<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Filed Pursuant to Rule 424(b)2
Registration No. 333-81953
SUBJECT TO COMPLETION, DATED MAY 8, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 13, 1999)
7,500,000 SHARES
[LOGO]
THE AES CORPORATION
Common Stock
We are offering all of these shares of common stock and will receive all of
the net proceeds of the offering. We are in the process of splitting our common
stock 2-for-1 by having declared a stock dividend which is payable on June
1, 2000 to stockholders of record on May 1, 2000. Purchasers of shares in this
offering will also receive on June 1, 2000 an additional share of common stock
for each share purchased in this offering. None of the share or per share
information in this prospectus supplement or the accompanying prospectus has
been adjusted to reflect the stock split.
We are offering these shares of common stock at the same time that our
subsidiary, AES Trust VII, is offering $600 million aggregate principal amount
of its trust convertible preferred securities in a private placement. The trust
convertible preferred securities are convertible into shares of our common
stock. The trust convertible preferred securities have not been registered under
the Securities Act of 1933, as amended, and may not be offered or sold in the
United States absent registration or an applicable exemption from registration
requirements. Our offering of common stock is not contingent upon the closing of
the offering of the trust convertible preferred securities.
Our common stock is listed on the New York Stock Exchange under the symbol
"AES". On May 5, 2000, the closing price for our common stock, as reported on
the NYSE, was $86.00 per share.
SEE "RISK FACTORS" ON PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE BUYING OUR COMMON STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accurracy or adequacy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to AES........................... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 1,125,000 shares at the initial public offering price less the
underwriting discount.
The underwriters expect to deliver the shares in New York, New York on
, 2000.
The joint lead managers are Morgan Stanley Dean Witter, Goldman, Sachs & Co.
and Salomon Smith Barney.
JOINT BOOK-RUNNING MANAGERS
MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS & CO.
------------------
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED
C.E. UNTERBERG, TOWBIN
, 2000
<PAGE>
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus supplement or the
accompanying prospectus. You must not rely on any unauthorized information or
representations. This prospectus supplement is an offer to sell only the shares
offered hereby, but only under circumstances and in jurisdictions where it is
lawful to do so. The information contained in this prospectus supplement and the
accompanying prospectus is current only as of the dates thereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Supplement
Special Note on Forward-Looking
Statements........................... S-2
The Company............................ S-3
Recent Developments.................... S-3
Use of Proceeds........................ S-5
Selected Consolidated Financial Data... S-6
Common Stock Price Ranges and
Dividends............................ S-7
U.S. Federal Income Tax Considerations
for Non-U.S. Holders of Common
Stock................................ S-8
Underwriting........................... S-10
Legal Matters.......................... S-11
Experts................................ S-11
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus
About this Prospectus.................. 2
Risk Factors........................... 3
Where You Can Find More Information.... 9
Incorporation of Documents by
Reference............................ 9
Special Note on Forward-Looking
Statements........................... 9
Use of Proceeds........................ 10
Ratio of Earnings to Fixed Charges..... 10
The Company............................ 10
Description of Capital Stock........... 11
Description of Debt Securities......... 16
Description of Stock Purchase Contracts
and Stock Purchase Units............. 25
Description of Securities Warrants..... 25
Plan of Distribution................... 26
Legal Matters.......................... 27
Experts................................ 27
</TABLE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus include
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 set forth under the caption "Risk Factors" in the
accompanying 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 herein.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus supplement and the accompanying prospectus
might not occur.
S-2
<PAGE>
THE COMPANY
We are a global power company committed to serving the world's need for
electricity in a socially responsible way.
We have been successful in growing our business and serving additional
customers by, in part, participating in competitive bidding under privatization
initiatives. We have been particularly interested in acquiring existing
businesses or assets in electricity markets that are promoting competition and
eliminating rate of return regulation. Sellers generally seek to complete such
transactions in less than one year, much quicker than the time periods
associated with greenfield development, and usually require payment in full on
transfer. We believe that our experience in competitive markets and our
worldwide integrated group structure, with our significant geographic coverage
and presence, enable us to react quickly and creatively in these situations. Our
significant growth has resulted in generating capacity of 36,675 megawatts or MW
at December 31, 1999, with a total of 111 plants in operation. Additionally, our
total revenues have increased at a compound annual growth rate of 48% from
$679 million in 1995 to $3,253 million in 1999.
Our ownership portfolio of power facilities includes new plants constructed
for such purposes, so-called greenfield plants, as well as existing power plants
acquired through competitively bid privatization initiatives and negotiated
acquisitions. In the electricity generation business, we now own and operate
(entirely or in part) a diverse portfolio of electric power plants (including
those within integrated distribution companies) with, as of December 31, 1999,
capacity of 36,675 MW. Of that total, 33% are fueled by coal or petroleum coke,
18% are fueled by natural gas, 15% are hydroelectric facilities, 4% are fueled
by oil, and the remaining 30% are capable of using multiple fossil fuels. A
majority of our sales of electricity are made to customers (generally electric
utilities or regional electric companies), on a wholesale basis for further
resale to end users. This is referred to as the electricity "generation"
business. Sales by these generation companies are usually made under long-term
contracts from power plants owned by our subsidiaries and affiliates, although
we do, in certain circumstances, make sales into regional electricity markets
without contracts.
RECENT DEVELOPMENTS
FIRST QUARTER EARNINGS
For the quarter ended March 31, 2000, our net income before extraordinary
items was $181 million compared to a net loss of $(13) million for the first
quarter of 1999. The net loss in the first quarter of 1999 resulted from the
devaluation of the Brazilian Real. Diluted earnings per share before
extraordinary items were $0.83 for the quarter, compared to a loss of $(0.07)
for the same quarter in 1999. Revenues for the quarter were $1.5 billion, an
increase of 131% from $638 million in the first quarter of 1999. Operating
income also increased 91% to $390 million, up from $204 million in the first
quarter of 1999. Net income was $174 million for the quarter ended March 31,
2000. We recorded an extraordinary charge of $7 million after tax for this
quarter related to the early extinguishment of certain corporate debt and the
corresponding write-off of deferred financing costs. During the quarter, we also
announced a 2-for-1 common stock split. The record date was May 1, 2000 and the
payment date is June 1, 2000. The per share information above has not been
adjusted to reflect the stock split.
PENDING ACQUISITIONS
EDC
On April 28, 2000, we announced offers to acquire 51% of the outstanding
ordinary shares of C.A. La Electricidad de Caracas, also known as EDC, including
shares represented by American Depositary Shares, or ADS, at a price of U.S.
$23.50 per ADS. This price represents a premium of 77% over the closing price of
the ADS on April 26, 2000. Offers are being made concurrently in Venezuela for
926,462,000 shares and in the United States for 17,719,350 ADS for
S-3
<PAGE>
an aggregate consideration of $863 million. The price per share being paid in
the Venezuelan offer is U.S. $0.47, which is equivalent to the amount being paid
in the U.S. offer, after taking into account that each ADS represents 50 shares.
If more than 17,719,350 ADS and 926,426,000 shares are tendered, and all other
conditions to the offers are met, ADS and shares will be purchased on a pro rata
basis. The offers are scheduled to expire on May 30, 2000.
EDC has interests in several distribution businesses in Venezuela, Colombia
and El Salvador which serve over 2.8 million customers. In addition, EDC
operates several generation facilities in Venezuela and Colombia, which provide
3,500 MW of capacity. EDC also holds interests in other businesses involved in
telecommunications, oil and gas processing, gas distribution, security services,
engineering, property and stock transfer services in Venezuela.
The offers are conditioned on the ADS purchased in the U.S. offer and the
shares purchased in the Venezuelan offer, together with the ADS and shares we
currently own, representing at least 51% of the outstanding shares. The offers
are also conditioned on, among other things, our having obtained sufficient
funds to purchase the ADS and shares tendered in the offers and to pay related
fees and expenses.
TIETE
On April 28, 2000, we also announced our intention to launch a tender offer
to acquire all outstanding common and preference shares of Brazilian generation
company Compania de Geracao de Energia Eletrica Tiete, also known as Tiete.
Tiete is a hydroelectric generation company in the state of Sao Paulo with an
installed capacity of 2,644 MW. We currently own a 43.7% controlling interest in
Tiete, the majority of which was acquired when Tiete was privatized in October
1999.
The offer price for Tiete's common shares is expected to be Reais 7.50
(approximately U.S. $4.17) per 1000 share lot and the offer price for the
preference shares is expected to be Reais 12.50 (approximately U.S. $6.94) per
1000 share lot. If all holders of the shares accept the tender offer on these
terms, we expect our aggregate investment will be approximately $350 million, to
be paid in three annual installments of 25%, 35% and 40%, with each installment
indexed to a Brazilian interest rate. The launch of the tender offer is pending
approval by CVM, the Brazilian securities regulatory authority.
ELETROPAULO
On April 28, 2000, we also announced we had launched the tender offer
required by Brazilian law for all outstanding preference shares of Eletropaulo
S.A., related to our purchase of preference shares of Eletropaulo in January
2000. We currently own a 45.4% economic interest in Eletropaulo. The offer price
for the shares is Reais 129.93 (approximately U.S. $72.18) per 1,000 shares, the
same price we paid for the shares acquired in January, to be paid in four annual
installments commencing with a payment of 18.5% at closing. The transaction is
expected to close on May 18, 2000. If all holders of the preference shares elect
to accept this offer, we would acquire 20.4% of Eletropaulo's total capital via
this tender, for an aggregate price of approximately $610 million.
ALICURA
On February 22, 2000, we announced that we have entered into an agreement to
acquire a 59% stake in the 1,000 MW hydroelectric facility of Hidroelectrica
Alicura S.A., also known as Alicura, in Argentina from Southern Energy, Inc.,
also known as SEI. Alicura owns the concession to operate a 1,000 MW peaking
hydro-facility located in the province of Neuquen, Argentina. We also agreed to
acquire from SEI a 100% stake in Operadora de Argentina S.A. Operadora is
providing operations and maintenance services to Alicura under a long-term
contract. The agreement entails a total consideration (including assumption of
debt support obligations) of approximately $205 million. This transaction is
subject to approval by the anti-trust authorities of the Federal Government of
Argentina, which is expected to be granted by May or June.
OTHER EVENTS
On April 19, 2000, we announced that all of the $2.6875 Term Convertible
Securities, Series A,
S-4
<PAGE>
commonly referred to as TECONS, issued by AES Trust I have been called for
redemption on June 14, 2000. The redemption price is 103.359% (or $51.6795 per
$50 TECONS) plus accrued and unpaid distributions thereon to the redemption date
($.55 per $50 TECONS). The TECONS are convertible into our common stock at any
time prior to the close of business on June 13, 2000 (the business day prior to
the redemption date) at a conversion rate of 1.3812 shares of our common stock
for each TECONS (equal to a conversion price of $36.20 per share of our common
stock). None of the information listed above has been adjusted to reflect the
stock dividend payable on June 1, 2000 to holders of record on May 1, 2000.
USE OF PROCEEDS
The net proceeds (before expenses) from this offering of common stock are
estimated to be $ ($ if the underwriters' overallotment option
is exercised in full). AES Trust VII is concurrently offering 12,000,000 of its
preferred securities. The proceeds (before expenses) to AES Trust VII from the
offering of preferred securities are estimated to be $600 million ($690 million
if the initial purchasers' overallotment option is exercised in full) and will
be invested by AES Trust VII in our junior subordinated debentures. We intend to
use the net proceeds from these offerings to (1) fund all or a portion of the
purchase price of the EDC and Alicura acquisitions, (2) fund all or a portion of
the purchase price of the Tiete and Eletropaulo tenders and (3) for general
corporate purposes. Pending such uses, we may use a portion of the proceeds to
temporarily repay amounts outstanding under our revolving credit agreement. The
revolver bears interest at a weighted average interest rate of LIBOR plus 2% and
matures in March 2003. As of March 31, 2000, $285 million was outstanding under
the revolver. An affiliate of Salomon Smith Barney Inc. and an affiliate of
J.P. Morgan Securities Inc. are agents and lenders under our revolving credit
facility.
We may fund a portion of the EDC and Alicura acquisitions and Tiete and
Eletropaulo tenders through a combination of non-recourse project financing
and/or additional debt financing by AES. These sources of funds are not
committed. Accordingly, we cannot assure you that such sources or any other
sources will be available on favorable terms or at all.
The offerings of common stock and preferred securities are not conditioned
on each other or conditioned on the consummation of the EDC or Alicura
acquisitions or the Tiete and Eletropaulo tenders and accordingly, if these
transactions are not consummated, we will use the net proceeds that would have
been used for such transactions for general corporate purposes.
