES that is
permitted under the indenture, we may not assign our obligations under the
preferred securities guarantee.
Termination of the Preferred Securities Guarantee
The preferred securities guarantee will terminate and be of no further
force and effect as to the preferred securities upon full payment of the
redemption price of all of the preferred securities, or upon distribution of
the junior subordinated debentures to the holders of the preferred securities
in exchange for all of the preferred securities, or upon full payment of the
amounts payable upon liquidation of the Trust. Notwithstanding the foregoing,
the preferred securities guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of preferred
securities must restore payment of any sums paid under the preferred securities
or the preferred securities guarantee.
Status of the Preferred Securities Guarantee
Our obligations under the preferred securities guarantee to make the
guarantee payments constitute an unsecured obligation of AES and rank
subordinate and junior in right of payment to all of our other liabilities,
including the junior subordinated debentures, except those made pari passu or
subordinate by their terms, and pari passu in right of payment with the most
senior preferred stock issued, from time to time, if any, by AES. Our
obligations under the preferred securities guarantee rank pari passu with other
preferred securities guarantees of AES. Because we are a holding company, our
obligations under the preferred securities guarantee are also effectively
subordinated to all existing and future liabilities, including trade payables,
of our
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subsidiaries, except to the extent that we are a creditor of the subsidiaries
recognized as such. The declaration provides that each preferred securities
holder's acceptance thereof agrees to the subordination provisions and other
terms of the preferred securities guarantee.
The preferred securities guarantee constitutes a guarantee of payment and
not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without first instituting a legal proceeding against any other person
or entity). The preferred securities guarantee has been deposited with Bank
One, as indenture trustee, to be held for the benefit of the holders of the
preferred securities issued by the Trust. Bank One shall enforce the preferred
securities guarantee on behalf of the holders of the preferred securities. The
holders of not less than a majority in aggregate liquidation amount of the
preferred securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available in respect of the preferred
securities guarantee, including the giving of directions to Bank One. If Bank
One fails to enforce the preferred securities guarantee as above provided, any
holder of preferred securities may institute a legal proceeding directly
against us to enforce its rights under the preferred securities guarantee,
without first instituting a legal proceeding against the Trust or any other
person or entity. Notwithstanding the foregoing, if we have failed to make a
guarantee payment, a holder of preferred securities may directly institute a
proceeding against us for enforcement of the preferred securities guarantee for
such payments.
Miscellaneous
We are required to provide annually to Bank One a statement as to our
performance of certain of its obligations under the preferred securities
guarantee and as to any default in such performance. We are required to file
annually with Bank One an officer's certificate as to our compliance with all
conditions under the preferred securities guarantee.
Bank One, prior to the occurrence of a default, undertakes to perform only
such duties as are specifically set forth in the preferred securities guarantee
and, after default with respect to the preferred securities guarantee, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, Bank One is under
no obligation to exercise any of the powers vested in it by the preferred
securities guarantee at the request of any holder of preferred securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
Governing Law
The preferred securities guarantee will be governed by, and construed in
accordance with, the laws of the State of New York.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the junior subordinated debentures in
which the Trust invested the proceeds from the issuance and sale of the Trust
securities and which were deposited in the Trust as trust assets. The terms of
the junior subordinated debentures include those stated in the Junior
Subordinated Debt Trust Securities Indenture dated as of March 1, 1997 between
AES and The First National Bank of Chicago, as trustee, as supplemented by the
supplemental indenture to be dated as of May 17, 2000 between AES and Bank One,
National Association, which we refer to in this prospectus as the Indenture
Trustee. We refer in this prospectus to The Junior Subordinated Debt Trust
Securities Indenture, as supplemented, as the indenture. The following
description does not purport to be complete and is qualified in its entirety by
reference to the indenture and the Trust Indenture Act. Whenever particular
provisions or defined terms in the indenture are referred to herein, such
provisions or defined terms are incorporated by reference herein.
The indenture does not limit the aggregate principal amount of
indebtedness which may be issued thereunder and provides that junior
subordinated debentures may be issued thereunder from time to time in one or
more series, which we refer to collectively, together with the junior
subordinated debentures, in this prospectus as the subordinated debentures. The
junior subordinated debentures constitute a separate series under the
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indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a special event, junior subordinated debentures may
be distributed to the holders of the Trust securities in liquidation of the
Trust. See "Description of the Preferred Securities--Special Event Redemption
or Distribution".
General
The junior subordinated debentures are unsecured, subordinated obligations
of AES, limited in aggregate principal amount to an amount equal to the sum of
(1) the stated liquidation amount of the preferred securities issued by the
Trust and (2) the proceeds received by the Trust upon issuance of the common
securities to us (which proceeds will be used to purchase an equal principal
amount of junior subordinated debentures).
The entire principal amount of the junior subordinated debentures will
become due and payable, together with any accrued and unpaid interest thereon,
on May 15, 2008. The junior subordinated debentures are not subject to any
sinking fund.
If junior subordinated debentures are distributed to holders of preferred
securities in dissolution of the Trust, such junior subordinated debentures
will initially be issued as a global security, defined in this prospectus under
"--Book-Entry and Settlement". As described herein, under certain limited
circumstances, junior subordinated debentures may be issued in certificated
form in exchange for a global security. See "Book-Entry and Settlement" below.
In the event that junior subordinated debentures are issued in certificated
form, such junior subordinated debentures will be in denominations of $50 and
integral multiples thereof and may be transferred or exchanged at the offices
described below. Payments on junior subordinated debentures issued as a global
security will be made to DTC, a successor depositary or, in the event that no
depositary is used, to a paying agent for the junior subordinated debentures.
In the event that junior subordinated debentures are issued in
certificated form, payments of principal and interest will be payable, the
transfer of the junior subordinated debentures will be registrable, and junior
subordinated debentures will be exchangeable for junior subordinated debentures
of other denominations of a like aggregate principal amount, at the corporate
trust office of the Indenture Trustee in New York, New York provided that
payment of interest may be made at our option by check mailed to the address of
the persons entitled thereto and that the payment of principal with respect to
any junior subordinated debenture will be made only upon surrender of such
junior subordinated debenture to the Indenture Trustee.
Subordination
The payment of principal of, premium, if any, and interest on the junior
subordinated debentures will, to the extent and in the manner set forth in the
indenture, be subordinated in right of payment to the prior payment in full, in
cash or cash equivalents, of all of our senior and subordinated debt.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshalling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings of AES, the holders of all senior
and subordinated debt will first be entitled to receive payment in full of all
amounts due or to become due thereon before the holders of the junior
subordinated debentures will be entitled to receive any payment in respect of
the principal of, premium, if any, or interest on the junior subordinated
debentures.
We may make no payments on account of principal, premium, if any, or
interest in respect of the junior subordinated debentures if there shall have
occurred and be continuing a default in any payment with respect to senior and
subordinated debt or during certain periods when an event of default under
certain senior and subordinated debt permits the lenders thereunder to
accelerate the maturity of such senior and subordinated debt. In addition,
during the continuance of any other event of default (other than a payment
default) with respect to designated senior and subordinated debt pursuant to
which the maturity thereof may be accelerated, from and after the date of
receipt by the trustee of written notice from holders of such designated senior
and subordinated debt or from an agent of such holders, we may make no payments
on account of principal, premium, if any, or interest in respect of the junior
subordinated debentures during a period, commencing on the date of delivery of
such notice and ending 179 days thereafter, which we refer to in this
prospectus as the payment blockage period, (unless such payment blockage period
shall be
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terminated by written notice to the trustee from the holders of such designated
senior and subordinated debt or from an agent of such holders, or such event of
default has been cured or waived or has ceased to exist). Only one payment
blockage period may be commenced with respect to the junior subordinated
debentures during any period of 360 consecutive days. No event of default which
existed or was continuing on the date of the commencement of any payment
blockage period with respect to the designated senior and subordinated debt
initiating such payment blockage period shall be or be made the basis for the
commencement of any subsequent payment blockage period by the holders of such
designated senior and subordinated debt, unless such event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
By reason of such subordination, in the event of insolvency, funds that
would otherwise be payable holders of junior subordinated debentures will be
paid to the holders of our senior and subordinated debt to the extent necessary
to pay such debt in full, and we may be unable to meet fully its obligations
with respect to the junior subordinated debentures.
"Debt" is defined to mean, with respect to any person in any date of
determination (without duplication), (i) all indebtedness for borrowed money,
(ii) all obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations in respect of letters of credit or bankers'
acceptance or other similar instruments (or reimbursement obligations with
respect thereto), (iv) all obligations to pay the deferred purchase price of
property or services, except trade payables, (v) all obligations as
lessee-under capitalized leases, (vi) all debt of others secured by a lien on
any asset of such person, whether or not such debt is assumed by such person;
provided that, for purposes of determining the amount of any debt of the type
described in this clause, if recourse with respect to such debt is limited to
such asset, the amount of such debt shall be limited to the lesser of the fair
market value of such an asset or the amount of such debt, (vii) all debt of
others guaranteed by such person to the extent such debt is guaranteed by such
person, (viii) all redeemable stock valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends and (ix)
to the extent not otherwise included in this definition, all obligations of
such person under currency agreements and interest rate agreements.
