Prepared by MERRILL CORPORATION www.edgaradvantage.com

-----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, G/3pRGeC60xzWiPnxbZphQ+Imfr7UgTCHxWdQyuo1DEBI34rNFunKJ7OTIWo1vZD Rv8HJKPZETjOixU7U6TCGQ== 0000912057-99-005829.txt : 19991117 0000912057-99-005829.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-005829 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99753201 BUSINESS ADDRESS: STREET 1: 1001 N 19TH ST STREET 2: STE 2000 CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 7035221315 10-Q 1 10-Q Prepared by MERRILL CORPORATION www.edgaradvantage.com

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 September 30, 1999

/ /	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 (State or Other Jurisdiction of Incorporation or Organization)		54-1163725 (I.R.S. Employer Identification No.)
1001 North 19th Street, Arlington, Virginia (Address of Principal Executive Offices)		22209 (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 November 5, 1999, was 206,384,035.

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 Flow	3
	Notes to Consolidated Financial Statements	4
Item 2.	Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 2.	Changes in Securities and Use of Proceeds	16
Item 6.	Exhibits and Reports on Form 8-K	16
Signatures		20

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998

(Unaudited)

	Three Months Ended						Nine Months Ended
	9/30/99			9/30/98			9/30/99			9/30/98
	($ in millions, except per share amounts)

REVENUES:
Sales and services	$	847		$	612		$	2,125		$	1,752
OPERATING COSTS AND EXPENSES:
Cost of sales and services		602			400			1,432			1,182
Selling, general and administrative expenses		13			15			44			42
Provision to reduce (for recovery of) contract receivables		7			(3	)		7			12

TOTAL OPERATING COSTS AND EXPENSES		622			412			1,483			1,236

OPERATING INCOME		225			200			642			516
OTHER INCOME AND (EXPENSE):
Interest expense		(141	)		(126	)		(417	)		(346	)
Interest and other income		22			16			55			47
Foreign currency exchange loss		(7	)		—			(9	)		—
Equity in earnings (loss) before income tax (includes foreign currency transaction loss of $54 for the 3 months ended September 30, 1999, and $198 for the 9 months ended September 30, 1999)		(3	)		41			(57	)		159

Income before income taxes, minority interest and extraordinary item		96			131			214			376
Income tax provision		27			30			55			99
Minority interest		11			22			43			62

Income before extraordinary item		58			79			116			215
Extraordinary item—Net gain on extinguishment of debt		—			2			—			2

NET INCOME	$	58		$	81		$	116		$	217

BASIC EARNINGS PER SHARE:
Before extraordinary item	$	0.30		$	0.44		$	0.62		$	1.21
Extraordinary item		—			0.01			—			0.01

Total	$	0.30		$	0.45		$	0.62		$	1.22

DILUTED EARNINGS PER SHARE:
Before extraordinary item	$	0.29		$	0.43		$	0.61		$	1.18
Extraordinary item		—			0.01			—			0.01

Total	$	0.29		$	0.44		$	0.61		$	1.19

See Notes to Consolidated Financial Statements.

THE AES CORPORATION

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 1999 AND DECEMBER 31, 1998

(Unaudited)

	September 30, 1999			December 31, 1998
	($ in millions)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	702		$	491
Short-term investments		49			35
Accounts receivable, less provision to reduce contract recievables (1999-$49 and 1998-$49)		679			365
Inventory		146			119
Receivable from affiliates		—			18
Deferred income taxes		78			71
Prepaid expenses and other current assets		212			155

Total current assets		1,866			1,254
PROPERTY, PLANT AND EQUIPMENT:
Land		157			135
Electric generation and distribution assets		5,990			5,301
Accumulated depreciation and amortization		(718	)		(525	)
Construction in progress		1,252			634

Property, plant and equipment, net		6,681			5,545
OTHER ASSETS:
Deferred financing costs, net		151			167
Project development costs		106			103
Investments in and advances to affiliates		1,510			1,933
Debt service reserves and other deposits		328			205
Electricity sales concessions and contracts		1,050			1,280
Goodwill		167			66
Other assets		247			228

Total other assets		3,559			3,982

TOTAL	$	12,106		$	10,781

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	261		$	215
Accrued interest		206			113
Accrued and other liabilities		443			235
Other notes payable—current portion		10			8
Project financing debt—current portion		958			1,405

Total current liabilities		1,878			1,976
LONG-TERM LIABILITIES:
Project financing debt		4,786			3,597
Other notes payable		2,051			1,644
Deferred income taxes		116			268
Other long-term liabilities		259			220

Total long-term liabilities		7,212			5,729
MINORITY INTEREST		964			732
COMPANY-OBLIGATED CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF AES		550			550
STOCKHOLDERS' EQUITY:
Common stock		2			2
Additional paid-in capital		1,806			1,243
Retained earnings		1,008			892
Accumulated other comprehensive loss		(1,314	)		(343	)

Total stockholders' equity		1,502			1,794

TOTAL	$	12,106		$	10,781

See Notes to Consolidated Financial Statements.

THE AES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

(Unaudited)

	Nine Months Ended September 30
	1999			1998
	($ in millions)

OPERATING ACTIVITIES:
Net cash provided by operating activities	$	343		$	137
INVESTING ACTIVITIES:
Property additions		(641	)		(256	)
Acquisitions, net of cash acquired		(1,439	)		(1,356	)
Proceeds from the sales of assets		666			254
Sale of short-term investments		8			32
Purchase of short-term investments		(22	)		—
Affiliate advances and equity investments		(142	)		(60	)
Project development costs		(44	)		(26	)
Debt service reserves and other assets		(123	)		52

Net cash used in investing activities		(1,737	)		(1,360	)
FINANCING ACTIVITIES:
Borrowings (repayments) under the revolver		(91	)		171
Issuance of project financing debt and other coupon bearing securities		1,947			1,572
Repayments of project financing debt and other coupon bearing securities		(706	)		(559	)
Payments for deferred financing costs		(12	)		(17	)
Other liabilities		(40	)		(58	)
Minority interest payments		(7	)		—
Sales of common stock		514			195

Net cash provided by financing activities		1,605			1,304
Increase in cash and cash equivalents		211			81
Cash and cash equivalents, beginning		491			302

Cash and cash equivalents, ending	$	702		$	383

SUPPLEMENTAL INTEREST AND INCOME TAXES DISCLOSURES:
Cash payments for interest	$	326		$	301

Cash payments for income taxes	$	53		$	37

NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisition of NewEnergy	$	49			—

See Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

(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.

In the Company's opinion, all adjustments necessary for a fair presentation of the unaudited results of operations for the nine months ended September 30, 1999 and 1998, respectively, are included. All such adjustments are accruals of a normal and recurring nature. The results of operations for the period ended September 30, 1999 are not necessarily indicative of the results of operations to be expected for the full year. The financial statements are unaudited and should be read in conjunction with the financial statements which are incorporated by reference in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Certain amounts previously presented have been reclassified to conform to the September 30, 1999 presentation.

2. Foreign Currency Translation

During 1999, the Brazilian Reais experienced a significant devaluation relative to the U.S. Dollar, declining from 1.21 Reais to the Dollar at December 31, 1998 to an average of 1.82 Reais to the Dollar for the nine months ended September 30, 1999. This devaluation resulted in significant foreign currency translation and transaction losses for the Company for both the three months and the nine months ended September 30, 1999. A non-cash charge of approximately $61 million and $207 million before income taxes was recorded during the three months and the nine months ended September 30, 1999, respectively. The non-cash charge was approximately $41 million and $141 million after considering income taxes at the effective tax rate of 32% during the three months and the nine months ended September 30, 1999, respectively. Excluding the effects of foreign currency transaction losses, the Company incurred net income of $99 million and diluted earnings per share of $0.50 for the three months ended September 30, 1999, and net income of $257 million and diluted earnings per share of $1.34 for the nine months ended September 30, 1999. The Company also incurred $971 million in foreign currency translation losses during the nine months ended September 30, 1999 which are included in "Accumulated other comprehensive loss" in the consolidated balance sheet.

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 SFAS (Statement of Financial Accounting Standards) No. 128, Earnings Per Share. (See Exhibit 11).

4. Investments in and Advances to Affiliates

The Company is a party to joint venture/consortium agreements through which the Company has equity investments in several operating companies. 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 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.

The following table presents summarized financial information (in millions) for equity method affiliates on a combined 100% basis. Amounts presented include condensed income statement information of Northern/AES Energy (45% owned U.S. affiliate), NIGEN Ltd. (47% owned UK Affiliate), Medway Power Ltd. (25% owned UK affiliate), Elsta (50% owned Netherlands affiliate), Light (18% and 14%, in 1999 and 1998, respectively, owned Brazilian affiliate), CEMIG (9.45% owned Brazilian affiliate), affiliates of Chigen, and Kingston (50% owned Canadian affiliate) for the nine months ended September 30, 1999 and 1998. In addition to the affiliates owned as of September 30, 1998, the Company purchased OPGC (49% owned Indian affiliate) in late December 1998 which is included in the table below for the nine months ended September 30, 1999.

	Nine Months Ended September 30,
	1999			1998

Revenues	$	2,461		$	4,845
Operating Income		781			1,448
Net Income (Loss)		(381	)		815

5. Legal Proceedings

On October 14, 1999, the Company received a letter from the New York State Attorney General requesting operating and maintenance history for the Greenidge and Westover stations which were recently acquired from NGE Generating Company. The information is being sought in connection with the Attorney General's investigation into whether major modifications were made to several coal-fired electricity generating stations in New York without obtaining the requisite Prevention of Significance Deterioration ("PSD") and/or New Source Review ("NSR") pre-construction permits. The Company is cooperating with the Attorney General's investigation.

In September, an appellate judge in the Minas Gerais state court system granted a temporary injunction that suspends the effectiveness of a shareholders' agreement for Cia. Energetica de Minas Gerais ("CEMIG"). This appellate ruling suspends the shareholders' agreement while the action to determine the validity of the shareholders' agreement is litigated in the lower court. In early November, the same appellate reversed this decision and reinstated the effectiveness of the shareholders' agreement, but did not restore the super majority voting rights that benefited the Company. AES intends to vigorously pursue its legal rights in this matter and to restore all of its rights regarding CEMIG, and does not anticipate that this temporary suspension of the shareholders' agreement will have a significant effect on its financial condition or results of operation.

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 are expected to have a material adverse effect on its results of operations or financial position.

6. Acquisitions

In September 1999, a subsidiary of the Company acquired approximately 51% of Central Electricity Supply Company of Orissa Limited (CESCO), an electricity distribution company in the state of Orissa, India, for approximately $10 million. In October 1999, a cyclone struck India including the state of Orissa and caused extensive damage to the transmission and distribution system of CESCO. The Company is currently assessing the extent of the damage as well as the costs of repair.

In August 1999, a subsidiary of the Company won a bid to acquire a controlling 51% interest in Eletronet in Brazil for approximately $155 million. The remaining 49% will be owned by a subsidiary of Eletrobas, a Brazilian utility. Eletronet was created in 1998 by the minority owner to construct a national broadband telecommunications network attached to the existing national electrical transmission grid in Brazil. The business activities of Eletronet currently represent construction activities, preparing the network for its intended use. Therefore, no results of operations have been included in the table below for this acquisition.

In August 1999, a subsidiary of the Company acquired 50% of Empresa Distribuidora de Electricidad del Este S.A. ("Ede Este") the distribution company providing electricity to approximately 400,000 users in the eastern portion of the Dominican Republic, for approximately $109 million. The Company controls the operations, and therefore, consolidates Ede Este.

In July 1999, a subsidiary of the Company acquired all the outstanding shares of NewEnergy Ventures, Inc., a retail energy service company for approximately $90 million. NewEnergy provides electric energy, energy products and services, and technology-based energy solutions to customers in deregulated energy markets in the U.S. The acquisition was financed through a combination of cash, debt and AES common stock

In May 1999, a subsidiary of the Company acquired two gas-fired power plants totaling 966 MW ("Ecogen") from the government of Victoria, Australia for approximately $100 million.

In January 1999, a subsidiary of the Company acquired 49% of both Empresa de Generación Chiriquí S.A. (EGE Chiriquí) and Empresa de Generación Bayano (EGE Bayano), two hydroelectric generation companies in Panama, for approximately $91 million. AES controls the operations of both entities, and therefore, consolidates them.

In December 1998, a subsidiary of the Company acquired a 75% interest in Telasi, the electricity distribution company of Tbilisi, Republic of Georgia, for approximately $26 million.

In June 1998, a subsidiary of AES acquired approximately 90% of Empresa Distribuidora de La Plata S.A. ("EDELAP"), an electric distribution company in the province of Buenos Aires, Argentina for approximately $355 million.

In May 1998, AES Southland and other subsidiaries of the Company completed the purchase of three natural gas-fired electric generating stations located in Southern California from Southern California Edison for approximately $786 million.

In February 1998, the Company acquired approximately 80% of Compania de Luz Electrica de Santa Ana ("CLESA"), an electricity distribution company in El Salvador, for approximately $97 million.

The accompanying statements of operations include the operating results for all of the acquired companies from the dates of their respective acquisitions. The following table presents supplemental unaudited pro forma operating information as if each of the acquisitions had occurred at the beginning of the periods presented (in millions, except per share amounts):

	Nine Months Ended
	9/30/99		9/30/98

Revenues	$	2,390	$	2,112
Income before extraordinary item		99		196
Net Income		99		198
Basic Earnings Per Share before extraordinary item		0.53		1.10
Basic Earnings Per Share		0.53		1.12
Diluted Earnings Per Share before extraordinary item		0.51		1.08
Diluted Earnings Per Share		0.51		1.09

The pro forma results are based upon assumptions and estimates which the company believes are reasonable. The pro forma results do not purport to be indicative of the results that actually would have been obtained had the acquisitions occurred on January 1, 1998, nor are they intended to be a projection of future results. Net income and earnings per share for the nine months ended September 30, 1999 include a non-cash charge of $141 million, net of tax, from foreign currency transaction losses.

In June 1999, a subsidiary of the Company assumed long-term managerial and voting control of two regional electric distribution companies ("RECs") in Kazakhstan as part of a settlement of receivables outstanding from the government of Kazakhstan. The contractual rights to control the operations of the RECs received in this transaction were valued at approximately $26 million. The two distribution businesses serve approximately 1.8 million people. There can be no assurance that the government of Kazakhstan will abide by the terms or periods agreed to in the original memorandum of understanding that currently governs the Company's operating control of the RECs.

In May 1999, a subsidiary of the Company acquired six electric generating stations from NGE Generation, Incorporated ("NGE") for approximately $953 million. These coal-fired electric generating stations have a total installed capacity of 1,424 MW. Concurrently, the subsidiary sold two of the plants to an unrelated third party for approximately $670 million and simultaneously entered into a leasing arrangement with the unrelated party. The former transaction was accounted for as a purchase while the latter was accounted for as a sale-leaseback, with operating lease treatment.

The purchase price allocations for recently completed acquisitions have been prepared on a preliminary basis subject to adjustments resulting from additional facts that may come to light when the engineering, environmental and legal analysis are completed during their respective allocation periods.

7. Comprehensive Income

Comprehensive income (loss) consists of net income and foreign currency translation adjustments. It includes foreign currency translation losses of $119 million and $86 million for the quarters ended September 30, 1999 and 1998, respectively, and foreign currency translation losses of $971 million and $181 million for the nine months ended September 30, 1999 and 1998, respectively. Comprehensive loss was $61 million and $5 million for the quarters ended September 30, 1999 and 1998, respectively. Comprehensive loss was $855 million for the nine months ended September 30, 1999, and comprehensive income was $36 million for the nine months ended September 30, 1998.

8. Segments

Information about the Company's operations by segment are as follows (in millions):

	Revenue (1)		Operating Income			Equity Earnings / (Loss)

Quarter Ended September 30, 1999
Generation	$	529	$	203		$	10
Distribution		315		34			(13	)
Corporate and services		3		(12	)		—

Total	$	847	$	225		$	(3	)

Quarter Ended September 30, 1998
Generation	$	366	$	162		$	6
Distribution		244		55			35
Corporate and services		2		(17	)		—

Total	$	612	$	200		$	41

Nine Months Ended September 30, 1999
Generation	$	1,320	$	551		$	36
Distribution		791		128			(93	)
Corporate and services		14		(37	)		—

Total	$	2,125	$	642		$	(57	)

Nine Months Ended September 30, 1998
Generation	$	1,022	$	410		$	21
Distribution		720		149			138
Corporate and services		10		(43	)		—

Total	$	1,752	$	516		$	159

(1): Intersegment revenues for the quarter ended September 30, 1999 and 1998 were $23 million and $24 million, respectively, and for nine months ended September 30, 1999 and 1998 were $68 million and $49 million, respectively.

9. Subsequent Events

In November 1999 a subsidiary of the Company acquired a controlling interest in Tiete (Companhia de Geracao de Energia Eletrica Tiete), a generating company in Brazil for approximately $498 million. AES acquired 61% of the voting stock and 39% of the total capital stock of the company. Approximately $186 million of the project financing was provided by BNDES, the Brazilian national development bank, and AES funded the remaining amount.