S-5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data,
which should be read in conjunction with our consolidated financial statements
and related notes to the consolidated financial statements incorporated by
reference in this prospectus supplement. The selected consolidated financial
data as of and for each of the five years in the period ended December 31, 1999
have been derived from our audited consolidated financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
IN MILLIONS, EXCEPT RATIO AND PER SHARE DATA
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 679 $ 835 $1,411 $ 2,398 $ 3,253
Cost of Sales....................................... (394) (502) (981) (1,587) (2,249)
Selling, General and Administrative................. (32) (35) (45) (56) (71)
Provision to Reduce Contract Receivables, net of
recoveries........................................ -- (20) (17) (22) (8)
Interest Expense.................................... (127) (144) (244) (485) (641)
Interest Income..................................... 27 24 41 67 77
Gain on Contract Buyout............................. -- -- -- -- 91
Impairment Loss..................................... -- -- -- -- (62)
Foreign Currency Exchange Gain (Loss)............... -- -- (7) (1) 9
Equity in Pre-tax Earnings of Affiliates............ 22 49 126 232 21
----- ----- ------ ------- -------
Income Before Income Taxes, Minority Interests, and
Extraordinary Items............................... 175 207 284 546 420
Income Taxes........................................ 65 74 77 145 111
Minority Interest................................... 3 8 19 94 64
----- ----- ------ ------- -------
Income Before Extraordinary Items................... 107 125 188 307 245
Extraordinary Items-(Loss) Gain on Early
Extinguishment of Debt-Net of Applicable Income
Taxes............................................. -- -- (3) 4 (17)
----- ----- ------ ------- -------
Net Income.......................................... $ 107 $ 125 $ 185 $ 311 $ 228
===== ===== ====== ======= =======
Diluted Earnings per Share.......................... $0.70 $0.80 $ 1.09 $ 1.69 $ 1.16
===== ===== ====== ======= =======
Weighted Average Number of Common and Potential
Common Shares..................................... 155.7 157.2 177.8 189.0 196.2
Ratio of Earnings to Fixed Charges (1).............. 2.20x 1.88x 1.46x 1.65x 1.50x
</TABLE>
Net income for the year ended December 31, 1999, excluding foreign currency
transactions and extraordinary items was $377 million and diluted earnings per
share, excluding foreign currency transactions and extraordinary items was
$1.92.
S-6
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
IN MILLIONS
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets............................................ $2,341 $3,622 $8,909 $10,781 $20,880
Revolving Bank Loan (Current)........................... 50 88 -- 8 335
Project Financing Debt (Current)........................ 84 110 596 1,405 881
Revolving Bank Loan (Long-Term)......................... -- 125 27 225 --
Project Financing Debt (Long-Term)...................... 1,098 1,558 3,489 3,597 8,651
Other Notes Payable (Long-Term)......................... 125 325 1,069 1,419 2,167
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of Subsidiary Trusts............. -- -- 550 550 1,318
Minority Interest....................................... 158 213 525 732 1,148
Stockholders' Equity.................................... 549 721 1,481 1,794 2,637
</TABLE>
- ------------------------
(1) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes
and minority interest, plus fixed charges, less capitalized interest, less
excess of earnings over dividends of less-than-fifty-percent-owned
companies. Fixed charges consist of interest (including capitalized
interest) on all indebtedness, amortization of debt discount and expense and
that portion of rental expense which we believe to be representative of an
interest factor.
COMMON STOCK PRICE RANGES AND DIVIDENDS
Our common stock began trading on the New York Stock Exchange on October 16,
1996 under the symbol "AES". The following table sets forth for the periods
indicated the high and low sale prices for our common stock as reported on the
NYSE Composite Tape. In April 2000, we announced a 2-for-1 common stock split,
by means of a stock dividend, for holders of record on May 1, 2000 which is
payable on June 1, 2000. Purchasers of shares in this offering will also receive
on June 1, 2000 an additional share of common stock for each share purchased in
this offering. The prices set forth below do not reflect adjustment for this
stock split.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1998
- ------------------------------------------------------------
First Quarter............................................... $54.31 $39.38
Second Quarter.............................................. 58.00 45.63
Third Quarter............................................... 55.38 23.00
Fourth Quarter.............................................. 47.38 32.00
1999
- ------------------------------------------------------------
First Quarter............................................... $49.25 $32.81
Second Quarter.............................................. 59.75 36.75
Third Quarter............................................... 66.69 53.06
Fourth Quarter.............................................. 76.38 50.44
2000
- ------------------------------------------------------------
First Quarter............................................... $89.44 $68.50
Second Quarter (through May 5, 2000)........................ 92.50 71.13
</TABLE>
S-7
<PAGE>
No cash dividends have been paid on our common stock since December 22,
1993. Our ability to declare and pay dividends, if any, is dependent, among
other things, on:
- the ability of our project subsidiaries to declare and pay dividends and
otherwise distribute cash to us;
- our ability to service our parent company debt and
- our ability to meet certain criteria for paying dividends under our
corporate credit facility and under existing indentures of our debt
securities.
U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of our common stock by
a beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership or a foreign
estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders (including Non-U.S. Holders
who are pass-through entities) in light of their particular circumstances and
does not address any tax consequences arising under the laws of any state, local
or foreign jurisdiction. This discussion also does not address any tax
consequences to foreign persons who own common stock indirectly through domestic
partnerships or other domestic pass-through entities. Prospective holders should
consult their tax advisors with respect to the particular tax consequences to
them of owning and disposing of our common stock, including the consequences
under the laws of any state, local or foreign jurisdiction.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-U.S. Holder of
common stock generally will be subject to withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. For purposes
of determining whether tax is to be withheld at a 30% rate or at a reduced rate
as specified by an income tax treaty, we ordinarily will presume that dividends
paid on or before December 31, 2000 to an address in a foreign country are paid
to a resident of such country absent knowledge that such presumption is not
warranted.
Under U.S. Treasury Regulations issued on October 6, 1997, which are
applicable to dividends paid after December 31, 2000 (the "New Regulations"), in
order to obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder
would generally be required to provide certification of such Non-U.S. Holder's
entitlement to benefits under a treaty. In addition, in certain cases where
dividends are paid to a Non-U.S. Holder that is a partnership or other
pass-through entity, persons holding an interest in the entity may need to
provide the required certification.
There will be no withholding tax on dividends paid to a Non-U.S. Holder that
are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the U.S. if a certification on a prerequisite form stating that
the dividends are so connected is provided. Instead, the effectively connected
dividends will be subject to regular U.S. income tax in the same manner as if
the Non-U.S. Holder were a U.S. resident unless a specific treaty exemption
applies. A non-U.S. corporation receiving effectively connected dividends may
also be subject to an additional "branch profits tax" which is imposed, under
certain circumstances, at a rate of 30% (or such lower rate as may be specified
by an applicable treaty) of the non-U.S. corporation's effectively connected
earnings and profits, subject to certain adjustments.
S-8
<PAGE>
Generally, we must report to the U.S. Internal Revenue Service the amount of
dividends paid, the name and address of the recipient, and the amount, if any,
of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.
Dividends paid to a Non-U.S. Holder at an address within the U.S. may be
subject to backup withholding imposed at a rate of 31% if the Non-U.S. Holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and certain other information to us or our paying
agent. Under current United States federal income tax law, backup withholding
(imposed at a rate of 31%) generally will not apply to dividends paid on or
before December 31, 2000 to a Non-U.S. Holder at an address outside the United
States (unless the payer has knowledge that the payee is a U.S. person). Under
the New Regulations, however, a Non-U.S. Holder will be subject to backup
withholding unless applicable certification requirements are met.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of common stock
unless (1) the gain is effectively connected with a trade or business of such
holder in the U.S., (2) in the case of certain Non-U.S. Holders who are
non-resident alien individuals, or who are foreign partnerships owned in whole
or in part by non-resident alien individuals, and who hold the common stock as a
capital asset, such individuals are present in the United States for 183 or more
days in the taxable year of the disposition, (3) the Non-U.S. Holder is subject
to tax pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (4) we are or have been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period.
We believe that it is unlikely that we are, or will become, 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, or we become a United States real property holding corporation in
the future, gain realized by a Non-U.S. Holder on a disposition of our common
stock will not be subject to a U.S. federal income tax so long as (1) such
Non-U.S. Holder is deemed to have beneficially owned less than or equal to 5% of
the common stock at all times during an applicable period of time and (2) our
common stock is currently, and will be at the time of disposition, "regularly
traded" on an established securities market (within the meaning of
Section 897(c)(3) of the Code and the temporary Treasury Regulations
thereunder). There can be no assurance that our common stock will continue to
qualify as "regularly traded" on an established securities market.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of our common stock effected by or through a U.S. office of a broker
unless the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the U.S. through a non-U.S. office of a non-U.S.
broker. However, U.S. information reporting requirements (but not backup
withholding) will apply to a payment of disposition proceeds where the
transaction is effected outside the U.S. by or through an office outside the
U.S. of a broker that is either (1) a U.S. person, (2) a foreign person which
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the U.S., (3) a "controlled foreign corporation" for U.S.
federal income tax purposes, or (4) in the case of payments made after
December 31, 2000, a foreign partnership with certain connections to the United
States, in each case unless the broker has documentary evidence that the holder
is a
S-9
<PAGE>
Non-U.S. Holder and that certain conditions are met or that the holder otherwise
establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in our common stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
the underwriters named below have severally agreed to purchase, and we have
agreed to sell each underwriter, the number of shares of common stock set forth
opposite their name below:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
----------
<S> <C>
Morgan Stanley & Co.
Incorporated...................
Goldman, Sachs & Co..............
Salomon Smith Barney Inc.........
Donaldson, Lufkin & Jenrette
Securities Corporation.........
J.P. Morgan Securities Inc.......
PaineWebber Incorporated.........
C.E. Unterberg, Towbin...........
----------
Total........................ 7,500,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase our common stock included in this offering are subject to approval
of certain legal matters by counsel and other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock (other than
those covered by the overallotment option described below) if any are taken.
The underwriters have advised us that they propose initially to offer such
shares of common stock to the public at the price to public set forth on the
cover page of this prospectus supplement. After the initial public offering, the
public offering price may be changed.
We have granted to the underwriters an option, exercisable for 30 days from
the date hereof, to purchase up to an additional 1,125,000 shares of common
stock at the price to public less the underwriting discount set forth on the
cover page of this prospectus supplement. The underwriters may exercise such
option to purchase solely for the purpose of covering overallotments, if any,
made in connection with the offering.
We and certain of our directors and executive officers are agreeing that,
with certain exceptions (including issuances by us as consideration for
acquisitions or as collateral for loans related to certain acquisitions or
pursuant to the exercise or conversion of outstanding securities), without the
prior written consent of Morgan Stanley & Co. Incorporated and Goldman, Sachs &
Co., we and certain of our directors and executive officers will not, directly
or indirectly, offer to sell, contract to sell, sell or otherwise dispose of, or
announce the offering of any shares of common stock or securities convertible
into or exchangeable or exercisable for shares of common stock, for a period of
90 days after the date of the underwriting agreement, provided that beginning 30
days after the date of the underwriting agreement, such officers and directors
may sell limited amounts of shares per day up to a total of 500,000 shares
(taken in the aggregate and as a group).
We have agreed to indemnify the underwriters against, or contribute to
payments that the underwriters may be required to make in respect of, certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The underwriters may engage in stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Rule 104 under
S-10
<PAGE>
the Securities Exchange Act of 1934, as amended, in connection with the
offering. Stabilizing transactions permit bids to purchase the common stock so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the common stock in the open market
following completion of the offering to cover all or a portion of a syndicate
short position created by the underwriters selling more shares of common stock
in connection with the offering than they are committed to purchase from us. In
addition, the underwriters may impose "penalty bids" under contractual
arrangements between the underwriters and dealers participating in the offering
whereby they may reclaim from a dealer participating in the offering the selling
concession with respect to shares of common stock that are distributed in the
offering but subsequently purchased for the account of the underwriters in the
open market. Such stabilizing transactions, syndicate covering transactions and
penalty bids may result in the maintenance of the price of the common stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required and, if any are undertaken,
they may be discontinued at any time.
Certain of the underwriters in this offering are acting as initial
purchasers in the preferred securities offering. In the ordinary course of the
underwriters' respective businesses, the underwriters and their affiliates have
engaged and may engage in commercial and investment banking transactions with us
and our affiliates.