"Designated senior and subordinated debt" is defined to mean (i) debt
under the credit agreement dated as of May 20, 1996, which we refer to in this
prospectus as the credit agreement, among AES, the banks named on the signature
pages thereof and the Morgan Guaranty Trust Company of New York, as agent for
the banks, as such credit agreement has been and may be amended, restated,
supplemented or otherwise modified from time to time and (ii) debt constituting
senior and subordinated debt which, at the time of its determination, (A) has
an aggregate principal amount of at least $30 million and (B) is specifically
designated in the instrument evidencing such senior and subordinated debt as
"designated senior and subordinated debt" by AES.
"Senior and subordinated debt" is defined to mean the principal of (and
premium, if any) and interest on all of our debt whether created, incurred or
assumed before, on or after the date of the indenture; provided that such
senior and subordinated debt shall not include (i) debt to any affiliate, (ii)
debt that, when incurred and without respect to any election under Section
1111(b) of Title 11, U.S. Code, was without recourse, (iii) any other debt
which by terms of the instrument creating or evidencing the same are
specifically designated as not being senior in right of payment to the junior
subordinate debentures, and in particular the junior subordinated debentures
shall rank pari passu with all other debt securities and guarantees issued to
any trust, partnership or other entity affiliated with AES which is a financing
vehicle of AES in connection with an issuance of preferred securities by such
financing entity, and (iv) redeemable stock of AES.
Optional Redemption
Except as provided below, the junior subordinated debentures may not be
redeemed prior to May 19, 2003. We shall have the right to redeem the junior
subordinated debentures, in whole or in part, from time to time, on or after
May 19, 2003, upon not less than 30 nor more than 60 days notice, at the
following prices (expressed as percentages of the principal amount of the
junior subordinated debentures) together with accrued and unpaid interest,
including compounded interest to, but excluding, the redemption date, if
redeemed during the 12-month period beginning May 15:
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Redemption
Year Price
---- ----------
2003......................................................... 103.75%
2004......................................................... 103.00%
2005......................................................... 102.25%
2006......................................................... 101.50%
2007......................................................... 100.75%
and 100% if redeemed on May 15, 2008.
If the junior subordinated debentures are redeemed on any interest payment
date, as defined in this prospectus under "--Interest", accrued and unpaid
interest shall be payable to holders of record on the relevant record date.
So long as the corresponding preferred securities are outstanding, the
proceeds from the redemption of any junior subordinated debentures will be used
to redeem preferred securities.
We will also have the right to redeem the junior subordinated debentures
at any time upon the occurrence of a tax event if certain conditions are met as
described under "Description of the Preferred Securities--Special Event
Redemption or Distribution".
We may not redeem any junior subordinated debentures unless all accrued
and unpaid interest thereon, including compounded interest, has been paid for
all quarterly periods terminating on or prior to the date of notice of
redemption.
If we give a notice of redemption in respect of junior subordinated
debentures (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, we will deposit irrevocably with the
Indenture Trustee funds sufficient to pay the applicable redemption price and
will give irrevocable instructions and authority to pay such redemption price
to the holders of the junior subordinated debentures. If notice of redemption
shall have been given and funds deposited as required, then upon the date of
such deposit, interest will cease to accrue on the junior subordinated
debentures called for redemption, such junior subordinated debentures will no
longer be deemed to be outstanding and all rights of holders of such junior
subordinated debentures so called for redemption will cease, except the right
of the holders of such junior subordinated debentures to receive the applicable
redemption price, but without interest on such redemption price. If any date
fixed for redemption of junior subordinated debentures is not a business day,
then payment of the redemption price payable on such date will be made on the
next succeeding day that is a business day (and without any interest or other
payment in respect of any such delay) except that, if such business day falls
in the next calendar year, such payment will be made on the immediately
preceding business day, in each case with the same force and effect as if made
on such date fixed for redemption. If we fail to repay the junior subordinated
debentures on maturity or the date fixed for this redemption, or if payment of
the redemption price in respect of junior subordinated debentures is improperly
withheld or refused and not paid by us, interest on such junior subordinated
debentures will continue to accrue, from the original redemption date to the
date of payment, in which case the actual payment date will be considered the
date fixed for redemption for purposes of calculating the applicable redemption
price. If fewer than all of the junior subordinated debentures are to be
redeemed, the junior subordinated debentures to be redeemed shall be selected
by lot or pro rata or in some other equitable manner determined by the
Indenture Trustee.
In the event of any redemption in part, we shall not be required to (1)
issue, register the transfer of or exchange any junior subordinated debentures
during a period beginning at the opening of 15 business days before any
selection for redemption of junior subordinated debentures and ending at the
close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of junior subordinated
debentures to be redeemed and (2) register the transfer of or exchange any
junior subordinated debentures so selected for redemption, in whole or in part,
except the unredeemed portion of any junior subordinated debentures being
redeemed in part.
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Interest
The junior subordinated debentures will bear interest at the rate of 6%
per annum from May 17, 2000. Interest will be payable on February 15, May 15,
August 15 and November 15, of each year, each which we refer to in this
prospectus as an interest payment date, commencing on August 15, 2000, to the
person in whose name such junior subordinated debenture is registered, subject
to certain exceptions, at the close of business on the business day next
preceding such interest payment date. In the event (i) the preferred securities
do not continue to remain in book-entry only form or (ii) if following
distribution of the junior subordinated debentures to holders of Trust
securities upon dissolution of the Trust as described under "Description of the
Preferred Securities" above, the junior subordinated debentures shall not
continue to remain in book-entry only form, the relevant record date will be
the first date of the month in which the relevant interest payment date occurs.
Interest payable on any junior subordinated debenture that is not punctually
paid or duly provided for on any interest payment date will forthwith cease to
be payable to the person in whose name such junior subordinated debenture is
registered on the relevant record date, and such defaulted interest will
instead be payable to the person in whose name such junior subordinated
debenture is registered on the special record date or other specified date
determined in accordance with the indenture; provided, however, that interest
shall not be considered payable by AES on any interest payment date falling
within an extension period unless we have elected to make a full or partial
payment of interest accrued on the junior subordinated debentures on such
interest payment date.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30 day months. If any date on which interest
is payable on the junior subordinated debentures is not a business day, then
payment of the interest payable on such date will be made on the next
succeeding day that is a business day (and without any interest or other
payment in respect of any such delay), except that, if such business day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding business day, in each case with the same force and effect
as if made on such date.
Option to Extend Interest Payment Period
So long as we shall not be in default in the payment of interest on the
junior subordinated debentures, we shall have the right to extend the interest
payment period from time to time for a period not exceeding 20 consecutive
quarters. We have no current intention of exercising its right to extend an
interest payment period. No interest shall be due and payable during an
extension period, except at the end thereof. During any extension period, we
shall not declare or pay any dividends on, or redeem, purchase, acquire or make
a distribution or liquidation payment with respect to, any of its common stock
or preferred stock or make any guarantee payments with respect thereto;
provided that the foregoing will not apply to stock dividends payable in common
stock paid by AES. Prior to the termination of any such extension period, we
may further extend the interest payment period; provided that such extension
period together with all such previous and further extensions thereof may not
exceed 20 consecutive quarters or extend beyond the maturity of the junior
subordinated debentures. On the interest payment date occurring at the end of
each extension period, we shall pay to the holders of junior subordinated
debentures of record on the record date for such interest payment date
(regardless of who the holders of record may have been on other dates during
the extension period) all accrued and unpaid interest on the junior
subordinated debentures, together with interest thereon at the rate specified
for the junior subordinated debentures to the extent permitted by applicable
law, compounded quarterly. Upon the termination of any extension period and the
payment of all amounts then due, we may commence a new extension period,
subject to the above requirements. We may also prepay at any time all or any
portion of the interest accrued during an extension period. Consequently, there
could be multiple extension periods of varying lengths throughout the term of
the junior subordinated debentures, not to exceed 20 consecutive quarters;
provided, that no such period may extend beyond the stated maturity of the
junior subordinated debentures. Our failure to make interest payments during an
extension period would not constitute a default or an event of default under
the indenture or our currently outstanding indebtedness.
If the Property Trustee shall be the sole holder of the junior
subordinated debentures, we shall give the Property Trustee notice of its
selection of such extension period one business day prior to the earlier of (1)
the date the distributions on the preferred
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securities are payable or (2) the date the Trust is required to give notice to
the New York Stock Exchange (if the preferred securities are then listed
thereon) or other applicable self-regulatory organization or to holders of the
preferred securities of the record date or the date such distribution is
payable. The Trust shall give notice of our selection of such extension period
to the holders of the preferred securities.
If junior subordinated debentures have been distributed to holders of
Trust securities, we shall give the holders of the junior subordinated
debentures notice of its selection of such extension period ten business days
prior to the earlier of (1) the next succeeding interest payment date or (2)
the date we are required to give notice to the New York Stock Exchange (if the
junior subordinated debentures are then listed thereon) or other applicable
self-regulatory organization or to holders of the junior subordinated
debentures of the record or payment date of such related interest payment.
Additional Interest
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in
any such case, we will pay as additional interest on the junior subordinated
debentures such additional amounts as shall be required so that the net amounts
received and retained by the Trust after paying any such taxes, duties,
assessments or other governmental charges will be equal to the amounts the
Trust would have received had no such taxes, duties, assessments or other
governmental charges been imposed.