In November 1999 the Company sold an additional $250,000,000 of its 9.50% Senior Notes due 2009 at 99.5% plus accrued interest from June 11, 1999. The proceeds from this offering were used to meet short-term liquidity needs of the Company related to financing certain acquisitions, providing equity investments or other credit support to assist in certain project refinancings, repaying certain indebtedness and otherwise for general corporate purposes.

In October 1999 the Company sold 14,000,000 shares of its common stock for gross proceeds of approximately $801 million and simultaneously sold trust convertible preferred Securities ("Convertibles") for gross proceeds of approximately $450 million. The Convertibles were priced to yield 6³/4%, with a 23% conversion premium. In November 1999 the underwriters exercised their entire overallotment option for the Convertibles in the amount of approximately $68 million. The proceeds from these offerings were used to meet short-term liquidity needs of the Company related to financing certain acquisitions, providing equity investments or other credit support to assist in certain project refinancings, repaying certain indebtedness, and otherwise for general corporate purposes.

In October 1999 a subsidiary of the Company completed the acquisition of Peoria, Illinois-based CILCORP Inc. (NYSE:CER). AES entered into a definitive agreement in November 1998 to acquire CILCORP for approximately $886 million in cash. The purchase price includes $475 million of subordinated debentures issued by the subsidiary formed to acquire CILCORP. CILCORP is the parent company of Central Illinois Light Company, an electric and gas utility that serves approximately 190,000 electric and 200,000 gas customers in central Illinois.

Item 2. Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

The AES Corporation (AES or the Company) is a global power company committed to serving the world's needs for electricity in a socially responsible way.

The majority of the Company's revenues represent sales of electricity to customers (generally electric utilities or regional electric companies) for further resale to end-users. This is referred to as the electricity "generation" business. AES's generation business represented 62% of total revenues for the nine months ended September 30, 1999. Sales by these generation companies are made both under long-term contracts from power plants owned by the Company's subsidiaries and affiliates as well as through direct sales into regional wholesale electricity markets without a contract. The Company owns plants that it has constructed ("greenfield" plants) as well those that it has purchased.

Because of the significant complexities associated with building new electric generating plants, construction periods often range from two to five years, depending on the technology and location. AES currently expects that projects now under construction will reach commercial operation and begin to sell electricity at various dates through the year 2002. The completion of each plant in a timely manner is generally supported by a guarantee from the plant's construction contractor, although in certain cases, AES has assumed the risk of satisfactory construction completion. Due to changes in the economic, political, technological, regulatory or logistical circumstances involving each individual plant, however, those commercial operations may be delayed.

AES also sells electricity directly to end users such as commercial, industrial, governmental and residential customers. This is referred to as the electricity "distribution" business. Electricity sales by AES's distribution businesses are generally made pursuant to the provisions of long-term electricity sale concessions granted by governments. 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. Each distribution company also purchases electricity from third party wholesale suppliers, which may include other subsidiaries of the Company.

AES continues to believe that there is significant demand for more efficiently operated electricity generation and distribution businesses. As a result, and guided by its commitment to serve the world's needs for electricity, AES is pursuing additional 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.

AES is also currently in the process of completing several acquisitions, including its agreement to acquire the Drax Power Station, a 4,000 MW coal-fired base load generating facility. On November 9, 1999, the British Secretary of State approved the sale of the Drax Power Station by National Power, Plc. to AES.

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. Substantial risks accompany their successful completion, including, but not limited to, those relating to failures of siting, financing, construction, permitting, governmental approvals or termination of the power sales contract as a result of a failure to meet certain milestones. As of September 30, 1999, capitalized costs for projects under development and in early stage construction were approximately $106 million. The Company believes that these costs are recoverable; however, no assurance can be given that changes in circumstances related to individual projects will not occur or that any of these projects will be completed and reach commercial operation.

It may not always be possible to arrange project financing for specific potential acquisitions. Moreover, acquisitions or the commencement of construction on several greenfield developments could require the Company to obtain substantial additional financing including both debt and equity. In order to enhance its financial capabilities to respond to these more accelerated opportunities, the Company maintains a $600 million revolving line and letter of credit facility (the "Revolver") and a $250 million letter of credit facility. AES also maintains a "universal shelf" registration statement with the SEC, which allows for the public issuance of various additional debt and preferred or common equity securities, either individually or in combination, and which currently represents approximately $932 million in unused potential proceeds from the issuance of public securities.

The Company wishes to caution readers that there are important factors and areas affecting the Company which involve risk and uncertainty. These factors are set forth in the Company's Annual Report on Form 10-K filed with the Commission for the year ended December 31, 1998 under the heading "Cautionary Statement and Risk Factors", and should be considered when reviewing the Company's business. Such factors are relied upon by AES in issuing any forward-looking statements and could affect AES's actual results and cause such results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, AES. Some or all of these factors may apply to the Company's business as currently maintained or to be maintained.

Results of Operations

Revenues. Revenues increased $235 million, or 38%, to $847 million in the third quarter of 1999 from $612 million in the third quarter of 1998. Revenues increased $373 million, or 21%, to $2.1 billion in the nine months ended September 30, 1999 from $1.7 billion in the nine months ended September 30, 1998. Revenues increased primarily from the acquisition of new businesses and also from the development of greenfield projects during both the third quarter of 1999 and the nine months ended September 30, 1999. The increase in revenues for the third quarter of 1999 is due primarily to the acquisitions of New Energy in July 1999 and the New York plants in May 1999. Other acquisitions that also contributed to the increase in revenues during the nine months ended September 30, 1999 include Southland, Edelap, Panama and Telasi. The start of commercial operations at Barry also contributed to the overall increase in revenues. Several other businesses also experienced modest increases in revenues. Revenues were negatively impacted at Sul due to the effects of the devaluation of the Brazilian Reais. A few other businesses also experienced modest decreases in revenues.

Gross Margin. Gross margin, which represents total revenues reduced by cost of sales and services, increased $33 million, or 16%, to $245 million in the third quarter of 1999 from $212 million in the third quarter of 1998. Gross margin as a percentage of revenues decreased to 29% in the third quarter of 1999 from 35% in the third quarter of 1998. Gross margin in the third quarter of 1999 was negatively impacted by losses at New Energy which was acquired in July 1999, as well as by a decline at Sul due to the devaluation of the Brazilian Reais. Gross margin increased $123 million, or 22%, to $693 million for the nine months ended September 30, 1999 from $570 million for the nine months ended September 30, 1998. Gross margin as a percentage of revenues was 32% for the nine months ended September 30, 1999 and was 33% for the nine months ended September 30, 1998.

Provision to Reduce Contract Receivables. The Company recorded a $7 million provision to reduce contract receivables during the three months ended September 30, 1999. This provision relates primarily to Telasi, a distribution company in Tiblisi, Georgia.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $2 million, or 13%, to $13 million for the three months ended September 30, 1999 from $15 million for the three months ended September 30, 1998. Selling, general and administrative expenses as a percentage of revenues remained fairly consistent at 1% for the three months ended September 30, 1999 and 2% for the three months ended September 30, 1998. Business development expenses declined slightly during the three months ended September 30, 1999, because more of the Company's resources were focused on completing acquisitions and projects under construction. Selling, general and administrative expenses increased $2 million, or 5%, to $44 million for the nine months ended September 30, 1999 from $42 million for the nine months ended September 30, 1998. Selling, general and administrative expenses as a percentage of revenues remained constant at 2% for both the nine months ended September 30, 1999 and the nine months ended September 30, 1998.

Operating Income. Operating income increased $25 million, or 13%, to $225 million for the three months ended September 30, 1999 from $200 million for the three months ended September 30, 1998. Operating income as a percentage of revenues decreased to 27% for the three months ended September 30, 1999 from 33% for the three months ended September 30, 1998. The decrease in operating income as a percentage of revenues for the three months ended September 30, 1999 is consistent with the decrease in gross margin as a percentage of revenues for the three months ended September 30, 1999. Operating income increased $126 million, or 24%, to $642 million for the nine months ended September 30, 1999 from $516 million for the nine months ended September 30, 1998. Operating income as a percentage of revenues remained constant at 30% for both of the nine months ended September 30, 1999 and the nine months ended September 30, 1998.

Interest Expense. Interest expense increased $15 million, or 12%, to $141 million for the three months ended September 30, 1999 from $126 million for the three months ended September 30, 1998. Interest expense increased $71 million, or 21%, to $417 million for the nine months ended September 30, 1999 from $346 million for the nine months ended September 30, 1998. The overall increase in interest expense is due to interest at new businesses and additional corporate interest on the senior debt and convertible subordinated debentures issued within the past twelve months to finance new investments, offset by reductions in debt at several South American businesses and an increase in capitalized interest because of increased construction activity during 1999.

Interest and Other Income. Interest and other income increased $6 million, or 38%, to $22 million for the three months ended September 30, 1999 from $16 million for the three months ended September 30, 1998. Interest and other income increased $8 million, or 17%, to $55 million for the nine months ended September 30, 1999 from $47 million for the nine months ended September 30, 1998. The increase in interest and other income is due primarily to an increase in funds available for investment.

Foreign Currency Transaction Losses. The Company recorded $7 million of foreign currency transaction losses in businesses which are controlled and consolidated by the Company during the three months ended September 30, 1999. For the nine months ended September 30, 1999, the Company recorded $9 million of foreign currency transaction losses in businesses which are controlled and consolidated by the Company. The losses relate primarily to a decline in the value of the Pakistani Rupee. The Company was also impacted by the devaluation of the Brazilian Reais and recorded $54 million of foreign currency transaction losses on its investments in affiliates during the three months ended September 30, 1999. For the nine months ended September 30, 1999, the Company recorded $198 million of foreign currency transaction losses due to the devaluation of the Brazilian Reais on its investments in affiliates. Equity in earnings of affiliates (before income tax) is presented net of the foreign currency transaction losses on the Consolidated Statements of Operations.

Equity in Earnings (Losses) of Affiliates. The Company recorded a $3 million loss from its investments in affiliates for the three months ended September 30, 1999. The $3 million loss is net of $54 million in foreign currency transaction losses. Excluding the foreign currency transaction losses, equity in earnings of affiliates increased $10 million, or 24%, to $51 million for the three months ended September 30, 1999 from $41 million for the three months ended September 30, 1998. The overall increase in equity earnings excluding foreign currency transaction losses is due primarily to increases at Eletropaulo, a subsidiary of Light, OPGC and Elsta, offset by decreases at CEMIG and AES Northern. The settlement of a gross receipts tax dispute favorably impacted the equity earnings from Eletropaulo. The Company recorded a $57 million loss for the nine months ended September 30, 1999. The $57 million loss is net of $198 million in foreign currency transaction losses. Excluding the foreign currency transaction losses, equity in earnings of affiliates decreased $18 million, or 11%, to $141 million for the nine months ended September 30, 1999 from $159 million for the nine months ended September 30, 1998. The decrease in equity earnings excluding foreign currency transaction losses is due primarily to decreases in the Brazilian businesses as well as at AES Northern.

Income Taxes. The Company recorded an income tax provision of $27 million for the three months ended September 30, 1999 and an income tax provision of $30 million for the three months ended September 30, 1998. Excluding the foreign currency transaction losses, the income tax provision would have been $47 million for the three months ended September 30, 1999. The Company recorded an income tax provision of $55 million for the nine months ended September 30, 1999 and an income tax provision of $99 million for the nine months ended September 30, 1998. Excluding the foreign currency transaction losses, the income tax provision would have been $121 million for the nine months ended September 30, 1999. The Company's effective tax rate was 32% in 1999 and 33% in 1998.

Minority Interest. Minority interest decreased $11 million, or 50%, to $11 million for the three months ended September 30, 1999 from $22 million for the three months ended September 30, 1998. Minority interest decreased $19 million, or 31%, to $43 million for the nine months ended September 30, 1999 from $62 million for the nine months ended September 30, 1998. The decrease in minority interest for both the three months and the nine months ended September 30, 1999 is due mainly to a lower contribution from certain Brazilian businesses in 1999.

Net Income. Net income decreased $23 million, or 28%, to $58 million for the three months ended September 30, 1999 from $81 million for the three months ended September 30, 1998. Excluding foreign currency transaction losses, net income increased $20 million, or 25%, to $99 million for the three months ended September 30, 1999 from $79 million for the three months ended September 30, 1998. Net income excluding foreign currency transaction losses as a percentage of revenues remained fairly constant at 12% for the three months ended September 30, 1999 and 13% for the three months ended September 30, 1998. Net income decreased $101 million, or 47%, to $116 million for the nine months ended September 30, 1999 from $217 million for the nine months ended September 30, 1998. Excluding foreign currency transaction losses, net income increased $42 million, or 20%, to $257 million for the nine months ended September 30, 1999 from $215 million for the nine months ended September 30, 1998. Net income excluding foreign currency transaction losses as a percentage of revenues remained constant at 12% for both the nine months ended September 30, 1999 and the nine months ended September 30, 1998.

Financial Position, Cash Flows and Foreign Currency Exchange Rates

At September 30, 1999, cash and cash equivalents totaled approximately $702 million, as compared to $491 million at December 31, 1998. The $211 million increase in cash resulted from $1,605 million from financing activities, $343 million from operating activities and the funding of $1,737 million of investing activities. Significant investing activities included the following acquisitions: EGE Chiriqui and EGE Bayano in Panama; Ecogen in Australia; NewEnergy in California; Ede Este in the Dominican Republic; Eletronet in Brazil; CESCO in India; the six electric generating stations from NGE and the sale and leaseback of certain of the stations; as well as continued construction activities at various projects. The net source of cash from financing activities was primarily the result of project finance borrowings of approximately $1,947 million, the issuance of $500 million in senior notes which were offset, in part, by repayment of approximately $706 million of project financing debt. Unrestricted net cash flow of the parent company for the four quarters ended September 30, 1999 totaled approximately $370 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 $1,314 million in cumulative foreign currency translation adjustment losses at September 30, 1999.

Year 2000

There are three main elements in the provision of electricity: Generation, transmission and distribution, all of which form a tightly integrated "supplier chain." In addition, the Company's businesses are also dependent on various industries supplying water, fuel and other utility services. AES, through its subsidiaries and affiliates, is involved in each aspect of the supplier chain in various countries throughout the world. Set forth below is information regarding AES's efforts to be prepared for the problems associated with the potential inability of many existing computer programs and/or embedded computer chips to recognize the year 2000, both those in AES's businesses as well as those that AES's businesses depend upon.

Certain of these statements may constitute forward-looking information as contemplated by the Private Securities Litigation Reform Act of 1995, including those regarding AES's expected readiness to handle Year 2000 problems, expected capital expenditures in the areas of remediation and testing, the future costs associated with business disruption caused by supplier or customer Year 2000 problems and the success of any contingency plans. AES cautions that its predictions of the extent of potential problems and the effectiveness of measures designed to address them are based on numerous assumptions, like those regarding the accuracy of statements or certifications from critical third parties and vendors, the ability to identify and remediate or replace embedded computer chips in affected equipment, and resource availability, among other things, and readers should be aware that actual results might differ materially from those discussed below.

AES's approach to analyzing Year 2000 issues is to (1) inventory all systems and equipment likely to be affected, (2) perform an inventory assessment, (3) conduct remediations, (4) test all equipment and systems, and (5) develop contingency plans to aid in business continuity.

AES's State of Readiness. In 1998, AES established a readiness program, led by senior executives and consisting of a team of AES people with extensive knowledge of AES's businesses and processes, as well as outside consultants experienced in these areas who are being used as advisors to assist with third party analysis and contingency planning.

Approximately 98% of the Company's businesses have completed a thorough Year 2000 readiness program. The remaining businesses are in the process of completing their contingency planning and all elements of their readiness plan by December 1999. This readiness program has included, where possible, actual Year 2000 simulations as well as off-line tests using dates occurring after the year 2000, and the development of contingency plans. These tests disclosed no material difficulties with recognizing and processing dates after 1999. The Company is still evaluating the status of certain newly acquired or to be acquired subsidiaries and assets such as Empresa Distribuidora del Electricidad del Este, S.A., Tiete, and the Drax Power Station.

The Company's generation plants are also significantly dependant on transmission and distribution systems to carry the electricity to the ultimate end users.

Due to the interdependent nature of the supply chain, the Company has extended its evaluation of Year 2000 issues to include key suppliers, transmission companies, customers and vendors, and has organized meetings and sought written assurance from these parties as to their Year 2000 readiness.

Costs of Addressing Year 2000 Issues. The Company has spent approximately $14 million to date to achieve full Year 2000 readiness, and does not expect to spend significant additional funds to achieve full Year 2000 Readiness Company wide. These costs include estimates for the newly acquired CESCO and soon to be acquired Drax Power Station. These amounts reflect AES's portion of expected costs to make its businesses Year 2000 ready, but not necessarily the cost associated with post-Year 2000 corrective actions or damages, if any. The Company has funded these expenditures through internal sources.

Risks of Year 2000 Failures. Failures by each of the Company's generation and distribution companies to address Year 2000 issues may lead to numerical errors that, if not addressed or mitigated, may cause system malfunctions resulting in the inability to deliver electricity or the inability to collect data necessary for proper billing and tariff calculations, among other things.