An affiliate of Salomon Smith Barney Inc. and an affiliate of J.P. Morgan
Securities Inc. are agents and lenders under our revolving credit facility,
which might be temporarily repaid out of the proceeds of this offering. Because
more than 10% of the net proceeds of this offering may be paid to an affiliate
of an underwriter, the offering is being conducted in accordance with
Rule 2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc.
Frank Jungers, an Advisory Director for an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation, one of the underwriters, is also a director and
stockholder of AES. Mr. Jungers beneficially owns 1,076,732 shares of the common
stock.
Thomas I. Unterberg, a Managing Director of C.E. Unterberg, Towbin, one of
the underwriters, is also a member of AES' board of directors. Mr. Unterberg
currently beneficially owns 1,268,181 shares of the common stock.
LEGAL MATTERS
The validity of the shares offered hereby and certain matters relating
thereto and certain U.S. federal income taxation matters will be passed upon for
us by Davis Polk & Wardwell, New York, New York. Certain legal matters will be
passed upon for the underwriters by Cahill Gordon & Reindel, New York, New York.
EXPERTS
See "Experts" in the accompanying prospectus.
S-11
<PAGE>
P R O S P E C T U S
$2,500,000,000
[LOGO]
The AES Corporation
Debt Securities, Preferred Stock, Depositary Shares,
Common Stock, Stock Purchase Contracts,
Stock Purchase Units and Warrants
---------------
We will offer debt securities, preferred stock, depositary shares,
common stock, stock purchase contracts, stock purchase units or warrants from
time to time. Specific terms of these securities will be provided in supplements
to this prospectus. You should read this prospectus and any supplement carefully
before you invest.
---------------------
Our common stock trades on the New York Stock Exchange under the symbol
"AES".
---------------------
Investing in these securities involves certain risks. See "Risk Factors"
beginning on page 3.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this prospectus is July 13, 1999.
<PAGE>
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of this prospectus.
------------------------
Table of Contents
------------------
<TABLE>
<CAPTION>
Page
--------
<S> <C>
About this Prospectus.................. 2
Risk Factors........................... 3
Where You Can Find More Information.... 9
Incorporation of Documents by
Reference............................ 9
Special Note on Forward-Looking
Statements........................... 9
Use of Proceeds........................ 10
Ratio of Earnings to Fixed Charges..... 10
The Company............................ 10
</TABLE>
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Description of Capital Stock........... 11
Description of Debt Securities......... 16
Description of Stock Purchase Contracts
and Stock Purchase Units............. 25
Description of Securities Warrants..... 25
Plan of Distribution................... 26
Legal Matters.......................... 27
Experts................................ 27
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings up to a total dollar
amount of $2,500,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may also add, update
or change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement together with additional information
described under the heading Where You Can Find More Information.
2
<PAGE>
RISK FACTORS
PURCHASERS OF THE SECURITIES SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY.
OWNERSHIP OF THE SECURITIES INVOLVES CERTAIN RISKS. THE FOLLOWING FACTORS SHOULD
BE CONSIDERED CAREFULLY IN EVALUATING AES AND ITS BUSINESS BEFORE PURCHASING THE
SECURITIES OFFERED BY THIS PROSPECTUS.
OUR HIGH DEGREE OF LEVERAGE COULD AFFECT OUR ABILITY TO FULFILL OUR
OBLIGATIONS UNDER OUR SECURITIES. We had approximately $6,800 million of
outstanding indebtedness at March 31, 1999. As a result, we might be
significantly limited in our ability to meet our debt service obligations, to
finance the acquisition and development of additional projects, to compete
effectively or to operate successfully under adverse economic conditions. As of
March 31, 1999, we had a consolidated ratio of total debt to total book
capitalization (including current debt) of approximately 74%.
HOLDERS OF OUR DEBT SECURITIES WILL BE SUBORDINATED TO MANY OF OUR OTHER
CREDITORS. The Senior Subordinated Debt Securities will be subordinated to all
Senior Debt, including, but not limited to, the amounts outstanding under our
current $600 million revolving credit facility. The Junior Subordinated Debt
Securities will be subordinated to all Senior and Senior Subordinated Debt of
the Company, including, but not limited to, the amounts outstanding under our
current $600 million revolving credit facility. As of March 31, 1999, we had
approximately $617 million in aggregate principal amount of Senior Debt and
$1,686 million in aggregate principal amount of Senior and Senior Subordinated
Debt.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency, or similar proceedings, the holders of Senior Debt will
be entitled to receive payment in full of all amounts due under all Senior Debt
before the holders of the Senior Subordinated Debt Securities will be entitled
to receive any payment in respect of the Senior Subordinated Debt Securities;
holders of Senior and Senior Subordinated Debt will be entitled to receive
payment in full of all amounts due under all Senior and Senior Subordinated Debt
before the holders of the Junior Subordinated Debt Securities will be entitled
to receive any payment in respect of the Junior Subordinated Debt Securities.
No payments in respect of the Senior Subordinated Debt Securities or Junior
Subordinated Debt Securities may be made if
- a default has occurred and is continuing in a payment under the Senior
Debt or Senior and Senior Subordinated Debt, respectively, or
- during certain periods when an event of default under certain Senior Debt
or Senior and Senior Subordinated Debt, respectively, permits the
respective lenders thereunder to accelerate the maturity thereof.
See "Description of Debt Securities--Subordination of Senior Subordinated
Debt Securities" and "Description of Debt Securities--Subordination of Junior
Subordinated Debt Securities."
The Debt Securities will be effectively subordinated to the indebtedness and
other obligations (including trade payables) of our subsidiaries. At March 31,
1999, the indebtedness and obligations of our subsidiaries aggregated
approximately $5,213 million. Our ability to pay principal of, premium, if any,
and interest on the Debt Securities will be dependent upon the receipt of funds
from our subsidiaries by way of dividends, fees, interest, loans or otherwise.
Most of our subsidiaries with interests in power generation facilities currently
have in place, and the Indentures for the Debt Securities will, except to the
extent any prospectus supplement provides otherwise, permit our subsidiaries to
enter into, arrangements that restrict their ability to make distributions to us
by way of dividends, fees, interest, loans or otherwise. Our subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Debt Securities or to make any
funds available therefor, whether by dividends, loans or other payments, and do
not guarantee the payment of interest on or principal of the Debt Securities.
Any right we have to receive any assets of any of our subsidiaries upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings (and the consequent right of the
holders of the Debt Securities to participate in the distribution of, or to
realize proceeds from, those assets) will be effectively subordinated to the
claims of any such subsidiary's creditors (including trade creditors and holders
of debt issued by such subsidiary).
3
<PAGE>
WE DO A SIGNIFICANT AMOUNT OF OUR BUSINESS OUTSIDE THE UNITED STATES WHICH
PRESENTS SIGNIFICANT RISKS. Our involvement in the development of new projects
and the acquisition of existing plants in locations outside the United States is
increasing and most of our current development and acquisition activities are
for projects and plants outside the United States. We have ownership interests
in 104 power plants in operation or under construction, 87 of these are outside
of the United States.
The financing, development and operation of projects outside the United
States entail significant political and financial uncertainties (including,
without limitation, uncertainties associated with first-time privatization
efforts in the countries involved, currency exchange rate fluctuations, currency
repatriation restrictions, currency inconvertibility, political instability,
civil unrest, and expropriation) and other credit quality, liquidity or
structuring issues that have the potential to cause substantial delays in
respect of or material impairment of the value of the project being developed or
operated, which we may not be capable of fully insuring or hedging against. The
ability to obtain financing on a commercially acceptable non-recourse basis in
developing nations may also require us to make higher investments than
historically have been the case. In addition, financing in countries with less
than investment grade sovereign credit ratings may also require substantial
participation by multilateral financing agencies. There can be no assurance that
such financing can be obtained when needed.
The uncertainty of the legal environment in certain countries in which we
are or in the future may be developing, constructing or operating could make it
more difficult for us to enforce our respective rights under agreements relating
to such projects. In addition, the laws and regulations of certain countries may
limit our ability to hold a majority interest in some of the projects that we
may develop or acquire. International projects we own may, in certain cases, be
expropriated by applicable governments. Although we may have legal recourse in
enforcing our rights under agreements and recovering damages for breaches
thereof, there can be no assurance that any such legal proceedings will be
successful.
GLOBAL COMPETITION IS INCREASING AND COULD ADVERSELY AFFECT US. The global
power production market is characterized by numerous strong and capable
competitors, many of whom may have extensive and diversified developmental or
operating experience (including both domestic and international experience) and
financial resources similar to or greater than ours. Further, in recent years,
the power production industry has been characterized by strong and increasing
competition with respect to both obtaining power sales agreements and acquiring
existing power generation assets. In certain markets, these factors have caused
reductions in prices contained in new power sales agreements and, in many cases,
have caused higher acquisition prices for existing assets through competitive
bidding practices. The evolution of competitive electricity markets and the
development of highly efficient gas-fired power plants have also caused, or are
anticipated to cause, price pressure in certain power markets where we sell or
intend to sell power. There can be no assurance that the foregoing competitive
factors will not have a material adverse effect on us.
DEVELOPMENT UNCERTAINTIES. The majority of the projects that we develop are
large and complex and the completion of any such project is subject to
substantial risks. Development can require us to expend significant sums for
preliminary engineering, permitting, legal and other expenses in preparation for
competitive bids which we may not win or before it can be determined whether a
project is feasible, economically attractive or capable of being financed.
Successful development and construction is contingent upon, among other things,
negotiation of satisfactory engineering, construction, fuel supply and power
sales contracts with other project participants, receipt of required
governmental permits and consents and timely implementation and satisfactory
completion of construction. There can be no assurance that we will be able to
obtain new power sales contracts, overcome local opposition, if any, obtain the
necessary site agreements, fuel supply and ash disposal agreements, construction
contracts, steam sales contracts, licenses and certifications, environmental and
other permits and financing commitments necessary for the successful development
of its projects. There can be no assurance that development efforts on any
particular project, or our efforts generally, will be successful. If these
development efforts are not successful, we may abandon a project under
development. At the time of abandonment, we would expense all capitalized
development costs incurred in connection therewith and could incur additional
losses associated with any related contingent liabilities. Our future growth is
dependent, in part, upon the demand for significant amounts of additional
electrical generating capacity and our ability to obtain contracts to supply
portions of this capacity. Any material unremedied delay
4
<PAGE>
in, or unsatisfactory completion of, construction of our projects could, under
certain circumstances, have an adverse effect on our ability to meet our
obligations, including the payment of principal of, premium, if any, and
interest on Debt Securities. We may also be faced with certain development
uncertainties arising out of doing business outside of the United States. See
"--We do a significant amount of our business outside the United States which
presents significant risks."
OUR ACQUISITIONS MAY NOT PERFORM AS EXPECTED. We have achieved a majority
of our growth through acquisitions and expect that we will continue to grow, in
part, through acquisitions. Although each of the acquired businesses had a
significant operating history at the time we acquired them, we have a limited
history of owning and operating many of these businesses. In addition, most of
these businesses were government owned and some were operated as part of a
larger integrated utility prior to their acquisition. There can be no assurances
that we will be successful in transitioning these to private ownership, that
such businesses will perform as expected or that the returns from such
businesses will support the indebtedness incurred to acquire them or the capital
expenditures needed to develop them.
WE MAY NOT BE ABLE TO RAISE SUFFICIENT CAPITAL TO FUND FUTURE ACQUISITIONS
AND PROJECTS. Each of our projects under development and those independent
power facilities we may seek to acquire may require substantial capital
investment. Continued access to capital with acceptable terms is necessary to
assure the success of future projects and acquisitions. We have utilized project
financing loans to fund the capital expenditures associated with constructing
and acquiring our electric power plants and related assets to the extent
possible. Project financing borrowings have been substantially non-recourse to
our other subsidiaries and affiliates and to us as the parent company and are
generally secured by the capital stock, physical assets, contracts and cash flow
of the related project subsidiary or affiliate. We intend to continue to seek,
where possible, such non-recourse roject financing. However, depending on market
conditions and the unique characteristics of individual projects, such financing
may not be available or our traditional providers of project financing,
particularly multinational commercial banks, may seek higher borrowing spreads
and increased equity contributions.
Furthermore, because of the reluctance of commercial lending institutions to
provide non-recourse project financing (including financial guarantees) in
certain less developed economies, we have sought and will continue to seek, in
such locations, direct or indirect (through credit support or guarantees)
project financing from a limited number of multilateral or bilateral
international financial institutions or agencies. As a precondition to making
such project financing available, these institutions may also require
governmental guarantees of certain project and sovereign related risks.
