As filed with the Securities and Exchange Commission on July 6, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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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 pending
(Exact name of Registrant as (State or other (I.R.S. employer
specified in its charter) jurisdiction of identification number)
incorporation or
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. |_|
<TABLE>
Proposed Proposed Maximum
Maximum Aggregate Price Proposed Maximum Amount of
Title of Each Class of Amount to be Per Aggregate Registration
Securities to be Registered Registered(1) Unit (4) Offering Price (4) Fee
--------------------------- ------------- -------- ------------------ ------------
<S> <C> <C> <C> <C>
$3.00 Trust Convertible Preferred Securities of
AES Trust VII ("preferred securities") . . . . . . . . . 9,200,000 $50 $460,000,000 $121,440
6% Junior Subordinated Debt Securities of
The AES Corporation ("junior subordinated debentures")(2)
Common Stock of The AES Corporation ("common stock")(3)
Guarantees of Preferred Securities of AES Trust VII by
The AES Corporation ("preferred securities guarantee")(5)
</TABLE>
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act.
(2) $460,000,000 in aggregate principal amount of junior subordinated
debentures were issued and sold to AES Trust VII (the "Trust") in
connection with the issuance by the Trust of 9,200,000 of its preferred
securities. The junior subordinated debentures may be distributed, under
certain circumstances, to the holders of preferred securities for no
additional consideration.
(3) 9,946,120 shares of common stock are issuable initially upon conversion of
the preferred securities being registered hereunder at the conversion rate
of 1.0811 shares of common stock for each preferred security. An
indeterminate number of shares of common stock as may be issuable upon
conversion of the preferred securities registered hereunder, including such
shares as may be issuable pursuant to antidilution adjustments. The common
stock issuable upon conversion of the preferred securities, if issued, will
be issued for no additional consideration.
(4) Exclusive of accrued interest and distributions, if any.
(5) No separate consideration will be received for the preferred securities
guarantee or any back-up undertakings. Includes the rights of holders of
the preferred securities of the Trust under the preferred securities
guarantee and back-up undertakings, consisting of obligations by The AES
Corporation to provide certain indemnities in respect of, and pay and be
responsible for certain expenses, costs, liabilities, and debts of the
Trust and such other obligations of The AES Corporation set forth in the
Amended and Restated Declaration of Trust, the junior subordinated
debentures indenture and supplemental indentures thereto, in each case as
further described in the Registration Statement.
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.
================================================================================
<PAGE>
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 JULY 6, 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
-----------------------
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 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.
-----------------------
Our common stock trades on the New York Stock Exchange under the
symbol "AES". On July 5, 2000, the last reported sale price of our common stock
was $46.94.
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Investing in these securities involves certain risks. See
"Risk Factors" beginning on page 9.
-----------------------
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.
-----------------------
<PAGE>
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. 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.
-----------------------
TABLE OF CONTENTS
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Page
----
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..........................................................58
Legal Matters.................................................................59
Experts.......................................................................59
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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<PAGE>
SUMMARY INFORMATION
Questions and Answers
This summary provides a brief overview of the key aspects of the preferred
securities. You should carefully read this prospectus to understand fully the
terms of the preferred securities as well as the tax and other considerations
that are important to you in making a decision about whether to invest in the
preferred securities. You should pay special attention to the "Risk Factors"
section beginning on page 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 the date of original issuance of the preferred
securities 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
3
<PAGE>
described under "Description of the Preferred 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 terminate 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.
4
<PAGE>
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
5
<PAGE>
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 July 5, 2000 was $46.94 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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<PAGE>
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 Upon the occurrence of a special
Redemption.............................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.
Special Event Distribution; Tax Event The junior subordinated debentures
Redemption.............................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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<PAGE>
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.
8
<PAGE>
RISK FACTORS
Purchasers of the securities should read this entire prospectus carefully.
Ownership of the securities involves certain risks. The following factors and
the other information in this prospectus should be considered carefully in
evaluating 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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<PAGE>
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 terminate the Trust
at any time, so long as it obtains any required regulatory approval. If we
decide to exercise our right to terminate 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 and
June 21, 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:
<TABLE>
Three Months
Ended
Year Ended December 31, March 31
---------------------------------------- ------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges...... 2.20 1.88 1.46 1.65 1.50 2.08
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
minority interest, plus 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 July 5, 2000)................... 47.38 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, commonly referred to as the Business Trust Act,
pursuant to a declaration of trust among 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
indenture trustee for purposes of the Trust Indenture
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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 recognized as expert in
such matters to the
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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, liquidation,
winding-up or termination of the Trust, the holders of the preferred securities
and common securities at the date of dissolution, winding-up or termination of
the Trust will be entitled to receive on a pro rata basis solely out of the
assets of the Trust, after satisfaction of liabilities of
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creditors (to the extent not satisfied by us as provided in the declaration), an
amount equal to the aggregate of the stated liquidation amount of $50 per Trust
security plus accrued and unpaid distributions thereon to the date of payment,
such amount being the liquidation distribution, unless, in connection with such
dissolution, liquidation, winding-up or termination, junior subordinated
debentures in an aggregate principal amount equal to the aggregate stated
liquidation amount of such Trust securities and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid distributions on such
Trust securities, shall be distributed on a pro rata basis to the holders of the
preferred securities and common securities in exchange therefor.