The Company's generation business may also be unable to deliver electricity because of the failure of the interconnected distribution companies to receive or transmit the electricity. Conversely, the Company's distribution companies may not receive sufficient electricity to deliver to their customers because of failures by supplying generators. In such instances of business interruption due to supplier or customer default, the Company will pursue all contractual remedies available to it to minimize the impact on its results of operations; however, there can be no assurance that, in all instances, the Company will be able to legally protect itself from damages arising from third party Year 2000 failures. Because of the significant interdependency of the supplier chain, the Company cannot guarantee that services will be uninterrupted nor can it adequately predict a reasonably likely worst-case scenario until substantially all of the testing phase is completed.

Contingency Plans. The Company (together with appropriate interested parties like transmission companies, independent system operators and government agencies) has identified and is testing appropriate contingency plans, addressing emergency operations, disaster recovery, data preservation and business continuation plans, and intends to continue testing through the fourth quarter of 1999. In addition to our remediation programs, the Company's Year 2000 readiness efforts include evaluation of reasonably likely worst case scenarios and the development of contingency plans to address how we would respond to problems, should they occur. As a part of the contingency planning process, the Company has addressed the scenarios recommended in the North American Electric Reliability Council Year 2000 Contingency Planning Guide, as well as additional Company specific scenarios. In September 1999, the AES businesses that are located within the North Americas Reliability Council (NERC) area were issued a Year 2000 ready status from NERC.

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 third quarter of 1999 from those set forth in the Company's Annual Report filed with the Commission on Form 10-K for the year ended December 31, 1998.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

See discussion of litigation in Part I, Notes 5 and 9 to the Consolidated Financial Statements.

Item 2. Changes in Securities and Use of Proceeds.

In October 1999 the Company sold 14,000,000 shares of its common stock for gross proceeds of approximately $801 million. In October 1999 the Company also sold trust convertible preferred Securities ("Convertibles") for gross proceeds of approximately $450 million. The Convertibles were priced to yield 6³/4%, with a 23% conversion premium. Also, in November 1999 the underwriters exercised their entire overallotment option for the Convertibles which amounted to approximately $68 million. The proceeds from these offerings were used to meet short-term liquidity needs of the Company related to financing certain acquisitions, providing equity investments or other credit support to assist in certain project refinancings, repaying certain indebtedness, and otherwise for general corporate purposes.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

3.1		Fifth Amended and Restated Certificate of Incorporation of The AES Corporation is incorporated here in by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of the Registrant for the quarterly period ended June 30, 1998 filed August 14, 1998.
3.2		By-Laws of The AES Corporation, as amended is incorporated here in by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of the Registrant for the quarterly period ended June 30, 1998 filed August 14, 1998.
4.1		Amended and Restated Declaration of Trust of AES Trust I, among The AES Corporation, The First National Bank of Chicago and First Chicago Delaware, Inc., to provide for the issuance of the $2.6875 Term Convertible Securities, Series A is incorporated herein by reference to Exhibit 4.1 to Annual Report on Form 10-K of the Registrant for the year ended December 31, 1997 filed March 30, 1998.
4.2		Junior Subordinated Indenture, between The AES Corporation and The First National Bank of Chicago, to provide for the issuance of the $2.6875 Term Convertible Securities, Series A is incorporated herein by reference to Exhibit 4.1 to Annual Report on Form 10-K of the Registrant for the year ended December 31, 1997 filed March 30, 1998.
4.3		First Supplemental Indenture to Junior Subordinated Indenture, between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance of the $2.6875 Term Convertible Securities, Series A is incorporated herein by reference to Exhibit 4.1 to Annual Report on Form 10-K of the Registrant for the year ended December 31, 1997 filed March 30, 1998.
4.4		Guarantee Agreement, between The AES Corporation and The First National Bank of Chicago, as initial guarantee trustee, to provide for the issuance of the $2.6875 Term Convertible Securities, Series A is incorporated herein by reference to Exhibit 4.1 to Annual Report on Form 10-K of the Registrant for the year ended December 31, 1997 filed March 30, 1998.
4.5		Second Supplemental Indenture dated as of October 13, 1997 between the Company and the First National Bank of Chicago, as trustee, to provide for the issuance from time to time of the 10.25% Senior Subordinated Notes Due 2006, is incorporated herein by reference to Exhibit 4.2.1 of the Registration Statement on Form S-3/A (Registration No. 333-39857) filed November 19, 1997.
4.6		Indenture dated as of October 29, 1997 between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance from time to time of the 8.50% Senior Subordinated Notes due 2007 of the Company and the 8.875% Senior Subordinated Debentures due 2027, is incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (Registration No. 333-44845) filed January 23, 1998.
4.7		First Supplemental Indenture dated as of November 21, 1997 between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance from time to time of the 8.50% Senior Subordinated Notes due 2007 of the Company and the 8.875% Senior Subordinated Debentures due 2027, is incorporated herein by reference to Exhibit 4.1.2 to the Registration Statement on Form S-4 (Registration No. 333-44845) filed January 23, 1998.
4.8		Junior Subordinated Debt Trust Securities Indenture dated as of March 1, 1997 between the Company and The First National Bank of Chicago, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998.
4.9		Second Supplemental Indenture dated as of October 29, 1997 between the Company and The First National Bank of Chicago, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.1.1 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998.
4.10		Amended and Restated Declaration of Trust of AES Trust II, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998.
4.11		Restated Certificate of Trust of AES Trust II, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.4 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998.
4.12		Form of Preferred Security, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998.
4.13		Form of Junior Subordinated Debt Trust Security, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.6 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998.
4.14		Preferred Securities Guarantee with respect to Preferred Securities, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.7 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998.
4.15		Junior Subordinated Indenture dated as of August 10, 1998, between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance of the 4.5% Convertible Junior Subordinated Debentures due 2005 is incorporated here in by reference to Exhibit 4.15 to the Quarterly Report on Form 10-Q of the Registrant for the quarterly period ended June 30, 1998 filed August 14, 1998.
4.16		First Supplemental Indenture dated as of August 10. 1998, to the Junior Subordinated Indenture dated as of August 10, 1998, between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance of the 4.5% Convertible Junior Subordinated Debentures due 2005 is incorporated here in by reference to Exhibit 4.16 to the Quarterly Report on Form 10-Q of the Registrant for the quarterly period ended June 30, 1998 filed August 14, 1998.
4.17		Senior Indenture dated December 8, 1998 between the Registrant and the First National Bank of Chicago to provide for the issuance of $200 million of 8% Senior Note due 2008 is incorporated herein by reference to Exhibit 4.01 to the Current Report on Form 8-K of the Registrant filed December 11, 1998.
4.18		First Supplemental Indenture dated December 8, 1998 to the Senior Indenture between the Registrant and the First National Bank of Chicago to provide for the issuance of $200 million of 8% Senior Note due 2008 is incorporated herein by reference to Exhibit 4.02 to the Current Report on Form 8-K of the Registrant filed December 11, 1998.
4.19		Other instruments defining the rights of holders of long-term indebtedness of the Registrant and its consolidated subsidiaries is incorporated here in by reference to Exhibit 4.17 to the Quarterly Report on Form 10-Q of the Registrant for the quarterly period ended June 30, 1998 filed August 14, 1998.
10.1		Amended Power Sales Agreement, dated as of December 10, 1985, between Oklahoma Gas and Electric Company and AES Shady Point, Inc. is incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (Registration No. 33-40483) .
10.2		First Amendment to the Amended Power Sales Agreement, dated as of December 19, 1985, between Oklahoma Gas and Electric Company and AES Shady Point, Inc. is incorporated herein by reference to Exhibit 10.45 to the Registration Statement on Form S-1 (Registration No. 33-46011).
10.3		Electricity Purchase Agreement, dated as of December 6, 1985, between The Connecticut Light and Power Company and AES Thames, Inc. is incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-1 (Registration No. 33-40483).
10.4		Power Purchase Agreement, dated March 25, 1988, between AES Barbers Point, Inc. and Hawaiian Electric Company, Inc., as amended, is incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (Registration No. 33-40483) .
10.5		The AES Corporation Profit Sharing and Stock Ownership Plan is incorporated herein by reference to Exhibit 4(c)(1) to the Registration Statement on Form S-8 (Registration No. 33-49262).
10.6		The AES Corporation Incentive Stock Option Plan of 1991, as amended, is incorporated herein by reference to Exhibit 10.30 to the Annual Report on Form 10-K of the Registrant for the fiscal year ended December 31, 1995.
10.7		Applied Energy Services, Inc. Incentive Stock Option Plan of 1982 is incorporated herein by reference to Exhibit 10.31 to the Registration Statement on Form S-1 (Registration No. 33-40483).
10.8		Deferred Compensation Plan for Executive Officers, as amended, is incorporated herein by reference to Exhibit 10.32 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 33-40483).
10.9		Deferred Compensation Plan for Directors is incorporated herein by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q of the Registrant for the quarter ended March 31, 1998, filed May 15, 1998.
10.10		The AES Corporation Stock Option Plan for Outside Directors is incorporated herein by reference to Exhibit 10.43 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1991.
10.11		The AES Corporation Supplemental Retirement Plan is incorporated herein by reference to Exhibit 10.64 to the Annual Report on Form 10-K of the Registrant for the year ended December 31, 1994.
10.12		$600,000,000 Credit Agreement dated as of December 19, 1997 (amended and restated as of March 31, 1999) among AES, The Banks Listed Therein, The Fronting Banks Listed Therein, and Morgan Guaranty Trust Company of New York, as Agent.
10.13		Amendment No. 1 dated as of May 21, 1999 to the $600,000,000 Credit Agreement dated as of December 19, 1997 (amended and restated as of March 31, 1999) among AES, The Banks Listed Therein, The Fronting Banks Listed Therein, and Morgan Guaranty Trust Company of New York, as Agent.
10.14		Amendment No. 2 dated as of July 27, 1999 to the $600,000,000 Credit Agreement dated as of December 19, 1997 (amended and restated as of March 31, 1999) among AES, The Banks Listed Therein, The Fronting Banks Listed Therein, and Morgan Guaranty Trust Company of New York, as Agent.
10.15		Amendment No. 3 dated as of September 28, 1999 to the $600,000,000 Credit Agreement dated as of December 19, 1997 (amended and restated as of March 31, 1999) among AES, The Banks Listed Therein, The Fronting Banks Listed Therein, and Morgan Guaranty Trust Company of New York, as Agent.
10.16		Guaranty dated as of September 30, 1999 made by AES Oklahoma Management Co., Inc., AES Hawaii Management Company, Inc., AES Southland Funding LLC, and AES Warrior Run Funding LLC in favor of the Banks and the Fronting Banks party to the Credit Agreement and Morgan Guaranty Trust Company of New York, as Agent.
10.17		Letter of Credit and Reimbursement Agreement dated as of October 19, 1999, among AES, the Several Banks and Financial Institutions parties thereto from time to time, the Letter of Credit Issuing Banks parties thereto from time to time, Union Bank of California, N.A. as Administrative Agent, Morgan Guaranty Trust Company of New York as Syndication Agent, and Bank of America, N.A. as Documentation Agent.
11		Statement of computation of earnings per share.
27		Financial Data Schedule (Article 5).

(b) Reports on Form 8-K.

Registrant filed a Current Report on Form 8-K dated September 30, 1999 containing audited historical financial statements of CILCORP as of and for the three years ended December 31, 1998, interim financial statements of CILCORP as of and for the six months ended June 30, 1999, and pro forma financial statements of The AES Corporation as of and for the six months ended June 30, 1999 and for the year ended December 31, 1998 which reflect the acquisition of CILCORP.

Registrant filed a Current Report on Form 8-K dated August 20, 1999 containing the Registrant's press release about the agreement to acquire the Drax Power Station from National Power, Plc.

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: November 15, 1999		By:	/s/ BARRY J. SHARP Name: Barry J. Sharp Title: Senior Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit		Description of Exhibit		Sequentially Numbered Page

10.12		$600,000,000 Credit Agreement dated as of December 19, 1997 (amended and restated as of March 31, 1999) among AES, The Banks Listed Therein, The Fronting Banks Listed Therein, and Morgan Guaranty Trust Company of New York, as Agent
10.13		Amendment No. 1 dated as of May 21, 1999 to the $600,000,000 Credit Agreement dated as of December 19, 1997 (amended and restated as of March 31, 1999) among AES, The Banks Listed Therein, The Fronting Banks Listed Therein, and Morgan Guaranty Trust Company of New York, as Agent
10.14		Amendment No. 2 dated as of July 27, 1999 to the $600,000,000 Credit Agreement dated as of December 19, 1997 (amended and restated as of March 31, 1999) among AES, The Banks Listed Therein, The Fronting Banks Listed Therein, and Morgan Guaranty Trust Company of New York, as Agent
10.15		Amendment No. 3 dated as of September 28, 1999 to the $600,000,000 Credit Agreement dated as of December 19, 1997 (amended and restated as of March 31, 1999) among AES, The Banks Listed Therein, The Fronting Banks Listed Therein, and Morgan Guaranty Trust Company of New York, as Agent
10.16		Guaranty dated as of September 30, 1999 made by AES Oklahoma Management Co., Inc., AES Hawaii Management Company, Inc., AES Southland Funding LLC, and AES Warrior Run Funding LLC in favor of the Banks and the Fronting Banks party to the Credit Agreement and Morgan Guaranty Trust Company of New York, as Agent
10.17		Letter of Credit and Reimbursement Agreement dated as of October 19, 1999, among AES, the Several Banks and Financial Institutions parties thereto from time to time, the Letter of Credit Issuing Banks parties thereto from time to time, Union Bank of California, N.A. as Administrative Agent, Morgan Guaranty Trust Company of New York as Syndication Agent, and Bank of America, N.A. as Documentation Agent
11		Statement of Computation of Earnings Per Share
27		Financial Data Schedule

EX-10.12 2 EXHIBIT 10.12 Exhibit 10.12 COMPOSITE COPY $600,000,000 CREDIT AGREEMENT dated as of December 19, 1997 (as amended and restated as of March 31, 1999) among The AES Corporation, The Banks Listed Herein, The Fronting Banks Listed Herein, and Morgan Guaranty Trust Company of New York, as Agent ----------------------- NationsBank, N.A. Union Bank of California, N.A. Co-Arrangers ----------------------------------------------- As amended by Amendment No. 1 dated as of May 21, 1999 and Amendment No. 2 dated as of July 27, 1999 and Amendment No. 3 dated as of September 28, 1999 ----------------------------------------------- TABLE OF CONTENTS ----------------------