Depending on the policies of specific governments, such guarantees may not be
offered and as a result, we may determine that sufficient financing will
ultimately not be available to fund the related project.
In addition to the project financing loans, if available, we provide a
portion, or in certain instances all, of the remaining long-term financing
required to fund development, construction, or acquisition. These investments
have generally taken the form of equity investments or loans, which are
subordinated to the project financing loans. The funds for these investments
have been provided by cash flows from operations and by the proceeds from
borrowings under our short-term credit facilities and issuances of senior
subordinated notes, convertible debentures and common stock.
Our ability to arrange for financing on either a fully recourse or a
substantially non-recourse basis and the costs of such capital are dependent on
numerous factors, including general economic and capital market conditions, the
availability of bank credit, investor confidence, the continued success of
current projects and provisions of tax and securities laws which are conducive
to raising capital in this manner. Should future access to capital not be
available, we may decide not to build new plants or acquire existing facilities.
While a decision not to build new plants or acquire existing facilities would
not affect the results of operations of our currently operating facilities or
facilities under construction, such a decision would affect our future growth.
OUR PERFORMANCE IS DEPENDENT TO A LARGE DEGREE ON CERTAIN OF OUR LARGER
PROJECTS AND THEIR UTILITY CUSTOMERS. The nature of most of our power projects
is such that each facility generally relies on one power sales contract with a
single customer for the majority, if not all, of its revenues over the life of
the power sales contract. The prolonged failure of any one utility customer to
fulfill its contractual obligations could have a substantial negative impact on
our primary source of revenues. We have sought to reduce this risk in part by
entering into power sales contracts with utilities or other customers of strong
5
<PAGE>
credit quality and by locating its plants in different geographic areas in order
to mitigate the effects of regional economic downturns.
WE ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION. Our cogeneration
operations in the United States are subject to the provisions of various laws
and regulations, including the Public Utility Regulatory Policies Act of 1978,
as amended ("PURPA") and the Public Utility Holding Company Act, as amended
("PUHCA"). PURPA provides to qualifying facilities ("QFs") certain exemptions
from substantial federal and state legislation, including regulation as public
utilities. PUHCA regulates public utility holding companies and their
subsidiaries. We are not and will not be subject to regulation as a holding
company under PUHCA as long as the domestic power plants we own are QFs under
PURPA. QF status is conditioned on meeting certain criteria, and would be
jeopardized, for example, by the loss of a steam customer. We believe that, upon
the occurrence of an event that would threaten the QF status of one of our
domestic plants, we would be able to react in a manner that would avoid the loss
of QF status (such as by replacing the steam customer). In the event we were
unable to avoid the loss of such status for one of our plants, to avoid public
utility holding company status, we could apply to the Federal Energy Regulatory
Commission ("FERC") to obtain status as an Exempt Wholesale Generator ("EWG"),
or could restructure the ownership of the project subsidiary. EWGs, however, are
subject to broader regulation by FERC and may be subject to state public utility
commissions regulation regarding non-rate matters. In addition, any
restructuring of a project subsidiary could result in, among other things, a
reduced financial interest in such subsidiary, which could result in a gain or
loss on the sale of the interest in such subsidiary, the removal of such
subsidiary from our consolidated income tax group or our consolidated financial
statements, or an increase or decrease in our results of operations.
The United States Congress is considering proposed legislation which would
repeal PURPA entirely, or at least repeal the obligation of utilities to
purchase from QFs. There is strong support for grandfathering existing QF
contracts if such legislation is passed, and also support for requiring
utilities to conduct competitive bidding for new electric generation if the
PURPA purchase obligation is eliminated. Various bills have also proposed repeal
of PUHCA. Repeal of PUHCA would allow both independent power producers and
vertically integrated utilities to acquire retail utilities in the United States
that are geographically widespread, as opposed to the current limitations of
PUHCA which require that retail electric systems be capable of physical
integration. In addition, registered holding companies would be free to acquire
non-utility businesses, which they may not do now, with certain limited
exceptions. In the event of a PUHCA repeal, competition for independent power
generators from vertically integrated utilities would likely increase. Repeal of
URPA and/or PUHCA may or may not be part of comprehensive legislation to
restructure the electric utility industry, allow retail competition, and
deregulate most electric rates. The effect of any such repeal cannot be
predicted, although any such repeal could have a material adverse effect on us.
PENDING ELECTRIC UTILITY INDUSTRY RESTRUCTURING PROPOSALS COULD HAVE AN
ADVERSE EFFECT ON US. The FERC and many state utility commissions are currently
studying a number of proposals to restructure the electric utility industry in
the United States. Such restructuring would permit utility customers to choose
their utility supplier in a competitive electric energy market. The FERC issued
a final rule in April 1996 which requires utilities to offer wholesale customers
and suppliers open access on utility transmission lines, on a comparable basis
to the utilities' own use of the lines. The final rule is subject to rehearing
and may become the subject of court litigation. Many utilities have already
filed "open access" tariffs. The utilities contend that they should recover from
departing customers their fixed costs that will be "stranded" by the ability of
their wholesale customers (and perhaps eventually, their retail customers) to
choose new electric power suppliers. The FERC final rule endorses the recovery
of legitimate and verifiable "stranded costs." These may include the costs
utilities are required to pay under many QF contracts which the utilities view
as excessive when compared with current market prices. Many utilities are
therefore seeking ways to lower these contract prices or rescind the contracts
altogether, out of concern that their shareholders will be required to bear all
or part of such "stranded" costs. Some utilities have engaged in litigation
against QFs to achieve these ends.
In addition, future United States electric rates may be deregulated in a
restructured United States electric utility industry and increased competition
may result in lower rates and less profit for United States electricity sellers.
Falling electricity prices and uncertainty as to the future structure of the
industry is inhibiting United States utilities from entering into long-term
power purchase contracts. The effect on us of any such restructuring
6
<PAGE>
cannot be predicted, although any such restructuring could have a material
adverse effect on us.
FROM TIME TO TIME WE ARE SUBJECT TO MATERIAL LITIGATION AND REGULATORY
PROCEEDINGS. From time to time, we and our affiliates are parties to litigation
and regulatory proceedings. Investors should review the descriptions of such
matters contained in our Annual, Quarterly and Current Reports filed with the
Commission and incorporated by reference herein. There can be no assurances that
the outcome of such matters will not have a material adverse effect on our
consolidated financial position.
OUR BUSINESS IS SUBJECT TO STRINGENT ENVIRONMENTAL REGULATIONS. Our
activities are subject to stringent environmental regulation by federal, state,
local and foreign governmental authorities. For example, the United States Clean
Air Act Amendments of 1990 impose more stringent standards than those previously
in effect, and require states to impose permit fees on certain emissions.
Congress and other foreign governmental authorities also may consider proposals
to restrict or tax certain emissions. These proposals, if adopted, could impose
additional costs on the operation of our power plants. There can be no assurance
that we would be able to recover all or any increased costs from our customers
or that our business, financial condition or results of operations would not be
materially and adversely affected by future changes in domestic or foreign
environmental laws and regulations. We have made and will continue to make
capital and other expenditures to comply with environmental laws and
regulations. There can be no assurance that such expenditures will not have a
material adverse effect on our financial condition or results of operations.
OUR DIRECTORS AND OFFICERS HAVE SIGNIFICANT OWNERSHIP INTERESTS IN US AND
CAN EXERT SIGNIFICANT INFLUENCE OR CONTROL OVER MATTERS REQUIRING STOCKHOLDER
APPROVAL. As of February 2, 1999, our two founders, Roger W. Sant and Dennis W.
Bakke, and their immediate families together owned beneficially approximately
21.7% of our outstanding Common Stock. As a result of their ownership interests,
Messrs. Sant and Bakke may be able to significantly influence or exert control
over our affairs, including the election of our directors. As of February 2,
1999, all of our officers and directors and their immediate families together
owned beneficially approximately 29.1% of our outstanding Common Stock. To the
extent that they decide to vote together, these stockholders would be able to
significantly influence or control the election of our directors, our management
and policies and any action requiring stockholder approval, including
significant corporate transactions.
OUR ADHERENCE TO OUR "SHARED PRINCIPLES" COULD HAVE AN ADVERSE IMPACT ON OUR
RESULTS OF OPERATIONS. A core part of our corporate culture is a commitment to
"shared principles": to act with integrity, to be fair, to have fun and to be
socially responsible. We seek to adhere to these principles not as a means to
achieve economic success, but because adherence is a worthwhile goal in and of
itself. However, if we perceive a conflict between these principles and profits,
we will try to adhere to our principles--even though doing so might result in
diminished or foregone opportunities or financial benefits.
SHARES ELIGIBLE FOR FUTURE SALE. From time to time, our subsidiaries incur
indebtedness that is secured by a pledge of shares of our common stock held by
that subsidiary. The sale of a substantial number of such shares in the public
market upon any foreclosure or otherwise could have an adverse effect on the
market price of our common stock.
RISK OF FRAUDULENT TRANSFER. Various fraudulent conveyance laws have been
enacted for the protection of creditors and may be applied by a court on behalf
of any unpaid creditor or a representative of our creditors in a lawsuit to
subordinate or avoid Debt Securities in favor of our other existing or future
creditors. Under applicable provisions of the U.S. Bankruptcy code or comparable
provisions of state fraudulent transfer or conveyance laws, if we at the time of
issuance of Debt Securities,
- 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
- received less than reasonably equivalent value or fair consideration for
issuing Debt Securities and we
- were insolvent,
- was rendered insolvent by reason of the issuance of the Debt Securities,
- 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
7
<PAGE>
- intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they mature, then, in each case, a court of
competent jurisdiction could void, in whole or in part, the Debt
Securities.
Among other things, a legal challenge of the Debt Securities on fraudulent
conveyance grounds may focus on the benefits, if any, realized by us as a result
of our issuance of the Debt Securities.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law applied in such case. Generally, however, we would be considered
insolvent if the sum of our debts, including contingent liabilities, were
greater than all of our assets at fair valuation or if the present fair market
value of our assets were less than the amount that would be required to pay the
probable liability on our existing debts, including contingent liabilities, as
they become absolute and mature. There can be no assurance that, after providing
for all prior claims, there will be sufficient assets to satisfy the claims of
the holders of the Debt Securities.
Management believes that, for purposes of all such insolvency, bankruptcy
and fraudulent transfer or conveyance laws, the Debt Securities are being
incurred without the intent to hinder, delay or defraud creditors and for proper
purposes and in good faith, and that we after the issuance of the Debt
Securities will be solvent, will have sufficient capital for carrying on our
business and will be able to pay our debts as they mature. There can be no
assurance, however, that a court passing on such questions would agree with
management's view.
THERE IS NO PRIOR PUBLIC MARKET FOR MANY OF THE SECURITIES THAT MAY BE
OFFERED PURSUANT TO THIS PROSPECTUS--AS A RESULT THERE COULD BE SIGNIFICANT
PRICE VOLATILITY FOR SUCH SECURITIES. Prior to the offering, there has been no
public market for many of the securities that may be offered pursuant to this
prospectus. There can be no assurance that an active trading market for any of
such securities will develop or be sustained. If such a market were to develop,
such securities could trade at prices that may be higher or lower than their
initial offering price depending upon many factors, including prevailing
interest rates, our operating results and the markets for similar securities.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at the
public reference rooms of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. You may obtain information
on the operation of the public reference rooms by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site at http://www.sec.gov,
from where you can access our filings. Our Internet address is
http://www.aesc.com.
This prospectus constitutes part of a Registration Statement on Form S-3
filed with the Commission under the Securities Act of 1933 (the "Securities
Act"). It omits some of the information contained in the Registration Statement,
and reference is made to the Registration Statement for further information on
our company and the securities offered hereby. Any statement contained in this
prospectus concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission is not necessarily
complete, and in each instance reference is made to the copy of the document
filed.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities:
(a) Annual Report on Form 10-K for the year ended December 31, 1998;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
(c) Current Reports on Form 8-K filed on March 18, 1999, April 12, 1999,
April 20, 1999, June 8, 1999 and June 11, 1999.
