-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B6GS9ZqNDkk3fIDpKgGOBSC+O4voLjH7Hh+W7lM8XC1bI7wZVl0mv1+lzbCx5U0f nR164HdpiOm1a8gdOuHgYg== 0000912057-01-515919.txt : 20010516 0000912057-01-515919.hdr.sgml : 20010516 ACCESSION NUMBER: 0000912057-01-515919 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AES CORPORATION CENTRAL INDEX KEY: 0000874761 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 541163725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12291 FILM NUMBER: 1637496 BUSINESS ADDRESS: STREET 1: 1001 N 19TH ST STREET 2: STE 2000 CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 7035221315 10-Q 1 a2046672z10-q.txt 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-19281 THE AES CORPORATION --------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 54-1163725 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Identification No.) Organization) 1001 NORTH 19TH STREET, ARLINGTON, VIRGINIA 22209 (Address of Principal Executive Offices) (Zip Code) (703) 522-1315 (Registrant's Telephone Number, Including Area Code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- ------------------------ The number of shares outstanding of Registrant's Common Stock, par value $0.01 per share, at May 1, 2001, was 532,074,637. ================================================================================ THE AES CORPORATION INDEX
Page PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements: Consolidated Statements of Operations 1 Consolidated Balance Sheets 2 Consolidated Statements of Cash Flows 4 Notes to Consolidated Financial Statements 5 Item 2. Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 20
THE AES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
THREE MONTHS ENDED March 31, 2001 March 31, 2000 ------------------- ------------------ (in millions, except per share amounts) Revenues $ 2,545 $ 1,696 Cost of sales (1,921) (1,220) Selling, general and administrative expenses (22) (29) Interest expense, net (350) (264) Other (expense) income (13) 12 Equity in earnings before income tax 50 118 Gain on sale of investment - 112 Severance and transaction costs (94) - ------------------- ------------------ INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 195 425 Income tax provision 57 133 Minority interest 32 18 ------------------- ------------------ INCOME BEFORE EXTRAORDINARY ITEM 106 274 Extraordinary item, net of tax-early extinguishment of debt - (7) ------------------- ------------------ NET INCOME $ 106 $ 267 =================== ================== BASIC EARNINGS PER SHARE: Before extraordinary item $ 0.20 $ 0.60 Extraordinary item - (0.01) ------------------- ------------------ Total $ 0.20 $ 0.59 =================== ================== DILUTED EARNINGS PER SHARE: Before extraordinary item $ 0.20 $ 0.57 Extraordinary item - (0.01) ------------------- ------------------ Total $ 0.20 $ 0.56 =================== ==================
See Notes to Consolidated Financial Statements. -1- THE AES CORPORATION CONSOLIDATED BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (UNAUDITED)
March 31, 2001 December 31, 2000 --------------------- ----------------------- ($ in millions) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,830 $ 950 Short-term investments 382 1,297 Accounts receivable, net of reserves of $209 and $203, respectively 1,527 1,564 Inventory 498 571 Receivable from affiliates 30 27 Prepaid expenses and other current assets 662 1,375 --------------------- ----------------------- Total current assets 4,929 5,784 PROPERTY, PLANT AND EQUIPMENT: Land 670 657 Electric generation and distribution assets 19,950 18,627 Accumulated depreciation and amortization (2,797) (2,651) Construction in progress 3,175 2,874 --------------------- ----------------------- Property, plant and equipment, net 20,998 19,507 OTHER ASSETS: Deferred financing costs, net 428 381 Project development costs 149 114 Investments in and advances to affiliates 3,525 3,122 Debt service reserves and other deposits 442 517 Excess of cost over net assets acquired, net 2,859 2,307 Other assets 2,258 1,306 --------------------- ----------------------- Total other assets 9,661 7,747 --------------------- ----------------------- TOTAL $ 35,588 $ 33,038 ===================== =======================
See Notes to Consolidated Financial Statements. -2- THE AES CORPORATION CONSOLIDATED BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (Unaudited)
March 31, 2001 December 31, 2000 ----------------- --------------------- ($ in millions) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 690 $ 833 Accrued interest 433 417 Accrued and other liabilities 1,407 1,318 Non-recourse debt - current portion 2,796 2,471 ----------------- --------------------- Total current liabilities 5,326 5,039 LONG-TERM LIABILITIES: Non-recourse debt 13,541 12,863 Recourse debt 4,479 3,458 Deferred income taxes 2,044 1,863 Other long-term liabilities 1,767 1,603 ----------------- --------------------- Total long-term liabilities 21,831 19,787 MINORITY INTEREST 1,422 1,442 COMPANY-OBLIGATED CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF AES 1,228 1,228 STOCKHOLDERS' EQUITY: Common stock 5 5 Additional paid-in capital 5,194 5,172 Retained earnings 2,642 2,551 Accumulated other comprehensive loss (2,060) (1,679) Treasury Stock, at cost - (507) ----------------- --------------------- Total stockholders' equity 5,781 5,542 ----------------- --------------------- TOTAL $ 35,588 $ 33,038 ================= =====================
See Notes to Consolidated Financial Statements. -3- THE AES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000 (Unaudited)
THREE MONTHS ENDED March 31, 2001 March 31, 2000 --------------- -------------- ($ in millions) OPERATING ACTIVITIES: Net cash provided by operating activities $ 876 $ 341 INVESTING ACTIVITIES: Property additions (767) (307) Construction contract payment - (291) Acquisitions, net of cash acquired (1,013) - Purchase of short-term investments, net (64) (2) Proceeds from sale of available-for-sale securities - 113 Affiliate advances and equity investments (115) (256) Project development costs (35) (21) Debt service reserves and other assets 1,063 (2) --------------- -------------- Net cash used in investing activities (931) (766) FINANCING ACTIVITIES: Borrowings (repayments) under the revolver, net 300 (50) Issuance of non-recourse debt and other coupon bearing securities 958 1,055 Repayments of non-recourse debt and other coupon bearing securities (209) (360) Payments for deferred financing costs (53) (31) Repayment of other liabilities (76) (29) Proceeds from sale of common stock 18 8 Dividends paid (15) (13) Distributions to minority interests (3) (4) Contributions by minority interests 15 22 --------------- -------------- Net cash provided by financing activities 935 598 Increase in cash and cash equivalents 880 173 Cash and cash equivalents, beginning of period 950 693 --------------- -------------- Cash and cash equivalents, end of peiod $ 1,830 $ 866 =============== ============== SUPPLEMENTAL INTEREST AND INCOME TAXES DISCLOSURES: Cash payments for interest $ 400 $ 187 =============== ============== Cash payments for (refunds received from) income taxes $ 60 $ (2) =============== ============== SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES: Liabilities is incurred in connection with the acquisition of Eletropaulo preferred shares $ 725 $ 886 =============== ============== Common stock issued for acquisition $ 511 $ - =============== ==============
See Notes to Consolidated Financial Statements. -4- THE AES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) 1. Basis of Presentation The consolidated financial statements include the accounts of The AES Corporation, its subsidiaries and controlled affiliates (the "Company" or "AES"). Intercompany transactions and balances have been eliminated. Investments in 50% or less owned affiliates over which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method. As more fully discussed in Note 4, during March 2001, the Company entered into a business combination with IPALCO Enterprises, Inc. ("IPALCO"). The business combination has been accounted for as pooling of interests, and the historical consolidated financial statements of the Company for all periods presented have been restated in the accompanying consolidated financial statements to include the financial position, results of operations and cash flows of IPALCO. In the Company's opinion, all adjustments necessary for a fair presentation of the unaudited results of operations for the three months ended March 31, 2001 and 2000, respectively, are included. All such adjustments are accruals of a normal and recurring nature. The results of operations for the period ended March 31, 2001 are not necessarily indicative of the results of operations to be expected for the full year. The accompanying financial statements are unaudited and should be read in conjunction with the financial statements, which are incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 2. Foreign Currency Devaluation During the first quarter of 2001, the Brazilian Real experienced a significant devaluation relative to the U.S. Dollar, declining from 1.96 at December 31, 2000 to 2.15 at March 31, 2001. This devaluation resulted in significant foreign currency translation and transaction losses during the first quarter of 2001. The Company recorded non-cash foreign currency transaction losses at its Brazilian affiliates of approximately $59 million after income taxes, or $0.11 per share, for the first quarter of 2001. 3. Earnings Per Share Basic and diluted earnings per share computations are based on the weighted average number of shares of common stock and potential common stock outstanding during the period, after giving effect to stock splits. Potential common stock, for purposes of determining diluted earnings per share, includes the dilutive effects of stock options, warrants, deferred compensation arrangements and convertible securities. The effect of such potential common stock is computed using the treasury stock method or the if-converted method, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "EARNINGS PER SHARE". -5- The reconciliation of basic earnings per share to diluted earnings per share is shown below. All share data has been adjusted for the two-for-one stock split effective June 1, 2000.
QUARTER ENDED MARCH 31, 2001 2000 ------------------------------------------------------------------------ Weighted Weighted (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net Average Net Average Income Shares EPS Income Shares EPS ------------------------------------------------------------------------ Basic earnings per share: Income before extraordinary item .................. $ 106 $ 531 $0.20 274 454 $ 0.60 Effect of assumed conversion of dilutive securities ........................................ Options ......................................... -- 7 -- -- 8 (0.01) Warrants ........................................ -- -- -- -- 2 -- Deferred Compensation Plan ...................... -- -- -- -- 1 -- Debt Securities ................................. -- -- -- 30 (0.04) Interest savings from conversion of Debt Securities -- -- -- 7 -- 0.02 ------------------------------------------------------------------------ Dilutive earnings per share: ...................... $ 106 538 $0.20 $ 281 495 $ 0.57 ========================================================================
4. Business Combinations The only significant business combinations completed during the three-month periods ended March 31, 2001 was IPALCO. There have been other acquisitions completed by the Company, including Gener S.A., which are not individually or in the aggregate considered significant. POOLING OF INTERESTS On March 27, 2001, AES completed its merger with IPALCO through a share exchange transaction in accordance with the Agreement and Plan of Share Exchange dated July 15, 2000, between AES and IPALCO, and IPALCO became a wholly-owned subsidiary of AES. The Company accounted for the combination as a pooling of interests. Each of the outstanding shares of IPALCO common stock was converted into the right to receive 0.463 shares of AES common stock. The Company issued approximately 41.5 million shares of AES common stock. The consideration consisted of newly issued shares of AES common stock. IPALCO is an Indianapolis-based utility with 3,000 MW of generation and 433,000 customers in and around Indianapolis. The Company issued approximately 346,000 options for the purchase of AES common stock in exchange for IPALCO outstanding options using the exchange ratio. All unvested IPALCO options became vested pursuant to the existing stock option plan upon the change in control. In connection with the merger with IPALCO, the Company incurred contractual liabilities associated with existing termination benefit agreement and other merger related costs for investment banking, legal and other fees. These costs, which were $94 million, are shown separately in the accompanying statement of operations. -6- The table below presents combined revenues, extraordinary item and net income for AES and IPALCO for the three months ended March 31, 2001 and 2000.