If, upon any such dissolution, the liquidation distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate liquidation distribution, then the amounts payable directly by the
Trust on the preferred securities and the common securities shall be paid on a
pro rata basis. The holders of the common securities will be entitled to receive
distributions upon any such dissolution on a pro rata basis with the holders of
the preferred securities, except that if an event of default under the
declaration has occurred and is continuing, the preferred securities shall have
a priority over the common securities with respect to payment of the liquidation
distribution.
Pursuant to the declaration, the Trust shall terminate: (1) on November 1,
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
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, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of preferred securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken; (ii) a description of any resolution proposed
for adoption at such meeting on which such holders are entitled to vote or of
such matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the holders of preferred securities will be required
for the Trust to redeem and cancel preferred securities or distribute junior
subordinated debentures in accordance with the declaration.
Notwithstanding that holders of preferred securities are entitled to vote
or consent under any of the circumstances described above, any of the preferred
securities at such time that are owned by 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
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otherwise propose to effect, (a) any action that would adversely affect the
powers, preferences or special rights of the Trust securities, whether by way of
amendment to the declaration or otherwise, or (b) the dissolution, winding-up or
termination of the Trust other than pursuant to the terms of the declaration,
then the holders of the outstanding Trust securities as a class will be entitled
to vote on such amendment or proposal and such amendment or proposal shall not
be effective except with the approval of at least a majority in liquidation
amount of the Trust securities, provided that if any amendment or proposal
referred to above would adversely affect only the preferred securities or the
common securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a majority in liquidation amount of such class of
Trust securities.
Notwithstanding the foregoing, (i) no amendment or modification may be made
to the declaration unless the Regular Trustees shall have obtained (a) either a
ruling from the Internal Revenue Service or a written unqualified opinion of
nationally recognized independent tax counsel experienced in such matters to the
effect that such amendment will not cause the Trust to be classified for United
States federal income tax purposes as an association taxable as a corporation or
a partnership and to the effect that the Trust will continue to be treated as a
grantor trust for purposes of United States federal income taxation and (b) a
written unqualified opinion of nationally recognized independent counsel
experienced in such matters to the effect that such amendment will not cause the
Trust to be an "investment company" which is required to be registered under the
1940 Act; (ii) certain specified provisions of the declaration may not be
amended without the consent of all of the holders of the Trust securities; (iii)
no amendment which adversely affects the rights, powers and privileges of the
Property Trustee shall be made without the consent of the Property Trustee; (iv)
Article IV of the declaration relating to 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 V of the declaration to increase or decrease the number of, and to
appoint, replace or remove, trustees shall not be amended without the consent of
each holder of common securities.
The declaration further provides that it may be amended without the consent
of the holders of the Trust securities to (i) cure any ambiguity; (ii) correct
or supplement any provision in the declaration that may be defective or
inconsistent with any other provision of the declaration; (iii) to add to 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
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of securities in definitive form. Such laws may impair the ability to transfer
beneficial interests in a global preferred securities.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants, 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
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DTC has reason to believe that it will not receive payments on such payment
date. Payments by participants to beneficial owners will be governed by standing
instructions and customary practices and will be the responsibility of such
participants and not of DTC, the Trust or 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.
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Governing Law
The declaration and the preferred securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
Miscellaneous
The Regular Trustees are authorized and directed to take such action as
they deem reasonable in order that the Trust will not be deemed to be an
"investment company" required to be registered under the 1940 Act or that the
Trust will not be classified for United States federal income tax purposes as an
association taxable as a corporation or a partnership and will be treated as a
grantor trust for United States federal income tax purposes. In this connection,
the Regular Trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust or the declaration, that the Regular
Trustees determine in their discretion to be reasonable and necessary or
desirable for such purposes, as long as such action does not adversely affect
the interests of holders of the Trust securities.
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
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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 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
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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
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
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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 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
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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
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
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the 12-month period beginning May 15:
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
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debentures being redeemed in part.
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 price
indicated on the cover of this prospectus. 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.