You may request a copy of these filings at no cost, by writing or
telephoning the office of William R. Luraschi, General Counsel and Secretary,
The AES Corporation, 1001 North 19th Street, Arlington, Virginia, telephone
number (703) 522-1315.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about AES, including, among other things:
- changes in company-wide operation and plan availability compared to our
historical performance; changes in our historical operating cost
structure, including changes in various costs and expenses;
- political and economic considerations in certain non-U.S. countries where
we are conducting or seeking to conduct business;
- restrictions on foreign currency convertibility and remittance abroad,
exchange rate fluctuations and developing legal systems;
- regulation and restrictions;
- legislation intended to promote competition in U.S. and non-U.S.
electricity markets;
- tariffs;
- governmental approval processes;
- environmental matters;
- construction, operating and fuel risks;
- load growth, dispatch and transmission constraints;
- impact of the Year 2000 issue;
- conflict of interest of contacting parties; and
- adherence to our principles.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
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USE OF PROCEEDS
Unless otherwise indicated in a prospectus supplement, proceeds from the
sale of the securities will be used by the Company for general corporate
purposes and may be temporarily invested in short-term securities.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges is as follows:
<TABLE>
<CAPTION>
Three
Months
Year Ended December 31, Ended
---------------------------------------------------- March 31,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges...... 2.10 2.20 1.88 1.46 1.65 1.61
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
minority interest, plus fixed charges, less capitalized interest, less excess of
earnings over dividends of less-than-fifty-percent-owned companies. Fixed
charges consist of interest (including capitalized interest) on all
indebtedness, amortization of debt discount and expense and that portion of
rental expense which we believe to be representative of an interest factor.
During the period from January 1, 1994 until March 31, 1999, no shares of
preferred stock were issued or outstanding, and during that period the Company
did not pay any preferred stock dividends.
THE COMPANY
We help to meet the world's needs by supplying electricity to customers in
many countries in a socially responsible way.
We have been successful in growing our business and serving additional
customers by participating in competitive bidding under privatization
initiatives. We have been particularly interested in acquiring existing
businesses or assets in electricity markets that are promoting competition and
eliminating rate of return regulation. In such privatizations, sellers generally
seek to complete competitive solicitations in less than one year, much quicker
than the time periods associated with greenfield development, and usually
require payment in full on transfer. We believe that our experience in
competitive markets and our worldwide integrated group structure, with our
significant geographic coverage and presence, enable us to react quickly and
creatively in these situations. Since 1994, our total generating capacity in
megawatts or MW has grown from 2,479 MW to 24,076 MW at March 31, 1999 (an
increase of 871%), with the total number of plants in operation increasing from
9 to 89. Additionally, our total revenues have increased at a compound annual
growth rate of 46% from $533 million in 1994 to $2,398 million in 1998, while
net income has increased at a compound annual growth rate of 33% from
$100 million to $311 million over the same period.
A majority of our sales of electricity are made to customers (generally
electric utilities or regional electric companies), on a wholesale basis for
further resale to end users. This is referred to as the electricity "generation"
business. Sales by these generation companies are usually made under long-term
contracts from power plants owned by our subsidiaries and affiliates, although
we do, in certain circumstances, make sales into regional electricity markets
without contracts. Our ownership portfolio of power facilities includes new
plants constructed for such purposes, so-called greenfield plants, as well as
existing power plants acquired through competitively bid privatization
initiatives and negotiated acquisitions. In the electricity generation business,
we now own and operate (entirely or in part) a diverse portfolio of electric
power plants (including those within integrated distribution companies) with a
total capacity of 24,076 MW. Of that total, 29% are fueled by coal or petroleum
coke, 24% are fueled by natural gas, 33% are hydroelectric facilities, 6% are
fueled by oil, and the remaining 8% are capable of using multiple fossil fuels.
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DESCRIPTION OF CAPITAL STOCK
Under our certificate of incorporation (the "Certificate of Incorporation"),
we are authorized to issue 500,000,000 shares of common stock, par value $.01
per share, and 50,000,000 shares of preferred stock, no par value.
The following summary contains a description of certain general terms of the
common stock and the preferred stock to which any prospectus supplement may
relate. Certain terms of any series of preferred stock offered by a prospectus
supplement will be described in the prospectus supplement relating thereto. If
indicated in the prospectus supplement, the terms of any series may differ from
the terms set forth below. The description of certain provisions of the common
stock and the preferred stock is subject to and qualified by reference to the
provisions of our certificate of incorporation, and, in the case of the
preferred stock, to the certificate of designation (the "Certificate of
Designation") relating to each particular series of preferred stock which will
be filed or incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part.
Common Stock
As of April 30, 1999, there were 190,839,529 shares of common stock
outstanding.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably dividends as may be declared from time to time by
our board of directors out of funds legally available to pay dividends. If we
liquidate our business, the holders of common stock are entitled to share
ratably in all assets after we pay our liabilities and the liquidation
preference of any outstanding preferred stock. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable, and any
shares of common stock in respect of which this prospectus is being delivered
will be fully paid and non-assessable.
The transfer agent for our common stock is EquiServe.
Price Range of AES Common Stock and Common Stock Dividends
Our common stock began trading on the New York Stock Exchange on
October 16, 1996 under the symbol "AES." The following table sets forth for the
periods indicated the intra-day high and low sale prices for the common stock as
reported on the Composite Tape. In July 1997, we announced a two for one stock
split, in the form of a stock dividend, for holders of record on July 28, 1997
of our common stock, par value $.01 per share, which was paid on August 28,
1997. The prices set forth below are adjusted for such stock split.
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
1997
- ------------------------------
First Quarter................. $34.13 $22.38
Second Quarter................ 37.75 27.50
Third Quarter................. 45.25 34.63
Fourth Quarter................ 49.63 35.00
1998
- ------------------------------
First Quarter................. $54.31 $39.38
Second Quarter................ 58.00 45.63
Third Quarter................. 55.38 23.00
Fourth Quarter................ 47.38 32.00
1999
- ------------------------------
First Quarter................. $49.25 $32.81
Second Quarter (through
June 24, 1999).............. $59.75 $36.75
</TABLE>
No cash dividends have been paid on common stock since December 22, 1993 in
order to provide capital for our equity investments in projects.
Our ability to declare and pay dividends is dependent, among other things,
on
- the ability of our project subsidiaries to declare and pay dividends and
otherwise distribute cash to us;
- our ability to service our parent company debt and
- 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
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<PAGE>
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:
- at the time of a payment of cash dividends or after giving effect thereto
an event of default occurred;
- an event that would become an event of default occurred and is continuing;
- certain fixed charge coverage ratios are not met; or
- if the payment of dividends, together with other restricted payments,
would exceed certain limits.
Preferred Stock
As of April 30, 1999, there were no shares of Preferred Stock outstanding.
Our board of directors has the authority to issue preferred stock in one or
more classes or series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, exchange rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any class or
series or the designation of such class or series, without any further action by
the stockholders. Preferred stock, if issued, will not be entitled to any
preemptive or similar rights. The prospectus supplement will describe the terms
of any preferred stock being offered, including:
- the specific designation, number of shares, seniority and purchase price;
- any liquidation preference per share;
- any date of maturity;
- any redemption, repayment or sinking fund provisions;
- any dividend rate or rates and the dates on which any such dividends will
be payable (or the method by which such rates or dates will be
determined);
- any voting rights;
- if other than the currency of the United States, the currency or
currencies including composite currencies in which such preferred stock is
denominated and/or in which payments will or may be payable;
- the method by which amounts in respect of such preferred stock may be
calculated and any commodities, currencies or indices, or value, rate or
price, relevant to such calculation;
- whether such preferred stock is convertible or exchangeable and, if so,
the securities or rights into which such preferred stock is convertible or
exchangeable, and the terms and conditions upon which such conversions or
exchanges will be effected including conversion or exchange prices or
rates, the conversion or exchange period and any other related provisions;
- the place or places where dividends and other payments on the preferred
stock will be payable; and
- any additional voting, dividend, liquidation, redemption and other rights,
preferences, privileges, limitations and restrictions.
All shares of preferred stock offered hereby, or issuable upon conversion,
exchange or exercise of securities, will, when issued, be fully paid and
non-assessable. Any shares of preferred stock that are issued would have
priority over the common stock with respect to dividend or liquidation rights or
both.
The transfer agent for each series of preferred stock will be described in
the applicable prospectus supplement.
Description of Certain Provisions of Our Certificate of Incorporation and
By-Laws
Our Certificate of Incorporation and By-Laws contain several provisions that
may make the acquisition of control of the AES through a tender offer, open
market purchases, a proxy fight or otherwise more difficult. Below is a
description of certain of these provisions in the Certificate of Incorporation
and By-Laws.
SPECIAL MEETINGS OF STOCKHOLDERS. Our By-Laws provide that, unless
otherwise prescribed by law, special meetings of stockholders may be called by a
resolution
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<PAGE>
adopted by a majority of the entire board of directors, by the chairman of the
board of directors or by the president. Only business as specified in the notice
of stockholders of the special meeting shall be considered.
STOCKHOLDER NOMINATION OF DIRECTORS. Our By-Laws contain a procedure for
stockholder nomination of directors. The By-Laws provide that any record owner
of stock entitled to be voted generally in the election of directors may
nominate one or more persons for election as a director at a stockholders
meeting only if written notice is given to our secretary of the intent to make a
nomination. The notice must be given, with respect to an annual meeting, not
later than 90 days in advance of the annual meeting. With respect to a special
meeting, the notice must be given not later than the close of business on the
seventh day following the earlier of
- the date on which notice of such special meeting is first given to
stockholders and
- the date on which a public announcement of such meeting is first made.
Each notice must include:
- the name and address of each stockholder who intends to appear in person
or by proxy to make the nomination and of the person or persons to be
nominated;
- a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming them)
pursuant to which the nomination is to be made by the stockholder;
- other information regarding each nominee proposed as would have been
included in a proxy statement filed pursuant to Rule 14a-8 under the
Exchange Act; and
- the consent of each nominee to serve if elected.
The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with this procedure.
The procedure for stockholder nomination of directors described above may
have the effect of precluding a nomination for election of directors at a
particular meeting if the required procedure is not followed.
ELIMINATION OF LIABILITY; INDEMNIFICATION. Except as described below, the
Certificate of Incorporation eliminates the liability of members of our board of
directors to us or our stockholders for monetary damages resulting from breaches
of their fiduciary duties as directors. Directors remain liable for breaches of
their duty of loyalty to us or our stockholders, as well as for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law and transactions from which a director derives improper
personal benefit. The Certificate of Incorporation also does not release
directors of liability under Section 174 of the Delaware General Corporation Law
(the "GCL"), which makes directors personally liable for unlawful dividends or
unlawful stock repurchases or redemptions if the unlawful conduct is willful or
results from negligence.
Under our By-Laws, and in accordance with Section 145 of the GCL, we shall
indemnify to the fullest extent permitted by the GCL any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding. These include civil, criminal,
administrative or investigative proceedings by reason of the fact that the
person is or was a director or officer of or employed by us, or is or was
serving in that capacity or as an agent at the request of us for another entity.
Our indemnification covers expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with the defense or
settlement of an action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to our
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe was unlawful. We will indemnify persons in a
derivative action under the same conditions, except that no indemnification is
permitted without judicial approval if the person is adjudged to be liable to us
in the performance of his or her duty. Derivative actions are actions by us or
in the right of us to procure a judgment in our favor. Agents of ours may be
similarly indemnified at the discretion of the board of directors.
Under Section 145 of the GCL, a similar duty of care is applicable in the
case of derivative actions, except that indemnification only extends to expenses
incurred in connection with the defense or settlement of a derivative action and
then, where the person is adjudged to be liable to us, only if and to the extent
that the Court of Chancery of the State of Delaware or the court in which the
action was brought determines that the person is
13
<PAGE>
fairly and reasonably entitled to the indemnity and only for those expenses as
the court deems proper.
Pursuant to our By-Laws, a person eligible for indemnification may have the
expenses incurred in connection with any matter described above paid in advance
of a final disposition by us. However, these advances will only be made if the
indemnified person undertakes to repay all advanced amounts if it is determined
that the person is not entitled to indemnification.
In addition, under our By-Laws, we may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of us
or of another corporation against any liability arising out of the person's
status as director, officer, employee or agent of us whether or not we would
have the power to indemnify such person against such liability under the
provisions of our By-Laws. We maintain directors' and officers' insurance.
Depositary Shares
GENERAL. We may, at our option, elect to offer fractional shares of
preferred stock, rather than full shares of preferred stock. If we exercise this
option, we will issue to the public receipts for depositary shares, and each of
these depositary shares will represent a fraction (to be set forth in the
application prospectus supplement) of a share of a particular series of
preferred stock.
The shares of any series of preferred stock underlying the depositary shares
will be deposited under a deposit agreement between us and a bank or trust
company selected by us. The depositary will have its principal office in the
United States and a combined capital and surplus of at least $50,000,000.