Three Months Ended (In millions) March 31, 2001 March 31, 2000 -------------- -------------- Revenues: AES $ 2,330 $ 1,476 IPALCO 215 220 ------- ------- $ 2,545 $ 1,696 Extraordinary Item: AES $ -- $ (7) IPALCO -- -- ------- ------- $ -- $ (7) Net Income: AES $ 124 $ 174 IPALCO (18) 93 ------- ------- $ 106 $ 267
There have been no changes to the significant accounting policies of AES or IPALCO due to the merger. Both AES and IPALCO have the same fiscal years. There were no intercompany transactions between the two companies. 5. Investments in and Advances to Affiliates The Company is a party to joint ventures/consortium agreements through which the Company has equity investments in Companhia Energetica de Minas Gerais ("CEMIG"), Light-Servicos de Eletricidade S.A. ("Light") and Eletropaulo Metropolitana Electricidade de Sao Paulo S.A. ("Eletropaulo"). The joint venture/consortium parties generally share operational control of the investee. The agreements prescribe ownership and voting percentages as well as other matters. The Company -7- records its share of earnings from its equity investees on a pre-tax basis. The Company's share of the investee's income taxes is recorded in income tax expense. In December 2000, a subsidiary of the Company entered into an agreement with EDF International S.A. ("EDF") to jointly acquire an additional 9.2% interest in Light, which is held by a subsidiary of Companhia Siderurgica Nacional ("CSN"). In January 2001, pursuant to this transaction, the Company acquired an additional 2.75% interest in Light for $114.6 million. At March 31, 2001, the Company owns approximately 23.89% of Light. Following the purchase of the Light shares previously owned by CSN, AES and EDF are the controlling shareholders of Light and Eletropaulo. AES and EDF have agreed that AES will eventually take operational control of Eletropaulo and the telecom businesses of Light and Eletropaulo, while EDF will eventually take operational control of Light and Eletropaulo's electric workshop business. AES and EDF intend to continue to pursue a further rationalization of their ownership stakes in Light and Eletropaulo, the result of which AES would become the sole controlling shareholder of Eletropaulo and EDF would become the sole controlling shareholder of Light. Upon consummation of the transaction, AES will begin consolidating Eletropaulo's operating results. The structure and process by which this rationalization may be effected, and the resulting timing, have yet to be determined and will likely be subject to approval by various Brazilian regulatory authorities and other third parties. As a result, there can be no assurance that this rationalization will take place. The following table presents summarized financial information (in millions) for the Company's investments in 50% or less owned investments accounted for using the equity method:
Quarters Ended March 31, ------------------------------- 2001 2000 ---------------- -------------- Revenues $ 1,588 $ 1,011 Operating Income 502 321 Net Income 187 237
Equity ownership percentages for these investments are presented below:
March 31, December 31, Affiliate Country 2001 2000 - -------------------- -------------------- ------------- ---------------- Cemig Brazil 21.62% 21.62% Elsta Netherlands 50.00 50.00 Kingston Canada 50.00 50.00 Light Brazil 23.89 21.14 Eletropaulo Brazil 49.60 49.60 Medway Power, Ltd. United Kingdom 25.00 25.00 OPGC India 49.00 49.00 Chigen affiliates China 30.00 30.00 Songas Limited Tanzania 49.00 49.00
6. Litigation In March 2001, Federal Energy Sales, Inc. ("Federal") filed a lawsuit against AES Power, Inc. ("AES Power"), a subsidiary of the Company, in the District Court for the Eastern District of Virginia. The complaint alleges a breach of contract by AES Power purportedly arising out of a transaction for the sale of electric energy in 1998. AES Power has answered the complaint and asserted a counterclaim -8- against Federal for certain damages to AES Power arising out of a separate 1998 transaction with Federal for the sale of electric energy. The parties are currently conducting discovery of the claims at issue. The Company expects its subsidiary to vigorously defend itself. The Company is also involved in certain legal proceedings in the normal course of business. It is the opinion of the Company that none of the pending matters is expected to have a material adverse impact on its results of operations or financial position. See also the description of litigation contained in the Company's previous reports filed pursuant to the Securities and Exchange Act of 1934, as amended, which are incorporated herein by reference. 7. Derivative Instruments Effective January 1, 2001, AES adopted SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," which, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. The adoption of SFAS No. 133 on January 1, 2001, resulted in a cumulative reduction to income of less than $1 million, net of deferred income tax effects, and a cumulative reduction of other comprehensive income in stockholders' equity of $93 million, net of deferred income tax effects. For the three months ended March 31, 2001, the impact of changes in derivative fair value related to the ineffective portion of derivatives qualifying as cash flow hedges was not significant to AES's results of operations. There was no net effect on first quarter 2001 results of operations of derivatives qualifying as fair value hedges. Additionally, there was no net effect on first quarter 2001 results of operations of derivative and non-derivative instruments that have been designated and qualified as hedging net investments in foreign operations. Approximately $28 million of other comprehensive income related to derivative instruments as of March 31, 2001, is expected to be recognized as a reduction to earnings over the next twelve months. A portion of this amount is expected to be offset by the effects of hedge accounting. The accumulated balance in other comprehensive income related to derivative transactions will be reclassified into earnings as interest expense is recognized for hedges of interest rate risk, as foreign currency transaction and translation gains and losses are recognized for hedges of foreign currency exposure and as electric and gas sales and purchases are recognized for hedges of forecasted electric and gas transaction. AES utilizes derivative financial instruments to hedge interest rate risk, foreign exchange risk and commodity price risk. The Company utilizes interest rate swap, cap and floor agreements to hedge interest rate risk on floating rate debt. The majority of AES's interest rate derivatives are designated and qualify as cash flow hedges. Currency forward and swap agreements are utilized to hedge foreign exchange risk which is a result of AES or one of its subsidiaries entering into monetary obligations in currencies other than its own functional currency. The majority of AES's foreign currency derivatives are designated and qualify as either fair value hedges or cash flow hedges. Certain derivative instruments and other non-derivative instruments are designated and qualify as hedges of the foreign currency exposure of a net investment in a foreign operation. The Company utilizes electric and gas derivative instruments, including swaps, options, forwards and futures, to hedge the risk related to electricity and gas sales and purchases. The majority of AES's electric and gas derivatives are designated and qualify as cash flow hedges. The maximum length of time over which AES is hedging its exposure to variability in future cash flows for forecasted transactions, excluding forecasted transactions related to the payment of variable interest, is four years. AES excludes the change in the time value of option contracts from its assessment of hedge effectiveness. No fair value or cash flow hedges were de-recognized or discontinued during the three months ended March 31, 2001. The Financial Accounting Standards Board reached a tentative conclusion in April 2001 that option contracts for the purchase and sale of electricity that meet the definition of a derivative under SFAS No. 133 are not subject to the normal purchases and sales exemption, and as such, should be accounted for as derivatives effective July 1, 2001. The Company is currently assessing the impact of this tentative conclusion on its financial condition and results of operations. -9- 8. Comprehensive (Loss) Income The components of comprehensive (loss) income for the three months ended March 31, 2001 and 2000 are as follows:
Three months ended March 31, 2001 2000 ---- ---- Net income $ 106 $ 267 Foreign currency translation adjustment (236) 37 Change in derivative fair value (143) - Realized gain on investment sale - (68) Unrealized loss on securities (2) (37) -------- ------- Comprehensive (loss) income $ (275) $ 199 ======== =======
9. Segments Information about the Company's operations by segment are as follows (in millions):
Gross Equity Revenue (1) Margin Earnings ----------------------------------------------- Quarter Ended March 31, 2001 Generation $ 1,209 $ 368 $ 17 Distribution 1,336 256 33 ------------- ------------ ------------ Total $ 2,545 $ 624 $ 50 ============= ============ ============ Quarter Ended March 31, 2000 Generation $ 869 $ 334 $ 26 Distribution 827 142 92 ------------- ------------ ------------ Total $ 1,696 $ 476 $ 118 ============= ============ ============
(1) Intersegment revenues for the quarters ended March 31, 2001 and 2000 were $37 million and $23 million, respectively. There have been no changes in the basis of segmentation since December 31, 2000. 10. Subsequent Events On May 2, 2001, the Company issued L50,000,000 of 8.375% Senior Notes, due 2011. -10- ITEM 2. DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The AES Corporation (including its subsidiaries and affiliates are collectively referred to as "AES" or the "Company") is a global power company committed to serving the world's needs for electricity and other services in a socially responsible way. AES participates primarily in two related lines of businesses: electricity generation and distribution. AES's electricity generation business is characterized by sales from our power plants to nonaffiliated wholesale customers (generally electric utilities, regional electric companies, electricity marketers or wholesale commodity markets known as "power pools") for further resale to end-users. AES's distribution business is characterized by sales of electricity directly to end users such as commercial, industrial, governmental and residential customers through its "distribution" business. AES's generation business represented 48% of total revenues for the three months ended March 31, 2001 compared to 51% for the three months ended March 31, 2000. Sales within the generation business are made under long-term contracts from power plants owned by the Company's subsidiaries and affiliates, as well as directly into power pools. The Company owns new plants constructed for such purposes ("greenfield" plants) as well as older power plants acquired through competitively bid privatization initiatives or negotiated acquisitions. AES's distribution business represented 52% of total revenues for the three months ended March 31, 2001 compared to 49% for the three months ended March 31, 2000. Electricity sales by AES's distribution businesses, including affiliates, are generally made pursuant to the provisions of long-term electricity sale concessions granted by the appropriate governmental authorities. In certain cases, these distribution companies are "integrated", in that they also own electric power plants for the purpose of generating a portion of the electricity they sell. Certain subsidiaries and affiliates of the Company (domestic and non-U.S.) have signed long-term contracts or made similar arrangements for the sale of electricity and are in various stages of developing the related greenfield power plants. Successful completion depends upon overcoming substantial risks, including, but not limited to, risks relating to failures of siting, financing, construction, permitting, governmental approvals or the potential for termination of the power sales contract as a result of a failure to meet certain milestones. At March 31, 2001, capitalized costs for projects under development and in early stage construction were approximately $149 million. The Company believes that these costs are recoverable; however, no assurance can be given that individual projects will be completed and reach commercial operation. AES is also pursuing potential greenfield development projects and acquisitions in many countries. Several of these, if consummated, would require the Company to obtain substantial additional financing, including both debt and equity financing. The Company has been actively involved in the acquisition and operation of electricity assets in countries that are restructuring and deregulating the electricity industry. Some of these acquisitions have been made from other electricity companies that have chosen to exit the electricity generation business. In these types of situations, sellers generally seek to initiate and complete competitive solicitations in less than one year, which is much faster than the time incurred to complete greenfield developments, and require payment in full on transfer. AES believes that its experience in competitive markets and its worldwide integrated group structure (with its significant geographic coverage and presence) enable it to react quickly and creatively in such situations. The Company strives for operating excellence as a key element of its strategy, which it believes it accomplishes by minimizing organizational layers and maximizing company-wide participation in decision-making. In meeting these goals, the Company may -11- from time to time implement restructuring and severance plans, which may have a material impact on results of operations in the period in which the plan is implemented. The Company also believes that control of its businesses is an important requirement for implementing the Company's philosophy and business strategy, and it will actively seek to acquire control or divest of its interest in those businesses it does not currently control. To the extent the Company decides to divest its interest in businesses, such transactions may result in a gain or loss. The Company continues to evaluate its strategy as it relates to certain businesses in the U.S., South America and Asia. The financing for such acquisitions, in contrast to that for greenfield development, often must be arranged quickly and therefore may preclude the Company from arranging non-recourse project financing (the Company's historically preferred financing method, which is discussed further under "Capital Resources, Liquidity and Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2000). Moreover, acquisitions that are large, that occur simultaneously with one another or those occurring simultaneously with commencing construction on several greenfield developments would potentially require the Company to obtain substantial additional financing, including both debt and equity. As a result, and in order to enhance its financial capabilities to respond to these more accelerated opportunities, on March 31, 2000 the Company executed an $850 million credit agreement which replaced its existing $600 million revolving bank loan and its existing $250 million letter of credit facility. In the United States, the Company is currently operating or constructing 8 generation plants representing approximately 7,000 MWs that use natural gas to make electricity. Five of these plants representing approximately 5,500 MWs have entered into tolling agreements wherein the Company converts the natural gas supplied by a third party into electricity for their use in return for a fixed payment. Therefore, the Company's results of operations from these plants should not be materially adversely impacted due to change in the natural gas prices. AES Drax Ltd. ("AES Drax") entered into a 15-year hedging agreement with a subsidiary of Texas Utilities, Inc.