iv Appendix Pricing Schedule Schedule I- Existing Agreements with Affiliates Schedule II - Existing Letters of Credit Schedule III - Non-Conforming Letter of Credit Exhibit A - Note Exhibit B - Subsidiary Guaranty Exhibit C - Closing Date Opinion of the General Counsel of AES Exhibit D - Opinion of Davis Polk & Wardwell, Special Counsel for the Agent Exhibit E - AES Finance Subsidiary Addition Date Opinion of the General Counsel of AES Exhibit F - Opinion of Counsel to an AES Finance Subsidiary in such AES Finance Subsidiary's Jurisdiction of Incorporation Exhibit G - Assignment and Assumption Agreement Exhibit H - Form of Extension Agreement v CREDIT AGREEMENT (as amended and restated as of March 31, 1999) AGREEMENT dated as of December 19, 1997 among THE AES CORPORATION, the BANKS listed on the signature pages hereof, the FRONTING BANKS listed herein and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITIONS. The following terms, as used herein, have the following meanings: "ADDITIONAL GUARANTORS" means either (i) AES Cilcorp or (ii) both of AES Southland and AES Warrior Run, as designated by AES by notice to the Agent on or prior to the earlier of (x) the date of the consummation of the Cilcorp Acquisition and (y) the date that is six months after the date upon which the First Amendment and Restatement is effective; PROVIDED that if AES shall not have so designated the "Additional Guarantors" by such earlier date, the Agent shall so notify the Banks and the Required Banks shall have the right to so designate either (i) AES Cilcorp or (ii) both of AES Southland and AES Warrior Run as the "Additional Guarantors". "ADDITIONAL PERMITTED SUBORDINATED DEBT AGREEMENT" means an indenture or other agreement pursuant to which any Additional Permitted Subordinated Debt is issued or incurred, as the same may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "ADDITIONAL PERMITTED SUBORDINATED DEBT" means Debt of AES (other than Debt evidenced by the Existing Subordinated Notes and the Existing Convertible Subordinated Debentures) which does not require any scheduled payment of principal prior to December 19, 2003 and which has subordination provisions no less favorable to the Banks than those applicable to the Existing 8 3/8% Subordinated Notes and other terms and provisions applicable to AES and its Subsidiaries that are no more restrictive in any material respect (including, without limitation, covenants and events of default) than those applicable to the Existing 8 3/8% Subordinated Notes or those otherwise acceptable to the Required Banks. "ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.06(b). "ADJUSTED PARENT OPERATING CASH FLOW" means, for any period, (i) Parent Operating Cash Flow for such period less (ii) the sum of the following expenses (determined without duplication), in each case to the extent paid by a Borrower during such period and regardless of whether any such amount was accrued during such period: (A) development expenses; (B) income tax expenses of AES and its subsidiaries; and (C) corporate overhead expenses. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to AES) duly completed by such Bank. "AES" means The AES Corporation, a Delaware corporation, and its successors. "AES CEMIG FUNDING" means AES CEMIG Funding Corporation, a Delaware corporation, and its successors. "AES CILCORP" means AES Cilcorp Funding LLC, a Delaware limited liability company and a Wholly-Owned Consolidated Subsidiary of AES, and its successors. "AES ELECTRIC" means Applied Energy Services Electric Limited, an English corporation, and its successors. "AES FINANCE SUBSIDIARY" means (i) if less than all of the Banks approve the First Amendment and Restatement, a single Wholly-Owned Consolidated Subsidiary of AES organized under the laws of The British Virgin Islands, The Netherlands or The Cayman Islands and designated by AES in writing as the AES Finance Subsidiary, and the successors of such Subsidiary, and (ii) if all of the Banks approve the First Amendment and Restatement, any Wholly-Owned Consolidated Subsidiary of AES organized under the laws of England, The British Virgin Islands, The Netherlands, the Netherlands Antilles or The Cayman Islands and designated by AES in writing as an AES Finance Subsidiary, and the successors of each such Subsidiary. 2 "AES FINANCE SUBSIDIARY ADDITION DATE" means, with respect to any AES Finance Subsidiary, the date on or after the Closing Date on which the Agent shall have received the documents specified in or pursuant to Section 3.02 with respect to such AES Finance Subsidiary. "AESEBA FUNDING" means AESEBA Funding Corporation, a Delaware corporation, and its successors. "AES HAWAII MANAGEMENT" means AES Hawaii Management Company, Inc., a Delaware corporation and a Subsidiary of AES, and its successors. "AES MANAGEMENT GROUP" means (i) individuals who are members of the board of directors or officers of AES or the president of any Material AES Entity, (ii) their respective spouses, children, grandchildren, siblings and parents, (iii) trusts established for the sole or principal benefit of Persons described in clauses (i) and (ii) above, (iv) heirs, executors, administrators and personal or legal representatives of Persons described in clauses (i) and (ii) above, and (v) any corporation or other Person that is controlled by, and a majority of the equity interests in which are directly owned by, Persons described in clauses (i) and (ii) above. "AES 1996 FORM 10-K" means AES's annual report on Form 10-K for the year ended December 31, 1996, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "AES OKLAHOMA" means AES Oklahoma Management Co., Inc., a Delaware corporation and a Subsidiary of AES, and its successors. "AES PLACERITA" means AES Placerita, Inc., a Delaware corporation and an indirect Subsidiary of AES, and its successors. "AES SEPTEMBER 1997 FORM 10-Q" means AES's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 1997, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "AES SOUTHLAND" means AES Southland Funding LLC, a Delaware limited liability company and a Wholly-Owned Consolidated Subsidiary of AES, and its successors. "AES WARRIOR RUN" means AES Warrior Run Funding LLC, a Delaware limited liability company and a Wholly-Owned Consolidated Subsidiary of AES, and its successors. 3 "AFFILIATE" means (i) any Person that directly, or indirectly through one or more intermediaries, controls AES (a "Controlling Person") or (ii) any Person (other than AES or a Subsidiary) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "AGENT" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks hereunder, and its successors in such capacity. "APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office. "ASSET DISPOSITION" has the meaning set forth in the Existing Subordinated Note Indentures. "ASSIGNEE" has the meaning set forth in Section 10.06(c). "AUTOMATIC ACCELERATION EVENT" means the occurrence, with respect to any Borrower, of any of the Events of Default listed in clauses (g) and (h) of Section 6.01. "BANK" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 10.06(c), and their respective successors. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "BASE RATE LOAN" means a Loan which bears interest at the Base Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or the provisions of Section 2.07(a) or Article 8. "BENEFIT ARRANGEMENT" means, at any time, an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "BORROWER" means (i) prior to the first AES Finance Subsidiary Addition Date, AES and (ii) from and after the first AES Finance Subsidiary Addition Date, 4 AES or an AES Finance Subsidiary, as the context may require; prior to the first AES Finance Subsidiary Addition Date, "Borrowers" means AES and from and after the first AES Finance Subsidiary Addition Date, "Borrowers" means AES and each AES Finance Subsidiary. "BORROWING" means a borrowing hereunder consisting of Loans made to a single Borrower at the same time by the Banks pursuant to Article II. A Borrowing is a "Base Rate Borrowing" if such Loans are Base Rate Loans or a "Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans. "CASH COLLATERAL ACCOUNT" has the meaning set forth in Section 2.15. "CASH FLOW COVERAGE RATIO" means, for any period, the ratio of (i) Adjusted Parent Operating Cash Flow for such period to (ii) Corporate Charges for such period. "CASH FLOW TO TOTAL DEBT RATIO" means, at any date, the ratio of (i) Adjusted Parent Operating Cash Flow for the period of four consecutive fiscal quarters ended on, or most recently prior to, such date to (ii) Debt (other than Specified Equity-Related Debt, but only to the extent that the sum of the aggregate principal amount of all Specified Equity-Related Debt plus the liquidation preference of all preferred stock of AES does not exceed 25% of the sum (without duplication) of the aggregate principal amount of such Specified Equity-Related Debt, such preferred stock and Consolidated Net Worth at such date) of the Borrowers at such date. "CILCORP" means Cilcorp Inc., an Illinois corporation. "CILCORP ACQUISITION" means the acquisition by AES or any of its Subsidiaries of any capital stock of Cilcorp. "CLOSING DATE" means the date on or after the Effective Date on which the Agent shall have received the fees and documents specified in or pursuant to Section 3.01. "COMMITMENT" means, with respect to each Bank, the amount set forth opposite the name of such Bank in the Appendix hereto, as such amount may be reduced from time to time pursuant to Section 2.09. "CONSOLIDATED DEBT" means, at any date, the Debt of AES and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. 5 "CONSOLIDATED NET INCOME" means, for any period, the consolidated net income (or loss) of AES and its Consolidated Subsidiaries for such period. "CONSOLIDATED NET WORTH" means, at any date, the consolidated stockholders' equity of AES and its Consolidated Subsidiaries determined as of such date without giving effect to any currency translation adjustments after September 30, 1997. "CONSOLIDATED SUBSIDIARY" means, at any date with respect to any Person, any Subsidiary of such Person or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "CORPORATE CHARGES" means, for any period, the sum of the following amounts (determined without duplication), in each case to the extent paid by a Borrower during such period and regardless of whether any such amount was accrued during such period: (A) interest expense (including, without limitation, interest expense in respect of Specified Equity-Related Debt) of any Borrower for such period; (B) rental expense of any Borrower for such period; and (C) dividends paid on AES's capital stock during such period. "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all obligations (whether contingent or non-contingent) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, surety or performance bond or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. For purposes hereof, contingent obligations of the type described in clause (v) of this definition with respect to letters of credit not issued hereunder shall not be treated as "Debt" hereunder to the extent that such obligations are cash collateralized or to the extent that the issuer of any such letter of credit is entitled to draw under a Letter of Credit issued hereunder which by its terms requires that drawings under such 6 Letter of Credit be applied only to reimburse such issuer for amounts paid by such issuer under such letter of credit. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DESIGNATED SUBSIDIARY" means each of AES Connecticut Management Co., Inc., AES Oklahoma Management Co., Inc., AES Hawaii Management Co., Inc., AES Thames, Inc., AES Hawaii, Inc., AES Shady Point, Inc. and, from and after the earlier of (i) the date of the consummation of the Cilcorp Acquisition and (ii) the date that is six months after the date upon which the First Amendment and Restatement is effective, each Additional Guarantor, each Subsidiary of any Additional Guarantor and each Subsidiary of AES that holds a direct or indirect interest in any Additional Guarantor. "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to AES and the Agent. "EFFECTIVE DATE" means the date this Agreement becomes effective in accordance with Section 10.09. "8% SENIOR NOTES" means AES's 8% Senior Notes due 2008 issued pursuant to the 1998 Senior Note Indenture. "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment, including, without limitation, ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. 7 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA GROUP" means AES, its Subsidiaries and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with AES or any of its Subsidiaries, are treated as a single employer under Section 414 of the Internal Revenue Code. "EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to AES and the Agent. "EURO-DOLLAR LOAN" means a Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election. "EURO-DOLLAR MARGIN" has the meaning set forth in Section 2.06(b). "EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section 2.06(b). "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "EXISTING AESEBA FUNDING NON-RECOURSE FACILITY" means the Loan Agreement dated as of August 28, 1997 among AESEBA Funding, the lenders named therein and Morgan Guaranty Trust Company of New York, as agent, as amended, and the Financing Documents (as defined therein). "EXISTING AES CEMIG FUNDING NON-RECOURSE FACILITY" means the Loan Agreement dated as of August 28, 1997 among CEMIG Funding, the lenders named therein and Morgan Guaranty Trust Company of New York, as agent, as amended, and the Financing Documents (as defined therein). "EXISTING CREDIT FACILITY" means the Credit Agreement dated as of October 24, 1997 among AES, the banks listed therein, Barclays Bank PLC, Union Bank of California, N.A., NationsBank, N.A., Australia and New Zealand 8 Banking Group Limited, BankBoston, N.A. and Morgan Guaranty Trust Company of New York, as Fronting Banks, and Morgan Guaranty Trust Company of New York, as Agent, as amended. "EXISTING 8 3/8% SUBORDINATED NOTES" means AES's 8 3/8% Senior Subordinated Notes due 2007 issued pursuant to the Existing 8 3/8% Subordinated Note Indenture. "EXISTING 8 3/8% SUBORDINATED NOTE INDENTURE" means the Indenture dated as of July 17, 1997 between AES and The Bank of New York, as Trustee, relating to the Existing 8 3/8% Subordinated Notes, as such Indenture may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "EXISTING 8.50% SUBORDINATED NOTES" means AES's 8.50% Senior Subordinated Notes due 2007 issued pursuant to the Existing October 1997 Subordinated Note Indenture. "EXISTING 8.875% SUBORDINATED DEBENTURES" means AES's 8.875% Senior Subordinated Debentures due 2027 issued pursuant to the Existing October 1997 Subordinated Note Indenture. "EXISTING LETTER OF CREDIT" means a Letter of Credit (as defined in the Existing Credit Facility) issued by Barclays Bank PLC, Union Bank of California, N.A., NationsBank, N.A., Australia and New Zealand Banking Group Limited, BankBoston, N.A. or Morgan Guaranty Trust Company of New York under the Existing Credit Facility that is outstanding on the Effective Date. "EXISTING OCTOBER 1997 SUBORDINATED NOTE INDENTURE" means the Indenture dated as of October 29, 1997 between AES and The First National Bank of Chicago, as Trustee, relating to the Existing 8.50% Subordinated Notes and the Existing 8.875% Subordinated Debentures, as such Indenture may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "EXISTING SUBORDINATED NOTES" means (i) the Existing 8 3/8% Subordinated Notes, (ii) the Existing 10 1/4% Subordinated Notes, (iii) the Existing 8.50% Subordinated Notes and (iv) the Existing 8.875% Subordinated Debentures. "EXISTING SUBORDINATED NOTE INDENTURES" means (i) the Existing 8 3/8% Subordinated Note Indenture, (ii) the Existing 10 1/4% Subordinated Note Indenture and (iii) the Existing October 1997 Subordinated Note Indenture. 9 "EXISTING 10 1/4% SUBORDINATED NOTES" means AES's 10 1/4% Senior Subordinated Notes due 2006 issued pursuant to the Existing 10 1/4% Subordinated Note Indenture. "EXISTING 10 1/4% SUBORDINATED NOTE INDENTURE" means the Indenture dated as of July 1, 1996 between AES and First National Bank of Chicago, as Trustee, relating to the Existing 10 1/4% Subordinated Notes, as such Indenture may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "EXTENSION OF CREDIT" means (i) a Borrowing pursuant to Section 2.01 or (ii) the issuance of a Letter of Credit pursuant to Section 2.03. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; PROVIDED that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Agent. "FEE LETTER" has the meaning specified in Section 3.01. "FINANCING DOCUMENTS" means this Agreement, the Notes and each Subsidiary Guaranty. "FIRST AMENDMENT AND RESTATEMENT" means the First Amendment and Restatement of Credit Agreement dated as of March 31, 1999 among AES, the Banks, the Fronting Banks and the Agent. "FRONTING BANK" means (i) with respect to the Letters of Credit deemed to have been issued pursuant to the second sentence of Section 2.03(a), Barclays Bank PLC, Union Bank of California, N.A., NationsBank, N.A., Australia and New Zealand Banking Group Limited, BankBoston, N.A. or Morgan Guaranty Trust Company of New York, as the case may be, and (ii) with respect to all other Letters of Credit, Morgan Guaranty Trust Company of New York, any other Bank, any affiliate of any Bank (A) a majority of whose common equity is owned, directly or indirectly, by such Bank, (B) that owns, directly or indirectly, a 10 majority of the common equity of such Bank or (C) a majority of whose common equity is owned, directly or indirectly, by a Person that owns, directly or indirectly, a majority of the common equity of such Bank and any Subsidiary of any Bank a majority of whose common equity is owned directly or indirectly, by such Bank, that shall, in the case of any such Bank, affiliate or Subsidiary agree to issue letters of credit hereunder with the consent of the Agent (which consent will be deemed to have been given unless the Agent shall have notified AES to the contrary within one day of the Agent's receipt of notice that such Bank, affiliate or Subsidiary is to be a Fronting Bank). "GROUP OF LOANS" means, at any time, a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the same Interest Period at such time, PROVIDED that, if a Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article VIII, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "GUARANTOR" means, with respect to any Borrower, all other Borrowers. "HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "INDEMNITEE" has the meaning set forth in Section 10.03(b). "INTEREST PERIOD" means, with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of 11 Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the applicable Borrower may elect in such notice; PROVIDED that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period that would otherwise end after the Termination Date shall end on the Termination Date. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, Guarantee, time deposit or otherwise (but not including any demand deposit). "INVESTMENT AND GUARANTEE COMMITMENTS" means, without duplication, (i) all commitments (contingent or otherwise) by a Borrower to make Investments and (ii) all obligations (contingent or otherwise but excluding obligations hereunder, whether under Article IX or otherwise) of a Borrower to make payments under Guarantees; PROVIDED that the obligations of AES or any of its Subsidiaries to acquire the Kintegh, Milliken, Goudey, Greenidge, Hickling and Jennison coal-fired electric generating plants from NGE Generation, Inc., an affiliate of New York State Electric & Gas Corporation, shall be deemed not to be "Investment and Guarantee Commitments." "LETTER OF CREDIT" means a letter of credit issued by a Fronting Bank pursuant to Section 2.03(a). "LETTER OF CREDIT COMMISSION RATE" means a rate per annum determined in accordance with the annexed Pricing Schedule. 12 "LETTER OF CREDIT LIABILITIES" means, at any time and in respect of any Letter of Credit, the sum, without duplication, of (i) the amount available for drawing under such Letter of Credit (without regard to whether any conditions to drawing thereunder can then be met) plus (ii) the aggregate unpaid amount of all Reimbursement Obligations in respect of previous drawings made under such Letter of Credit. "LEVEL I STATUS" has the meaning set forth in the annexed Pricing Schedule. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, AES or any of its Subsidiaries shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "LOAN" means a Base Rate Loan or a Euro-Dollar Loan and "Loans" means Base Rate Loans or Euro-Dollar Loans or any combination of the foregoing. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.06(b). "MATERIAL AES ENTITY" means (i) any Subsidiary Guarantor, (ii) any Specified Subsidiary and (iii) any other Person in which AES has a direct or indirect equity Investment if such Person's contribution to Parent Operating Cash Flow for the four most recently completed fiscal quarters of AES constitutes 15% or more of Parent Operating Cash Flow for such period. "MATERIAL DEBT" means, with respect to any Person, Debt (other than the Loans and the Reimbursement Obligations) of such Person arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $15,000,000. "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $15,000,000. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions 13 or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "NET CASH PROCEEDS" has the meaning set forth in the Existing Subordinated Note Indentures. "1998 SENIOR NOTE INDENTURE" means the Senior Indenture dated as of December 8, 1998 between AES and The First National Bank of Chicago, as Trustee, relating to the 8% Senior Notes, as such Indenture may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "NOTES" means promissory notes of each Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of such Borrower to repay the Loans made to it, and "Note" means any one of such promissory notes issued hereunder. "NOTICE OF BORROWING" has the meaning set forth in Section 2.02. "NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section 2.07(a). "NOTICE OF ISSUANCE" has the meaning set forth in Section 2.03(d). "OBLIGORS" means the Borrowers and the Subsidiary Guarantors. "PARENT" means, with respect to any Bank or Fronting Bank, any Person controlling such Bank or Fronting Bank, as the case may be. "PARENT OPERATING CASH FLOW" means, for any period, the sum of the following amounts (determined without duplication), but only to the extent received in cash by a Borrower from a Person other than a Borrower during such period: (A) dividends paid to a Borrower by its Subsidiaries during such period; (B) consulting and management fees paid to a Borrower for such period; (C) tax sharing payments made to a Borrower during such period; 14 (D) interest and other distributions paid during such period with respect to cash and other Temporary Cash Investments of a Borrower (other than with respect to amounts on deposit in the Cash Collateral Account); and (E) other cash payments made to a Borrower by its Subsidiaries other than (i) returns of invested capital, (ii) payments of the principal of Debt of any such Subsidiary to such Borrower, (iii) payments in an amount equal to the aggregate amount released from debt service reserve accounts upon the issuance of Letters of Credit for the benefit of the beneficiaries of such accounts. For purposes of determining Parent Operating Cash Flow: (1) net cash payments received by a Qualified Holding Company during any period which could have been (without regard for any cash held by such Qualified Holding Company at the beginning of such period), but were not, paid as a dividend to AES during such period due to tax or other cash management considerations may be included in Parent Operating Cash Flow for such period; PROVIDED that any amounts so included will not be included in Parent Operating Cash Flow if and when paid to a Borrower in any subsequent period; (2) if at any time there shall exist an event or condition which permits any holder to accelerate the maturity date of any Debt of, or terminate its commitment to extend credit to, any Subsidiary, then the contributions of such Subsidiary to Parent Operating Cash Flow for any period ending at or prior to such time shall be eliminated and Parent Operating Cash Flow shall be calculated after giving effect to such elimination; (3) if any Subsidiary of a Borrower is sold or otherwise disposed of (by way of merger, sale of capital stock, sale of assets or otherwise), (x) the net cash proceeds from such sale or other disposition shall not be included in Parent Operating Cash Flow for any period and (y) the contributions of such Subsidiary to Parent Operating Cash Flow for any period shall be eliminated and Parent Operating Cash Flow shall be calculated after giving effect to such elimination.; and (4) no dividends, fees or payments made to the Borrowers with the proceeds of any amounts paid to AES or any of its Subsidiaries in connection with the $525,000,000 additional prepayment made by Connecticut Light & Power ("CL&P") pursuant to the First Amendment to the Electricity Purchase Agreement between CL&P and AES Thames, Inc., or any amounts paid to AES or any of its Subsidiaries in connection with any monetization, sale or securitization of any right to receive any such prepayment, shall be included in Parent Operating Cash Flow, except to the extent that such proceeds (x) have been 15 received by AES in cash in such period or an earlier period and (y) are included in Consolidated Net Income for such period. "PARTICIPANT" has the meaning set forth in Section 10.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITTED SENIOR UNSECURED DEBT" means unsecured Debt of AES that (i) is not guaranteed by any Subsidiary or Affiliate of AES, (ii) that does not limit (A) the ability of Subsidiaries and Affiliates of AES to guarantee other senior Debt of AES, (B) the ability of AES to grant Liens on stock of Subsidiaries or intercompany advances to secure other senior Debt of AES or (C) the ability of Subsidiaries or Affiliates of AES to grant Liens on their assets (including stock of Subsidiaries and intercompany advances) to secure guarantees of other senior Debt (provided that (x) a Permitted Negative Pledge shall not cause any Debt of AES to fail to be Permitted Senior Unsecured Debt under this clause (ii) and (y) this clause (ii) shall not apply if AES shall have received at least $300,000,000 of gross cash proceeds from the issuance of its common stock after March 1, 1999 and on or prior to June 30, 1999) and (iii) that is in an aggregate principal amount not exceeding the lesser of (x) $300,000,000 and (y) $600,000,000 less the aggregate amount of the Commitments. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "POWER PROJECT" means an electric power or thermal energy generation or cogeneration facility or related facilities, and its or their related electric power transmission, distribution, fuel supply and fuel transportation facilities, together with its or their related power supply, thermal energy and fuel contracts as well as other contractual arrangements with customers, suppliers and contractors. 16 "POWER PROJECT DEBT" means Debt of a Subsidiary of AES permitted by Section 5.07(a)(ii). "POWER PROJECT DEFAULT" means any event or condition which results in the acceleration of the maturity of any Power Project Debt or enables the holder of such Power Project Debt or any Person acting on such holder's behalf to then accelerate the maturity thereof, or failure to pay any Power Project Debt at the final maturity thereof. "PRIME RATE" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "QUALIFIED HOLDING COMPANY" means any Wholly-Owned Consolidated Subsidiary of AES that satisfies, and all of whose direct or indirect holding companies (other than AES) are Wholly-Owned Consolidated Subsidiaries of AES that satisfy, the following conditions: (i) its direct and indirect interest in any Power Project or unrelated business shall be limited to the ownership of capital stock or Debt obligations of a Person with a direct or indirect interest in such Power Project or unrelated business; (ii) no consensual encumbrance or restriction of any kind shall exist on its ability to make payments, distributions, loans, advances or transfers to AES; (iii) it shall not have outstanding any Debt other than Guarantees of Debt under the Financing Documents and Debt to other Qualified Holding Companies; and (iv) it shall engage in no business or other activity, shall enter into no binding agreements and shall incur no obligations other than (A) the holding of the capital stock and Debt obligations permitted under clause (i) above, (B) the holding of cash received from its Subsidiaries and the investment thereof in Temporary Cash Investments, (C) the payment of dividends to AES, (D) ordinary business development activities, (E) the making (but not the entering into binding obligations to make) of Investments in Power Projects owned by its Subsidiaries and (F) in the case of AES Electric, the making of Investments in Power Projects owned by NIGEN Limited and Medway Power Limited as of the date of this Agreement under any agreement by which it is bound as of the date of this Agreement. 17 "QUALIFIED PREFERRED EQUITY" means, at any date, equity interests in a Consolidated Subsidiary of AES (i) that are not (A) required to be redeemed or redeemable at the option of the holder thereof prior to the fifth anniversary of the Termination Date or (B) convertible into or exchangeable for (unless solely at the option of AES) equity interests referred to in clause (A) above or Debt having a scheduled maturity, or requiring any repayments or prepayments of principal or any sinking fund or similar payments in respect of principal or providing for any such repayment, prepayment, sinking fund or other payment at the option of the holder thereof prior to the fifth anniversary of the Termination Date and (ii) as to which, at such date, AES has the right to defer the payment of all dividends and other distributions in respect thereof for the period of at least 19 consecutive quarters beginning at such date. "QUARTERLY PAYMENT DATE" means each January 31, April 30, July 31 and October 31. "REFERENCE BANKS" means the respective principal London offices of Morgan Guaranty Trust Company of New York, NationsBank, N.A. and Barclays Bank PLC, and "REFERENCE BANK" means any one of such Reference Banks. "REFUNDING BORROWING" means a Borrowing which, after application of the proceeds thereof, results in no net increase in the Total Outstandings of any Bank. "REGULATION G" means Regulation G of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REIMBURSEMENT OBLIGATIONS" means at any date the obligations then outstanding of the Borrowers under Section 2.03(f) to reimburse the Fronting Banks for amounts drawn under Letters of Credit. "REQUIRED BANKS" means at any time Banks having at least a majority of the aggregate Total Exposures at such time. "RESTRICTED PAYMENT" means (i) any dividend or other distribution on any shares of AES's common stock (except dividends payable solely in shares of its common stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of AES's capital stock or (b) any option, warrant or other right to acquire shares of AES's capital stock. 18 "REVOLVING CREDIT PERIOD" means the period from and including the Effective Date to but excluding the Termination Date. "SIGNIFICANT AES ENTITY" means (i) any Material AES Entity and (ii) any other Person in which AES has a direct or indirect equity Investment if (A) such Person's contribution to Parent Operating Cash Flow for the four most recently completed fiscal quarters of AES constitutes 10% or more of Parent Operating Cash Flow for such period, or (B) AES's direct or indirect interest in the total assets of such Person if such Person is a Consolidated Subsidiary or in the net assets of such Person in all other cases is at least equal to 10% of the consolidated assets of AES and its Consolidated Subsidiaries, taken as a whole, or AES's direct or indirect interest in the total net income of such Person (for the preceding fiscal quarter) is at least equal to 10% of the net income of AES and its Consolidated Subsidiaries (for the preceding fiscal quarter) taken as a whole. "SOUTHLAND" means AES Southland Holdings, LLC. "SPECIFIED EQUITY-RELATED DEBT" means, at any date, (i) Debt of AES (A) that is owed to a Consolidated Subsidiary of AES, (B) that is issued in connection with the issuance by such Consolidated Subsidiary of Qualified Preferred Equity, (C) that is subordinated to other Debt of AES of at least the types and to at least the extent as was, on the date of issuance thereof, the Junior Subordinated Debentures issued by AES in connection with the issuance by AES Trust II of its $2.75 Term Convertible Securities, Series B, on October 29, 1996, (D) as to which, at such date, AES has the right to defer the payment of all interest for the period of at least 19 consecutive quarters beginning at such date and (E) that does not mature, in whole or in part, and is not subject to any required repayment or prepayment, any required sinking fund or similar payment or any repayment or prepayment or sinking fund or similar payment at the option of the holder thereof, prior to the fifth anniversary of the Termination Date and (ii) Guarantees by AES of the obligations of the issuer of any Qualified Preferred Equity in respect of such Qualified Preferred Equity. "SPECIFIED SUBSIDIARY" means each Designated Subsidiary and each other Subsidiary of AES that holds, directly or indirectly, any interest in any Designated Subsidiary. "SUBORDINATED DEBT" means Debt in respect of the Existing Subordinated Notes, the Existing Convertible Subordinated Debentures and the Additional Permitted Subordinated Debt. 19 "SUBORDINATED NOTE INDENTURES" means the Existing Subordinated Note Indentures, the Existing Convertible Subordinated Debenture Indenture and the Additional Permitted Subordinated Debt Agreements. "SUBSIDIARY" means, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "SUBSIDIARY GUARANTORS" means AES Oklahoma, AES Hawaii Management and, from and after the earlier of (i) the date of the consummation of the Cilcorp Acquisition and (ii) the date that is six months after the date upon which the First Amendment and Restatement is effective, the Additional Guarantors. "SUBSIDIARY GUARANTY" means a Subsidiary Guaranty, substantially in the form of Exhibit B hereto, given by one or more Subsidiary Guarantors for the benefit of the Banks, the Fronting Banks and the Agent, as the same may be amended from time to time. "TEMPORARY CASH INVESTMENT" means any Investment in (A)(i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by Standard & Poor's Ratings Services and P-1 by Moody's Investors Service, Inc., (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) medium term notes, asset backed securities, bonds, notes and letter of credit supported instruments, issued by any entity organized under the laws of the United States, or any state or municipality of the United States and rated in any of the three highest rated categories by Standard & Poor's Ratings Services or Moody's Investors Service, Inc., (v) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, (vi) Euro-Dollar certificates of deposit issued by any bank or trust company which has capital and unimpaired surplus of not less than $500,000,000 or (vii) with respect to a Subsidiary, any category of investment designated as permissible investments under such Subsidiary's project loan documentation, PROVIDED in each case (except clause (vii)) that such Investment matures within fifteen months from the date of acquisition thereof by AES or a Subsidiary and (B) registered investment companies that are "money market funds" within the meaning of Rule 2a-7 under the Investment Company Act of 1940. 20 "TERMINATION DATE" means December 19, 2000, or such later date to which the Termination Date shall have been extended pursuant to Section 2.01(b), or, if such day is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the Termination Date shall be the next preceding Euro-Dollar Business Day. "TOTAL EXPOSURE" means at any time with respect to each Bank, its Commitment or, if the Commitments shall have terminated, its Total Outstandings. "TOTAL OUTSTANDINGS" means at any time, as to any Bank, the sum of the aggregate outstanding principal amount of such Bank's Loans and its participation in the aggregate outstanding Letter of Credit Liabilities. "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "WHOLLY-OWNED CONSOLIDATED SUBSIDIARY" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by AES. SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by AES's independent public accountants) with the most recent audited consolidated financial statements of AES and its Consolidated Subsidiaries delivered to the Banks; PROVIDED that, if AES notifies the Agent that AES wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on 21 the operation of such covenant (or if the Agent notifies AES that the Required Banks wish to amend Article V for such purpose), then AES's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to AES and the Required Banks. SECTION 1.03. TYPES OF BORROWING. The term "BORROWING" denotes (i) the aggregation of Loans made or to be made to a Borrower by one or more Banks pursuant to Article II on the same day, all of which Loans are of the same type (subject to Article VIII) and, except in the case of Base Rate Loans, have the same initial Interest Period or (ii) if the context so requires, the borrowing of such Loans. Borrowings are classified for purposes hereof by reference to the pricing of Loans comprising such Borrowing (E.G., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans). ARTICLE 2 THE CREDITS SECTION 2.01. COMMITMENTS TO LEND. (a) Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrowers pursuant to this Section 2.01(a) from time to time during the Revolving Credit Period in amounts such that the Total Outstandings of such Bank at any time shall not exceed the amount of its Commitment at such time. Each Borrowing under this subsection (a) shall be in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.03(c)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, a Borrower may borrow under this Section 2.01(a), repay, or, to the extent permitted by Section 2.11, prepay Loans and reborrow at any time during the Revolving Credit Period. (b) EXTENSION OF TERMINATION DATE. The Termination Date may be extended, in the manner set forth in this subsection (b), on December 19, 1999 and on December 19, 2000 (each, an "Extension Date"), in each case for a period of one year after the Termination Date theretofore in effect. If AES wishes to request an extension of the Termination Date on any Extension Date, it shall give written notice to that effect to the Agent not less than 45 nor more than 90 days prior to such Extension Date, whereupon the Agent shall notify each of the Banks of such notice. Each Bank will use its best efforts to respond to such request, 22 whether affirmatively or negatively, within 30 days. If all Banks respond affirmatively (any Bank which does not respond being deemed to have responded negatively), then, subject to receipt by the Agent prior to such Extension Date of counterparts of an Extension Agreement in substantially the form of Exhibit H duly completed and signed by all of the parties hereto, the Termination Date shall be extended, effective on such Extension Date, for a period of one year to the date stated in such Extension Agreement. SECTION 2.02. NOTICE OF BORROWING. (a) The relevant Borrower shall give the Agent notice (a "Notice of Borrowing") not later than 11:00 A.M. (New York City time) on (x) the date of each Base Rate Borrowing and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Borrowing, (iii) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate or a Euro-Dollar Rate, and (iv) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. (b) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by any Borrower. (c) Not later than 2:00 P.M. (New York City time) on the date of each Borrowing, each Bank shall (except as provided in subsection (d) of this Section) make available its ratable share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 10.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower requesting such Borrowing at the Agent's aforesaid address. (d) If any Bank makes a new Loan hereunder to any Borrower on a day on which such Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such 23 repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (c), or remitted by such Borrower to the Agent as provided in Section 2.12, as the case may be. (e) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (c) and (d) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower requesting such Borrowing on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and such Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Agent, at (i) in the case of such Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.06 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.03. LETTERS OF CREDIT. (a) ISSUANCE OF LETTERS OF CREDIT. Subject to the terms and conditions hereof, each Fronting Bank referred to in clause (ii) of the definition of "FRONTING BANK" in Section 1.01 agrees to issue letters of credit under this Section 2.03(a), upon any Borrower's request and for such requesting Borrower's account or the account of any of AES's other Subsidiaries, from time to time during the Revolving Credit Period. In addition, and notwithstanding any reference in any Existing Letter of Credit to the Existing Credit Facility, on and as of the Effective Date, each Existing Letter of Credit shall be deemed to be a Letter of Credit and to have been issued on the Effective Date (by the Fronting Bank that issued or was deemed to have issued such Existing Letter of Credit under the Existing Credit Facility) pursuant to this Section 2.03(a); PROVIDED HOWEVER, that nothing in this Section 2.03(a) shall extend, modify or otherwise affect the existing expiry date under any such Existing Letter of Credit. (b) PARTICIPATIONS IN LETTERS OF CREDIT. Upon the issuance (or deemed issuance) of each Letter of Credit by a Fronting Bank under Section 2.03(a), such Fronting Bank shall be deemed, without further action by any party hereto, to have sold to each Bank (other than such Fronting Bank) and each such Bank shall be deemed, without further action by any party hereto, to have purchased from such Fronting Bank, a participation in such Letter of Credit and the related Letter of 24 Credit Liabilities, in the amount required so that the participations of the Banks (including such Fronting Bank's retained participation) therein shall be in proportion to their respective Commitments. (c) REQUIRED TERMS. Each Letter of Credit (other than the Letter of Credit identified on Schedule III) issued hereunder shall: (i) by its terms expire (x) no earlier than 30 days after its date of issue and (y) no later than the earlier of (1) five Domestic Business Days prior to the Termination Date and (2) eighteen months after its date of issue; (ii) be in a face amount of (x) not less than $300,000 and (y) not more than the amount that would, after giving effect to the issuance thereof (and the related purchase and sale of participations therein pursuant to Section 2.03(b)) cause the Total Outstandings of any Bank to equal its Commitment; and (iii) be in a form acceptable to the Fronting Bank. (d) NOTICE OF ISSUANCE. Except in the case of Letters of Credit deemed, pursuant to the second sentence of subsection (a) above, to be issued on the Effective Date, a Borrower may request that a Letter of Credit be issued by giving the Agent and the Fronting Bank for such Letter of Credit a notice (a "Notice of Issuance") at least two Domestic Business Days before such Letter of Credit is to be issued, specifying: (i) the date of issuance of such Letter of Credit; (ii) the expiry date of such Letter of Credit (which shall comply with the requirements of Section 2.03(c)(i)); (iii) the proposed terms of such Letter of Credit, including the face amount thereof (which shall comply with the requirements of Section 2.03(c)(ii)); (iv) the transaction that is to be supported or financed with such Letter of Credit, including identification of the Power Project, if any, to which such transaction relates; and (v) the identity of the Fronting Bank for such Letter of Credit, which shall comply with the definition of Fronting Bank. 25 Upon the receipt of a Notice of Issuance, the Agent shall promptly notify each Bank of the contents thereof and of the amount of such Bank's participation in such Letter of Credit and such Notice of Issuance shall not thereafter be revocable by the Borrower giving such Notice. (e) DRAWINGS UNDER LETTERS OF CREDIT. (i) Upon receipt from the beneficiary of any Letter of Credit of demand for payment under such Letter of Credit, the Fronting Bank shall determine in accordance with the terms of such Letter of Credit whether such request for payment should be honored. (ii) If the Fronting Bank determines that a demand for payment by the beneficiary of a Letter of Credit should be honored, the Fronting Bank shall make available to the beneficiary in accordance with the terms of such Letter of Credit the amount of the drawing under such Letter of Credit. The Fronting Bank shall thereupon promptly notify the relevant Borrower and each Bank of the amount of such drawing paid by it and the amount of each Bank's participation therein. (f) REIMBURSEMENT AND OTHER PAYMENTS BY THE BORROWERS. (i) If any amount is drawn under any Letter of Credit issued at the request of or for the account of a Borrower, such Borrower irrevocably and unconditionally agrees to reimburse the applicable Fronting Bank for all amounts paid by such Fronting Bank upon such drawing, together with any and all reasonable charges and expenses which any Bank or Fronting Bank may pay or incur relative to such drawing, and all such amounts due from such Borrower shall bear interest, payable on the date upon which such amounts shall be due and payable, on the amount drawn for each day from and including the date such amount is drawn to but excluding the date such reimbursement payment is due and payable at a rate per annum equal to the rate applicable to Base Rate Loans for such day. Such reimbursement payment shall be due and payable not later than 10:00 A.M. (New York City time) on the second Domestic Business Day succeeding the date the applicable Fronting Bank notifies the relevant Borrower of such drawing, together with interest thereon for each day until the date of payment at a rate per annum equal to the rate applicable to Base Rate Loans for each such day. Any overdue reimbursement payment, or overdue interest thereon, shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of the rate applicable to Base Rate Loans for such day plus 2%. 