Subject to the terms of the deposit agreement, each owner of a depositary share
will be entitled, in proportion, to the applicable fraction of a share of
preferred stock underlying that depositary share, to all the rights and
preferences of the preferred stock underlying that depositary share. Those
rights include dividend, voting, redemption and liquidation rights.
The depositary shares will be evidenced by depositary receipts issued
pursuant to the deposit agreement. Depositary receipts will be distributed to
those persons purchasing the fractional shares of preferred stock underlying the
depositary shares, in accordance with the terms of the offering. Copies of the
forms of deposit agreement and depositary receipt will be filed as exhibits to
the registration statement. The following summary of the deposit agreement, the
depositary shares and the depositary receipts is not complete. You should refer
to the forms of the deposit agreement and depositary receipts that will be filed
with the SEC in connection with the offering of the specific depositary shares.
Pending the preparation of definitive engraved depositary receipts, the
depositary may, upon our written order, issue temporary depositary receipts
substantially identical to the definitive depositary receipts but not in
definitive form. These temporary depositary receipts entitle their holders to
all the rights of definitive depositary receipts which are to be prepared
without unreasonable delay. Temporary depositary receipts will then be
exchangeable for definitive depositary receipts at our expense.
DIVIDENDS AND OTHER DISTRIBUTIONS. The depositary will distribute all cash
dividends or other cash distributions received with respect to the preferred
stock to the record holders of depositary shares relating to the preferred stock
in proportion to the number of depositary shares owned by those holders.
If there is a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary shares
that are entitled to receive the distribution, unless the depositary determines
that it is not feasible to make the distribution. If this occurs, the depositary
may, with our approval, sell the property and distribute the net proceeds from
the sale to the applicable holders.
REDEMPTION OF DEPOSITARY SHARES. If a series of preferred stock represented
by depositary shares is subject to redemption, the depositary shares will be
redeemed from the proceeds received by the depositary resulting from the
redemption, in whole or in part, of that series of preferred stock held by the
depositary. The redemption price per depositary share will be equal to the
applicable redemption fraction of the redemption price per share payable with
respect to that series of the preferred stock. Whenever we redeem shares of
preferred stock that are held by the depositary, the depositary will redeem, as
of the same redemption date, the number of depositary shares representing the
shares of preferred stock so redeemed. If fewer than all the depositary shares
are to be redeemed, the depositary shares to be redeemed will be selected by lot
or pro rata as may be determined by the depositary.
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<PAGE>
VOTING THE PREFERRED STOCK. Upon receipt of notice of any meeting at which
the holders of the preferred stock are entitled to vote, the depositary will
mail the information contained in such notice to the record holders of the
depositary shares underlying the preferred stock. Each record holder of the
depositary shares on the record date (which will be the same date as the record
date for the preferred stock) will be entitled to instruct the depositary as to
the exercise of the voting rights pertaining to the amount of the preferred
stock represented by such holder's depositary shares. The depositary will then
try, as far as practicable, to vote the number of shares of preferred stock
underlying those depositary shares in accordance with such instructions, and we
will agree to take all actions which may be deemed necessary by the depositary
to enable the depositary to do so. The depositary will not vote the shares of
preferred stock to the extent it does not receive specific instructions from the
holders of depositary shares underlying the preferred stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT. The form of
depositary receipt evidencing the depositary shares and any provision of the
deposit agreement may at any time be amended by agreement between us and the
depositary. However, any amendment which materially and adversely alters the
rights of the holders of depositary shares will not be effective unless the
amendment has been approved by the holders of at least a majority of the
depositary shares then outstanding. The deposit agreement may be terminated by
us or by the depositary only if (a) all outstanding depositary shares have been
redeemed or (b) there has been a final distribution of the underlying preferred
stock in connection with our liquidation, dissolution or winding up and the
preferred stock has been distributed to the holders of depositary receipts.
CHARGES OF DEPOSITARY. We will pay all transfer and other taxes and
governmental charges arising solely from the existence of the depositary
arrangements. We will also pay charges of the depositary in connection with the
initial deposit of the preferred stock and any redemption of the preferred
stock. Holders of depositary receipts will pay other transfer and other taxes
and governmental charges and those other charges, including a fee for the
withdrawal of shares of preferred stock upon surrender of depositary receipts,
as are expressly provided in the deposit agreement to be for their accounts.
MISCELLANEOUS. The depositary will forward to holders of depositary
receipts all reports and communications from us that we deliver to the
depositary and that we are required to furnish to the holders of the preferred
stock.
Neither we nor the depositary will be liable if either of us is prevented or
delayed by law or any circumstance beyond our control in performing our
respective obligations under the deposit agreement. Our obligations and those of
the depositary will be limited to performance in good faith of our respective
duties under the deposit agreement. Neither we nor the will be obligated to
prosecute or defend any legal proceeding in respect of any depositary shares or
preferred stock unless satisfactory indemnity is furnished. We and the
depositary may rely upon written advice of counsel or accountants, or upon
information provided by persons presenting preferred stock for deposit, holders
of depositary receipts or other persons believed to be competent and on
documents believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY. The depositary may resign at any
time by delivering notice to us of its election to resign. We may remove the
depositary at any time. Any resignation or removal will take effect upon the
appointment of a successor depositary and its acceptance of the appointment. The
successor depositary must be appointed within 60 days after delivery of the
notice of resignation or removal and must be a bank or trust company having its
principal office in the United States and having a combined capital and surplus
of at least $50,000,000.
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<PAGE>
DESCRIPTION OF DEBT SECURITIES
The debt securities may consist of Senior Debt Securities, Subordinated Debt
Securities or Junior Subordinated Debt Securities. The Senior Debt Securities
will be issued under an indenture (the "Senior Debt Indenture") dated as of
December 8, 1998 between AES, as issuer, and The First National Bank of Chicago,
as trustee. The Senior Subordinated Debt Securities will be issued under an
indenture (the "Senior Subordinated Debt Indenture") dated as of July 1, 1996
between AES, as issuer, and The First National Bank of Chicago, as trustee. The
Junior Subordinated Debt Securities will be issued under an indenture dated as
of August 10, 1998 (the "Junior Subordinated Debt Indenture") between AES, as
issuer, and The First National Bank of Chicago, as trustee. The Senior Debt
Indenture, the Senior Subordinated Debt Indenture and the Junior Subordinated
Debt Indenture are collectively referred to herein as the "Indentures."
The Indentures have been incorporated by reference or included herein as
exhibits to the registration statement of which this Prospectus is a part and
are also available for inspection at the office of the trustee. The Indentures
are subject to and governed by the Trust Indenture Act of 1939 (the "Trust
Indenture Act"). Section references contained herein are applicable to each of
the Indentures. The following summaries of the Indentures are not complete.
Where reference is made to particular provisions of the Indentures, these
provisions, including definitions of certain terms, are incorporated by
reference. The Indentures are substantially identical except for provisions
relating to subordination.
General
None of the Indentures limits the amount of debt securities which may be
issued thereunder. Each Indenture provides that debt securities issuable
thereunder may be issued up to the aggregate principal amount which may be
authorized by us from time to time. The prospectus supplement will describe the
terms of any debt securities being offered (the "Offered Debt Securities")
including:
- the designation, aggregate principal amount and authorized denominations
of the Offered Debt Securities;
- the date or dates on which the Offered Debt Securities mature;
- the rate or rates per annum at which the Offered Debt Securities will bear
interest and the method of calculating interest rates, if any;
- the dates on which any interest will be payable and the record dates for
any interest payments;
- any mandatory or optional redemption terms or prepayment, conversion,
sinking fund or exchangeability provisions;
- the place where the principal of and interest on the Offered Debt
Securities will be payable;
- if other than denominations of $1,000 or multiples thereof, the
denominations in which the Offered Debt Securities will be issuable;
- whether the Offered Debt Securities will be issued in the form of Global
Securities (as defined below) or certificates;
- additional provisions, if any, relating to the defeasance of the Offered
Debt Securities;
- the currency or currencies, if other than the currency of the United
States, in which payment of the principal of and interest on the Offered
Debt Securities will be payable;
- whether the Offered Debt Securities will be issuable in registered form or
bearer form ("Bearer Securities") or both and, if Bearer Securities are
issuable, any restrictions applicable to the exchange of one form for
another and the offer, sale and delivery of Bearer Securities;
- any applicable United States federal income tax consequences, including
whether and under what circumstances the Company will pay additional
amounts on Offered Debt Securities held by a person who is not a U.S.
Person (as defined in each prospectus supplement relating to any
particular series of debt securities offered thereby) in respect of any
tax, assessment or governmental charge withheld or deducted and, if so,
whether we will have the option to redeem these Offered Debt Securities
rather than pay the additional amounts;
- the dates on which premium, if any, will be payable;
- our right, if any, to defer payment of interest and the maximum length of
any deferral period;
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- any listing on a securities exchange;
- the initial public offering price and
- other specific terms, including any additional events of default or
covenants provided for with respect to the Offered Debt Securities.
As described in each prospectus supplement relating to any particular series
of debt securities offered thereby, the indenture may contain covenants
limiting:
- the incurrence of debt by us;
- the incurrence of debt by subsidiaries of us;
- the making of certain payments by us and our subsidiaries;
- subsidiary mergers;
- business activities of us and our subsidiaries;
- the issuance of preferred stock of subsidiaries;
- asset dispositions;
- transactions with affiliates;
- liens and
- mergers and consolidations involving our company.
Book-entry Systems
If so specified in any prospectus supplement relating to debt securities,
debt securities of any series may be issued under a book-entry system in the
form of one or more global securities (each, a "Global Security"). Each Global
Security will be deposited with, or on behalf of, a depositary, which will be
The Depository Trust Company, New York, New York (the "Depositary"). The Global
Securities will be registered in the name of the Depositary or its nominee. The
Depositary has advised us that the Depositary is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York banking law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. The Depositary was created to hold
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants through electronic book-entry
changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations, some of which (and/or their
representatives) own the Depositary. Access to the Depositary's book-entry
system is also available to others, such as banks, brokers, dealers, and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
When a Global Security is issued in registered form, the Depositary will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the debt securities represented by each Global Security to
the participants' accounts. The accounts to be credited will be designated by
the underwriters, dealers, or agents, if any. If debt securities are offered and
sold directly by us, we will designate the accounts to be credited. Ownership of
beneficial interests in the Global Security will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests by participants in the Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, the
participants' records. The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of the securities in definitive
form. These laws may impair the ability to transfer beneficial interests in a
Global Security.
So long as the Depositary or its nominee is the owner of record of a Global
Security, we consider the Depositary or its nominee the sole owner or holder of
the debt securities represented by the Global Security for all purposes under
the Indenture under which the debt securities are issued. Except as set forth
below, owners of beneficial interests in a Global Security will not be entitled
to have the debt security represented by the Global Security registered in their
names, and will not receive or be entitled to receive physical delivery of the
debt securities in definitive form and will not be considered the owners or
holders thereof under the Indenture under which these debt securities are
issued. Accordingly, each person owning a beneficial interest in a Global
Security must rely on the procedures of the Depositary. Persons who are not
participants must rely on the procedures of the participant through which they
own their interest. We understand that under existing industry practices, if we
request any action of holders or if any owner of a beneficial interest in a
Global Security desires to give or take any action which a holder is
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entitled to give or take under the applicable Indenture, the Depositary would
authorize the participants holding the relevant beneficial interests to give or
take such action, and such participants would authorize beneficial owners owning
through such participants to give or take such action or would otherwise act
upon the instruction of beneficial owners holding through them.
Payments of principal, premium, if any, and interest on debt securities
represented by a Global Security registered in the name of the Depositary or its
nominee will be made to the Depositary or nominee, as the registered owner. None
of AES, the trustee or any other agent of us or agent of the trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Security or for maintaining, supervising, or reviewing any records relating to
such beneficial ownership interests.
We have been advised by the Depositary that the Depositary will credit
participants' accounts with payments of principal, premium, if any, or interest
on the payment date thereof in amounts proportionate to their respective
beneficial interests in the principal amount of the Global Security as shown on
the records of the Depositary. We expect that payments by participants to owners
of beneficial interests in the Global Security held through such participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers registered in "street
name," and will be the responsibility of such participants.
A Global Security may not be transferred except as a whole:
- by the Depositary to a nominee or successor of the Depositary or
- by a nominee of the Depositary to another nominee of the Depositary.