Conversion of the Junior Subordinated Debentures
The junior subordinated debentures are convertible into common stock at
the option of the holders of the junior subordinated debentures at any time
prior to the close of business on May 14, 2008 (or, in the case of junior
subordinated debentures called for redemption, the close of business on the
business day prior to the redemption date) at the initial conversion price
subject to the conversion price adjustments described under "Description of the
Preferred Securities--Conversion Rights". The Trust has agreed not to convert
junior subordinated debentures held by it except pursuant to a notice of
conversion delivered to the Conversion Agent by a holder of preferred
securities. Upon surrender of preferred securities to the Conversion Agent for
conversion, the Trust will distribute junior subordinated debentures to the
Conversion Agent on behalf of the holder of the preferred securities so
converted, whereupon the Conversion Agent will convert such junior subordinated
debentures to common stock on behalf of such holder. Our delivery to the
holders of the junior subordinated debentures (through the Conversion Agent) of
the fixed number of shares of common stock into which the junior subordinated
debentures are convertible (together with the cash payment, if any, in lieu of
fractional shares) will be deemed to satisfy our obligation to pay the
principal amount of the junior subordinated debentures so converted, and the
accrued and unpaid interest thereon attributable to the period from the last
date to which interest has been paid or duly provided for; provided, however,
that if any junior subordinated debenture is converted after a record date for
payment of interest, the interest payable on the related interest payment date
with respect to such junior subordinated debenture shall be paid to the Trust
(which will distribute such interest to the converting holder) or other holder
of junior subordinated debentures, as the case may be, despite such conversion.
Compounded Interest
Payments of compounded interest on the junior subordinated debentures held
by the Trust will make funds available to pay any interest on distributions in
arrears in respect of the preferred securities pursuant to the terms thereof.
Certain Covenants of the Company Applicable to the Junior Subordinated
Debentures
If junior subordinated debentures are issued to the Trust in connection
with the issuance of Trust securities by the Trust, we will covenant in the
indenture that, so long as the preferred securities issued by the Trust remain
outstanding, we will not declare or pay any dividends on, or redeem, purchase,
acquire or make a distribution or liquidation payment with respect to, any of
its common stock or preferred stock or make any guarantee payment with respect
to, any of its common stock or preferred stock or make any guarantee payment
with respect thereto if at such time (i) we shall be in default with respect to
our guarantee payments or other payment obligations under the preferred
securities guarantee, (ii) there shall have occurred any indenture event of
default with respect to the junior subordinated debentures or (iii) in the
event that junior subordinated
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debentures are issued to the Trust in connection with the issuance of Trust
securities by the Trust, we shall have given notice of our election to defer
payments of interest on such junior subordinated debentures by extending the
interest payment period as provided in the terms of such junior subordinated
debentures and such period, or any extension thereof, is continuing; provided
that (x) we will be permitted to pay accrued dividends (and cash in lieu of
fractional shares) upon the conversion of any of our preferred stock as may be
outstanding from time to time, in each case in accordance with the terms of
such stock and (y) the foregoing will not apply to any stock dividends paid by
us. In addition, if junior subordinated debentures are issued to the Trust in
connection with the issuance of Trust securities by the Trust, for so long as
preferred securities remain outstanding, we have agreed (i) to remain the sole
direct or indirect owner of all of the outstanding common securities issued by
the Trust and not to cause or permit the common securities to be transferred
except to the extent permitted by the declaration; provided that any permitted
successor of AES under the indenture may succeed to our ownership of the common
securities issued by the Trust, (ii) to comply fully with all of its
obligations and agreements contained in the related declaration and (iii) not
to take any action which would cause the Trust to cease to be treated as a
grantor trust for United States federal income tax purposes, except in
connection with a distribution of junior subordinated debentures.
Indenture Events of Default
The indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "indenture event
of default" with respect to each series of junior subordinated debentures:
(a) Failure for 30 days to pay interest on the junior subordinated
debentures of such series when due: provided that a valid extension of the
interest payment period by AES shall not constitute a default in the payment of
interest for this purpose;
(b) failure to pay principle of or premium, if any, on the junior
subordinated debentures of such series when due whether at maturity, upon
redemption, by declaration or otherwise;
(c) failure to observe or perform any other covenant contained in the
indenture with respect to such series for 90 days after written notice to AES
from the Indenture Trustee or the holders of at least 25% in principal amount
of the outstanding junior subordinated debentures of such series; or
(d) certain events in bankruptcy, insolvency or reorganization of
AES.
In each and every such case, unless the principal of all the junior
subordinated debentures of that series shall have already become due and
payable, either the Indenture Trustee or the holders of not less that 25% in
aggregate principal amount of the junior subordinated debentures of that series
then outstanding, by notice in writing to AES (and to the Indenture Trustee if
given by such holders), may declare the principal of all the junior
subordinated debentures of that series to be due and payable immediately, and
upon any such declaration the same shall become and shall be immediately due
and payable. (Section 6.01)
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures of that series have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Indenture Trustee. (Section 6.06) The Indenture Trustee or the holders of
not less than 25% in aggregate outstanding principal amount of the junior
subordinated debentures of that series may declare the principal due and
payable immediately upon an indenture event of default with respect to such
series, but the holders of a majority in aggregate outstanding principal amount
of junior subordinated debentures of such series may annul such declaration and
waive the default if the default has been cured and a sum sufficient to pay all
matured installments of interest and principal otherwise than by acceleration
and any premium has been deposited with the Indenture Trustee. (Sections 6.01
and 6.06).
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures of that series may, on behalf of the holders of
all the junior subordinated debentures of that series, waive any past default,
except a default in the payment of principal, premium, if any, or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal otherwise than by acceleration and any
premium has been deposited with the Indenture Trustee) or a call for redemption
of junior subordinated debentures. (Section 6.06) We are required to file
annually with the Indenture Trustee a certificate as to whether or not we are
in compliance with all the conditions and covenants under the indenture.
(Section 5.03)
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If junior subordinated debentures are issued to the Trust in connection
with the issuance of Trust securities, then under the applicable declaration an
indenture event of default with respect to such series of junior subordinated
debentures will constitute a declaration event of default. (Section 7.02) The
Indenture Trustee is not required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the
trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. (Section 7.01)
Miscellaneous
We and our subsidiaries maintain ordinary banking and trust relationships
with Bank One and its affiliates.
We will have the right at all times to assign any of its rights or
obligations under the indenture to a direct or indirect wholly-owned
subsidiary; provided that, in the event of any such assignment, we will remain
jointly and severally liable for all such obligations. Subject to the
foregoing, the indenture will be binding upon and inure to the benefit of the
parties thereto and their respective successors and assigns. The indenture
provides that it may not otherwise be assigned by the parties thereto other
than by AES to a successor or purchase pursuant to a consolidation, merger or
sale permitted by the indenture. (Section 13.11)
Book-Entry and Settlement
If any junior subordinated debentures are distributed to holders of
preferred securities (see "Description of the Preferred Securities"), such
junior subordinated debentures will be issued in the form of one or more global
certificates, each which we refer to in this prospectus as a global security,
registered in the name of the depositary or its nominee. Except under the
limited circumstances described below, junior subordinated debentures
represented by the global security will not be exchangeable for, and will not
otherwise be issuable as, junior subordinated debentures in definitive form.
The global securities described above may not be transferred except by the
depositary to a nominee of the depositary or by a nominee of the depositary to
the depositary or another nominee of the depositary or to a successor
depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a global
security.
Except as provided below, owners of beneficial interests in such a global
security will not be entitled to receive physical delivery of junior
subordinated debentures in definitive form and will not be considered the
holders (as defined in the indenture) thereof for any purpose under the
indenture, and no global security representing junior subordinated debentures
shall be exchangeable, except for another global security of like denomination
and tenor to be registered in the name of the depositary or its nominee or to a
successor depositary or its nominee. Accordingly, each beneficial owner must
rely on the procedures of the depositary or if such person is not a
participant, on the procedures of the participant through which such person
owns its interest to exercise any rights of a holder under the indenture. If
junior subordinated debentures are distributed to holder of preferred
securities, DTC will act as securities depositary for the junior subordinated
debentures.
For a description of DTC and DTC's book-entry system, see "Description of
the Preferred Securities--Book-Entry Only Issuance--The Depository Trust
Company". As of the date of this prospectus, the description herein of DTC's
book-entry system and DTC's practices as they relate to purchases, transfers,
notices and payments with respect to the preferred securities apply in all
material respects to any debt obligations represented by one or more global
securities held by DTC. We may appoint a successor to DTC or any successor
depositary in the event DTC or such successor depositary is unable or unwilling
to continue as a depository for the global securities.
None of AES, the Indenture Trustee, any paying agent and any other agent
of AES or the Indenture Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in a global security for such junior subordinated
debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
A global security shall be exchangeable for junior subordinated debentures
registered in the names of persons other than the depositary or its nominee
only if (1) the depositary notifies us that it is unwilling or unable to
continue as a depositary for such global security and no successor depositary
shall have been appointed; (2) the depositary, at any time, ceases to be a
clearing agency registered under the Exchange Act at which time the depositary
is required to be so registered
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to act as such depositary and no successor depositary shall have been
appointed; (3) we, in our sole discretion, determine that such global security
shall be so exchangeable; or (4) there shall have occurred an indenture event
of default with respect to such junior subordinated debentures. Any global
security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for junior subordinated debentures registered in such names as the
depositary shall direct. It is expected that such instructions will be based
upon directions received by the depositary from its participants with respect
to ownership of beneficial interests in such global security.