26 (ii) Each payment to be made by a Borrower pursuant to this Section shall be made, in Federal or other funds immediately available, to the applicable Fronting Bank at its address referred to in Section 10.01. (iii) The obligations of each Borrower to reimburse the Fronting Banks under this Section 2.03(f) shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including without limitation the following circumstances: (1) any lack of validity or enforceability of any Financing Document; (2) any amendment or waiver of or any consent to departure from any Financing Document (except, in the case of an effective amendment to, waiver of or consent to a departure from any provision of this Agreement, to the extent specified herein); (3) the existence of any claim, set-off, defense or other right which any Borrower may have at any time against the beneficiary of any Letter of Credit (or any Person or entity for whom such beneficiary may be acting), the Agent, any Fronting Bank or any Bank or any other Person or entity, whether in connection with this Agreement, any other Financing Document or any unrelated transaction; (4) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (5) payment by a Fronting Bank under any Letter of Credit against presentation of a draft or document which does not comply with the terms of such Letter of Credit; or (6) to the extent permitted under applicable law, any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. (g) PAYMENTS BY BANKS WITH RESPECT TO LETTERS OF CREDIT. (i) Each Bank shall make available an amount equal to its ratable share of any drawing under a Letter of Credit, in Federal or other 27 funds immediately available in New York City, to the applicable Fronting Bank by 3:00 P.M. (New York City time) on the second Domestic Business Day following such drawing, together with interest on such amount for the period from and including the date of such drawing to but excluding the date upon which such amount is to be made available at the Federal Funds Rate on the date of such drawing, at such Fronting Bank's address referred to in Section 10.01; provided that each Bank's obligation shall be reduced by its pro rata share of any reimbursement theretofore paid by the relevant Borrower in respect of such drawing pursuant to Section 2.03(f)(i). The applicable Fronting Bank shall notify each Bank of the amount of such Bank's obligation in respect of any drawing under a Letter of Credit not later than 1:30 P.M. (New York City time) on the day such payment by such Bank is due. Each Bank shall be subrogated to the rights of the applicable Fronting Bank against the applicable Borrower to the extent such payment due from such Bank to such Fronting Bank is paid, plus interest thereon, from and including the day such amount is due from such Bank to such Fronting Bank to but excluding the day such Borrower makes payment to such Fronting Bank pursuant to Section 2.03(f)(i), whether before or after judgment, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day. (ii) If any Bank fails to pay any amount required pursuant to subsection (i) of this Section 2.03(g) on the date on which such payment is due, interest, payable on demand, shall accrue on such Bank's obligation to make such payment, for each day from and including the date such payment becomes due to but excluding the date such Bank makes such payment at a rate per annum equal to the Federal Funds Rate. Any payment made by any Bank after 3:00 P.M. (New York City time) on any Domestic Business Day shall be deemed for purposes of the preceding sentence to have been made on the next succeeding Domestic Business Day. (iii) If the relevant Borrower shall reimburse a Fronting Bank for any drawing under a Letter of Credit after the Banks shall have made funds available to such Fronting Bank with respect to such drawing in accordance with subsection (i) of this Section 2.03(g), such Fronting Bank shall promptly upon receipt of such reimbursement distribute to each Bank its pro rata share thereof, including interest, to the extent received by such Fronting Bank. (iv) The several obligations of the Banks to the Fronting Banks hereunder shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever and shall not be affected by any circum- 28 stance, including, without limitation, (1) any set-off, counterclaim, recoupment, defense or other right which any such Bank or any other Person may have against the Agent, any Fronting Bank or any other Person for any reason whatsoever; (2) the occurrence or continuance of a Default or an Event of Default or the termination of the Commitments or any Letter of Credit; (3) any adverse change in the condition (financial or otherwise) of any Obligor or any other Person; (4) any breach of any Financing Document by any party thereto; (5) the fact that any condition precedent to the issuance of, or the making of any payment under, any Letter of Credit was not in fact met; (6) any violation or asserted violation of law by any Bank or any affiliate thereof; or (7) to the extent permitted under applicable law, any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. Each payment by each Bank to a Fronting Bank for its own account shall be made without any offset, abatement, withholding or reduction whatsoever. If a Fronting Bank is required at any time (whether before or after the Termination Date) to return to a Borrower or to a trustee, receiver, liquidator, custodian or other similar official any portion of the payments made by such Borrower to such Fronting Bank in payment of any Reimbursement Obligation or interest thereon upon the insolvency of such Borrower, or the commencement of any case or proceeding under any bankruptcy, insolvency or other similar law with respect to such Borrower, each Bank shall, on demand of such Fronting Bank, forthwith return to such Fronting Bank any amounts transferred to such Bank by such Fronting Bank in respect thereof pursuant to this subsection plus such Bank's pro rata share of any interest on such payments required to be paid to the Person recovering such payments plus interest on the amount so demanded from the day such demand is made, if such demand is made by 2:00 p.m. (New York City time), or from the next following Domestic Business Day, if such demand is made after 2:00 p.m., to but not including the day such amounts are returned by such Bank to such Fronting Bank at a rate per annum for each day equal to (A) the Federal Funds Rate for the day of such demand and (B) the Base Rate plus 1% for each day thereafter. (h) LETTER OF CREDIT COMMISSION; ISSUANCE FEE (i) LETTER OF CREDIT COMMISSION. Each Borrower agrees to pay to the Agent a letter of credit commission with respect to each Letter of Credit issued at its request or for its account, computed for each day from and including the date of issuance of such Letter of Credit to but excluding the last day a drawing is available under such Letter of Credit (the "Letter of Credit Termination Date"), at the Letter of Credit Commission Rate on the aggregate amount available for drawing under such Letter of Credit 29 from time to time (whether or not any conditions to drawing can then be met), such fee to be for the account of the Banks ratably in proportion to their Total Exposures. Such fee shall be payable quarterly in arrears on the last Domestic Business Day of each January, April, July and October and upon the Termination Date. (ii) ISSUANCE FEE. Each Borrower shall pay to each Fronting Bank for its own account such fees with respect to each Letter of Credit issued by such Fronting Bank for the account of such Borrower as shall have been agreed between such Borrower and such Fronting Bank. (iii) LIMITED LIABILITY OF THE FRONTING BANK. As between a Fronting Bank, on the one hand, and a Borrower, on the other, such Borrower assumes all risks of any acts or omissions of the beneficiary and any transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither Fronting Bank nor any of their respective employees, officers or directors shall be liable or responsible for: (a) the use which may be made of any Letter of Credit or for any acts or omissions of any beneficiary or transferee in connection therewith, (b) the validity, sufficiency or genuineness of documents, or of any endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged, (c) payment by the Fronting Bank against presentation of documents which do not comply with the terms of any Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit, or (d) any other circumstance whatsoever in making or failing to make payment under any Letter of Credit; provided that such Borrower shall have a claim against the applicable Fronting Bank, and such Fronting Bank shall be liable to such Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or special, damages suffered by such Borrower which are found in a final, unappealable judgment of a court of competent jurisdiction to have been caused by (i) such Fronting Bank's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit comply with the terms thereof or (ii) such Fronting Bank's willful failure to pay, or gross negligence resulting in a failure to pay, any drawing after the presentation to it by the beneficiary (or any transferee of the Letter of Credit) of a draft and other required documentation strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, a Fronting Bank may accept documents that appear on their face to be in order, without responsibility for further investigation. 30 (iv) FRONTING BANKS AND AFFILIATES. Each Fronting Bank shall have the same rights and powers under the Financing Documents as any other Bank and may exercise or refrain from exercising the same as though they were not Fronting Banks (in each case to the extent such Fronting Bank is also a Bank), and the Fronting Banks and their respective affiliates may accept deposits from, lend money to, and generally engage in any kind of business with AES or any Subsidiary or affiliate of AES as if they were not Fronting Banks hereunder. SECTION 2.04. NOTES. (a) The Loans of each Bank to each Borrower shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans to such Borrower. (b) Each Bank may, by notice to a Borrower and the Agent, request that its Loans to such Borrower of a particular type be evidenced by a separate Note of such Borrower in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to a "Note" or the "Notes" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Notes pursuant to Section 3.01(b) and 3.02(a), the Agent shall forward such Notes to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it to each Borrower and the date and amount of each payment of principal made with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note of any Borrower, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan to such Borrower then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of any Obligor under the Financing Documents. Each Bank is hereby irrevocably authorized by each Borrower so to endorse its Notes and to attach to and make a part of any Note a continuation of any such schedule as and when required. SECTION 2.05. MATURITY OF LOANS. Each Loan shall mature, and the principal amount thereof shall be due and payable (together with interest accrued thereon), on the Termination Date. SECTION 2.06. INTEREST RATES. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such 31 day. Such interest shall be payable quarterly in arrears on each Quarterly Payment Date. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. "EURO-DOLLAR MARGIN" means a rate per annum determined in accordance with the annexed Pricing Schedule. The "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100th of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16th of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. 32 (c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Loan and (ii) the sum of 2% plus the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100th of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16th of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than three months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Reference Banks are offered to such Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (d) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the applicable Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (e) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.07. METHOD OF ELECTING INTEREST RATES. (a) The Loans included in each Borrowing shall bear interest initially at the type of rate specified by the applicable Borrower in the applicable Notice of Borrowing. Thereafter, the applicable Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject to Section 2.07(d) and the provisions of Article VIII), as follows: (i) if such Loans are Base Rate Loans, the applicable Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day; (ii) if such Loans are Euro-Dollar Loans, the applicable Borrower may elect to convert such Loans to Base Rate Loans as of any Domestic Business Day or elect to continue such Loans as Euro-Dollar Loans for an 33 additional Interest Period, subject to Section 2.13 if any such conversion is effective on any day other than the last day of an Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Agent not later than 11:00 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted from Euro-Dollar Loans to Base Rate Loans, in which case such notice shall be delivered to the Agent not later than 11:00 A.M. (New York City time) on the date such conversion is to be effective). A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each at least $5,000,000 (unless such portion is comprised of Base Rate Loans). If no such notice is timely received before the end of an Interest Period for any Group of Euro-Dollar Loans, the applicable Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans at the end of such Interest Period. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of Section 2.07(a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans resulting from such conversion are to be Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and (iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Promptly after receiving a Notice of Interest Rate Election from a Borrower pursuant to Section 2.07(a) above, the Agent shall notify each Bank of 34 the contents thereof and such notice shall not thereafter be revocable by any Borrower. (d) A Borrower shall not be entitled to elect to convert any Loans to, or continue any Loans for an additional Interest Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any Group of Euro-Dollar Loans created or continued as a result of such election would be less than $5,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Agent. (e) If any Loan is converted to a different type of Loan, the applicable Borrower shall pay, on the date of such conversion, the interest accrued to such date on the principal amount being converted. SECTION 2.08. COMMITMENT FEES. AES shall pay to the Agent, for the account of the Banks ratably in proportion to their Commitments, a commitment fee at the Commitment Fee Rate on the daily amount by which the aggregate amount of the Commitments exceeds the aggregate Total Outstandings. Such commitment fee shall accrue from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety). Accrued commitment fees under this Section 2.08 shall be payable quarterly on each January 31, April 30, July 31 and October 31 and upon the date of termination of the Commitments in their entirety. For this purpose, "Commitment Fee Rate" means a rate per annum determined in accordance with the annexed Pricing Schedule. SECTION 2.09. TERMINATION OR REDUCTION OF COMMITMENTS. (a) OPTIONAL. AES may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments in their entirety at any time, if no Loans or Letters of Credit are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $5,000,000 or any larger multiple thereof, the aggregate amount of the Commitments in excess of the aggregate Total Outstandings. (b) MANDATORY. (i) Scheduled Termination. The Commitments shall terminate on the Termination Date, and any Loans and Reimbursement Obligations then outstanding (together with accrued interest thereon) shall be due and payable on such date. (ii) NET CASH PROCEEDS OF ASSET DISPOSITIONS. In the event that AES or any of its Subsidiaries shall at any time, or from time to time, receive any Net Cash Proceeds of any Asset Disposition, the Commitments of the Banks shall, unless the Required Banks otherwise agree, be ratably reduced by such amounts 35 and at such times as may be required to avoid any requirement that all or any portion of such Net Cash Proceeds be applied to repay, prepay, repurchase or defease any Subordinated Debt. (c) REDUCTIONS PERMANENT. All reductions of the Commitments pursuant to this Section 2.09 shall be permanent. SECTION 2.10. MANDATORY REPAYMENTS OF THE LOANS AND CASH COLLATERALIZATION OF LETTERS OF CREDIT. If on any date, after giving effect to the reductions in the Commitments pursuant to Section 2.09, the aggregate Total Outstandings exceed the aggregate Commitments, the Borrowers shall be jointly and severally obligated to apply an amount equal to such excess to prepay the Loans or cash collateralize Letters of Credit, or both. Amounts to be applied pursuant to the preceding sentence shall be applied first to repay the principal amount of the Borrowings then outstanding until all such Borrowings shall have been repaid in full, and if any excess then remains such excess shall be deposited with the Agent in the Cash Collateral Account to be held, applied or released for application as provided in Section 2.15. The particular Borrowings to be repaid shall be as designated by AES (or, failing such designation, as the Agent may determine). Each repayment shall be applied to repay ratably the Loans of the several Banks included in such Borrowings. Each payment of principal shall be made together with interest accrued on the amount repaid to the date of payment. SECTION 2.11. OPTIONAL PREPAYMENT OF THE LOANS. (a) Subject in the case of any Euro-Dollar Borrowing to Section 2.13, the Borrowers may, upon at least one Domestic Business Day's notice to the Agent, prepay any Group of Base Rate Loans or upon at least three Euro-Dollar Business Days' notice to the Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group of Loans. (b) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice shall not thereafter be revocable by any Borrower. SECTION 2.12. General Provisions as to Payments. (a) The Borrowers shall make each payment of principal of, and interest on, the Loans and Reimbursement Obligations and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds 36 immediately available in New York City, without set-off, counterclaim or other deduction, to the Agent at its address referred to in Section 10.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Base Rate Loans or Reimbursement Obligations or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from a Borrower prior to the date on which any payment is due from such Borrower to the Banks hereunder that such Borrower will not make such payment in full, the Agent may assume that such Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that such Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.13. FUNDING LOSSES. If a Borrower makes any payment of principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is converted to a Base Rate Loan (pursuant to Article II, VI or VIII or otherwise) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.06(c), or if a Borrower fails to borrow, prepay, convert or continue any Euro-Dollar Loans after notice has been given to any Bank in accordance with Section 2.02(b), 2.07(c) or 2.11(b), such Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after such payment or conversion or failure to borrow, prepay, convert or continue; provided that such Bank shall have delivered to such Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. 37 SECTION 2.14. COMPUTATION OF INTEREST AND FEES. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.15. CASH COLLATERAL ACCOUNT. (a) All amounts required to be deposited as cash collateral with the Agent pursuant to Section 2.10 or Section 6.03 shall be deposited in a cash collateral account (the "Cash Collateral Account") established by the Borrowers with the Agent, to be held, applied or released for application as provided in this Section 2.15. (b) If and when any portion of the Letter of Credit Liabilities on which any deposit of cash collateral was based (the "Relevant Contingent Exposure") shall become fixed (a "Direct Exposure") as a result of the payment by a Fronting Bank of a draft presented under any relevant Letter of Credit, the amount of such Direct Exposure (but not more than the amount in the Cash Collateral Account at the time) shall be withdrawn by the Agent from the Cash Collateral Account and shall be paid to the relevant Fronting Bank to be applied against such Direct Exposure and the Relevant Contingent Exposure shall thereupon be reduced by such amount. If at any time the amount in the Cash Collateral Account exceeds the Relevant Contingent Exposure, the excess amount shall, so long as no Default shall have occurred and be continuing, be withdrawn by the Agent and paid to such Borrower as AES may direct. If a Default shall have occurred and be continuing, such excess amount shall be retained in the Cash Collateral Account and, if and when requested by the Required Banks, shall be withdrawn by the Agent and applied first to repay the Loans, Reimbursement Obligations and other due and unpaid amounts required to be paid by the Borrowers hereunder and second any remaining excess shall be paid to such Borrower as AES may direct. If at any time the amount in the Cash Collateral Account is less than the Relevant Contingent Exposure, AES shall promptly deposit in the Cash Collateral Account additional cash collateral in the amount of such shortfall. (c) Interest and other payments and distributions made on or with respect to the cash collateral held by the Agent shall be for the account of the Borrowers and shall constitute cash collateral to be held by the Agent or returned to the Borrowers in accordance with subsection (b) of this Section 2.15; provided that the Agent shall have no obligation to invest any cash collateral on behalf of the Borrowers or any other Person. Beyond the exercise of reasonable care in the custody thereof, the Agent shall have no duty as to any cash collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to the preservation of rights against prior parties or any other 38 rights pertaining thereto. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the cash collateral in its possession if the cash collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the cash collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Agent in good faith. All expenses and liabilities incurred by the Agent in connection with taking, holding and disposing of any cash collateral (including customary custody and similar fees with respect to any cash collateral held directly by the Agent) shall be paid by AES from time to time upon demand. Upon a Default, the Agent shall be entitled to apply (and, at the request of the Required Banks but subject to applicable law, shall apply) cash collateral or the proceeds thereof to payment of any such expenses, liabilities and fees. ARTICLE 3 Conditions SECTION 3.01. Closing. The closing hereunder shall occur when all the following conditions have been satisfied: (a) The Agent shall have received the fees for the account of each Bank in the amounts previously agreed to by AES and as set forth in the letter agreement (the "FEE LETTER") between AES and Morgan Guaranty Trust Company of New York dated October 21, 1997; (b) The Agent shall have received duly executed Notes of AES for the account of each Bank dated on or before the Closing Date complying with the provisions of Section 2.04; (c) The Agent shall have received the Subsidiary Guaranty dated the Closing Date, duly executed by AES Oklahoma and AES Hawaii Management; (d) The Agent shall have received an opinion of the General Counsel of AES, substantially in the form of Exhibit C hereto, dated the Closing Date and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) The Agent shall have received an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit D hereto, dated the Closing Date and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; 39 (f) The Agent shall have received evidence satisfactory to it that (i) all amounts outstanding under the Existing Credit Facility have been paid in full, (ii) all commitments thereunder have been terminated and (iii) all principal, interest, fees, reimbursement obligations and other amounts owing thereunder shall have been paid in full; (g) The Agent shall have received evidence, satisfactory to it, in the form of pro forma calculations, that the making of Borrowings and the issuance of, and drawings under, Letters of Credit under this Agreement are permitted under the terms of the Subordinated Note Indentures; (h) The Agent shall have received copies of the resolutions of the Board of Directors of each Obligor authorizing the execution, delivery and performance by such Obligor of the Financing Documents to which it is a party, certified by a duly authorized officer of such Obligor (which certificate shall state that such resolutions are in full force and effect on the Closing Date); (i) The Agent shall have received certified copies of all approvals, authorizations or consents of, or notices to or registrations with, any governmental body or agency required for each Obligor, if necessary, to enter into the Financing Documents to which it is a party; (j) The Agent shall have received a certificate of a duly authorized officer of each Obligor certifying the names and true signatures of the officers of such Obligor authorized to sign the Financing Documents to which it is a party and the other documents to be delivered by such Obligor hereunder; (k) The Agent shall have received payment of all reasonable fees and other amounts then payable (including, without limitation, all fees and expenses of counsel to the Agent payable pursuant to Section 10.03); (l) The Agent shall have received a certificate signed by a duly authorized officer of AES dated the Closing Date, to the effect that: (i) the representations and warranties contained in Article IV hereof are true and correct on and as of the Closing Date as though made on and as of such date; and (ii) no Default has occurred and is continuing or would result from the issuance of the Letters of Credit requested by AES to be issued on such date (including, without limitation, the deemed issuance of the initial Letters of Credit pursuant to the second sentence of Section 2.03(a)) and the Borrowings requested by AES to be made on such date; and 40 (m) The Agent shall have received all documents it may reasonably request relating to the existence of the Obligors, the corporate authority for and the validity of this Agreement and the other Financing Documents, and any other matters relevant hereto, all in form and substance satisfactory to the Agent. The Agent shall promptly notify the Borrowers and the Banks of the Closing Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.02. AES FINANCE SUBSIDIARY ADDITION DATE. An AES Finance Subsidiary Addition Date shall occur with respect to any AES Finance Subsidiary on the date upon which the Agent shall have received: (a) duly executed Notes of such AES Finance Subsidiary for the account of each Bank dated on or before such AES Finance Subsidiary Addition Date complying with the provisions of Section 2.04; (b) a counterpart hereof signed by such AES Finance Subsidiary; (c) an opinion of the General Counsel of AES substantially in the form of Exhibit E hereto with respect to such AES Finance Subsidiary and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) an opinion of counsel to such AES Finance Subsidiary from the jurisdiction of incorporation of such AES Finance Subsidiary, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; and (e) all documents that the Agent may reasonably request relating to the existence of such AES Finance Subsidiary, the corporate authority for and the validity of this Agreement and its Notes as agreements and obligations of such AES Finance Subsidiary, and any other matters relevant hereto, all in form and substance reasonably satisfactory to the Agent. The Agent shall promptly notify the Borrowers and the Banks of any AES Finance Subsidiary Addition Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.03. EXTENSION OF CREDIT. The obligation of each Bank to make a Loan on the occasion of each Borrowing and the obligation of a Fronting Bank to issue a Letter of Credit (including the deemed issuance of the initial Letters of 41 Credit pursuant to the second sentence of Section 2.03(a)) on the occasion of each request therefor by a Borrower shall in each case be subject to the satisfaction of the following conditions: (a) the fact that the Closing Date shall have occurred on or prior to December 31, 1997; (b) receipt by the Agent of a Notice of Borrowing or (except in the case of the deemed issuance of the initial Letters of Credit pursuant to the second sentence of Section 2.03(a)) a Notice of Issuance as required by Section 2.02 or 2.03, as the case may be; (c) the fact that, immediately after such Extension of Credit, after giving effect to all direct and indirect applications of the proceeds of such Extension of Credit made substantially simultaneously with the extension thereof, the aggre gate Total Outstandings of any Bank will not exceed its Commitment; (d) the fact that, immediately before and after such Extension of Credit, no Default shall have occurred and be continuing; and (e) the fact that the representations and warranties of the Obligors contained in the Financing Documents (except, in the case of a Refunding Borrowing, the representations and warranties set forth in Sections 4.04(c) and 4.05 as to any matter which has theretofore been disclosed in writing by AES to the Banks) shall be true on and as of the date of such Extension of Credit. Each Extension of Credit hereunder shall be deemed to be a representation and warranty by the Borrowers on the date of such Extension of Credit as to the facts specified in clauses (c), (d) and (e) of this Section. ARTICLE 4 Representations and Warranties AES represents and warrants that: SECTION 4.01. CORPORATE EXISTENCE AND POWER. Each Obligor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware (or, in the case of any AES Finance Subsidiary, its jurisdiction of incorporation), and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 42 SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by each Obligor of the Financing Documents to which it is a party are within such Obligor's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of such Obligor or of any agreement, judgment, injunction, order, decree or other instrument binding upon AES or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of AES or of any Material AES Entity. SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and binding agreement of each Borrower and each other Financing Document, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of each Obligor that is a party thereto, in each case enforceable in accordance with its terms. SECTION 4.04. FINANCIAL INFORMATION. (a) The consolidated balance sheet of AES and its Consolidated Subsidiaries as of December 31, 1996 and the related consolidated statements of operations and cash flows for the fiscal year then ended, reported on by Deloitte & Touche and set forth in the AES 1996 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of AES and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of AES and its Consolidated Subsidiaries as of September 30, 1997 and the related unaudited consolidated statements of operations and cash flows for the fiscal quarter and the portion of AES's fiscal year then ended, set forth in the AES September 1997 Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of AES and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal quarter and portion of such fiscal year (subject to normal year-end adjustments). (c) Since September 30, 1997 there has been no material adverse change in the business, financial position, results of operations or prospects of AES and its Consolidated Subsidiaries, considered as a whole. 43 SECTION 4.05. LITIGATION. Except as disclosed in the AES September 1997 Form 10-Q, there is no action, suit or proceeding pending against, or to the knowledge of AES threatened against or affecting, AES or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of AES and its Consolidated Subsidiaries or which in any manner draws into question the validity of any Financing Document. SECTION 4.06. COMPLIANCE WITH ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the currently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability in excess of $100,000 under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.07. ENVIRONMENTAL MATTERS. In the ordinary course of its business, each of AES and its Subsidiaries conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of AES or such Subsidiary, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances by AES or its Subsidiaries, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, AES has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a material adverse effect on the business, financial condition, results of operations or prospects of AES and its Consolidated Subsidiaries, considered as a whole. 44 SECTION 4.08. TAXES. United States Federal income tax returns of AES and its Subsidiaries have been examined and closed through the fiscal year ended December 31, 1986. AES and its Subsidiaries have filed all United States Federal income tax returns and AES and all Material AES Entities have filed all other material tax returns which are required to be filed by them and have paid all taxes due as indicated on such returns or pursuant to any assessment received by AES or any Subsidiary or any Material AES Entity other than any such taxes that are being diligently contested in good faith through appropriate proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principals. The charges, accruals and reserves on the books of AES, its Subsidiaries and all Material AES Entities in respect of taxes or other governmental charges are, in the opinion of AES, adequate. SECTION 4.09. MATERIAL AES ENTITIES. Each Material AES Entity is a corporation duly incorporated, validly existing and (other than any Material AES Entity that is not incorporated under the laws of the United States or any political subdivision thereof) in good standing under the laws of its jurisdiction of incorporation. Each Material AES Entity has all corporate powers and all material governmental licenses, authorization, consents and approvals required to carry on its business as proposed to be conducted and has all governmental licenses, authorizations, consents and approvals required to have been obtained prior to the date hereof and which are material to the operation of its business as proposed to be conducted, except to the extent that the failure to obtain any such license, authorization, consent or approval, individually or in the aggregate, could not reasonably be expected to have a material adverse effect upon the business, financial condition, operations, property and prospects of AES and its Consolidated Subsidiaries, taken as a whole. SECTION 4.10. NOT AN INVESTMENT COMPANY. None of the Obligors is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.11. PUBLIC UTILITY HOLDING COMPANY ACT. Neither AES nor any of its Subsidiaries is subject to regulation as a "holding company" or a "subsidiary company" of a holding company or an "affiliate" of a subsidiary or holding company or a "public utility company" under Section 2(a) of the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), except that AES and its subsidiary in the United Kingdom, Applied Energy Services Electric Limited, are exempt holding companies under Section 3(a)(5) of PUHCA by order of the Securities and Exchange Commission. SECTION 4.12. REPRESENTATIONS IN SUBSIDIARY GUARANTY TRUE AND CORRECT. Unless the Subsidiary Guaranty shall have ceased to be a Financing Document, 45 each of the representations and warranties of any Obligor contained in the Subsidiary Guaranty is true and correct. SECTION 4.13. FULL DISCLOSURE. All information heretofore furnished by any Borrower to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by any Borrower to the Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. AES has disclosed to the Banks in writing any and all facts which materially and adversely affect or may affect (to the extent any Borrower can now reasonably foresee), the business, operations or financial condition of AES and its Consolidated Subsidiaries, taken as a whole, or the ability of any Obligor to perform its obligations under the Financing Documents. SECTION 4.14. EXISTING LETTERS OF CREDIT. Schedule II hereto identifies each Existing Letter of Credit outstanding as of the date hereof and as of the Effective Date. SECTION 4.15. YEAR 2000 COMPLIANCE. AES has (i) initiated a review and assessment of all areas within the business and operations of AES and its Subsidiaries (including those areas affected by suppliers and vendors) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by them (or their respective suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in accordance with such timetable, except to the extent that the failure to do so could not reasonably be expected to have a material adverse effect upon the business, financial position or results of operations of AES and its Consolidated Subsidiaries, taken as a whole. AES reasonably believes that all computer applications (including those of suppliers and vendors) that are material to the business or operations of AES and its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that the failure to do so could not reasonably be expected to have a material adverse effect upon the business, financial position or results of operations of AES and its Consolidated Subsidiaries, taken as a whole. 46 ARTICLE 5 Covenants AES agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid or any Letter of Credit or Reimbursement Obligation remains outstanding: SECTION 5.01. INFORMATION. AES will deliver to each of the Banks: (a) as soon as available and in any event within 120 days after the end of each fiscal year of AES, a consolidated and consolidating balance sheet of each Obligor as of the end of such fiscal year, an unconsolidated balance sheet of AES as of the end of such fiscal year, the related consolidated, consolidating and unconsolidated (as applicable) statements of operations for such fiscal year, the related consolidated and unconsolidated statements of cash flows for such fiscal year and a statement of the cash flow to AES of each Subsidiary of AES for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, said consolidated financial statements to be reported on, in a manner acceptable to the Securities and Exchange Commission, by Deloitte & Touche or other independent public accountants of nationally recognized standing and such consolidating and unconsolidated financial statements to be certified as to fairness of presentation, generally accepted accounting principles (other than failure to consolidate) and consistency by the chief executive officer, president, chief financial officer or chief accounting officer of AES; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of AES, a consolidated balance sheet of each Obligor as of the end of such quarter and an unconsolidated balance sheet of AES as of the end of such fiscal quarter and the related consolidated and unconsolidated statements of operations for such quarter and for the portion of such Obligor's fiscal year ended at the end of such quarter and the related consolidated and unconsolidated statements of cash flows for the portion of such Obligor's fiscal year ended at the end of such quarter, and a statement of the cash flow to AES of each Subsidiary of AES for such quarter and for the portion of AES's fiscal year ended at the end of such quarter, setting forth in the case of such consolidated statements of operations and cash flows, in comparative form the figures for the corresponding quarter and the corresponding portion of such Obligor's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief executive officer, president, chief financial officer or chief accounting officer of AES; 47 (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief executive officer, president, chief financial officer or chief accounting officer of AES (i) setting forth in reasonable detail the calculations required to establish whether AES was in compliance with the requirements of Sections 5.07, 5.08, 5.09, 5.11, 5.13, 5.15, 5.16 and 5.18 on the date of such financial statements, (ii) stating to the knowledge of AES whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which AES is taking or proposes to take with respect thereto and (iii) accompanied by a schedule setting forth in reasonable detail a description, including, where applicable, the expected and maximum dollar amounts thereof, of all material contingent liabilities not disclosed in such financial statements; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention as a result of their audit (which was not directed primarily toward obtaining knowledge of noncompliance) to cause them to believe that AES has failed to comply with the terms, covenants, provisions or conditions as they relate to accounting of financial matters addressed in Sections 5.07 to 5.17, inclusive, and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within five days after any officer of AES obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief executive officer, president, executive vice-president or chief financial officer of AES setting forth the details thereof and the action which AES is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of AES generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which AES shall have filed with the Securities and Exchange Commission; (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such 48 reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief executive officer, president, chief financial officer or chief accounting officer of AES setting forth details as to such occurrence and the action, if any, which AES or the applicable member of the ERISA Group is required or proposes to take; (i) not less than 10 days prior to the anticipated receipt by AES or any Subsidiary of AES of Net Cash Proceeds from any Asset Disposition, a certificate of the chief executive officer, president, chief financial officer or chief accounting officer of AES setting forth a description of the transaction giving rise to such Net Cash Proceeds, the date or dates upon which such Net Cash Proceeds are anticipated to be received by AES or such Subsidiary and the amount of Net Cash Proceeds anticipated to be received on such date or each of such dates; (j) promptly after receipt by AES or any Subsidiary of AES or any Material AES Entity, a copy of each complaint, order, citation, notice or other written communication from any Person with respect