A Global Security representing all but not part of an offering of debt
securities hereby is exchangeable for debt securities in definitive form of like
tenor and terms if:
- The Depositary notifies us that it is unwilling or unable to continue as
depositary for the Global Security or if at any time the Depositary is no
longer eligible to be in good standing as a clearing agency registered
under the Exchange Act, and we do not appoint a successor depositary
within 90 days after we receive notice or become aware of the
ineligibility or
- We in our sole discretion at any time determine not to have all of the
debt securities represented in an offering of Offered Debt Securities by a
Global Security and notify the trustee thereof.
A Global Security exchangeable pursuant to the preceding sentence shall be
exchangeable for debt securities registered in the names and in the authorized
denominations as the Depositary for the Global Security shall direct. The debt
securities of a series may also be issued in the form of one or more bearer
global debt securities (a "Bearer Global Security") that will be deposited with
a common depositary for Euro-clear and CEDEL, or with a nominee for that
depositary identified in the prospectus supplement relating to the series. The
specific terms and procedures, including the specific terms of the depositary
arrangement, with respect to any portion of a series of debt securities to be
represented by a Bearer Global Security will be described in the prospectus
supplement.
Senior Debt Securities
The payment of principal, premium, if any, and interest on the Senior Debt
Securities will, to the extent and in the manner set forth in the Senior Debt
Indenture, rank equally with all unsecured and unsubordinated debt.
Subordination of Senior Subordinated Debt Securities
The payment of principal, premium, if any, and interest on the Senior
Subordinated Debt Securities will, to the extent and in the manner set forth in
the Senior Subordinated Debt Indenture, be subordinated in right of payment to
the prior payment in full, in cash equivalents, of all Senior Debt.
Upon any payment or distribution of assets to our creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings, the holders of all Senior Debt
will first be entitled to receive payment in full of all amounts due or to
become due thereon before the holders of the Senior Subordinated Debt Securities
will be entitled to receive any payment in respect of the principal, premium, if
any, or interest on the Senior Subordinated Debt Securities.
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No payments of principal, premium, if any, or interest in respect of the
Senior Subordinated Debt Securities may be made by us if a default in any
payment with respect to Senior Debt has occurred and is continuing. In addition,
during the continuance of any other event of default (other than a payment
default) with respect to Designated Senior Debt pursuant to which the maturity
thereof may be accelerated, no payments of principal, premium, if any, or
interest in respect of the Senior Subordinated Debt Securities may be made by us
for a period (the "Payment Blockage Period") beginning on the date of delivery
of written notice of the holders and ending 179 days thereafter (unless the
Payment Blockage Period shall be terminated by written notice to the trustee
from the holders of Designated Senior Debt or from an agent of these holders, or
the event of default has been cured or waived or has ceased to exist). Only one
Payment Blockage Period may be commenced with respect to the Senior Subordinated
Debt Securities during any period of 360 consecutive days. No event of default
which existed or was continuing on the date of the beginning of any Payment
Blockage Period shall be the basis for the beginning of any subsequent Payment
Blockage Period by the holders of Designated Senior Debt, unless such event of
default shall have been cured or waived for a period of not less than 90 days.
Due to this subordination, in the event of insolvency, funds that would
otherwise be payable to holders will be paid to the holders of Senior Debt to
the extent necessary to pay the Senior Debt in full, and we may be unable to
meet fully our obligations with respect to the Senior Subordinated Debt
Securities.
"Debt" is defined to mean, with respect to any person at any date of
determination (without duplication):
- all indebtedness for borrowed money;
- all obligations evidenced by bonds, debentures, notes or other similar
instruments;
- all obligations in respect of letters of credit or bankers' acceptance or
other similar instruments (or reimbursement obligations with respect
thereto);
- all obligations to pay the deferred purchase price of property or
services, except trade payables;
- all obligations as lessee under capitalized leases;
- all Debt of others secured by a lien on any asset of the person, whether
or not the Debt is assumed by that person; provided that, for purposes of
determining the amount of any Debt of the type described in this clause,
if recourse with respect to that Debt is limited to that asset, the amount
of that Debt shall be limited to the lesser of the fair market value of
the asset or the amount of the Debt;
- all Debt of others guaranteed by that person to the extent that Debt is
guaranteed by such person;
- all redeemable stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends; and,
- to the extent not otherwise included in this definition, all obligations
under currency agreements and interest rate agreements.
"Designated Senior Debt" is defined to mean:
- Debt under the Credit Agreement dated as of August 2, 1996 (the "Credit
Agreement") among The AES Corporation, the banks named on the signature
pages thereof and the Morgan Guaranty Trust Company of New York, as agent
for the banks, as such Credit Agreement has been and may be amended,
restated, supplemented or otherwise modified from time to time; and
- Debt constituting Senior Debt which, at the time of its determination
- has an aggregate principal amount of at least $30 million; and
- is specifically designated by us as "Designated Senior Debt."
"Senior Debt" is defined to mean the principal of, premium, if any, and
interest on all of our Debt whether created, incurred or assumed before, on or
after the date of the Senior Subordinated Debt Indenture; provided that Senior
Debt shall not include:
- our 8.875% Senior Subordinated Debentures due 2027, 8.50% Senior
Subordinated Notes due 2007, 8.375% Senior Subordinated Notes Due 2007 and
our 10.25% Senior Subordinated Notes due 2006 which rank equally with the
Senior Subordinated Debt Securities;
- our Debt to any affiliate;
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- Debt of ours that, when incurred, and without respect to any election
under Section 1111(b) of Title 11, U.S. Code, was without recourse;
- any other Debt of ours which by the terms of the instrument creating or
evidencing the same are specifically designated as not being senior in
right of payment to the Senior Subordinated Debt Securities; and
- our redeemable stock.
Subordination of Junior Subordination Debt Securities
The payment of principal, premium, if any, and interest on the Junior
Subordinated Debt Securities will, to the extent and in the manner set forth in
the Junior Subordinated Debt Indenture, be subordinated in right of payment to
the prior payment in full, in cash or cash equivalents, of all our Senior and
Subordinated Debt.
Upon any payment or distribution of assets to our creditors upon any
liquidation, dissolution, winding up, receivership, reorganization, assignment
for the benefit of creditors, marshaling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings, the holders of all Senior and
Subordinated Debt will first be entitled to receive payment in full of all
amounts due or to become due thereon before the holders of the Junior
Subordinated Debt Securities will be entitled to receive any payment in respect
of the principal, premium, if any, or interest on the Junior Subordinated Debt
Securities.
No payments of principal, premium, if any, or interest in respect of the
Junior Subordinated Debt Securities may be made by us if a default in any
payment with respect to Senior and Subordinated Debt has occurred and is
continuing. In addition, during the continuance of any other event of default
(other than a payment default) with respect to Designated Senior and
Subordinated Debt pursuant to which the maturity thereof may be accelerated, no
payments on account of principal, premium, if any, or interest may be made by us
during a Payment Blockage Period in respect of these Junior Subordinated Debt
Securities (unless the Payment Blockage Period is terminated by written notice
to the trustee from the holders of Designated Senior and Subordinated Debt or
from an agent of such holders, or the event of default has been cured or waived
or has ceased to exist). Only one Payment Blockage Period may be commenced with
respect to the Junior Subordinated Debt Securities during any period of 360
consecutive days. No event of default which existed or was continuing on the
date of the beginning of any Payment Blockage Period with respect to the
Designated Senior and Subordinated Debt initiating the Payment Blockage Period
shall be the basis for the beginning of any subsequent Payment Blockage Period
by the holders of such Designated Senior and Subordinated Debt, unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days.
Due to this subordination, in the event of insolvency, funds that would
otherwise be payable to holders of Junior Subordinated Debt Securities will be
paid to the holders of Senior and Subordinated Debt to the extent necessary to
pay the Debt in full, and we may be unable to meet fully our obligations with
respect to the Junior Subordinated Debt Securities.
"Designated Senior and Subordinated Debt" is defined to mean
- Debt under the Credit Agreement; and
- Debt constituting Senior and Subordinated Debt which, at the time of its
determination
- has an aggregate principal amount of at least $30 million; and
- is specifically designated in the instrument as "Designated Senior and
Subordinated Debt" by us.
"Senior and Subordinated Debt" is defined to mean the principal, premium, if
any, and interest on all of our Debt whether created, incurred or assumed
before, on or after the date of the Junior Subordinated Debt Indenture; provided
that Senior and Subordinated Debt shall not include
- our Debt to any affiliate;
- Debt of ours that, when incurred and without respect to any election under
Section 1111(b) of Title 11, U.S. Code, was without recourse;
- any other Debt of ours which by the terms of the instrument creating or
evidencing the same are specifically designated as not being senior in
right of payment to the Junior Subordinated Debt Securities, and in
particular the Junior Subordinated Debt Securities shall rank equally with
all other debt securities and guarantees issued to an AES Trust or any
other trust, partnership or other entity affiliated with us which is a
financing vehicle of ours in connection
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with an issuance of preferred securities by that financing entity and
- our redeemable stock.
Events of Default
An Event of Default, as defined in the Indentures and applicable to debt
securities issued thereunder, will occur with respect to the debt securities of
any series issued under the Indentures if:
1. we default in paying principal or premium, if any, on any debt security when
due, upon acceleration, redemption, mandatory repurchase, or otherwise;
2. we default in paying interest on any debt security when it becomes due, and
the default continues for a period of 30 days;
3. we default in performing or breach any other covenant or agreement inthe
Indentures and the default or breach continues for a period of 60
consecutive days after written notice by the trustee or by the holders of
25% or more in aggregate principal amount of the debt securities of all
series issued under an Indenture;
4. a court having jurisdiction enters a decree or order for
- relief in respect of AES or any of our Material Subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency, or other
similar law now or hereafter in effect;
- appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or similar official of AES or any of our Material
Subsidiaries or for all or substantially all of the property and assets of
AES or any of our Material Subsidiaries or
- the winding up or liquidation of the affairs of the Company or any of its
Material Subsidiaries and, in each case, such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days;
5. AES or any of its Material Subsidiaries
- commences a voluntary case under any applicable bankruptcy, insolvency, or
other similar law now or hereafter in effect, or consents to the entry of
an order for relief in an involuntary case under any such law,
- consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator, or similar
official of AES or any of its Material Subsidiaries or for all or
substantially all of the property and assets of AES or any of its Material
Subsidiaries or
- effects any general assignment for the benefit of creditors; or
6. any other Events of Default set forth in the applicable prospectus
supplement occur.
If an Event of Default (other than an Event of Default specified in
clause (4) or (5) with respect to AES) occurs with respect to the debt
securities of any series and continues, then the trustee or the holders of at
least 25% in principal amount of the outstanding debt securities may, by written
notice to us, and the trustee at the request of at least 25% in principal amount
of the outstanding debt securities will, declare the principal, premium, if any,
and accrued interest on the outstanding debt securities to be immediately due
and payable. Upon a declaration of acceleration, the principal, premium, if any,
and accrued interest shall be immediately due and payable.
If an Event of Default specified in clause (4) or (5) above occurs with
respect to AES, the principal, premium, if any, and accrued interest on the debt
securities shall be immediately due and payable, subject to the prior payment in
full of all Senior Debt, without any declaration or other act on the part of the
trustee or any holder. The holders of at least a majority in principal amount of
the outstanding debt securities may, by written notice to us and to the trustee,
waive all past defaults with respect to debt securities and rescind and annul a
declaration of acceleration with respect to debt securities of that series and
its consequences if:
- all existing Events of Default applicable to debt securities of that
series, other than the nonpayment of the principal, premium, if any, and
interest on the debt securities that have become due solely by that
declaration of acceleration, have been cured or waived and
- the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction.
For information as to the waiver of defaults, see "--Modification and
Waiver."
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The holders of at least a majority in principal amount of the outstanding
debt securities may direct the time, method, and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee. However, the trustee may refuse to follow any
direction that conflicts with law or the applicable Indenture, that may involve
the trustee in personal liability, or that the trustee determines in good faith
may be unduly prejudicial to the rights of holders of debt securities who did
not join in giving that direction and the trustee may take any other action it
deems proper that is not inconsistent with the direction received from holders
of outstanding debt securities. A holder may not pursue any remedy with respect
to the applicable Indenture or the debt securities of any series unless:
- the holder gives the trustee written notice of a continuing Event of
Default;
- the holders of at least 25% in principal amount of outstanding debt
securities make a written request to the trustee to pursue the remedy;
- the holder or holders offer and, if requested, provide the trustee
indemnity satisfactory to the trustee against any costs, liability or
expense;
- the trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity and
- with that 60-day period, the holders of at least a majority in principal
amount of the outstanding debt securities do not give the trustee a
direction that is inconsistent with the request.