RELATIONSHIP BETWEEN THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND
THE PREFERRED SECURITIES GUARANTEE
As set forth in the declaration, the Trust exists for the sole purpose of
(1) issuing the Trust securities evidencing undivided beneficial interests in
the assets of the Trust, and investing the proceeds from such issuance and sale
in the junior subordinated debentures and (2) engaging in such other activities
as are necessary and incidental thereto.
As long as payments of interest and other payments are made when due on
the junior subordinated debentures, such payments will be sufficient to cover
distributions and other payments due on the preferred securities primarily
because (1) the aggregate principal amount of junior subordinated debentures
held as trust assets will be equal to the sum of the aggregate stated
liquidation amount of the preferred securities and the proceeds received by the
Trust upon issuance of the common securities to us; (2) the interest rate and
interest and other payment dates on the junior subordinated debentures will
match the distribution rate and distribution and other payment dates for the
preferred securities; (3) the declaration provides that we shall pay for all
debts and obligations (other than with respect to the Trust securities) and all
costs and expenses of the Trust, including any taxes and all costs and expenses
with respect thereto, to which the Trust may become subject, except for United
States withholding taxes; and (4) the declaration further provides that the
trustees shall not cause or permit the Trust, among other things, to engage in
any activity that is not consistent with the limited purposes of the Trust.
With respect to clause (3) above, however, no assurance can be given that we
will have sufficient resources to enable it to pay such debts, obligations,
costs and expenses on behalf of the Trust.
Payments of distributions and other payments due on the preferred
securities are guaranteed by AES on a subordinated basis as and to the extent
set forth under "Description of the Preferred Securities Guarantee". If we do
not make interest or other payments on the junior subordinated debentures, the
Trust will not make distributions or other payments on the preferred
securities. Under the declaration, if and to the extent we do make interest or
other payments on the junior subordinated debentures, the Property Trustee is
obligated to make distributions or other payments on the preferred securities.
The preferred securities guarantee is a full and unconditional guarantee from
the time of issuance of the preferred securities, but the preferred securities
guarantee covers distributions and other payments on the preferred securities
only if and to the extent that we have made a payment to the Property Trustee
of interest or principal on the junior subordinated debentures deposited in the
Trust as trust assets.
The Property Trustee will have the power to exercise all rights, powers
and privileges under the indenture with respect to the junior subordinated
debentures, including its rights as the holder of the junior subordinated
debentures to enforce our obligations under the junior subordinated debentures
upon the occurrence of an indenture event of default, and will also have the
right to enforce the preferred securities guarantee on behalf of the holders of
the preferred securities. In addition, the holders of at least a majority in
liquidation amount of the preferred securities will have the right to direct
the Property Trustee with respect to certain matters under the declaration and
the preferred securities guarantee. If the Property Trustee fails to enforce
its rights under the indenture any holder of preferred securities may, after a
period of 30 days has elapsed from such holder's written request to the
Property Trustee to enforce such rights, institute a legal proceeding against
us to enforce such rights. If the Property Trustee fails to enforce the
preferred securities guarantee, to the extent permitted by applicable law, any
holder of preferred securities may institute a legal proceeding directly
against us to enforce the Property Trustee's rights under the preferred
securities guarantee. Notwithstanding the
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foregoing, if we have failed to make a guarantee payment, a holder of preferred
securities may directly institute a proceeding against us for enforcement of
the preferred securities guarantee for such payment. See "Description of the
Preferred Securities" and "Description of the Preferred Securities
Guarantee--Status of the Preferred Securities Guarantee".
The above mechanisms and obligations, taken together, provide a full and
unconditional guarantee by AES of payments due on the preferred securities.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following are certain United States federal income tax consequences of
the ownership and disposition of preferred securities. Unless otherwise stated,
this summary deals only with preferred securities held as capital assets by
holders who acquire the preferred securities upon original issuance at the
initial offering price of $50 per preferred security. It does not deal with
special classes of holders, such as dealers in securities or currencies,
insurance companies, persons holding preferred securities as part of a straddle
or as part of a hedging or conversion transaction, or United States persons
whose functional currency is not the United States dollar. This discussion also
does not address any tax consequences to foreign persons who own preferred
securities indirectly through domestic partnerships or other domestic
pass-through entities or United States persons who own preferred securities
indirectly through foreign partnerships or other foreign pass-through entities.
This summary is based on the Internal Revenue Code of 1986, as amended,
commonly referred to as the Code, Treasury Regulations thereunder and
administrative and judicial interpretations thereof as of the date hereof, all
of which are subject to change (possibly on a retroactive basis).
Investors are advised to consult their tax advisors as to the United
States federal income tax consequences of the ownership and disposition of
preferred securities in light of their particular circumstances, as well as the
effect of any state, local or other tax laws. In particular, investors who did
not acquire the preferred securities upon their original issuance at the
initial offering price of $50 per preferred security should consult with their
tax advisors with respect to the possible applications of U.S. federal income
tax rules concerning "amortizable bond premium," "market discount," or
"acquisition premium."
For purposes of the following discussion, the term "United States Holder"
means a beneficial owner of preferred securities that, for United States
federal income tax purposes, is (i) a United States citizen or resident, (ii) a
corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, or (iii) an estate or trust
the income of which is includible in gross income for United States income tax
purposes regardless of its source.
Classification of the Junior Subordinated Debentures
We intend to take the position that the junior subordinated debentures
will be classified for United States federal income tax purposes as
indebtedness under current law. No assurance can be given, however, that this
position will not be challenged by the Internal Revenue Service, commonly
referred to as the IRS. The remainder of this discussion assumes that the
junior subordinated debentures will be classified for United States federal
income tax purposes as indebtedness of AES, and, by acceptance of a preferred
security, each holder covenants to treat the junior subordinated debentures as
indebtedness and the preferred securities as evidence of an indirect beneficial
ownership interest in the junior subordinated debentures.
Classification of the Trust
In connection with the issuance of the preferred securities, Davis Polk &
Wardwell, counsel to AES and the Trust, rendered its opinion generally to the
effect that, assuming full compliance with the terms of the declaration, the
Trust will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
each holder of preferred securities will be considered the owner of a pro rata
portion of the junior subordinated debentures held by the Trust and will be
required to include in gross income its pro rata share of income accrued on the
junior subordinated debentures.
United States Holders
Accrual of Original Issue Discount. Because we have the right to extend
the interest payment period on the junior subordinated debentures, all of the
stated interest payments on the junior subordinated debentures
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will be treated as "original issue discount", which we refer to in this
prospectus as OID. Accordingly, each United States Holder of preferred
securities, including a taxpayer who otherwise uses the cash method of
accounting, will be required to include its pro rata share of OID on the junior
subordinated debentures in income as it accrues, in accordance with a constant
yield method based on a compounding of interest, before the receipt of cash
distributions on the preferred securities. Generally, all of a United States
Holder's taxable interest income with respect to the junior subordinated
debentures will be accounted for as OID and actual distributions of stated
interest will not be separately reported as taxable income. So long as the
interest payment period is not extended, cash distributions received by a
United States Holder for any quarterly interest period (assuming no disposition
prior to the record date for such distribution) will generally equal the sum of
the daily accruals of income for such quarterly interest period.
The total amount of OID on the junior subordinated debentures will equal
the difference between the "issue price" of the junior subordinated debentures
and their "stated redemption price at maturity." All of the stated interest
payments on the junior subordinated debentures will be includible in
determining their "stated redemption price at maturity." The "issue price" of
each $50 principal amount of junior subordinated debentures will be equal to
the first price to the initial purchasers at which a substantial amount of the
preferred securities is sold for cash.
A United States Holder's initial tax basis for its pro rata share of the
junior subordinated debentures will be equal to its pro rata share of their
"issue price," as defined above, and will be increased by OID accrued with
respect to its pro rata share of the junior subordinated debentures, and
reduced by the amount of cash distributions with respect thereto. No portion of
the amounts received on the preferred securities will be eligible for the
dividends received deduction.
Potential Extension of Payment Period on the Junior Subordinated
Debentures. United States Holders of preferred securities will continue to
accrue OID with respect to their pro rata share of the junior subordinated
debentures during an extended interest payment period. A United States Holder
who disposes of the preferred securities during an extended interest period may
suffer a loss because the market value of the preferred securities will likely
fall if we exercise our option to defer payments of interest on the junior
subordinated debentures. See "Disposition of the Preferred Securities" below.
Furthermore, the market value of the preferred securities may not reflect the
accumulated distributions that will be paid at the end of the extended interest
period, and a United States Holder who sells the preferred securities during
the extended interest period will not receive from AES any cash related to the
interest income the holder accrued and included in its taxable income under the
OID rule (because that cash will be paid to the holder of record at the end of
the extended interest period).
Distribution of Junior Subordinated Debentures to Holders of Preferred
Securities. Under current law, a distribution by the Trust of the junior
subordinated debentures as described under the caption "Description of the
Preferred Securities--Special Event Redemption or Distribution" will be
non-taxable and will result in the United States Holder receiving directly its
pro rata share of the junior subordinated debentures previously held indirectly
through the Trust, with a holding period and tax basis equal to the holding
period and adjusted tax basis such United States Holder was considered to have
had in his pro rata share of the underlying junior subordinated debentures
prior to such distribution.
Disposition of the Preferred Securities. Upon a sale, exchange or other
disposition of the preferred securities (including a distribution of cash in
redemption of a United States Holder's preferred securities upon redemption or
repayment of the underlying junior subordinated debentures, but excluding the
distribution of junior subordinated debentures), a United States Holder will be
considered to have disposed of all or part of its pro rata share of the junior
subordinated debentures, and will recognize gain or loss equal to the
difference between the amount realized and the United States Holder's adjusted
tax basis in its pro rata share of the underlying junior subordinated
debentures deemed disposed of. Such gain or loss will be capital gain or loss.