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 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
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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 "original issue discount" on the junior subordinated
debentures will equal the difference between the "issue price" of the junior
subordinated debentures and their "stated redemption price at maturity." All of
the stated interest payments on the junior subordinated debentures will be
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 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
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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 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
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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). 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
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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
---------------------- ----------
[TO COME]
----------
57
<PAGE>
Number of
Selling Securityholder Securities
---------------------- ----------
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 [except as set forth below].
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.
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
58
<PAGE>
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.
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.
59
<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-_____) 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 $50 per security)
fully and unconditionally guaranteed by and
convertible into common stock of
THE AES CORPORATION
[LOGO]
-----------------------
PROSPECTUS
-----------------------
o, 2000
================================================================================
2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered, other than underwriting
discounts and commissions. All of the amounts shown are estimates, except the
Securities and Exchange Commission registration fee.
Securities and Exchange Commission Registration filing fee..........$ 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 Debt Trust Securities 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 Debt Trust Security (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 Delaware counsel
8.1+ Opinion of Davis Polk & Wardwell re tax matters
12.1 Statement re: Computation of ratio of earnings to fixed charges
(incorporated by reference to Registration Statement No. 333-37924 of
The AES Corporation, AES Trust IV, AES Trust V, AES Trust VI, AES
Trust VIII and AES Trust IX filed May 26, 2000)
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.2 Consent of Delaware counsel (included in Exhibit 5.2)
23.3 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney for AES (included on signature page)
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 Debt Trust Securities 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
-------------------
+ To be filed by Amendment.
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 July 6, 2000.
THE AES CORPORATION
By: /s/ Dennis W. Bakke
-------------------------------
Dennis W. Bakke
President and Chief Executive Officer
AES and each person whose signature appears below constitutes and appoints
Dennis W. Bakke and William R. Luraschi and any agent for service named in this
registration statement and each of them, his, her or its true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him, her or it and in his, her, or its name, place and
stead, in any and all capacities, to sign and file any and all amendments
(including post-effective amendments) to this registration statement, to sign
any related registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he, she, or it might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
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 the dates indicated.
<TABLE>
Signature Title Date
------------ ------- ------
<S> <C> <C>
/s/ Roger W. Sant Chairman of the Board July 6, 2000
--------------------------------
Roger W. Sant
/s/ Dennis W. Bakke President, Chief Executive Officer and July 6, 2000
-------------------------------- Director (Principal Executive Officer)
Dennis W. Bakke
/s/ Alice F. Emerson Director July 6, 2000
--------------------------------
Dr. Alice F. Emerson
/s/ Robert F. Hemphill, Jr. Director July 6, 2000
-------------------------------
Robert F. Hemphill, Jr.
/s/ Frank Jungers Director July 6, 2000
--------------------------------
Frank Jungers
II-5
<PAGE>
Signature Title Date
------------ ------- ------
Director
--------------------------------
John H. McArthur
/s/ Hazel O'Leary Director July 6, 2000
--------------------------------
Hazel O'Leary
/s/ Thomas I. Unterberg Director July 6, 2000
--------------------------------
Thomas I. Unterberg
/s/ Robert H. Waterman, Jr. Director July 6, 2000
--------------------------------
Robert H. Waterman, Jr.
Senior Vice President and Chief July 6, 2000
/s/ Barry J. Sharp Financial Officer (Principal Financial
-------------------------------- and Accounting Officer)
Barry J. Sharp
</TABLE>
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 July 6, 2000.
AES TRUST VII
By: The AES Corporation, as Sponsor
By: /s/ Dennis W. Bakke
-------------------------------
Name: Dennis W. Bakke
Title: Senior Vice President and Chief
Financial Officer
II-7
<PAGE>
EXHIBIT INDEX
Exhibits Description of Exhibit
-------- ----------------------
4.1 Junior Subordinated Debt Trust Securities 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 Debt Trust Security (included in Exhibit
4.1.1)
4.7 Preferred Securities Guarantee with respect to Preferred Securities
5.1+ Opinion of Davis Polk & Wardwell
5.2+ Opinion of Delaware counsel
8.1+ Opinion of Davis Polk & Wardwell re tax matters
12.1 Statement re: Computation of ratio of earnings to fixed charges
(incorporated by reference to Registration Statement No. 333-37924 of
The AES Corporation, AES Trust IV, AES Trust V, AES Trust VI, AES
Trust VIII and AES Trust IX filed May 26, 2000)
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
23.2 Consent of Delaware counsel (included in Exhibit 5.2)
23.3 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney for AES (included on signature page)
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 Debt Trust Securities 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
-------------------
+ To be filed by Amendment.
II-8