However, these limitations do not apply to the right of any holder of a debt
security to receive payment of the principal, premium, if any, or interest on,
that debt security or to bring suit for the enforcement of any payment, on or
after the due date expressed in the debt securities, which right shall not be
impaired or affected without the consent of the holder.
Each of the Indentures requires that certain of our officers certify, on or
before a date not more than four months after the end of each fiscal year, that
to the best of those officers' knowledge, we have fulfilled all our obligations
under the Indenture. We are also obligated to notify the trustee of any default
or defaults in the performance of any covenants or agreements under any of the
Indentures.
"Material Subsidiary" of a Person is defined to mean, as of any date, any
Subsidiary that would constitute a "significant subsidiary" within the meaning
of Article 1 of Regulation S-X of the Securities Act of 1933.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which a majority of the capital stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
Modification and Waiver
The Indentures may be amended or supplemented without the consent of any
holder of debt securities to:
- cure ambiguities, defects, or inconsistencies;
- comply with the terms in "Restriction on Mergers, Consolidations and Sales
of Assets" described below;
- comply with any requirements of the Commission in connection with the
qualification of the Indentures under the Trust Indenture Act of 1939;
- evidence and provide for the acceptance of appointment with respect to the
debt securities by a successor Trustee;
- establish the form or forms of debt securities of any series;
- provide for uncertificated debt securities and to make all appropriate
changes for such purpose; and
- make any change that does not adversely affect the rights of any holder.
Other modifications and amendments of the Indentures may be made with the
consent of the holders of not less than a majority in principal amount of the
outstanding debt securities of each series affected by the amendment (all such
series voting together as a single
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class). However, no modification or amendment may, without the consent of each
holder affected:
- change the stated maturity of the principal of, or any sinking fund
obligation or any installment of interest on, any debt security;
- reduce the principal amount, premium, if any, or interest on, any debt
security;
- reduce the above-stated percentage of outstanding debt securities, the
consent of whose holders is necessary to modify or amend that Indenture
with respect to the debt securities of any series issued under that
Indenture;
- reduce the percentage or principal amount of outstanding debt securities,
the consent of whose holders is necessary for waiver of compliance with
certain provisions of that Indenture or for waiver of certain defaults.
A supplemental indenture which changes or eliminates any covenant or other
provision of an Indenture which has expressly been included solely for the
benefit of one or more particular series of debt securities issued under an
Indenture, or which modifies the rights of holders of debt securities of that
series with respect to that covenant or provision, shall be deemed not to affect
the rights under the applicable Indenture of the holders of debt securities of
any other series issued under the Indenture or of the coupons appertaining to
those debt securities. It is not necessary for the consent of the holders under
this section of an Indenture to approve the particular form of any proposed
amendment, supplement, or waiver, but it is sufficient if the consent approves
the substance thereof. After an amendment, supplement, or waiver under this
section of an Indenture becomes effective, we will give to the holders affected
thereby a notice briefly describing the amendment, supplement, or waiver. We
will mail supplemental indentures to holders upon request. Any failure of us to
mail a notice, or any defect therein, will not affect the validity of any
supplemental indenture or waiver.
Restriction on Mergers, Consolidations and Sales of Assets
Pursuant to the Indentures, we may not consolidate with, merge with or into,
or transfer all or substantially all of our assets to any Person unless:
- AES shall be the continuing Person, or, if AES is not the continuing
Person, the Person formed by such consolidation or into which we merged or
to which properties and assets of ours are transferred is a solvent
corporation organized and existing under the laws of the United States or
any State thereof or the District of Columbia and expressly assumes in
writing all the obligations of ours under the Notes,
- immediately after giving effect to such transaction no Event of Default
has occurred and is continuing and
- other conditions as may be established in connection with the issuance of
the applicable Debt Securities are met.
Defeasance and Discharge
The Indentures provide that we are deemed to have paid and will be
discharged from all obligations in respect of the debt securities of any series
on the 123rd day after the deposit referred to below has been made, and that the
provisions of an Indenture will no longer be in effect with respect to the debt
securities issued thereunder (except for, among other matters, certain
obligations to register the transfer or exchange of the Debt Securities of such
series, to replace stolen, lost or mutilated Debt Securities of such series, to
maintain paying agencies and to hold monies for payment in trust) if, among
other things,
- we have deposited with the trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof, will provide money in an amount sufficient to pay the principal,
premium, if any, and accrued interest on the applicable debt securities,
on the due date thereof or earlier redemption (irrevocably provided for
under arrangements satisfactory to the trustee), as the case may be, in
accordance with the terms of the Indenture and the applicable debt
securities,
- we have delivered to the trustee
- either
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-- an opinion of counsel to the effect that holders will not recognize
income, gain or loss for federal income tax purposes as a result of
the exercise of our option under this "Defeasance" provision and
will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if the
deposit, defeasance and discharge had not occurred, which opinion of
counsel must be based upon a ruling of the Internal Revenue Service
to the same effect unless there has been a change in applicable
federal income tax law or related treasury regulations after the
date of the Indenture that a ruling is no longer required or
-- a ruling directed to the trustee received from the Internal Revenue
Service to the same effect as the aforementioned opinion of counsel
and
- an opinion of counsel to the effect that the creation of the defeasance
trust does not violate the Investment Company Act of 1940 and after the
passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the U.S. Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law,
- immediately after giving effect to that deposit on a pro forma basis, no
Event of Default has occurred and is continuing on the date of the deposit
or during the period ending on the 123rd day after the date of the
deposit, and the deposit will not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which we
are a party or by which we are bound,
- we are not prohibited from making payments in respect of the applicable
debt securities by the subordination provisions contained in an Indenture
and
- if at that time the applicable debt securities are listed on a national
securities exchange, we have delivered to the trustee an opinion of
counsel to the effect that the debt securities will not be delisted as a
result of a deposit, defeasance and discharge.
As more fully described in the prospectus supplement, the Indentures also
provide for defeasance of certain covenants.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
We may issue Stock Purchase Contracts, which represent contracts obligating
holders to purchase from us a specified number of shares of common stock at a
future date or dates. The price per share of common stock may be fixed at the
time the stock purchase contracts are issued or may be determined by reference
to a specific formula described in the stock purchase contracts. The stock
purchase contracts may be issued separately or as a part of units ("Stock
Purchase Units") consisting of a stock purchase contract and debt securities or
debt obligations of third parties, including U.S. Treasury securities, securing
the holders' obligations to purchase the common stock under the stock purchase
contracts. The stock purchase contracts may require us to make periodic payments
to the holders of the stock purchase units or vice versa, and these payments may
be unsecured or prefunded on some basis. The stock purchase contracts may
require holders to secure their obligations thereunder in a specified manner.
The prospectus supplement will describe the terms of any stock purchase
contracts or stock purchase units. The description in the prospectus supplement
will not be complete and will be qualified by reference to the stock purchase
contracts, and, if applicable, additional arrangements, relating to the stock
purchase contracts or stock purchase units.
DESCRIPTION OF SECURITIES WARRANTS
We may issue securities warrants for the purchase of debt securities,
preferred stock or common stock. Securities warrants may be issued independently
or together with debt securities, preferred stock or common stock and may be
attached to or separate from any offered securities. Each series of securities
warrants will be issued under a separate warrant agreement to be entered into
between us and a bank or trust company, as warrant agent. The securities warrant
agent will act solely as our agent in connection with the securities warrants
and will not assume any obligation or relationship of agency or trust for or
with any registered holders of securities warrants or beneficial owners of
securities warrants. This summary of some provisions of the securities warrants
is not complete. You should refer to the securities warrant agreement, including
the forms of securities warrant certificate presenting the securities warrants,
relating to the specific securities warrants being offered for the complete
terms of the securities warrant agreement and the securities warrants. That
securities warrant agreement, together with the terms of securities warrant
certificate and securities warrants, will be filed with the SEC in connection
with the offering of the specific securities warrants.
The particular terms of any issue of securities warrants will be described
in the prospectus supplement relating to the issue. Those terms may include:
- the designation, aggregate principal amount, currencies, denominations and
terms of the series of debt securities purchasable upon exercise of
securities warrants to purchase debt securities and the price at which the
debt securities may be purchased upon exercise;
- the designation, number of shares, stated value and terms (including,
without limitation, liquidation, dividend, conversion and voting rights)
of the series of preferred stock purchasable upon exercise of securities
warrants to purchase shares of preferred stock and the price at which such
number of shares of preferred stock of such series may be purchased upon
such exercise;
- the number of shares of common stock purchasable upon the exercise of
securities warrants to purchase shares of common stock and the price at
which such number of shares of common stock may be purchased upon such
exercise;
- the date on which the right to exercise the securities warrants will
commence and the date on which the right will expire;
- United States Federal income tax consequences applicable to the securities
warrants; and
- any other terms of the securities warrants.
Securities warrants for the purchase of preferred stock and common stock
will be offered and exercisable for U.S. dollars only. Securities warrants will
be issued in registered form only. The exercise price for securities warrants
will be subject to adjustment in accordance with the applicable prospectus
supplement.
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Each securities warrant will entitle its holder to purchase the principal
amount of debt securities or the number of shares of preferred stock or common
stock at the exercise price set forth in, or calculable as set forth in, the
applicable prospectus supplement. The exercise price may be adjusted upon the
occurrence of certain events as set forth in the prospectus supplement. After
the close of business on the expiration date, unexercised securities warrants
will become void. We will specify the place or places where, and the manner in
which, securities warrants may be exercised in the applicable prospectus
supplement.
Prior to the exercise of any securities warrants to purchase debt
securities, preferred stock or common stock, holders of the securities warrants
will not have any of the rights of holders of the debt securities, preferred
stock or common stock purchasable upon exercise, including:
- in the case of securities warrants for the purchase of debt securities,
the right to receive payments of principal of, any premium or interest on
the debt securities purchasable upon exercise or to enforce covenants in
the applicable indenture; or
- in the case of securities warrants for the purchase of preferred stock or
common stock, the right to vote or to receive any payments of dividends on
the preferred stock or common stock purchasable upon exercise.
PLAN OF DISTRIBUTION
We may sell the securities in any of three ways (or in any combination
thereof):
- through underwriters or dealers;
- directly to a limited number of purchasers or to a single purchaser; or
- through agents.
The prospectus supplement will set forth the terms of the offering of such
securities, including
- the name or names of any underwriters, dealers or agents and the
respective amounts of securities underwritten or purchased by each of
them,
- the initial public offering price of the securities and the proceeds to us
and any discounts, commissions or other items constituting compensation
from us and any discounts, commissions or concessions allowed or reallowed
or paid to dealers and any securities exchanges on which the securities
may be listed.
Any initial public offering price and any discounts or concessions allowed
or reallowed or paid to dealers may be changed from time to time.
If underwriters are used in the sale of any securities, the securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
a fixed public offering price or at varying prices determined at the time of
sale. The securities may be either offered to the public through underwriting
syndicates represented by managing underwriters, or directly by underwriters.
Unless otherwise described in the prospectus supplement, the obligations of the
underwriters to purchase the securities will be subject to certain conditions
and the underwriters will be obligated to purchase all of the securities if any
are purchased.
If a dealer is utilized in the sale of any offered securities, we will sell
those securities to the dealer, as principal. The dealer may then resell the
offered securities to the public at varying prices to be determined by the
dealer at the time of resale.
Offered Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of Offered Securities in respect of which this Prospectus is delivered will
be named, and any commissions payable by the Company to such agent will be set
forth, in the Prospectus Supplement. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
We may authorize underwriters, dealers or agents to solicit offers by
certain purchasers to purchase the securities from us at the public offering
price set forth in the prospectus supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
These contracts will be subject only to those conditions set forth in the
prospectus supplement, and the prospectus supplement will set forth the
commission payable for solicitation of such contracts.
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Agents and underwriters may be entitled to indemnification by us against
certain civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the agents or underwriters may be
required to make in respect thereof. Agents and underwriters may be customers
of, engage in transactions with, or perform services for the Company in the
ordinary course of business.
LEGAL MATTERS
The legality of the Securities offered hereby will be passed upon for the
Company by
Davis Polk & Wardwell, New York, New York.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998, incorporated in this
prospectus by reference from The AES Corporation's Current Report on Form 8-K
dated March 18, 1999, and the related financial statement schedules incorporated
in this prospectus by reference from The AES Corporation's Annual Report on
Form 10-K for the year ended December 31, 1998, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
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