United States Holders are advised to consult their tax advisers regarding the
taxation of capital gains and losses.
The preferred securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying junior
subordinated debentures. A United States Holder who disposes of its preferred
securities between record dates for payments of distributions thereon will
nevertheless be required to include accrued but unpaid interest on the junior
subordinated debentures through the date of disposition in income as OID, and
to add such amount to its adjusted tax basis in its pro rata share of the
underlying junior subordinated debentures deemed
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disposed of. Accordingly, such a United States Holder will recognize a capital
loss to the extent the selling price (which may not fully reflect the value of
accrued but unpaid interest) is less than the United States Holder's adjusted
tax basis (which will include accrued but unpaid interest). Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
Conversion of Preferred Securities to Common Stock. A holder of preferred
securities will not recognize income, gain or loss upon the conversion through
the Conversion Agent, of junior subordinated debentures into common stock. A
United States Holder of preferred securities will recognize gain upon the
receipt of cash in lieu of a fractional share of common stock equal to the
amount of cash received less such United States Holder's tax basis in such
fractional share. Such United States Holder's tax basis in the common stock
received upon conversion will generally be equal to such United States Holder's
tax basis in the preferred securities delivered to the Conversion Agent for
exchange, less the basis allocated to any fractional share for which cash is
received. Such United States Holder's holding period in the common stock
received upon conversion will generally include the United States Holder's
holding period of the preferred securities delivered to the Conversion Agent
for exchange, except possibly with respect to common stock received in respect
of any accrued but unpaid OID.
Adjustment of Conversion Price. Treasury Regulations promulgated under
section 305 of the Code would treat holders of preferred securities as having
received a constructive distribution from AES in certain events pursuant to
which the conversion rate of the junior subordinated debentures were adjusted.
Thus, under certain circumstances, a reduction in the conversion price for the
junior subordinated debentures may result in deemed dividend income to holders
of preferred securities to the extent of the current or accumulated earnings
and profits of AES. Holders of preferred securities are advised to consult
their tax advisors as to the income tax consequences of adjustments in the
conversion rate of preferred securities.
Information Reporting to Holders. The Trust will report the OID that
accrued during the year with respect to the junior subordinated debentures, and
any gross proceeds received by the Trust from the retirement or redemption of
the junior subordinated debentures, annually to the holders of record of the
preferred securities and the IRS. The Trust currently intends to deliver such
reports to holders of record prior to January 31 following each calendar year.
It is anticipated that persons who hold preferred securities as nominees for
beneficial holders will report the required tax information to beneficial
holders on Form 1099.
Backup Withholding. Payments made on, and proceeds from the sale of
preferred securities may be subject to a "backup" withholding tax of 31% unless
the holder complies with certain identification requirements. Any withheld
amounts will generally be allowed as a credit against the holder's federal
income tax, provided the required information is timely filed with the IRS.
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, for U.S. federal
income tax purposes, a foreign corporation, a nonresident alien individual, a
foreign partnership, or a non-resident fiduciary of a foreign estate or trust.
Payments on Preferred Securities. As discussed above, we intend to take
the position that the junior subordinated debentures will be classified for
United States federal income tax purposes as indebtedness of AES under current
law. No assurance can be given, however, that our position will not be
challenged by the IRS.
Assuming that the junior subordinated debentures are classified for U.S.
federal income tax purposes as indebtedness of AES, under present United States
federal income tax law, payments by the Trust or any of its paying agents to
any holder of a preferred security that is a United States Alien Holder would
not be subject to United States federal withholding tax; provided, that, (a)
the beneficial owner of the preferred securities does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of AES entitled to vote, (b) the beneficial owner of the
preferred securities is not a controlled foreign corporation that is related to
AES through stock ownership, and (c) either (1) the beneficial owner of the
preferred securities certifies on a prerequisite form to the Trust or its
agent, under penalties of perjury, that it is not a U.S. person and provides
its name and address or (2) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course
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of its trade or business, which we refer to in this prospectus as a financial
institution, and holds the preferred securities in such capacity, certifies to
the Trust or its agent that such statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the Trust or its agent with a copy thereof.
Under current Treasury Regulations, backup withholding at a rate of 31%
will not apply to distributions on the preferred securities if the
certifications discussed above are made to the Trust or its agent, provided in
each case that the Trust or its agent does not have actual knowledge the payee
is a U.S. person.
If the junior subordinated debentures were not classified for United
States federal income tax purposes as indebtedness of AES, payments by the
Trust or any of its paying agents to any holder of a preferred securities that
is a United States Alien Holder would be subject to United States withholding
tax at a 30% rate (or a lower rate prescribed by an applicable tax treaty).
Prospective investors that would be United States Alien Holders should consult
their tax advisors concerning the possible application of these rules.
Distribution of Junior Subordinated Debentures to United States Alien
Holders of Preferred Securities. Under current law, a distribution of the
junior subordinated debentures as described under the caption "Description of
the Preferred Securities--Special Event Redemption or Distribution" will be
non-taxable to United States Alien Holders.
Adjustment of Conversion Price. As discussed above under "--Adjustment of
Conversion Price", under certain circumstances a reduction in the conversion
price for the junior subordinated debentures may result in deemed dividend
income to holders of preferred securities to the extent of the current or
accumulated earnings and profits of AES. Any such deemed dividend income that
arises after December 31, 2000 with respect to a United States Alien Holder of
preferred securities generally will be subject to withholding tax at a 30% rate
or at a reduced rate as specified by an applicable tax treaty. For additional
information respecting the treatment of such deemed dividend income, please see
the discussion relating to dividends paid after December 31, 2000 below, under
"--Dividends on Common Stock".
Conversion of Preferred Securities to Common Stock. In general, no United
States federal income or withholding tax will be imposed upon the conversion of
preferred securities into common stock by a United States Alien Holder except
with respect to the United States Alien Holder's receipt of cash in lieu of
fractional shares where the conditions described below under "United States
Alien Holders--Sale or Exchange of Preferred Securities or Common Stock" is
satisfied.
Dividends on Common Stock. Subject to the discussion below, dividends paid
to a United States Alien 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 before December 31, 2000
to an address in a foreign country are paid to a resident of such country,
absent knowledge that such presumption is not warranted.
Under the Treasury Regulations applicable to dividends paid after December
31, 2000, commonly referred to as the Final Regulations, to obtain a reduced
rate of withholding under a treaty, a United States Alien Holder is generally
be required to provide certification of such United States Alien Holder's
entitlement to benefits under a treaty. In addition, in certain cases where
dividends are paid to a United States Alien Holder that is a partnership or
other pass-through entity, persons holding an interest in the entity may need
to provide the required certification.
Generally, we must report to the IRS the amount of dividends paid, the
name and address of the recipient, and the amount, if any, of tax withheld. A
similar report is sent to the holder. Pursuant to tax treaties or certain other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Dividends paid to a United States Alien Holder at an address within the
United States may be subject to backup withholding imposed at a rate of 31% if
the United States Alien 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 United
States Alien Holder at an address outside the United States (unless the payor
has knowledge that the payee is a United States person).
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Under the new regulations, however, a United States Alien Holder will be
subject to backup withholding unless applicable certification requirements are
met.
Sale or Exchange of Preferred Securities or Common Stock. A United States
Alien Holder (other than certain U.S. expatriates) will generally not be
subject to U.S. federal income tax on gain realized on a sale, exchange or
other disposition of the preferred securities or common stock unless (i) the
United States Alien Holder is a non-resident alien individual who is, or a
foreign partnership owned in whole or part by non-resident alien individuals
who are, present in the U.S. for 183 days or more in the taxable year of
disposition, and certain other conditions are satisfied; or (ii) AES is or has
been a "United States real property holding corporation" within the meaning of
section 897(c)(2) of the Code during the shorter of the United States Alien
Holder's holding period or the five year period ending on the date of the sale,
exchange or other disposition and certain other conditions are satisfied.
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 United States Alien Holder on a
disposition of preferred securities or common stock will not be subject to U.S.
federal income tax so long as (i) the United States Alien Holder is deemed to
have beneficially owned, in the case of a disposition of common stock, less
than or equal to 5% of the common stock or, in the case of a disposition of
preferred securities, less than or equal to 5% of the preferred securities, and
(ii) the common stock and the preferred securities are currently and will be,
at the time of disposition, "regularly traded" on an established securities
market (within the meaning of Section 897(c)(3) of the Code and the temporary
Treasury Regulations thereunder). There can be no assurance that our common
stock or preferred securities qualify or will continue to qualify as "regularly
traded" on an established securities market.
Effectively Connected Income. If a United States Alien Holder of our
preferred securities or common stock is engaged in a trade or business in the
United States, and if original issue discount accrued on the preferred
securities or dividends on the common stock is effectively connected with the
conduct of such trade or business, the United States Alien Holder, although
exempt from the withholding tax on distributions on preferred securities and
dividends on common stock, will generally be subject to regular United States
income tax on the original issue discount and dividends and on any gain
realized on the sale, exchange or other disposition of preferred securities or
common stock in the same manner as if it were a United States person. Such a
holder will be required to provide a certification on a prerequisite form in
order to claim an exemption from withholding tax. On or after December 31,
2000, to comply with this requirement, the United States Alien Holder needs to
also provide a valid United States taxpayer identification number. In addition,
if such United States Alien Holder is a foreign corporation, it may be subject
to an additional branch profits tax equal to 30% (or a lower rate prescribed by
an applicable treaty) of its effectively connected earnings and profits for the
taxable year.