("TXU") at the closing of the acquisition of the Drax power station to protect a significant portion of AES Drax's revenues from price fluctuations in the electricity market. The hedging contract originally was a financial instrument settled against the pool purchase price ("PPP"). The New Energy Trading Arrangements ("NETA") replaced the pool system on March 27, 2001 with a physically settled market based on bilateral contracts. Consequently, a single clearing price such as the PPP no longer exists. In February 2001, AES Drax and TXU agreed to changes to the hedging contract, effective upon the implementation of NETA, which are intended to preserve the original commercial intent of the parties. The principal change to the hedging contract was to convert it from a financially settled instrument to physical settlement. Under the terms of AES Drax's finance documents, the amendment to the hedging agreement required the prior consent of a majority of the bank lenders thereunder. In addition, under the terms of the bank facility AES Drax had undertaken to have a trading strategy to be implemented under NETA approved by the majority bank lenders at least five weeks prior to implementation of NETA. AES Drax has obtained a temporary waiver of these requirements through May 18, 2001. AES Drax is currently seeking permanent approval from the senior lenders of the revised terms of the hedging agreement, a proposed trading strategy for the Drax power station under NETA and certain other related matters. There can be no assurance that such approvals will be obtained. Under the terms of AES Drax's outstanding senior secured bonds (L200 million 9.07% Senior Secured Bonds due 2025 and $302.4 million 10.41% Senior Secured Bonds due 2020) the amendment to the hedging agreement would constitute an event of default thereunder unless each of the rating agencies reaffirmed its ratings of such bonds within 30 days of the effective date of the hedging amendment. Such rating affirmations have been obtained. In addition, each of the rating agencies affirmed its ratings of AES Drax's outstanding senior notes. -12- In Brazil, the combined effects of decreased rainfall and delays by the Brazilian energy regulatory authorities in developing a regulatory structure that encourages new generation has led to the possibility of projected shortages of electricity to meet expected demand in certain regions of Brazil. The shortages may begin to manifest as early as the second quarter of 2001. As a result, electricity rationing may be implemented. Such rationing, if implemented, may have a negative impact on the growth in the gross domestic product of Brazil, which in turn could impact the results of operations of the Company's Brazilian distribution businesses. Additionally, during the first quarter of 2001, the Brazilian Real experienced a significant devaluation relative to the U.S. Dollar, declining from 1.96 at December 31, 2000 to 2.15 at March 31, 2001. This devaluation resulted in significant foreign currency translation and transaction losses during the first quarter of 2001. The Company recorded non-cash foreign currency transaction losses at its Brazilian affiliates of approximately $59 million after income taxes, or $0.11 per share, for the first quarter of 2001. Further devaluation of the Brazilian Real will continue to have a negative impact on the Company results of operations. Also in Brazil, in connection with the acquisition by a subsidiary of the Company of an interest in Companhia Energetica de Minas Gerais ("CEMIG"), such subsidiary entered into a loan with BNDES to finance the acquisition. Due to the lawsuit currently enjoining the effectiveness of the shareholders' agreement, the Company's subsidiary does not believe that the terms of the bid have been met, and may not continue to repay the loan. Such subsidary is negotiating potential amendments to the terms of such loan; however, non-payment may result in an event of default under the relevant project loan agreement. The Company's subsidiary is also contemplating legal action seeking to suspend the effectiveness of the loan. As of March 31, 2001, $144 million of accrued interest and $40 million of principal amortization is classified as non-recourse current debt. In the event of default the loan will become callable and $479 million of existing non-recourse long-term debt will be classified as current. On January 1, 2001, the Company adopted SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," which, as amended, established new accounting and reporting standards for derivative instruments and hedging activities. As of March 31, 2001, the Company has recorded $66 million of derivative assets in other assets and $271 million of derivative liabilities in other liabilities. Although most of the Company's financial instruments qualify for hedge accounting, which permits changes in the value of the financial instrument to offset the related changes in the hedged item, the adoption of SFAS No. 133 will result in more variation to the Company's results of operations. SFAS No. 133 did not have a significant impact on the Company's results of operations for the three months ended March 31, 2001. During March 2001, the Company entered into a business combination with IPALCO Enterprises, Inc. ("IPALCO"). The business combination has been accounted for as pooling of interests, and the historical consolidated financial information of the Company for all periods presented have been restated in the discussion of operations below to include the financial position, results of operations and cash flows of IPALCO. Additionally, restated dilutive earnings per share before extraordinary items for each quarter of 2000 are $0.57 for the first quarter, $0.28 for the second quarter, $0.32 for the third quarter and $0.44 for the fourth quarter. FIRST QUARTER 2001 AND 2000 RESULTS OF OPERATIONS REVENUES. Revenues increased $849 million, or 50%, to $2.55 billion for the first quarter of 2001 compared to the same period in 2000. The increase in revenues is due primarily to the acquisition of both new generation and distribution businesses, as well as from the commercial operation of greenfield projects. Generation revenues increased $340 million, or 39%, to $1.21 billion for the first quarter of 2001 compared to the same period in 2000. The increase in generation revenue is due to the acquisition of Gener, as well as the start of commercial operations by Merida III and Uruguaiana, increased prices -13- received by the New York plants and the acquisition of a controlling interest in Nigen. These increases were slightly offset by a decline in pool prices received by Drax. Distribution revenues increased $509 million, or 62%, to $1.34 billion for the first quarter of 2001 compared to the same period in 2000. The increase in distribution revenue is primarily due to the acquisitions of EDC and CAESS as well as increased revenues at EDE Este. GROSS MARGIN. Gross margin, which represents total revenues reduced by cost of sales, increased $148 million, or 31%, to $624 million for the first quarter of 2001 compared to the same period in 2000. The increase in gross margin is due to the acquisition of new businesses and the increase in certain existing businesses offset by declines from certain other existing businesses. Gross margin as a percentage of revenues decreased to 25% for the first quarter of 2001 from 28% for the same period in 2000. The decrease in gross margin as a percentage of revenues is due to a higher percentage of the Company's operations being derived from distribution businesses in 2001 than in the same period of 2000. The distribution businesses generally experience lower gross margin percentages because of the retail nature of the business. The generation gross margin increased $34 million, or 10%, to $368 million for the first quarter of 2001 compared to the same period in 2000. The increase is primarily due to the acquisition of Gener, the additional ownership interest in NIGEN and an increase from the New York plants slightly offset by declines at Drax. The generation gross margin as a percentage of revenues decreased to 30% for the first quarter of 2001 compared to 38% for the same period in 2000. The generation gross margin as a percentage of revenues decreased due to the acquisition of generation businesses with overall gross margin percentages, which are lower than the overall portfolio of generation businesses and also due to the lower contribution made by Drax because of the lower pool prices in the United Kingdom. The distribution gross margin increased $114 million, or 80%, to $256 million for the first quarter of 2001 compared to the same period in 2000. The distribution gross margin as a percentage of revenues increased to 19% for the first quarter of 2001 compared to 17% for the same period in 2000. The increase in gross margin is due mainly to the acquisition of EDC. The distribution margin as a percentage of revenues increased slightly due to higher gross margins from newly acquired companies offset slightly by a lower gross margin at Telasi. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased $7 million, or 24%, to $22 million for the first quarter of 2001 compared to the same period in 2000. Selling, general and administrative costs as a percentage of revenues decreased to 1% from 2% for the first quarter of 2001. The overall decrease is due to a decline in corporate overhead. INTEREST EXPENSE. Interest expense increased $86 million, or 33%, to $350 million for the first quarter of 2001 compared to the same period in 2000. Interest expense as a percentage of revenue decreased to 14% from 16% for the first quarter of 2001 compared to the same period in 2000. Interest expense increased overall primarily due to the interest expense at new businesses, as well as additional corporate interest costs arising from the senior debt and convertible securities issued within the past twelve months to finance new investments. OTHER (EXPENSE) INCOME. The Company reported $13 million of other expense for the first quarter of 2001 compared to $12 million of other income for the same period in 2000. Other (expense) income includes sales of assets or investments, foreign currency changes from consolidated subsidiaries and mark-to-market adjustments on derivative financial instruments. The overall change in other (expense) income is due primarily to the decline in the British Pound slightly offset by gains from mark-to-market adjustments on derivative financial instruments. -14- EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates decreased $68 million, or 58%, to $50 million compared to the same period in 2000. The overall decrease is a result of the decrease in the equity in earnings in both generation and distribution affiliates. Equity in earnings of generation affiliates decreased $9 million, or 35%, to $17 million for the first quarter of 2001 compared to the same period in 2000. The decrease is primarily due to the purchase of an additional interest in NIGEN thereby making it a consolidated subsidiary. Equity in earnings of distribution affiliates decreased $59 million, or 64%, to $33 million for the first quarter of 2001 compared to the same period in 2000. The decrease is due primarily to declining economic conditions in Brazil and the corresponding devaluation of the Brazilian Real. Equity in earnings of distribution affiliates included foreign currency transaction losses on a pretax basis of $90 million in the first quarter of 2001, which was a direct result of the devaluation of the Brazilian Real. Our distribution concession contracts in Brazil provide for annual tariff adjustments based upon changes in the local inflation rates, and generally significant devaluations are followed by increased local currency inflation. However, because of the lack of direct adjustment to the current exchange rate, the in arrears nature of the respective adjustment to the tariff or the potential delays or