Information Reporting Requirement and Backup Withholding on Disposition of
Preferred Securities or 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 preferred securities or
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 (i) a U.S. person, (ii) a foreign person which derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the U.S., (iii) a "controlled foreign corporation" for U.S. federal
income tax purposes, or (iv) in the case of payments made after December 31,
2000, a foreign partnership with certain connections to the United States, in
each case unless the holder has documentary evidence that the holder is a
United States Alien Holder and that certain conditions are met or that the
holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
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ERISA CONSIDERATIONS
General
A fiduciary of an employee benefit plan subject of Title I of ERISA should
consider fiduciary standards under ERISA in the context of the particular
circumstances of such plan before authorizing an investment in the preferred
securities. Such fiduciary should consider whether the investment satisfies
ERISA's diversification and prudence requirements, whether the investment
constitutes unauthorized delegation of fiduciary authority and whether the
investment is in accordance with the documents and instruments governing the
plan. In addition, ERISA and the Code prohibit a wide range of transactions,
which we refer to in this prospectus as prohibited transactions, involving the
assets of a plan subject to ERISA or the assets of an individual retirement
account or plan subject to Section 4975 of the Code, which we refer to in this
prospectus as an ERISA plan, and persons who have certain specified
relationships to the ERISA plan ("parties in interest," within the meaning of
ERISA, and "disqualified persons," within the meaning of the Code). Such
transactions may require "correction" and may cause the ERISA plan fiduciary to
incur certain liabilities and the parties in interest or disqualified persons
to be subject to excise taxes.
The acquisition of preferred securities by any person who is using for
such acquisition the assets of an ERISA plan shall constitute a representation
by such person to AES that (1) if AES or the Property Trustee is a "party in
interest" or a "disqualified person" with respect to such ERISA plan, then such
security is being acquired pursuant to an exemption from the prohibited
transaction rules under ERISA and the Code, and (2) AES is not a "fiduciary,"
within the meaning of Section 3(21) of ERISA and the regulations thereunder,
with respect to such person's interest in the preferred securities or the
junior subordinated debentures.
Governmental plans and certain church plans (each as defined under ERISA)
are not subject to the prohibited transaction rules. Such plans may, however,
be subject to federal, state or local laws or regulations which may affect
their investment in the preferred securities. Any fiduciary of such a
governmental or church plan considering an investment in the preferred
securities should determine the need for, and the availability, if necessary,
of any exemptive relief under such laws or regulations.
The discussion herein of ERISA is general in nature and is not intended to
be all inclusive. Any fiduciary of an ERISA plan, governmental plan or church
plan considering an investment in the preferred securities should consult with
its legal advisors regarding the consequences of such investment.
Prohibited Transactions
We or the Property Trustee may be a party in interest or a disqualified
person with respect to an ERISA plan investing in the preferred securities,
and, therefore, such investments by an ERISA plan may give rise to a prohibited
transaction. Consequently, before investing in the preferred securities, any
person who is, or who in acquiring such securities is using the assets of, an
ERISA plan should determine that either a statutory or an administrative
exemption from the prohibited transaction rules discussed below or otherwise
available is applicable to such person's investment in the preferred
securities, or that its investment in such securities will not result in a
prohibited transaction.
Certain statutory or administrative exemptions from the prohibited
transaction rules under ERISA and the Code may be available to an ERISA plan
which is investing in the preferred securities. Included among these exemptions
are: Prohibited Transaction Class Exemption, commonly referred to as PTCE,
90-1, regarding investments by insurance company pooled separate accounts; PTCE
91-38, regarding investments by bank collective investment funds; PTCE 84-14,
regarding transactions effected by qualified professional asset managers; PTCE
96-23, regarding transactions effected by in-house asset managers; or PTCE
95-60, regarding investments by insurance company general accounts.
Trust Assets as "Plan Assets"
The Department of Labor has issued final regulations, which we refer to in
this prospectus as the labor regulations, as to what constitutes assets of an
employee benefit plan, which we refer to in this prospectus as plan assets
under ERISA. The labor regulations provide that, as a general rule, when an
ERISA plan acquires an equity interest in an entity and such interest does not
represent a "publicly offered security" nor a security issued by an investment
company registered under the Investment Company Act
56
<PAGE>
of 1940, the ERISA plan's assets include both the equity interest and an
undivided interest in each of the underlying assets of the entity, unless it is
established either that the entity in an operating company or that equity
participation in the entity by "benefit plan investors" is not "significant."
For purposes of the labor regulations, the Trust will not be an investment
company nor an operating company and the preferred securities will not
constitute a "publicly offered security." Although, after resales pursuant to
the shelf registration statement the preferred securities may qualify as
"publicly offered securities" for purposes of the labor regulations, such
result cannot be assured. If after the distribution pursuant to the shelf
registration statement, the preferred securities do not qualify as "publicly
offered securities," the "plan asset" considerations discussed in the
immediately succeeding paragraph could continue to be applicable in connection
with the investment by ERISA plans or investors' using plan assets of ERISA
plans.
Under the labor regulations, equity participation by benefit plan
investors will not be considered "significant" on any date only if, immediately
after the most recent acquisition of preferred securities, the aggregate
interest in the preferred securities held by benefit plan investors will be
less than 25% of the value of the preferred securities. Although it is possible
that the equity participation by benefit plan investors on any date will not be
"significant" for purposes of the labor regulations, such result cannot be
assured. Consequently, if ERISA plans or investors using plan assets of ERISA
plans purchase the preferred securities, the Trust's assets could be deemed to
be "plan assets" of such ERISA plan for purposes of the fiduciary
responsibility provisions of ERISA and the Code. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of an ERISA plan is considered to be a fiduciary of such ERISA plan.
For example, the Property Trustee could therefore become a fiduciary of the
ERISA plans that invest in the preferred securities and be subject to the
general fiduciary requirements of ERISA in exercising its authority with
respect to the management of the assets of the Trust. However, the Property
Trustee will have only limited discretionary authority with respect to the
Trust's assets and the remaining functions and the responsibilities performed
by the Property Trustee will be for the most part custodial and ministerial in
nature. Inasmuch as the Property Trustee or another person with authority or
control respecting the management or disposition of the Trust assets may become
a fiduciary with respect to the ERISA plans that will purchase the preferred
securities, there may be an improper delegation by such ERISA plans of the
responsibility to manage plan assets.
SELLING SECURITYHOLDERS
The holders listed below and the beneficial owners of the preferred
securities and their transferees, pledgees, donees or other successors, if not
identified hereunder then so identified in supplements to this prospectus, are
the selling securityholders under this prospectus. The following table sets
forth, as of a recent practicable date prior to the effectiveness of the
registration statement of which this prospectus forms a part, certain
information with respect to the selling securityholders named below and the
respective number of preferred securities owned by each selling securityholder
that may be offered pursuant to this prospectus. Such information has been
obtained from the selling securityholders, DTC and/or the Property Trustee.
Number of
Selling Securityholder Securities
---------------------- ----------
AIM Strategic Income Fund 24,000
Alexandra Global Investment Fund I Ltd. 105,000
Allstate Insurance Company 20,000
Associated Electric & Gas Insurance Services Limited 21,000
Aventis Pension Master Trust 9,400
Bank Austria Cayman Island, Ltd. 39,000
BBT Fund, L.P. 162,000
Black Diamond Offshore, Ltd. 19,085
57
<PAGE>
Number of
Selling Securityholder Securities
---------------------- ----------
BNP Arbitrage SNC 117,187
BNP Cooper Neff Convertible Strategies Fund, L.P. 7,813
Boilermaker-Blacksmith Pension Trust 56,900
BS Debt Income Fund-Class A 300
CALAMOS(R)Convertible Fund-CALAMOS(R)
Investment Trust 81,500
CALAMOS(R)Convertible Growth and Income Fund-
CALAMOS(R)Investment Trust 23,000
CALAMOS(R)Convertible Portfolio-CALAMOS(R)
Advisors Trust 2,740
CALAMOS(R)Global Convertible Fund-CALAMOS(R)
Investment Trust 5,700
Champion International Corp. Master Retirement Plan 24,500
Chrysler Corporation Master Retirement Trust 73,000
City of Albany Pension Plan 5,225
City of Knoxville Pension System 13,850
Cova Bond Debenture Fund 16,000
Delta Air Lines Master Trust
c/o Oaktree Capital Management, LLC 27,600
Delta Airlines Master Trust 105,000
Dorinco Reinsurance Co. 40,000
Double Black Diamond Offshore, LDC 65,915
ECT Investments, Inc. 125,000
Elf Aquitaine 5,000
Gaia Offshore Master Fund, Ltd. 50,000
Genesee County Employees' Retirement System 5,500
GLG Market Neutral Fund 450,000
Goldman Sachs & Company 5,075
Granville Capital Corporation 40,100
Greek Catholic Union II 660
H.K. Porter Company, Inc. 1,500
Kellner, DiLeo & Co. 31,000
Kettering Medical Center Funded Depreciation Account 3,450
Knoxville Utilities Board Retirement System 8,350
Lions Clubs International Foundation 7,000
Lipper Convertibles, L.P. 100,000
Lord Abbett Bond Debenture Fund 200,000
Louisiana Workers' Compensation Corp. 6,500
Macomb County Employees' Retirement System 5,500
McMahan Securities Co. L.P. 17,000
Merrill Lynch Equity Arbitrage Limited 100,000
Motion Picture Industry Health Plan - Active Member
Fund 8,500
Motion Picture Industry Health Plan - Retiree Member
Fund 4,200
OCM Convertible Trust 36,400
58
<PAGE>
Number of
Selling Securityholder Securities
---------------------- ----------
Onyx Fund Holdings, LDC 125,000
Oxford, Lord Abbett & Co. 40,000
Partner Reinsurance Company of the U.S. 14,700
Port Authority of Allegheny County Retirement and
Disability Allowance Plan for the Employees
Represented by Local 85 of the Amalgamated Transit
Union 59,800
Ramius Capital Group Holdings, Ltd. 18,000
RCG Latitude Master Fund, Ltd. 3,000
Southern Farm Bureau Life Insurance Co. 37,000
SPT 41,400
State Employees' Retirement Fund of the State of
Delaware 37,000
State of Connecticut Combined Investment Funds 82,500
Susquehanna Capital Group 30,000
The Cockrell Foundation 3,000
The Dow Chemical Company Employees' Retirement Plan 112,300
The Fondren Foundation 3,475
Unifi, Inc. Profit Sharing Plan and Trust 5,500
United Food and Commercial Workers Local 1262 and
Employers Pension Fund 27,300
Vanguard Convertible Securities Fund, Inc. 81,100
Van Waters & Rogers, Inc. Retirement Plan (f.k.a.
Univar Corp.) 16,400
All other beneficial holders 6,186,075
---------
Total.......................................... 9,200,000
=========
None of the selling securityholders has, or within the past three years
has had, any position, office or other material relationship with the Trust or
AES or any of their predecessors or affiliates.
Because the selling securityholders may, pursuant to this prospectus,
offer all or some portion of the preferred securities, the junior subordinated
debentures or the common stock issuable upon conversion of the preferred
securities, no estimate can be given as to the amount of the preferred
securities, the junior subordinated debentures or the common stock issuable
upon conversion of the preferred securities that will be held by the selling
securityholders upon termination of any such sales. In addition, the selling
securityholders identified above may have sold, transferred or otherwise
disposed of all or a portion of their preferred securities, since the date on
which they provided the information regarding their preferred securities, in
transactions exempt from the registration requirements of the Securities Act.
See "Plan of Distribution".
Only selling securityholders identified above who beneficially own the
securities set forth opposite each such selling securityholder's name in the
foregoing table on the effective date of the registration statement of which
this prospectus forms a part may sell such securities pursuant to the
registration statement. Prior to any use of this prospectus in connection with
an offering of the preferred securities and/or the junior subordinated
debentures or common stock issuable upon conversion of the preferred securities
by any holder not identified above, this prospectus will be supplemented to set
forth the name and number of shares beneficially owned by the selling
securityholder intending to sell such preferred securities and/or common stock,
and the number of preferred securities and/or shares of common stock to be
offered. The prospectus supplement will also disclose whether any selling
securityholder selling in connection with such prospectus supplement has held
any position or office with, been employed by or otherwise has had a material
relationship with, AES or any of our affiliates during the three years prior to
the date of the prospectus supplement if such information has not been
disclosed herein.
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<PAGE>
PLAN OF DISTRIBUTION
The securities may be sold from time to time to purchasers directly by the
selling securityholders. Alternatively, the selling securityholders may from
time to time offer the securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the selling securityholders or the purchasers
of such securities for whom they may act as agents. The selling securityholders
and any underwriters, broker/dealers or agents that participate in the
distribution of securities may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of such securities
and any discounts, commissions, concessions or other compensation received by
any such underwriter, broker/dealer or agent may be deemed to be underwriting
discounts and commissions under the Securities Act.
The securities may be sold from time to time in one or more transactions
at fixed prices, at the prevailing market prices at the time of sale, at
varying prices determined at the time of sale or at negotiated prices. The sale
of securities may be effected in transactions (which may involve crosses or
block transactions) (i) on any national securities exchange or quotation
service on which the securities may be listed or quoted at the time of sale,
(ii) in the over-the-counter market, (iii) in transactions otherwise than on
such exchanges or in the over-the-counter market or (iv) through the writing of
options. At the time a particular offering of the securities is made, a
prospectus supplement, if required, will be distributed which will set forth
the aggregate amount and type of securities being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the selling securityholders and any discounts, commissions or concessions
allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with.
The selling securityholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the securities by the selling
securityholders. The foregoing may affect the marketability of such securities.
We will pay the costs of the registration of the securities, including,
without limitation, Securities and Exchange Commission filing fees and expenses
of compliance with state securities or "blue sky" laws; provided, however, that
the selling securityholders will pay all underwriting discounts and selling
commissions, if any. The selling securityholders will be indemnified by AES and
the Trust, jointly and severally against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. AES and the Trust will be indemnified by
the selling securityholders severally against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
The Trust does not intend to list the preferred securities on any
securities exchange. The Trust has been advised by the initial purchasers that
they intend to make a market in them as permitted by applicable laws and
regulations. The initial purchasers are not obligated, however, to make a
market in the preferred securities and any such market-making may be
discontinued at any time at the sole discretion of the initial purchasers.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the preferred securities.
60
<PAGE>
LEGAL MATTERS
The validity of the junior subordinated debentures, the common stock
issuable upon conversion of the preferred securities, the preferred securities
guarantee and certain matters relating thereto and certain U.S. federal income
taxation matters will be passed upon for us and the Trust by Davis Polk &
Wardwell, New York, New York. Certain matters of Delaware law relating to the
validity of the preferred securities will be passed upon for us and the Trust
by Richards, Layton & Finger, P.A., Wilmington, Delaware.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this prospectus by reference from our annual report on Form
10-K have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and has been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
61
<PAGE>
APPENDIX A
NOTICE OF TRANSFER
PURSUANT TO REGISTRATION STATEMENT
Bank One, National Association
153 West 51st Street
5th Floor
New York, New York
Attention: Corporate Trust Services Division
The AES Corporation
1001 N. 19th Street
Arlington, Virginia 22209
Attention: General Counsel
Re: AES TRUST VII (the "Trust") PREFERRED SECURITIES
THE AES CORPORATION (the "Company")
Dear Sirs:
Please be advised that __________ has transferred Trust Convertible
Preferred Securities ("Preferred Securities"), (or 6% Junior Subordinated Debt
Securities of the Company or shares of Common Stock of the Company, issued in
exchange for or upon conversion of the Preferred Securities) pursuant to an
effective Registration Statement on Form S-3 (File No. 333-40870) filed by the
Company and the Trust.
We hereby certify that the prospectus delivery requirements, if any, of
the Securities Act of 1933, as amended, have been satisfied and that the
above-named beneficial owner of the transferred securities is named as a
"selling securityholder" in the Prospectus dated o, 2000 or in supplements
thereto, and that the aggregate amount of the securities transferred are (or
are included in) the securities listed in such Prospectus opposite such owner's
name.
Dated: Very truly yours,
------------------------------------------
Name:
By:
---------------------------------------
(Authorized Signature)
A-1
<PAGE>
===============================================================================
9,200,000
$3.00 Trust Convertible Preferred Securities
AES Trust VII
(liquidation amount $50 per security)
fully and unconditionally guaranteed by and
convertible into common stock of
THE AES CORPORATION
[LOGO]
-----------------------
PROSPECTUS
-----------------------
o, 2000
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates,
except the Securities and Exchange Commission registration fee.
Securities and Exchange Commission Registration filing fee....$121,440
Printing and engraving expenses...............................$ 50,000
Blue sky fees and expenses (including counsel)................$ 20,000
Legal fees and expenses.......................................$ 50,000
Fees of accountants...........................................$ 30,000
Fees of trustee...............................................$ 15,000
Miscellaneous.................................................$ 13,560
--------
Total.......................................................$300,000
========
Item 15. Indemnification of Directors and Officers
The AES Corporation
Under the By-Laws of AES, and in accordance with Section 145 of the
Delaware General Corporation Law, which we refer to in this registration
statement as GCL, AES shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than any action or suit by or in the right of AES to procure a judgment
in its favor, which we refer to as a "derivative action") by reason of the fact
that such person is or was a director, officer or employee of AES, or is or was
serving in such capacity or as an agent at the request of AES for another
entity, to the full extent authorized by Delaware law, against expenses
(including, but not limited to, attorneys' fees), judgments, fines and amounts
actually and reasonably incurred in connection with the defense or settlement
of such action, suit or proceeding if such person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of AES, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe was unlawful. Agents of AES may be similarly
indemnified, at the discretion of the board of directors.
Under Section 145 of the GCL, a similar standard of care is applicable in
the case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense or
settlement of such an action and then, where the person is adjudged to be
liable to AES, only if and to the extent that the Court of Chancery of the
State of Delaware or the court in which such action was brought determines that
such person is fairly and reasonably entitled to such indemnity and only for
such expenses as the court shall deem proper.
Pursuant to AES's By-Laws, a person eligible for indemnification may have
the expenses incurred in connection with any matter described above paid in
advance of a final disposition by AES. However, such advances will only be made
upon the delivery of an undertaking by or on behalf of the indemnified person
to repay all amounts so advanced if it is ultimately determined that such
person is not entitled to indemnification.