magnitude of the resulting local currency inflation of the tariff, the future results of operations of AES's distribution companies in Brazil could be adversely affected by the continued devaluation of the Brazilian Real. Additionally, any rationing of electricity in Brazil may also adversely affect the results of operations of our businesses in Brazil. INCOME TAXES. Income taxes (including income taxes on equity in earnings) decreased $76 million to $57 million for the first quarter of 2001 compared to the same period in 2000. The company's effective tax rate was 35% and 33% for the first quarter of 2001 and 2000, respectively. The increase in the tax rate is due to increased dividends from foreign businesses. MINORITY INTEREST. Minority interest increased $14 million, or 78%, to $32 million for the first quarter of 2001 compared to the same period in 2000. Generation and distribution minority interest experienced increases during the first quarter of 2001. Generation minority interest increased $3 million, or 21%, to $17 million for the first quarter of 2001 compared to the same period in 2000. The increase in generation minority interest is due primarily to increased contributions from generation businesses in South America slightly offset by declines from the Asian businesses. Distribution minority interest increased $11 million, or 275%, to $15 million for the first quarter of 2001 compared to the same period in 2000. The increase in distribution minority interest is due primarily to increased contributions from EDC and CAESS which were slightly offset by losses at EDE Este. GAIN ON SALE OF INVESTMENT. During the first quarter of 2000, a subsidiary of the Company sold approximately one million shares of Internet Capital Group, Inc. SEVERANCE AND TRANSACTION COSTS. During the first quarter of 2001, the Company incurred approximately $94 million of transaction and contractual severance costs related to the acquisition of IPALCO. Typically the Company accounts for business combinations as purchases, which allows such costs to be capitalized. Since the IPALCO acquisition was accounted for as a pooling of interests, these costs are required to be expensed. EXTRAORDINARY ITEM. On March 31, 2000, the Company renegotiated the corporate revolving bank loan to incorporate the letter of credit facility. Since the corporate revolving bank loan was not due -15- until December 2000, the Company wrote-off the related deferred financing costs resulting in an extraordinary item for the early extinguishment of debt of $7 million, net of tax. FINANCIAL POSITION, CASH FLOWS AND FOREIGN CURRENCY EXCHANGE RATES At March 31, 2001, cash and cash equivalents totaled $1.8 billion compared to $950 million at December 31, 2000. The $880 million increase resulted from a use of $931 million for investing activities, which was funded by $935 of financing activities. The Company also generated $876 million from operating activities which included the payment of the Thames contract receivable of $532 million. Significant investing activity includes additions to property, plant and equipment as well as continued construction activities at various projects and the acquisition of Gener which included $551 million in goodwill. The net source of cash from financing activities was primarily the result of project finance borrowings of $958 million and revolver borrowings of $300 million offset, in part by repayments of project finance borrowings of $209 million. Through its equity investments in foreign affiliates and subsidiaries, AES operates in jurisdictions with currencies other than the Company's functional currency, the U.S. dollar. Such investments and advances were made to fund equity requirements and to provide collateral for contingent obligations. Due primarily to the long-term nature of the investments and advances, the Company accounts for any adjustments resulting from translation of the financial statements of its foreign investments as a charge or credit directly to a separate component of stockholders' equity until such time as the Company realizes such charge or credit. At that time, any differences would be recognized in the statement of operations as gains or losses. In addition, certain of the Company's foreign subsidiaries have entered into obligations in currencies other than their own functional currencies or the U.S. dollar. These subsidiaries have attempted to limit potential foreign exchange exposure by entering into revenue contracts that adjust to changes in the foreign exchange rates. Certain foreign affiliates and subsidiaries operate in countries where the local inflation rates are greater than U.S. inflation rates. In such cases the foreign currency tends to devalue relative to the U.S. dollar over time. The Company's subsidiaries and affiliates have entered into revenue contracts which attempt to adjust for these differences, however, there can be no assurance that such adjustments will compensate for the full effect of currency devaluation, if any. The Company had approximately $1.9 billion in cumulative foreign currency translation adjustment losses at March 31, 2001. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company believes that there have been no material changes in exposure to market risks during the first quarter of 2001 compared with exposure set forth in the Company's Annual Report filed with the Commission on Form 10-K for the year ended December 31, 2000. -16- PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See discussion of litigation and other proceedings in Part I, Note 5 to the consolidated financial statements which is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS. 3.1 Sixth Amended and Restated Certificate of Incorporation of The AES Corporation. 3.2 By-Laws of The AES Corporation. 4.1 There are numerous instruments defining the rights of holders of long-term indebtedness of the Registrant and its consolidated subsidiaries, none of which exceeds ten percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any of such agreements to the Commission upon request. 10.1 The AES Corporation 2001 Stock Option Plan for Outside Directors. (b) REPORTS ON FORM 8-K. Registrant filed a Current Report on Form 8-K dated January 30, 2001 relating to the Company's results of operations for the year ended December 31, 2000. Registrant filed a Current Report on Form 8-K/A dated February 2, 2001, which is an amendment to Form 8-K dated January 30, 2001 to correct the item number the original filing was made under. Registrant filed a Current Report on Form 8-K dated February 8, 2001 relating to the filing of the Form of Fifth Supplemental Indenture between The AES Corporation and Bank One, National Association. -17- Registrant filed a Current Report on Form 8-K dated February 21, 2001 relating to the filing of the Form of Sixth Supplemental Indenture between The AES Corporation and Bank One, National Association. Registrant filed a Current Report on Form 8-K/A dated March 16, 2001, which is an amendment to Form 8-K dated June 7, 2000 in order to provide separate reports of the independent accountants that were not the principal accountant. -18- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE AES CORPORATION (Registrant) Date: May 15, 2001 By: /s/ BARRY J. SHARP --------------------------------- Name: Barry J. Sharp Title: Senior Vice President and Chief Financial Officer EXHIBIT INDEX
Sequentially Exhibit Description of Exhibit Numbered Page - ------- ---------------------- ------------- 3.1 Sixth Amended and Restated Certificate of Incorporation of the Registrant 3.2 By-laws of the Registrant 10.1 The AES Corporation 2001 Stock Option Plan for Outside Directors
EX-99.1 2 a2046672zex-99_1.txt EX 99.1 Exhibit 99.1 SIXTH RESTATED CERTIFICATE OF INCORPORATION OF THE AES CORPORATION (PURSUANT TO SECTION 245 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE) The AES Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The present name of the corporation is The AES Corporation. 2. The name under which the corporation was originally incorporated is Applied Energy Services, Inc.; and the date of filing the original Certificate of Incorporation of the Corporation with the Secretary of the State of Delaware is January 28, 1981. 3. The Sixth Restated Certificate of Incorporation hereby restates and integrates into a single instrument, and does not further amend the provisions of the Corporation's Certificate of Incorporation as thereto amended or supplemented, and there is no discrepancy between those provisions and the provisions of the restated certificate. The Sixth Restated Certificate of Incorporation and is attached hereto as Exhibit A. 4. The Sixth Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has executed this certificate this 27th day of April 2000. ------------------------------ William R. Luraschi Secretary The AES Corporation Exhibit A SIXTH RESTATED CERTIFICATE OF INCORPORATION OF THE AES CORPORATION PURSUANT TO SECTION 245 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE Article I. The name of the corporation is The AES Corporation (the "Corporation"). Article II. The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is Corporation Service Company. Article III. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as amended from time to time. Article IV. 1. The total number of shares of all classes of capital stock that the Corporation is authorized to issue is one billion, two hundred fifty million (1, 250,000,000), of which one billion, two hundred million (1,200,000,000) shall be Common Stock, par value one cent ($0.01) per share, and fifty million (50,000,000) shall be Preferred Stock, without par value. The designations and the powers, preferences and rights of the Common Stock and the Preferred Stock, and the qualifications, limitation or restrictions thereof, are as provided in or pursuant to this Article IV. 2. (a) The rights of holders of Common Stock to receive dividends or to share in the distribution of assets in the event of liquidation, dissolution or winding up of the affairs of the Corporation shall be subject to the preferences and other rights of the Preferred Stock as may be fixed in this Certificate of Incorporation or in the resolution or resolutions of the Board of Directors providing for the issuance of such Preferred Stock. (b) The holders of Common Stock shall be entitled to one vote for each share of Common Stock held by them of record at the time for determining the holders thereof entitled to vote. 3. Authority is hereby vested in the Board of Directors to issue from time to time the Preferred Stock in one or more classes or series and to fix by the resolution or resolutions providing for the issuance of shares of any such class or series the voting powers, designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of such class or series to the full extent permitted by this Certificate of Incorporation and the General Corporation Law of the State of Delaware. The authority of the Board of Directors with respect to each such series shall include, but not be limited to, determination of the following: (i) The number of shares to constitute such class or series, and the distinctive designation thereof; (ii) The voting powers, full or limited, if any, of such class or series; (iii) The rate of dividends payable on shares of such class or series, the conditions on which and the times when such dividends are payable, the preference to, or the relations to, the payment of the dividends payable on any other class or series of stock, whether cumulative or noncumulative, and, if cumulative, the date from which dividends on shares of such class or series shall be cumulative; (iv) The right, if any, of the Corporation to redeem shares of such class or series and the terms and conditions of such redemption (v) The requirement of any sinking fund or funds to be applied to the purchase or redemption of shares of such class or series and, if so, the amount of such fund or funds and the manner of application; (vi) The rights of shares of such class or series upon the liquidation, dissolution or winding up of, or upon any distribution of the assets of, the Corporation; (vii) The rights, if any, of the holders of shares of such class or series to convert such shares into, or to exchange such shares for, shares of any other class or series of stock and the price or prices or rate or rates of exchange at which such shares shall be convertible or exchangeable and any adjustments thereto, and any other terms and conditions of such conversion or exchange; and (viii) Any other preferences and relative, participating, optional or other special rights of shares of such class or series, and qualifications, limitations or restrictions including, without limitation, any restriction on an increase in the number of shares of any class or series theretofore authorized and any qualifications, limitations or restrictions of rights or powers to which shares of any future class or series shall be subject. 4. The number of authorized shares of any class or classes of stock of the Corporation may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Corporation that is entitled to vote, without a separate class vote of any class or classes of stock of the Corporation, except as may be otherwise provided in this Certificate of Incorporation or in the resolution or resolutions fixing the voting rights of any class or series of the Preferred Stock. 5. No holder of Common Stock or Preferred Stock, as such, shall have or be entitled to any preemptive right whatsoever. Article V. The Corporation is to have perpetual existence. Article VI. The Board of Directors is expressly authorized to adopt, alter or repeal the By-Laws of the Corporation, except for any By-Law that by its terms states that it may be amended or repealed only by action of the stockholders. Article VII. Meetings of stockholders may be held at such place, either within or without the state of Delaware, as the By-Laws may provide. Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. Article VIII. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by General Corporation Law of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation. Article IX. The number of directors of the Corporation shall be fixed from time to time pursuant to the By-Laws of the Corporation. Article X. No director of this Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. Neither the amendment nor repeal of this Article X, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article X, shall be effective with respect to any cause of action, suit, claim or other matter that, but for this Article X, would accrue or arise prior to such amendment, repeal or adoption of an inconsistent provision. EX-99.2 3 a2046672zex-99_2.txt EX 99.2 Date of Last Amendment: April 19, 2001 BY-LAWS OF THE AES CORPORATION ARTICLE I OFFICES Section 1.01. REGISTERED OFFICE. The registered office shall be at 1013 Centre Road in the City of Wilmington in the State of Delaware. Section 1.02. ADDITIONAL OFFICES. The Corporation may also have offices and places of business at such other places, within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.01. TIME AND PLACE. All meetings of stockholders shall be held at such time and place within or without the State of Delaware as shall be stated in the notice of the meeting, or in a duly executed waiver of notice thereof. Section 2.02. Annual meetings of stockholders shall be held on the first Friday of June of each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day not a legal holiday, or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. At the annual meeting, the stockholders shall elect a Board of Directors, and transact any other business as may properly come before the meeting, notice of which was given in the notice of the meeting. At each election of directors, every holder of stock entitled to vote shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. Directors shall be elected by a plurality of votes cast at an election. Section 2.03. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where Page 1 the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.04. Special meetings of the stockholders, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be held at such place as may from time to time be designated by the directors and may be called only by the Chairman of the Board, the President or by resolution adopted by a majority of the entire Board of Directors, for such purposes as shall be specified in the call. Section 2.05. Written notice of the annual meeting or any special meeting of stockholders stating the place, date and hour of the meeting shall be given in accordance with Section 4.01 to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 2.06. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 2.07. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, or the officer presiding over the meeting, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjournment at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given in accordance with Section 2.01 or 2.05 as the case may be, to each stockholder of record entitled to vote at the meeting. Section 2.08. At any meeting at which a quorum is present, the vote of the holders of a majority of the stock entitled to vote on the subject matter, present in person or represented by proxy, shall be the act of the stockholders, unless the subject matter is such that, by express provision of the statutes, the Certificate of Incorporation or these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such subject matter. The stockholders present at a duly convened meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Section 2.09. If a vote is to be taken by ballot, each ballot shall state the number of shares voted and the name of the stockholder or proxy voting. Page 2 Section 2.10. Each meeting of the stockholders, whether annual or special, shall be presided over by the Chairman of the Board if present, and if he or she is not present or declines to preside by the President if present. If neither officer specified in the preceding sentence is present, the meeting shall be presided over by the person designated in writing by the Chairman of the Board, or if the Chairman of the Board has made no designation, by the person designated by the President, or if the President has made no designation, by the person designated by the Board of Directors. If neither officer specified in the first sentence of this Section 2.10 is present, and no one designated by the Chairman of the Board or the President or the Board of Directors is present, the meeting may elect any stockholder of record who is entitled to vote for directors, or any person present holding a proxy for such a stockholder, to preside. The Secretary of the Company (or in his or her absence any Assistant Secretary) shall be the Secretary of any such meeting; in the absence of the Secretary and Assistant Secretaries, any person may be elected by the meeting to act as Secretary of the meeting. Section 2.11. Any voting proxy given by a stockholder must be: in writing, executed by the stockholder, or, in lieu thereof, to the extent permitted by law, may be transmitted in a telegram, cablegram or other means of electronic transmission setting forth or submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. A copy, facsimile transmission or other reliable reproduction of a written or electronically-transmitted proxy authorized by this Section 2.11 may be substituted for or used in lieu of the original writing or electronic transmission to the extent permitted by law. Section 2.12. The directors shall appoint one or more inspectors of election and of the vote at any time prior to the date of any meeting of stockholders at which an election is to be held or a vote is to be taken. In the event any inspector so appointed is absent from such meeting or for any other reason fails to act as such at the meeting, the person presiding at such meeting pursuant to these By-Laws may appoint a substitute who shall have all the powers and duties of such inspector. The inspector or inspectors so appointed shall act at such meeting, make such reports thereof and take such other action as shall be provided by law and as may be directed by the person presiding over the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. Section 2.13. The directors may, at any time prior to any annual or special meeting of the stockholders, adopt an order of business for such meeting which shall be the order of business to be followed at such meeting. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at such meeting shall be announced at such meeting by the person presiding over such meeting. Section 2.14. At any meeting of stockholders a stock vote shall be taken on any resolution or other matter presented to the meeting for action if so ordered by the person presiding over the meeting or on the demand of any stockholder of record entitled to vote Page 3 at the meeting or any person present holding a proxy for such a stockholder. Such order or demand for a stock vote may be made either before or after a vote has been taken on such resolution or other matter in a manner other than by stock vote and before or after the result of the vote taken otherwise than by stock vote has been announced. The result of a stock vote taken in accordance with this By-Law shall supersede the result of any vote previously taken in any manner other than by stock vote. Section 2.15. (A) The proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders (1) pursuant to the Corporation's notice of meeting, (2) by or at the direction of the Board of Directors or (3) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 2.15, who is entitled to vote thereon at the meeting and who complies with the notice procedures set forth in this Section 2.15. (B) For business (other than the nominations of persons for election to the Board of Directors) to be properly brought before an annual meeting by a stockholder pursuant to clause (3) of paragraph (A) of this Section 2.15, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered, either by personal delivery or by United States mail, postage pre-paid, to the Secretary not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (1) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made and (2) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (a) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (b) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (C) Only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this by-law. Except as otherwise provided by law, the Certificate of Incorporation or these by-laws, the person presiding over an annual meeting of stockholders shall have the power and duty to determine whether any business proposed by any stockholder to be brought before the meeting was made in accordance with the procedures set forth in this Page 4 Section 2.15 and, if any proposed business is not in compliance with this Section 2.15, to declare that such defective proposal shall be disregarded. (D) For purposes of this by-law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (E) In addition to the foregoing provisions of this Section 2.15, a stockholder shall comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 2.15. Nothing in this Section 2.15 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under such Act. ARTICLE III MATTERS RELATING TO THE BOARD OF DIRECTORS Directors Section 3.01. The business of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute, the Certificate of Incorporation or these By-Laws directed or required to be exercised or done by the stockholders. Section 3.02. The number of directors of the Corporation which shall constitute the whole Board shall be ten, or such other numbers as may be determined by written resolution of the Board of Directors. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.04, and each director elected shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Directors need not be stockholders of the Corporation. Section 3.03. Any director of the Corporation may resign at any time either by oral tender of resignation at any meeting of the Board of Directors or by delivering written notice thereof to the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified with respect thereto the acceptance of such resignation shall not be necessary to make it effective. Section 3.04. Any director may be removed for cause, at any time, by the affirmative vote of the holders of record of a majority of all the shares of capital stock entitled to vote at a special meeting of the stockholders called for such purpose. Vacancies in the Board of Directors created by the death, resignation or removal of directors and newly created directorships resulting from any increase in the authorized number of directors may be Page 5 filled only by the affirmative vote of a majority of the remaining directors. If the directors remaining in office shall be unable, by majority vote, to fill such vacancy within 60 days of the occurrence thereof, the Chairman of the Board or the President may call a special meeting of the stockholders at which such vacancy shall be filled. Any director so chosen shall hold office until the next annual election and until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by statute. Meetings of the Board of Directors Section 3.05. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 3.06. The Board of Directors shall meet as soon as practicable after the annual election of directors, for the purpose of organization and the transaction of other business including the election of officers. No notice of such meeting shall be required. Such organization meeting may, however, be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board, or in a consent and waiver of notice thereof signed by all the directors. Section 3.07. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. Any business of the Corporation may be transacted at any such regular meeting. Section 3.08. Special meetings of the Board of Directors shall be called by the Secretary, on three days; notice to each director as provided in Article IV, either on the request of the Chairman of the Board, the President or on the written request of two directors. Section 3.09. At all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business, and the act of a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, the Certificate of Incorporation or these By-Laws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.10. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or such committee. Page 6 Section 3.11. Members of the Board of Directors or any committee designated by the Board pursuant to Section 3.12 may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Committees of Directors Section 3.12. The Board of Directors may, by resolution passed by the affirmative vote of a majority of the directors, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may by like vote designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the adopting resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation except as limited by the General Corporation Law of the State of Delaware, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 3.13. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Compensation Section 3.14. Directors, and members of any committee of the Board of Directors, shall be entitled to such reasonable compensation for their services as directors and members of each such committee as shall be fixed from time to time by resolution of the Board of Directors, and shall also be entitled to reimbursement for any reasonable expenses incurred in attending such meetings. Any directors receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and receiving reasonable compensation for such other services. ARTICLE IV NOTICES Section 4.01. Whenever, under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, notice e is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director, or stockholder, at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram, cable or facsimile transmission. Page 7 Section 4.02. Whenever any notice is required to be given under the provisions of the statutes, the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to such notice. Attendance in person or by proxy of a person at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting and does so object at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any director attending a meeting of the Board of Directors without protesting, prior to the meeting or at its commencement, any lack of notice shall be conclusively deemed to have waived notice if such meeting. ARTICLE V OFFICERS Section 5.01. The Board of Directors at its first meeting after each meeting of stockholders at which directors are elected, shall elect a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall hold office until the first meeting of the Board after the next annual meeting of the stockholders and until his or her successor is elected and qualified. At any time, the Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers and such other officers and agents as in its judgment the business of the Corporation may require and who shall perform such duties as the Board shall from time to time determine. Except for the Chairman of the Board, no officer of the Corporation need be a member of the Board of Directors. Two or more offices, except President and Secretary, may be held by the same person. Section 5.02. The compensation of all officers and agents of the Corporation shall be fixed by the Board of Directors except to the extent such power shall be delegated, by resolution of the Board, to a committee of directors, to the Chairman of the Board or to the President. Section 5.03. Any officer or agent of the Corporation may be removed at any time, either with or without cause, by the Board of Directors in its sole discretion. Any vacancy occurring in any office of the Corporation may be filled at any time by the Board of Directors. The Chairman of the Board Section 5.04. The Chairman of the Board shall shall preside at all meetings of the Board of Directors, and shall have such other powers and duties as may from time to time be assigned by the Board of Directors. Page 8 The President Section 5.05. The President shall be the Chief Executive Officer of the Corporation. Subject to the authority of the Board of Directors, the President shall have general and active charge, control and supervision of all the business and affairs of the Corporation. The President shall perform such other duties as the Board may from time to time prescribe. The Vice Presidents Section 5.06. The several Vice Presidents may be designated by such title or titles and in such order of seniority as the Board of Directors may determine. They shall perform such duties and exercise such powers as the Board of Directors or the President may from time to time prescribe. The Secretary and Assistant Secretaries Section 5.7. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors; attend all meetings of the Board of Directors and all meetings of the stockholders and record the proceedings of all such meetings in a book kept for that purpose; perform like duties for the standing committees when required; keep and account for all books, documents, papers and records of the Corporation, except those for which some other officer or agent is properly accountable; and perform such other duties as may be prescribed from time to time by the Board of Directors or the President. The Secretary shall have custody of the corporate seal of the Corporation and shall, and any Assistant Secretary shall, have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by the signature of the Secretary or such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. Section 5.08. The Assistant Secretary, or if there be more than one, the Assistant Secretaries, shall perform such duties and exercise such powers as the Board of Directors, the President or the Secretary may from time to time prescribe. The Treasurer and Assistant Treasurers Section 5.09. The Treasurer shall have the custody of the corporate funds and securities and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the President, shall render to the President and to the Board, whenever the President or the Board shall require, an account of all his or her transactions as Treasurer. Page 9 Section 5.10. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers, shall perform such duties and exercise such powers as the Board of Directors, the President or the Treasurer may from time to time prescribe. ARTICLE VI MATTERS RELATING TO THE STOCK OF THE CORPORATION Section 6.01. The certificates for shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Every holder of shares of capital stock of the Corporation shall be entitled to have a certificate in the form approved by the Board of Directors, signed by the Chairman of the Board or the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of such shares owned by him or her. Section 6.02. Where any such certificate is signed either by a transfer agent or an assistant transfer agent, or by a transfer clerk acting on behalf of the Corporation and by a registrar, the signature of any such Chairman of the Board, President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be facsimile. In case any such officer who has signed, or whose facsimile signature has been affixed on, any such certificate shall cease to be such officer, whether because of resignation, removal or otherwise, before such certificate has been issued or delivered by the Corporation, such certificate may nevertheless be issued and delivered by the Corporation with the same effect as if such officer had not ceased to be such at the date of such delivery. Section 6.03. In case any certificate of stock shall be lost, stolen or destroyed, the Board of Directors, in its discretion, or any officer or officers thereunto duly authorized by the Board, may authorize the issuance of a substitute certificate in place of the certificate so lost, stolen or destroyed; provided, however, that in each such case the applicant for a substitute certificate shall furnish evidence to the Corporation which the Board of Directors, or any office or officers authorized as aforesaid, determines is satisfactory, of the loss, theft or destruction of such certificate and of the ownership thereof, and also such security or indemnity as may be required by the Board. Section 6.04. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the proper officers of the Corporation or of the transfer agent to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 6.05. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to Page 10 exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6.06. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the General Corporation Law of the State of Delaware. ARTICLE VII GENERAL PROVISIONS Dividends Section 7.01. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of capital stock, subject to the applicable provisions, if any, of the Certificate of Incorporation. Section 7.02. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Fiscal Year Section 7.03. The fiscal year of the Corporation shall be the calendar year unless otherwise fixed by resolution of the Board of Directors. Deposits Section 7.04. The Board of Directors shall select banks, trust companies, or other depositories in which all funds of the Corporation not otherwise employed shall, from Page 11 time to time, be deposited to the credit of the Corporation. All checks and drafts on the Corporation's bank accounts and all other instruments for the payment of money shall be signed by such officer or officers or other person or persons as shall be thereunto authorized from time to time by the Board of Directors. Voting Securities Held by the Corporation Section 7.05. Unless otherwise ordered by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meeting of security holders of other corporations in which the Corporation may hold securities. At such meeting the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation might have possessed and exercised if it had been present. The Board of Directors may, from time to time, confer like powers upon any other person or persons. Section 7.06. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII INDEMNIFICATION Section 8.01. (A) Any person who was or is a party or is threatened to be made a party to or was or is involved (as a witness or otherwise) in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than any action or suit by or in the right of the Corporation to procure a judgment in its favor (a "derivative action")) by reason of the fact that he or she is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified by the Corporation, to the extent authorized by the laws of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such laws permitted prior to such amendment), against all expenses (including, but not limited to, attorneys' fees, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by him or her in connection with the defense or settlement of such action, suit or proceeding. In the event of any derivative action, such persons shall be indemnified by the Corporation under the same conditions and to the same extent as specified above, except that no indemnification is permitted in respect of any claim, issue or matter as to which such persons shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in Page 12 view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. The indemnification expressly provided by statute in a specific case shall not be deemed exclusive of any other rights to which any person indemnified may be entitled under any lawful agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (B) The right to indemnification conferred in this Article VIII is and shall be a contract right. The right to indemnification conferred in this Article VIII shall include the right to be paid by the Corporation the expenses (including attorneys' fees and retainers therefor) reasonably incurred in connection with any such proceeding in advance of its final disposition, such advances to be paid by the Corporation within 20 days after the receipt by the Corporation of a statement or statements from a director, officer or employee of the Corporation requesting such advance or advances from time to time; PROVIDED, HOWEVER, the payment of such expenses incurred by a director, officer or employee in his or her capacity as a director, officer or employee in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director, officer or employee to repay all amounts so advanced if it shall ultimately be determined that such director, officer or employee is not entitled to be indemnified under this Article VIII or otherwise. (C) To obtain indemnification under this Article VIII, an indemnitee shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to such person and is reasonably necessary to determine whether and to what extent the indemnitee is entitled to indemnification. (D) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture; trust or other enterprise including service with respect to employee benefit plans, against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. To the extent that the Corporation maintains any policy or policies providing such insurance, each such director, officer or employee, and each such agent to which rights to indemnification have been granted as provided in paragraph (E) of this Article VIII, shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such director, officer, employee or agent. (E) The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Corporation the expenses incurred in connection with any proceeding in advance of its final disposition, Page 13 to any agent of the Corporation to the fullest extent of the provisions of this Article VIII with respect to the indemnification and advancement of expenses of directors, officers and employees of the Corporation. ARTICLE IX NOMINATION OF DIRECTORS Section 9.01. Any stockholder of record may nominate one or more persons for election as director at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (a) with respect to an election to be held at an annual meeting of stockholders, ninety (90) days in advance of such meeting; and (b) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the earlier of (i) the date on which notice of such meeting is first given to stockholders and (ii) the date on which a public announcement of such meeting is first made. Each such notice shall include: (1) the name and address of each stockholder of record who intends to appear in person or by proxy to make the nomination and of the person or persons to be nominated; (2) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (3) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement .filed pursuant to the proxy rules of the Securities and Exchange Commission; and (4) the consent of each nominee to serve as a director of the Corporation if so elected. The person presiding at the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. ARTICLE X AMENDMENTS Section 10.01. These By-Laws may be amended or repealed by the affirmative vote of a majority of the stockholders entitled to vote thereon or a majority of the directors then in office at any regular meeting of the stockholders or of the Board of Directors, respectively, or at any special meeting of the stockholders or of the Board of Directors, respectively, if notice of such proposed alteration or repeal be contained in the notice of such meeting. The stockholders may determine by majority vote that any action taken by them with respect to adoption, amendment or repeal of any part of these By-Laws shall not be subject to subsequent amendment or repeal by the Board of Directors, provided that any such determination shall be set forth in the appropriate place in the text of these By-Laws. Page 14 EX-99.3 4 a2046672zex-99_3.txt EX 99.3 Exhibit 99.3 THE AES CORPORATION 2001 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS ARTICLE 1 PURPOSE The AES Corporation desires to encourage and promote the growth and prosperity of the Company by helping to attract, retain