In addition, under the AES's By-Laws, AES may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of AES or of another corporation against any liability asserted
against and
II-1
<PAGE>
incurred by such person in such capacity, or arising out of the person's status
as such whether or not AES would have the power or the obligation to indemnify
such person against such liability under the provisions of AES's By-Laws.
The Trust
The declaration provides that no trustee, affiliate of any trustee, paying
agent, or Conversion Agent, or any officer, director, shareholder, member,
partner, employee, representative or agent of any trustee, paying agent, or
Conversion Agent, each which we refer to in this prospectus as an indemnified
person, shall be liable, responsible, or accountable in damages or otherwise to
the Trust or any (i) officer, director, shareholder, partner, representative,
employee or agent of the Trust or its affiliates, (ii) any officer, director,
shareholder, employees, representatives or agents of AES and our affiliates or
(iii) the holders from time to time of Trust's common securities and preferred
securities, the persons referred to in (i)-(iii) collectively, referred to in
this prospectus as the covered persons, for any loss, damage, or claim incurred
by reason of any act or omission performed or omitted by such indemnified
person in good faith on behalf of the Trust and in a manner such indemnified
person reasonably believed to be within the scope of authority conferred on
such indemnified person by the declaration or by law, except that an
indemnified person shall be liable for any such loss, damage, or claim incurred
by reason of such indemnified person's gross negligence (but, in the case of
the Property Trustee, subject to the Trust Indenture Act) or willful misconduct
with respect to such acts or omissions.
The declaration also provides that, to the full extent permitted by law,
AES shall indemnify and hold harmless each indemnified person from and against
any loss, damage or claim incurred by such indemnified person by reason of any
act or omission performed or omitted by such indemnified person in good faith
on behalf of the Trust and in a manner such indemnified person reasonably
believed to be within the scope of authority conferred on such indemnified
person by the declaration, except that no indemnified person shall be entitled
to be indemnified in respect of any loss, damage or claim incurred by such
indemnified person by reason of gross negligence (but, in the case of the
Property Trustee, subject to the Trust Indenture Act) or willful misconduct
with respect to such acts or omissions.
The declaration further provides that, to the full extent permitted by
law, expenses (including legal fees) incurred by an indemnified person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by AES prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by AES of an undertaking by or on
behalf of the indemnified person to repay such amount if it shall be determined
that the indemnified person is not entitled to be indemnified as authorized by
the declaration.
Item 16. Exhibits.
Exhibits Description of Exhibit
-------- ----------------------
4.1 Junior Subordinated Indenture dated as of March 1, 1997 between
AES and Bank One, National Association (formerly known as The
First National Bank of Chicago) (incorporated by reference to
Registration Statement No. 333-46189 of The AES Corporation and
AES Trust II, filed February 12, 1998)
4.1.1+ Seventh Supplemental Indenture dated as of May 17, 2000 between
AES and Bank One, National Association (formerly known as The
First National Bank of Chicago)
4.2+ Registration Rights Agreement dated as of May 17, 2000 between
The AES Corporation and AES Trust VII and Morgan Stanley & Co.
Incorporated, Goldman, Sachs & Co., J.P. Morgan Securities Inc.,
Banc of America Securities LLC, Credit Suisse First Boston
Corporation, Lehman Brothers Inc. and Salomon Smith Barney Inc.
4.3+ Amended and Restated Declaration of Trust of AES Trust VII
4.4 Restated Certificate of Trust of AES Trust VII (included in
Exhibit 4.3)
4.5 Form of Preferred Security (included in Exhibit 4.3)
4.6 Form of Junior Subordinated Debenture (included in Exhibit 4.1.1)
4.7+ Preferred Securities Guarantee with respect to Preferred
Securities
II-2
<PAGE>
Exhibits Description of Exhibit
-------- ----------------------
5.1 Opinion of Davis Polk & Wardwell
5.2 Opinion of Richards, Layton & Finger, P.A.
8.1 Opinion of Davis Polk & Wardwell re tax matters
12.1 Statement re: Computation of ratio of earnings to fixed charges
for the six months ended June 30, 2000
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.2 Consent of Richards, Layton & Finger (included in Exhibit 5.2)
23.3 Consent of Deloitte & Touche LLP
24.1+ Powers of Attorney for AES (included on signature page of
registration statement filed on July 6, 2000)
24.2 Powers of Attorney for AES as sponsor, to sign the Registration
Statement on behalf of AES Trust VII (included in Exhibit 4.3)
25.1 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of Bank One, National Association (formerly known as
The First National Bank of Chicago), as Trustee, with respect to
the Junior Subordinated Indenture
25.2 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of Bank One, National Association (formerly known as
The First National Bank of Chicago), as Trustee, with respect to
the Preferred Securities of AES Trust VII
25.3 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of Bank One, National Association (formerly known as
The First National Bank of Chicago), as Trustee, with respect to
the Preferred Securities Guarantee of AES with respect to the
Preferred Securities of AES Trust VII
---------
+ Previously filed.
Item 17. Undertakings.
The undersigned registrants, which we refer to in this registration
statement as the registrants, hereby undertake:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and
(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Securities and Exchange Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Exchange Act, that
are incorporated by reference in this registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The registrants hereby undertake that, for purposes of determining any
liability under the Securities Act, each filing of AES's annual report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions described under Item 15 above,
or otherwise, the registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrar of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by them is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AES certifies
that is has reasonable grounds to believe that it meets all of the requirements
for filing on Forms S-3 and has duly caused this registration statement to be
signed on its behalf by the undersigned, hereunto duly authorized, in the City
of Arlington, State of Virginia on August 24, 2000.
THE AES CORPORATION
By: /s/ William R. Luraschi
---------------------------------
William R. Luraschi
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on August 24, 2000.
Signature Title
--------- -----
* Chairman of the Board
-------------------------------
Roger W. Sant
* President, Chief Executive Officer and
------------------------------- Director (Principal Executive Officer)
Dennis W. Bakke
* Director
-------------------------------
Dr. Alice F. Emerson
* Director
-------------------------------
Robert F. Hemphill, Jr.
* Director
-------------------------------
Frank Jungers
Director
-------------------------------
John H. McArthur
* Director
-------------------------------
Hazel O'Leary
* Director
-------------------------------
Thomas I. Unterberg
II-5
<PAGE>
Signature Title
--------- -----
* Director
-------------------------------
Robert H. Waterman, Jr.
* Senior Vice President and Chief
------------------------------- Financial Officer (Principal Financial
Barry J. Sharp and Accounting Officer)
By: /s/ William R. Luraschi
---------------------------
William R. Luraschi
Attorney-in-fact
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AES Trust VII
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Arlington, State of Virginia on August 24, 2000.
AES TRUST VII
By: /s/ William R. Luraschi
------------------------------------
Name: William R. Luraschi
Title: Regular Trustee
By: /s/ Willard C. Hoagland, III
------------------------------------
Name: Willard C. Hoagland, III
Title: Regular Trustee
II-7
<PAGE>
EXHIBIT INDEX
Exhibits Description of Exhibit
-------- ----------------------
4.1 Junior Subordinated Indenture dated as of March 1, 1997 between
AES and Bank One, National Association (formerly known as The
First National Bank of Chicago) (incorporated by reference to
Registration Statement No. 333-46189 of The AES Corporation and
AES Trust II, filed February 12, 1998)
4.1.1+ Seventh Supplemental Indenture dated as of May 17, 2000 between
AES and Bank One, National Association (formerly known as The
First National Bank of Chicago)
4.2+ Registration Rights Agreement dated as of May 17, 2000 between
The AES Corporation and AES Trust VII and Morgan Stanley & Co.
Incorporated, Goldman, Sachs & Co., J.P. Morgan Securities Inc.,
Banc of America Securities LLC, Credit Suisse First Boston
Corporation, Lehman Brothers Inc. and Salomon Smith Barney Inc.
4.3+ Amended and Restated Declaration of Trust of AES Trust VII
4.4 Restated Certificate of Trust of AES Trust VII (included in
Exhibit 4.3)
4.5 Form of Preferred Security (included in Exhibit 4.3)
4.6 Form of Junior Subordinated Debenture (included in Exhibit 4.1.1)
4.7+ Preferred Securities Guarantee with respect to Preferred
Securities
5.1 Opinion of Davis Polk & Wardwell
5.2 Opinion of Richards, Layton & Finger, P.A.
8.1 Opinion of Davis Polk & Wardwell re tax matters
12.1 Statement re: Computation of ratio of earnings to fixed charges
for the six months ended June 30, 2000
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.2 Consent of Richards, Layton & Finger (included in Exhibit 5.2)
23.3 Consent of Deloitte & Touche LLP
24.1+ Powers of Attorney for AES (included on signature page of
registration statement filed on July 6, 2000)
24.2 Powers of Attorney for AES as sponsor, to sign the Registration
Statement on behalf of AES Trust VII (included in Exhibit 4.3)
25.1 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of Bank One, National Association (formerly known as
The First National Bank of Chicago), as Trustee, with respect to
the Junior Subordinated Indenture
25.2 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of Bank One, National Association (formerly known as
The First National Bank of Chicago), as Trustee, with respect to
the Preferred Securities of AES Trust VII
25.3 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of Bank One, National Association (formerly known as
The First National Bank of Chicago), as Trustee, with respect to
the Preferred Securities Guarantee of AES with respect to the
Preferred Securities of AES Trust VII
---------
+ Previously filed.
II-8