and reward outside directors of the Company with equitable and competitive compensation opportunities and by allowing outside directors of the Company to share in the stock ownership of the Company pursuant to The AES Corporation 2001 Plan for Outside Directors. ARTICLE 2 DEFINITIONS SECTION 1.01 . DEFINITIONS. Whenever used in this Plan, the words and phrases set forth below shall have the following meanings: (a) "AFFILIATES" shall mean, with respect to any entity, those entities directly or indirectly controlling, controlled by, or under common control with the Company; PROVIDED that no securityholder of the Company shall be deemed an "Affiliate" of any other securityholder of the Company solely by reason of any investment in the Company; and PROVIDED FURTHER that "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), when used with respect to any entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract or otherwise. (b) "ALTERNATIVE OPTIONS" shall have the meaning set forth in Section 5.01(c). (c) "ANNUAL OPTION" shall have the meaning set forth in Section 5.01(a)(ii) (d) "ANNUAL RETAINER FEES" shall mean annual retainer fees payable to an Outside Director in his capacity as such for service on the Board of Directors. (e) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company. (f) "CHANGE OF CONTROL" shall mean the first to occur of: (i) an individual, corporation, partnership, group, associate or other entity or "person", as such term is defined in Section 14(d) of the Exchange Act of 1934, other than the Company or any employee benefit plan(s) sponsored by the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of the Company's outstanding securities ordinarily having the right to vote at elections of directors; (ii) individuals who constitute the Board of Directors on the Effective Date (the "INCUMBENT BOARD") cease for any reason to constitute at least a majority thereof; PROVIDED that any Approved Director (as hereinafter defined) shall be, for purposes of this subsection (ii), considered as though such person were a member of the Incumbent Board. An "Approved Director", for purposes of this subsection (ii), shall mean any person becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee of the Company for director), but shall not include any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or "person" other than the Board of Directors; or (iii) the approval by the stockholders of the Company of a plan or agreement providing for a merger or consolidation of the Company other than with a wholly-owned subsidiary and other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or for a sale, exchange or other disposition of all or substantially all of the assets of the Company. If any of the events enumerated in this subsection (iii) occurs, the Board of Directors shall determine the effective date of the Change of Control resulting therefrom for purposes of this Plan. (g) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (h) "COMPANY" shall mean The AES Corporation, a Delaware corporation, or its successor. 2 (i) "EFFECTIVE DATE" shall mean January l, 2001, subject to its approval by the stockholders of the Company. (j) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (k) "INITIAL OPTION" shall have the meaning set forth in Section 5.01(a)(i). (l) "NYSE" shall mean the New York Stock Exchange, Inc. (m) "OPTION" shall mean the right to purchase stock granted to an Outside Director under this Plan, and may be an Initial Option, an Annual Option, or an Alternate Option, as the context may require. (n) "OPTIONEE" shall mean any person who has the right to purchase stock pursuant to an Option granted under this Plan. (o) "OPTION VALUATION METHODOLOGY" shall mean the method specified by the Board of Directors from time to time for determining the number of shares of Stock to be subject to an Option and, if applicable, the exercise price thereof. The Option Valuation Methodology may be the Black-Scholes option valuation methodology or such other methodology as may be deemed reasonable by the Board of Directors. (p) "OUTSIDE DIRECTOR" shall mean any director of the Company who is not an employee of the Company or any of its Affiliates. (q) "PLAN" shall mean The AES Corporation 2001 Plan for Outside Directors. (r) "PLAN YEAR" shall mean, with respect to an Outside Director, the period commencing at the time of election of directors at an annual meeting of stockholders of the Company (or the election of a class of directors if the Company then has a classified board), or such Outside Director's initial election or appointment to the Board of Directors if not at such an annual meeting of stockholders, and continuing until the close of business of the day preceding the next annual meeting of stockholders of the Company; PROVIDED, HOWEVER, that the initial Plan Year shall begin on the day of the Company's 2001 annual meeting of stockholders. (s) "QUOTED MARKET PRICE" shall mean the closing price of the Stock on the last trading day immediately preceding the date of grant of an Option on the NYSE or on any national securities exchange on which the Stock at the time of grant may be listed; PROVIDED that if the Stock ceases to be so quoted or listed, the term "quoted market price" shall be the fair market value as of the date of grant of the Option as determined in good faith by the Board of Directors. 3 (t) "RETAINER FEES" shall mean Annual Retainer Fees and Scheduled Retainer Fees. "SCHEDULED RETAINER FEES" shall mean retainer fees payable to an Outside Director in his capacity as such for attending in person scheduled meetings of the Board of Directors (currently four times per year). (v) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. (w) "STOCK" shall mean the Common Stock of the Company, par value $.01 per share. (x) "STOCK OPTION ADMINISTRATOR" shall mean one or more persons, who may be employees of the Company and/or Optionees, who is or are selected by the Company from time to time to be responsible for the day-to-day operations of this Plan. SECTION 1.02. WORD USAGE. Wherever used in this Plan, any word denoting the masculine shall include the feminine, and any word denoting the plural shall include the singular and vice versa unless the context indicates otherwise. As used in this Plan, the words "herein," "hereafter," or "hereunder," or any other compound of the words "here" shall refer to this Plan in its entirety and not to any subpart, unless the context indicates otherwise. Any reference in this Plan to a statute or a provision of a statute shall include any successor statute or provision thereto and any regulations promulgated thereunder. ARTICLE 3 THE BOARD OF DIRECTORS SECTION 1.03. THE BOARD OF DIRECTORS. This Plan shall be administered by the Board of Directors. The Board of Directors, subject to the provisions of this Plan and subject to such restrictions as the Board of Directors may make from time to time, shall have authority to modify, prescribe, amend and rescind rules and regulations relating to this Plan, to construe all Plan provisions and to determine any and all questions arising under this Plan. The determination of the Board of Directors shall be binding and conclusive on all persons. SECTION 1.04. ACTION BY THE BOARD OF DIRECTORS. A majority of the members of the Board of Directors constitute a quorum for the transaction of business. Any determination or action of the Board of Directors may be made or taken by a majority of the members of the Board of Directors present (either in person or by telephone) at any meeting of the Board of Directors, or without a meeting by resolution or instrument in writing signed by a majority of the members of the Board of Directors. 4 ARTICLE 4 ELIGIBILITY SECTION 1.05. ELIGIBILITY. All Outside Directors shall be eligible to receive an Option. ARTICLE 5 OUTSIDE DIRECTOR AWARDS SECTION 1.06. OUTSIDE DIRECTOR AWARDS. Options shall be granted to Outside Directors in accordance with the policies established from time to time by the Board of Directors specifying the classes of directors (if the Company then has a classified board) to be granted such awards, the number of shares (if any) to be subject to each such award and the time(s) at which such awards shall be granted. (a) INITIAL POLICY WITH RESPECT TO OPTIONS. The initial policy with respect to Options granted to Outside Directors under this Section 5.01(a) effective as of the Effective Date and continuing until modified or revoked by the Board of Directors from time to time, shall be as follows: (i) As of the date of each person's initial election or appointment as a member of the Board of Directors, such person, if he or she is an Outside Director, shall be granted an Option (an "INITIAL OPTION") to purchase a number of whole shares of Stock, which Initial Option shall have a grant date value to be determined by the Board of Directors in its sole discretion. The number of shares subject to such Initial Option shall be determined in accordance with the Option Valuation Methodology. (ii) As of the date of each annual meeting of stockholders at which a director is elected or reelected as a member of the Board of Directors (or at which members of another class of directors are elected or reelected, if the Company then has a classified board), such director, if he or she is an Outside Director, he or she shall be granted an Option (an "ANNUAL OPTION") to purchase a number of whole shares of Stock, which Annual Option shall have a grant date value equal to $40,000. The number of shares subject to such Annual Option shall be determined in accordance with the Option Valuation Methodology. (b) TERMS OF OPTIONS. Each Option shall be in writing and shall specify the number of shares of Stock which may be purchased pursuant to such Option and any conditions under which such Option has been granted. Each Option granted under Section 5.01 shall be subject to the following terms and conditions: 5 (i) OPTION VALUATION METHODOLOGY; EXERCISE PRICE. The Board of Directors shall employ the Option Valuation Methodology to determine the number of shares of Stock which may be purchased pursuant to an Option. The exercise price per share of Stock which may be purchased pursuant to such Retainer Option shall be equal to 100% of the quoted market price on the date of grant of such Option. (ii) TERM. Each Option shall expire ten years after the date of grant of such Option, or such earlier date as such Option may no longer be exercised and cannot, by its terms, thereafter become exercisable. (iii) VESTING AND EXERCISABILITY. The Board of Directors may establish terms regarding the times at which Options shall become vested and exercisable. Unless otherwise determined by the Board of Directors: (A) an Initial Option shall vest and become exercisable by an Optionee in five annual installments at the rate of 20% per year (rounded to the nearest whole number), on the anniversary date of such Director's initial election or appointment to the Board of Directors. (B) an Annual Option shall vest and become exercisable by an Optionee as to 100% of the number of shares subject to such Annual Option upon the completion of the Director's one-year term to which such Annual Option relates. (c) OPTIONS GRANTED IN LIEU OF RETAINER FEES AND ANNUAL OPTIONS. Each Outside Director may elect to be granted an Option in lieu of receiving his Retainer Fees and Annual Options ("ALTERNATIVE OPTIONS"). The value of an Alternative Option, determined under the Option Valuation Methodology, may be greater than the value of such Annual Fees and Annual Options. (i) ELECTIONS. An Outside Director shall make an election pursuant to this Section 5.01(c) by filing an election with the Company (the form of which shall be provided by the Company) prior to the beginning of a Plan Year or at such other date as may be specified by the Board of Directors. An election made by an Outside Director pursuant to this Section 5.01(c) shall be deemed continuing, and therefore applicable to Plan Years after the initial Plan Year covered by such election, until such election is modified or superseded by such Outside Director. Elections shall become irrevocable at the commencement of the Plan Year to which an election relates, unless the Board of Directors specifies a different time. Elections may be modified or revoked with respect to a subsequent Plan Year by filing a new election prior to the beginning of such subsequent Plan Year. The latest election filed with the Company 6 shall be deemed to revoke all prior inconsistent elections that remain revocable at the time of filing of the latest election. (ii) INITIAL POLICY WITH RESPECT TO ALTERNATIVE OPTIONS. The initial policy with respect to Alternative Options, effective as of the Effective Date and continuing until modified or revoked by the Board of Directors from time to time, shall be that each Outside Director who has elected to receive an Alternative Option in accordance with Section 5.01(c)(i) shall be granted, as of the close of business on the day that such Outside Director's Plan Year commences, an Alternative Option to purchase the number of whole shares of Stock, which Alternative Option shall have a value equal to the product of (A) the sum of (x) the amount of Retainer Fees for the Plan Year in question AND (y) the value of the Annual Options as determined under Section 5.01(a)(ii), MULTIPLIED BY (B) 1.15 The number of shares subject to such Alternative Option shall be determined in accordance with the Option Valuation Methodology. (d) TERMS OF ALTERNATIVE OPTIONS. Each Alternative Option shall be in writing and shall specify the number of shares of Stock which may be purchased pursuant to such Alternative Option and any conditions under which such Alternative Option has been granted. Each Alternative Option granted shall be subject to the following terms and conditions: (i) OPTION VALUATION METHODOLOGY; EXERCISE PRICE. The Board of Directors shall employ the Option Valuation Methodology to determine the number of shares of Stock which may be purchased pursuant to an Alternative Option. Unless the Board of Directors shall determine otherwise, the exercise price per share of Stock which may be purchased pursuant to such Alternative Option shall be equal to 100% of the quoted market price on the date of grant of such Alternative Option. (ii) TERM. Each Alternative Option shall expire ten years after the date of grant of such Alternative Option, or such earlier date as such Alternative Option may no longer be exercised and cannot, by its terms, thereafter become exercisable. (iii) VESTING AND EXERCISABILITY. The Board of Directors may establish terms regarding the times at which Alternative Options shall become vested and exercisable. Unless otherwise determined by the Board of Directors, an Alternative Option shall vest and become exercisable by an Optionee as to 100% of the number of shares subject to such Alternative Option upon the completion of such Director's one year-term to which such Alternative Option relates. (iv) The foregoing notwithstanding, upon a Change of Control, all Options shall become fully vested and exercisable upon a Change in Control. Unless otherwise determined by the Board of Directors, the 7 portion of an Option that has not vested and become exercisable at the time of the termination of an Optionee's service prior to a Change in Control shall be forfeited. Section 5.02. MAXIMUM SHARES AUTHORIZED UNDER THIS PLAN. The total number of shares of Stock for which Options can be granted pursuant to this Plan shall be 750,000 shares, subject to adjustment as provided in Article 7. The Company shall reserve, either from authorized but heretofore unissued Stock or from Stock reacquired by the Company and held in its treasury, the full number of shares of Stock necessary to satisfy all Options that may be granted under this Plan. ARTICLE 6 EXERCISE OF OPTIONS Section 6.01. PROCEDURE FOR EXERCISING OPTIONS. (a) Any Option may be exercised at any time during the period commencing with the first date permitted under the relevant vesting schedule and ending with the expiration date of the Option. An Optionee may exercise his Option for all or part of the number of shares of Stock which he is eligible to exercise under the terms of the Option. (b) The exercise of an Option shall be effective only upon delivery to the Stock Option Administrator of (i) written notice of such exercise in the form prescribed by the Board of Directors and (ii) payment of the full purchase price of shares of Stock in respect of which notice of exercise is given. The notice shall specify the number of shares to be exercised and shall be signed by the Optionee. The full purchase price of the shares of Stock as to which an Option is exercised shall be paid to the Company in full, or adequate provision for such payment made, at the time of exercise at the election of the Optionee in cash. Notwithstanding the foregoing, if shares of Stock are listed on the NYSE or on any national securities exchange, the requirement of the payment in cash will be deemed satisfied if the Optionee makes arrangements that are satisfactory to the Company with a broker that is satisfactory to the Company to sell a sufficient number of shares of Stock which are being purchased pursuant to the exercise, so that the net proceeds of the sale transaction will at least equal the amount of the aggregate purchase price of such shares plus any amounts required to be withheld, and pursuant to which the broker undertakes to deliver to the Company such amount not later than the date on which the sale transaction will settle in the ordinary course of business. Section 6.02. ISSUANCE OF SHARES. Until such time as the issuance of shares of Stock in the name of the Optionee is registered on the stockholders ledger of the Company, the Optionee shall have no rights of a stockholder of the 8 Company, including without limitation the right to vote any such shares or to receive any dividends which are attributable to such shares. Section 6.03. DISABILITY. Unless the Board of Directors shall determine otherwise, in the event an Optionee becomes "permanently and totally disabled" (as defined in Section 22(e)(3) of the Code) while in the continuous service of the Company, all Options held by such Optionee shall become fully vested and exercisable and shall expire on the earlier of (a) the date the Option would have expired had the Optionee continued in such service and (b) one (1) year after the date such service ceases because of such disability. Section 6.04. DEATH. Unless the Board of Directors shall determine otherwise, in the event of the death of an Optionee while in the continuous service of the Company, all Options held by such Optionee shall become fully vested and exercisable and shall automatically expire on the earlier of (a) the date the Option would have expired had the Optionee continued in such service and (b) one (1) year after such death. Any such Option may be exercised by the personal representative of the deceased Optionee's estate or by the person or persons to whom his rights under such Option have passed either by will or by the laws of descent and distribution. Any such Option is exercisable in the same manner and subject to the same conditions (other than the expiration date) which would have applied if the Optionee had exercised such Option before he died. Section 6.05. INCAPACITY. Unless the Board of Directors shall determine otherwise, in the event that an Optionee is adjudged to be mentally incompetent while in the continuous service of Company or during a period of permanent and total disability which commenced while in such service, the Optionee's guardian, conservator or legal representative shall have the right to exercise on behalf of the Optionee any Options granted to the Optionee. Section 6.06. TERMINATION OF SERVICE. Unless the Board of Directors shall determine otherwise, in the event that an Optionee's service with the Company terminates for any reason other than the death or disability of such Optionee, all Options held by such Optionee shall automatically expire on the earlier of (a) the date the Option would have expired had the Optionee continued in such service and (b) one hundred and eighty (180) days after the date that such Optionee's service ceases. Section 6.07. TRANSFER OF OPTIONS. Except to the extent that an Option may be transferred by will or by the laws of descent and distribution as provided for in Section 6.04, no Option granted under this Plan shall be sold, assigned, transferred, conveyed, pledged or otherwise disposed of by the Optionee or by any other person having or claiming to have any rights thereto or therein, and no Option shall be subject to bankruptcy proceedings, claims of creditors, attachment, garnishment, execution, levy or other legal process against the Optionee or any such other person or their property. 9 ARTICLE 7 ADJUSTMENTS UPON RECAPITALIZATIONS AND OTHER CORPORATE EVENTS Section 7.01. RECAPITALIZATIONS. In the event of any stock split, reverse stock split, stock dividend or other subdivision or combination of the Stock or other securities of the Company, the following shall be adjusted proportionately: (a) the number of shares of Stock (or number and kind of other securities or property) with respect to which Options may thereafter be granted, including the aggregate and individual limits specified in Section 5.02. (b) the number of shares of Stock or such other securities (or number and kind of other securities or property) subject to outstanding Options; and (c) the grant, purchase or exercise price with respect to any Option; PROVIDED, HOWEVER, that the number of shares subject to any Option shall always be a whole number. Section 7.02. OTHER CORPORATE EVENTS. In the event of any merger, consolidation, split-up, spin-off, combination or exchange of shares, or other recapitalization or change in capitalization or other similar corporate transaction or event that affects the Stock or other securities of the Company (other than any corporate event described in Section 7.01 or Section 7.03) and the Board of Directors determines that an adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, the Board of Directors shall, in such manner as it may deem equitable, adjust any or all of: (a) the number of shares of Stock (or number and kind of other securities or property) with respect to which Options may thereafter be granted, including the limit specified in Section 5.02. (b) the number of shares of Stock or such other securities (or number and kind of other securities or property) subject to outstanding Options; and (c) the grant, purchase or exercise price with respect to any Option;or, if deemed appropriate, make provision for a cash payment to an Optionee; PROVIDED, HOWEVER, that the number of shares subject to any Option shall always be a whole number. Section 7.03. TERMINATION UPON LIQUIDATION. A liquidation or dissolution of the Company shall cause all Options, to the extent not previously exercised, to terminate, unless the plan or agreement of liquidation or dissolution provides otherwise. 10 ARTICLE 8 MISCELLANEOUS Section 8.01. AMENDMENT AND TERMINATION OF THIS PLAN AND ANY OPTIONS. (a) This Plan shall terminate no later than January 1, 2011. Notwithstanding the immediately preceding sentence, the Company reserves the right, by action of its Board of Directors, to change, amend, modify or terminate this Plan (or any portion thereof) including without limitation the amount of Options to be granted to Outside Directors under this Plan at any time; PROVIDED that no such change, amendment, modification or termination shall be made without stockholder approval if such approval is necessary to qualify for or comply with any tax or regulatory status or requirement (including any approval requirement which is a prerequisite for exemptive relief from Section 16(b) of the Exchange Act) for which or with which the Board of Directors deems it necessary or desirable to qualify or comply. Notwithstanding anything to the contrary herein, the Board of Directors may amend this Plan in such manner as may be necessary so as to have this Plan conform with local rules and regulations in any jurisdiction outside the United States. Neither the termination of this Plan (or any portion thereof) nor any change, amendment or modification shall have the effect of changing, amending, modifying or terminating in any way any Option which has been granted under this Plan prior to the effective date of any such change, amendment, modification or termination of this Plan. (b) Subject to the terms of this Plan and applicable law, the Board of Directors may waive any conditions or rights under or change, amend, modify or terminate any Option theretofore granted, prospectively or retroactively. (c) The Board shall not amend this Plan to increase the maximum shares authorized by Section 5.02 without stockholder approval, other than as set forth in Article 7. Section 8.02. COMPLIANCE WITH SECURITIES LAWS. Options shall not be granted, and shares of Stock shall not be issued, unless in the discretion of the Board of Directors all such grants and issuances shall comply with all relevant provisions of federal and state laws, including the Securities Act, the Exchange Act and the requirements of any interdealer quotation system or stock exchange upon which the Stock may then be quoted or listed. The Company may require Optionees to deliver representations, agreements and other documents at the time of exercise of Options, necessary to comply with any such laws, regulations and other requirements. Section 8.03. LEGENDS. In the event the offer and sale of the Stock issued pursuant to this Plan has not been registered under the Securities Act, a legend shall be placed on any certificates representing such Stock stating that such shares have not been so registered and that the resale thereof is restricted. 11 Section 8.04. NO CONTRACT INTENDED. Nothing in this Plan or in any Option granted pursuant to this Plan shall confer upon any Outside Director any right to continue in the service of the Company or interfere in any way with the right of the Company to terminate such Outside Director's service at any time. Section 8.05. NON-EXCLUSIVITY. Nothing contained in this Plan or in an Option shall prevent the Company from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. Section 8.06. SEVERABILITY. If any provision of this Plan or any Option is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as to any person or Option, or would disqualify this Plan or any Option under any law deemed applicable by the Board of Directors, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board of Directors, materially altering the intent of this Plan or the Option, such provision shall be stricken as to such jurisdiction, person or Option, and the remainder of this Plan and any such Option shall remain in full force and effect. Section 8.07. NO TRUST; UNSECURED STATUS. Neither this Plan nor any Option shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and an Optionee or any other person. To the extent that any person acquires a right to receive payments from the Company pursuant to an Option, such right shall be no greater than the right of any unsecured general creditor of the Company. Section 8.08. NO FRACTIONAL SHARES. No fractional shares shall be issued or delivered pursuant to this Plan or any Option, and the Board of Directors shall determine whether cash, other securities or other property shall be paid or transferred in lieu of any fractional shares, or whether such fractional shares or any rights thereto shall be canceled, terminated or otherwise eliminated. Section 8.09. HEADINGS NOT CONTROLLING. The titles to articles and the headings of sections in this Plan are placed herein for convenience of reference only and, in the case of any conflict, the text of this Plan rather than such titles or headings shall control. Section 8.10. EFFECTIVE DATE. This Plan shall be effective as of January 1, 2001, subject to its approval by the stockholders of the Company. 12 -----END PRIVACY-ENHANCED MESSAGE-----