to the existence or alleged existence of a material violation of any applicable Environmental Law or the incurrence of any liability, obligation, loss, damage, cost, expense, fine, penalty or sanction or the requirement to commence any remedial action resulting from or in connection with any air emission, water discharge, noise emission, Hazardous Substance or any other environmental, health or safety matter at, upon, under or within any of the properties now or previously owned, leased or operated by AES, any of its Subsidiaries or any Material AES Entity, or due to the operations or activities of AES, any Subsidiary of AES, any Material AES Entity or any other Person on or in connection with any such property or any part thereof; and 49 (k) from time to time such additional information regarding the financial position or business of AES and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Payment of Obligations. Each Borrower will pay and discharge all its material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary of AES to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. SECTION 5.03. Maintenance of Property; Insurance. (a) AES will keep, and will cause each Subsidiary of AES to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) AES will, and will cause each of its Subsidiaries to, maintain (either in the name of AES or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance of such types, in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in similar circumstances in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to each Bank upon request information presented in reasonable detail as to the insurance so carried. SECTION 5.04. Conduct of Business and Maintenance of Existence. AES (a) will continue, and will cause each Material AES Entity and each other Borrower, if any, to continue, to engage in business of the same general type as now conducted by AES and its Subsidiaries, (b) will continue, and will cause each Material AES Entity and each other Borrower, if any, to continue, to operate their respective businesses on a basis substantially consistent with the policies and standards of AES, such Material AES Entity or such Borrower, if any, as in effect on the date hereof and (c) will preserve, renew and keep in full force and effect, and will cause each Material AES Entity and each other Borrower, if any, to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section 5.04 shall prohibit (i) the merger of a Subsidiary into AES or the merger or consolidation of a Subsidiary (other than a Borrower) with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary and if, in each case, after giving effect thereto, (x) no Default shall have occurred and be continuing and (y) no Borrower or Subsidiary Guarantor shall be liable for any Debt of such Subsidiary except to the extent that it was liable for such Debt prior 50 to giving effect to such merger or (ii) the termination of the corporate existence of any Subsidiary (other than a Borrower or a Subsidiary Guarantor) if AES in good faith determines that such termination is in the best interest of AES and is not materially disadvantageous to the Banks. SECTION 5.05. COMPLIANCE WITH LAWS. AES will comply, and cause each Subsidiary of AES to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) (a) except for such non-compliance as would result solely in the payment of monetary compensation by AES or such Subsidiary in an amount not to exceed $200,000 for each such non-compliance and (b) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS. AES will keep, and will cause each Subsidiary of AES to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Significant AES Entity and each other Borrower, if any, to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.07. DEBT. (a) AES shall not, and shall not permit any Subsidiary of AES to, incur, assume, create or suffer to exist any Debt (including any Guarantees of Debt, surety bonds and obligations in respect of letters of credit), except for: (i) Debt under the Financing Documents (subject to Section 5.14); (ii) Debt incurred by a Subsidiary (A) (1) to finance the development, acquisition, construction, operation, maintenance or working capital requirements of a Power Project or any unrelated business operated or managed (including on a joint basis with others), directly or indirectly, by AES and in which such Subsidiary has a direct or indirect interest or (2) in respect of any letter of credit issued in replacement of funds on deposit in any debt service reserve or other similar account of a Power Project in which such Subsidiary has a direct or indirect interest (up to a maximum 51 aggregate stated amount of all such letters of credit of all Subsidiaries equal to $100,000,000) to the extent that such funds so replaced are received by AES as a result of such funds being used to pay dividends or make distributions on the capital stock of such Subsidiary and any other Subsidiary in the chain of ownership between AES and such Subsidiary and (B) that is not also the Debt of, or Guaranteed by, any other Subsidiary with an interest in any other Power Project or unrelated business (except for Debt incurred or assumed by Subsidiaries of AES (other than Specified Subsidiaries) which, at the time such Debt was incurred or assumed, in the aggregate, represent less than 50% of the Parent Operating Cash Flow (other than Parent Operating Cash Flow attributable to Specified Subsidiaries) for the immediately preceding four fiscal quarters); (iii) Debt existing on the date hereof; (iv) Debt owing to AES or a Consolidated Subsidiary of AES; (v) Debt of AES or its Subsidiaries representing a refinancing, replacement or refunding of Debt permitted by clauses (ii) and (iii) above; provided that (A) the aggregate principal amount of such Debt outstanding or available will not be increased at the time of such refinancing, replacement or refunding (other than (1) in the case of Debt ("Hawaii Refinancing Debt") refinancing, replacing or refunding Debt of AES Hawaii, Inc. outstanding on May 15, 1997 ("Replaced Hawaii Debt") (so long as such Hawaii Refinancing Debt has no scheduled principal repayments, or principal payments at the option of the holder thereof in the absence of the occurrence of specified events, in any such case in excess of those required under the Required Hawaii Debt, prior to June 1, 2004) an increase of up to $300,000,000 in excess of the aggregate principal amount of Debt that is being refinanced, replaced or refunded to the extent that proceeds in at least the amount of such increase are received by AES as a result of such proceeds being used to pay dividends or make distributions on the capital stock of such Subsidiary and any other Subsidiary in the chain of ownership between AES and such Subsidiary, (2) in the case of Debt refinancing, replacing or refunding Debt of the corporations or other entities that hold AES's interest in the Tiszai II and Tiszaipalkonya Power Projects (including, without limitation, Debt of a Subsidiary of AES that does not have a direct or indirect interest in any other Power Project, the proceeds of which are used to refinance such Debt of such corporations or other entities and to pay dividends to AES) outstanding on October 21, 1997, an increase of up to $85,000,000 in excess of the aggregate principal amount of Debt that is being refinanced, replaced or refunded to the extent that proceeds of at least $45,000,000 are received by AES as a result of 52 such proceeds being used to pay dividends or make distributions on the capital stock of such Subsidiary and any other Subsidiary in the chain of ownership between AES and such Subsidiary and (3) in the case of Debt refinancing, replacing or refunding Debt of Dominican Power Partners, LDC ("DPP") outstanding on October 21, 1997 (including, without limitation, Debt of AES Los Mina Finance Company the proceeds of which are used to refinance such Debt of DPP and to pay dividends to AES), an increase of up to $100,000,000 in excess of the aggregate principal amount of Debt that is being refinanced, replaced or refunded to the extent that proceeds of at least $80,000,000 are received by AES as a result of such proceeds being used to pay dividends or make distributions on the capital stock of such Subsidiary and any other Subsidiary in the chain of ownership between AES and such Subsidiary), (B) no obligor shall be liable for any such Debt except to the extent that it was liable for the Debt so refinanced, replaced or refunded (except that (I) AES Los Mina Finance Company may incur Debt the proceeds of which are used to refinance Debt of DPP and pay dividends to AES, (II) a Subsidiary of AES that does not have a direct or indirect interest in any other Power Project may incur Debt the proceeds of which are used to refinance Debt of the corporations or other entities that hold AES's interest in the Tiszai II and Tiszaipalkonya Power Projects and pay dividends to AES, (III) a Subsidiary of AES that does not have a direct or indirect interest in any Power Project other than AES Sul Distribudora Gaucha de Energia S.A. ("AES Sul") may incur Debt the proceeds of which are used to refinance Debt of AES Sul and (IV) a Subsidiary of AES (the "Refinancing Subsidiary") that has a direct or indirect interest in a Power Project may incur Debt the proceeds of which are used to refinance Debt of another Subsidiary of AES (the "Refinanced Subsidiary") that has a direct or indirect interest in such Power Project, provided that the Refinancing Subsidiary has no direct or indirect interest in any Power Project other than Power Projects in which the Refinanced Subsidiary has a direct or indirect interest.) and (C) if any Debt being refinanced, replaced or refunded is subordinated to the Debt of any Borrower hereunder or of any Subsidiary under any Guarantee thereof, such Debt shall be subordinated at least to the same extent; (vi) Guarantees by AES of (x) Debt permitted by clause (ii)(A)(1) above, (y) Debt permitted by clause (ii)(A)(2) above in respect of letters of credit issued in replacement of debt service reserve or other similar accounts related to the AES Hawaii (formerly known as Barbers Point), Shady Point or Thames Power Projects and (z) to the extent that the same constitutes a refinancing of Debt referred to in subclause (x) or (y) above, Debt permitted under clause (v) above; 53 (vii) Additional Permitted Subordinated Debt; (viii) Permitted Senior Unsecured Debt; (ix) surety bonds in respect of performance obligations of AES and letters of credit, in an aggregate principal amount at any time outstanding not to exceed $400,000,000; (x) 8% Senior Notes in an aggregate principal amount not exceeding $200,000,000; and (xi) other Debt not described in clauses (i) through (x) above in an aggregate principal amount at any time outstanding not to exceed $10,000,000. (b) AES shall not issue any Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt unless (i) both before and after giving effect to such issuance no Default shall have occurred and be continuing and (ii) on a pro forma basis after giving effect to such issuance and the application of the proceeds thereof (but without increasing or decreasing Parent Operating Cash Flow on account of acquisitions for periods prior to such acquisitions), AES would have been in compliance with Section 5.16 and (unless AES shall have received net cash proceeds of not less than $500,000,000 from the issuance, after September 1, 1999 and on or before the earlier of the date upon which such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, is issued and December 31, 1999, of its common stock to Persons other than Subsidiaries or affiliates of AES) 5.15 as of the last day of the fiscal quarter ended on, or most recently ended prior to, the date of such issuance (assuming for this purpose that (x) such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, (and any other Debt or preferred stock of AES outstanding on the date of issuance of such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, and issued after the first day of the period of four consecutive fiscal quarters ended on such last day) was issued and the proceeds applied on the first day of the period of four consecutive fiscal quarters ended on such last day and (y) all Debt and preferred stock of AES repaid or redeemed prior to or simultaneously with the issuance of such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, was repaid or redeemed on the day prior to the first day of such period). (c) In addition to the Debt permitted by subsections (a) and (b) above, AES shall be permitted to incur, assume, create and suffer to exist up to an aggregate principal amount, not to exceed the sum of (1) $600,000,000 PLUS (2) an 54 amount equal to 50% of the aggregate net proceeds received by AES from issuances and sales (other than sales to AES or any of its Subsidiaries or Affiliates) of its common stock after September 1, 1999, of unsecured senior and/or subordinated Debt issued and sold by way of (i) a registered public offering, (ii) an offering made to qualified institutional buyers pursuant to Rule 144A under the Securities Act and/or (iii) in the form of term loans from banks or other institutional lenders or investors, in each case having terms and provisions applicable to AES and its Subsidiaries that are no more restrictive in any material respect (including, without limitation, covenants and events of default) than those included in existing outstanding public Debt of AES or otherwise acceptable to the Required Banks (except that limitations on (I) the ability of Subsidiaries and Affiliates of AES to guarantee other senior Debt of AES, (II) the ability of AES to grant Liens on stock of Subsidiaries or intercompany advances to secure other senior Debt of AES or (III) the ability of Subsidiaries or Affiliates of AES to grant Liens on their assets (including stock of Subsidiaries and intercompany advances) to secure guarantees of other senior Debt of AES shall be permitted); provided that (A) both before and after giving effect to such issuance no Default shall have occurred and be continuing, (B) on a pro forma basis after giving effect to such issuance and the application of the proceeds thereof (but without increasing or decreasing Parent Operating Cash Flow on account of acquisitions for periods prior to such acquisitions) AES would have been in compliance with Section 5.16 and (unless AES shall have received net cash proceeds of not less than $500,000,000 from the issuance, after September 1, 1999 and on or before the earlier of the date upon which such Debt is issued and December 31, 1999 of its common stock to Persons other than Subsidiaries or affiliates of AES) 5.15 as of the last day of the fiscal quarter ended on, or most recently ended prior to, the date of such issuance (assuming for this purpose that (x) such Debt (and any other Debt or preferred stock of AES outstanding on the date of issuance of such Debt and issued after the first day of the period of four consecutive fiscal quarters ended on such last day) was issued and the proceeds applied on the first day of the period of four consecutive fiscal quarters ended on such last day and (y) all Debt and preferred stock of AES repaid or redeemed prior to or simultaneously with the issuance of such Debt was repaid or redeemed on the day prior to the first day of such period) and (C) such Debt (x) is not guaranteed by any Subsidiary or Affiliate of AES and (y) does not require any scheduled payment of principal prior to July 14, 2003. SECTION 5.08. MINIMUM CONSOLIDATED NET WORTH. Consolidated Net Worth will at no time be less than the sum of (i) $1,160,000,000 plus (ii) for each fiscal quarter of AES ended after the Closing Date and at or prior to such time for which Consolidated Net Income is a positive number, an amount equal to 50% of Consolidated Net Income for such fiscal quarter plus (iii) an amount equal to 75% of the cumulative net proceeds to AES from issuances of equity securities made by AES from and after the Closing Date. 55 SECTION 5.09. RESTRICTED PAYMENTS. Neither AES nor any Subsidiary will declare or make any Restricted Payment unless, after giving effect thereto, the aggregate of all Restricted Payments declared or made subsequent to June 30, 1995 does not exceed the sum of $5 million plus 5% (or, if such amount is a loss, minus 100%) of Consolidated Net Income of AES and its Consolidated Subsidiaries for the period from June 30, 1995 through the last day of the fiscal quarter of AES then most recently ended (treated for this purpose as a single accounting period). Nothing in this Section shall prohibit the payment of any dividend or distribution within 45 days after the declaration thereof if such declaration was not prohibited by this Section. SECTION 5.10. SUBORDINATED DEBT AND 8% SENIOR NOTES. (a) AES will not, and will not permit any of its Subsidiaries to, consent to or solicit any amendment, supplement, waiver or other modification of any Subordinated Note Indenture or any other agreement or instrument evidencing or governing any Subordinated Debt that would (i) increase the interest rate applicable thereto, (ii) shorten the time or increase the amount of any principal payment thereunder, (iii) change, in any manner, the subordination provisions thereof or (iv) change any of the covenants, events of default or other provisions thereof in any manner that could make any such covenant, event of default or other provision more restrictive or that could otherwise be disadvantageous to AES or the Banks, without the express prior written consent of the Required Banks. (b) AES will not, and will not permit any of its Subsidiaries to, consent to or solicit any amendment, supplement, waiver or other modification of the 1998 Senior Note Indenture or any other agreement or instrument evidencing or governing any 8% Senior Notes that (i) would increase the interest rate applicable thereto, (ii) shorten the time or increase the amount of any principal payment thereunder or (iii) change any of the covenants, events of default or other provisions thereof in any manner that could make any such covenant, event of default or other provision more limiting or that could otherwise be disadvantageous to AES or the Banks, without the express prior written consent of the Required Banks. SECTION 5.11. LIMITATIONS ON GUARANTEES AND COMMITMENTS. (i) The aggregate amount of Investment and Guarantee Commitments shall not at any time exceed an amount equal to the sum of: (x) the product of (A) Parent Operating Cash Flow for the period of four consecutive fiscal quarters then most recently ended multiplied by (B) four (4), PLUS 56 (y) the excess, if any, of (A) the aggregate amount of net cash proceeds received by AES from the issuance of equity securities and from the disposition of Material AES Entities during the period from the Closing Date to such time (to the extent not used to prepay Subordinated Debt or to permanently retire any other Debt) over (B) the aggregate amount of cash Investments (other than Temporary Cash Investments) and cash payments made by AES under Guarantees during such period PLUS $430,000,000; provided, that for purposes of determining compliance with this clause (i), the aggregate amount of Investment and Guarantee Commitments at any time shall be reduced to the extent collateralized with cash and cash equivalents and any deposit or other posting by AES of cash or cash equivalents as collateral for any Investment and Guarantee Commitment shall be treated as a cash Investment for purposes of subclause (y)(B) of this clause (i). (ii) AES shall not make or enter into any Investment and Guarantee Commitments at any time that AES's senior unsecured Debt is rated less than BB- by Standard & Poor's Ratings Services or less than Ba3 by Moody's Investors Service, Inc. SECTION 5.12. NEGATIVE PLEDGE. Neither AES nor any Subsidiary of AES will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary of AES and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into AES or a Subsidiary of AES and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by AES or a Subsidiary of AES and not created in contemplation of such acquisition; 57 (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses or clause (l) of this Section; PROVIDED that such Debt is not increased and is not secured by any additional assets (other than, in the case of Debt permitted under Section 5.07(a)(v), Liens on assets of any Subsidiary permitted under such Section 5.07(a)(v) to be obligated on such Debt); (g) Liens arising in the ordinary course of its business which (i) do not secure Debt, (ii) do not secure any obligation in any amount exceeding $25,000,000 and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (h) Liens in connection with worker's compensation, social security obligations, taxes, assessments, statutory obligations or other similar charges, good faith deposits in connection with tenders, contracts or leases to which AES or any of its Subsidiaries is a party or other deposits required to be made in the ordinary course of business and not in connection with borrowing money or obtaining advances or credit, PROVIDED in each case that the obligation or liability arises in the ordinary course of business and if overdue is being contested in good faith by appropriate proceedings; (i) inchoate materialmen's, mechanics', workmen's, repairmen's, employees', carriers', warehousemen's, or other like Liens arising in the ordinary course of business of AES or its Subsidiaries; (j) with respect to real property, easements, rights of way, reservations and other minor defects or irregularities in title which do not materially impair the use thereof for the purposes for which it is held by AES or its Subsidiaries; (k) Liens on cash collateral securing Investment and Guarantee Commitments; and (l) Liens securing Power Project Debt or utility obligations or other customer, supplier or contractor obligations associated with a Power Project that are limited to the assets and revenues of the related Power Project and the capital stock or other assets (including contract rights) of Subsidiaries of AES having a direct or indirect interest in such Power Project. SECTION 5.13. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. (a) No Borrower will consolidate or merge with or into any other Person; provided that a Borrower may merge with another Person if (i) such Borrower is the corporation surviving such merger or the corporation surviving such merger assumes all obligations of such Borrower under the Financing Documents and 58 (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing. (b) AES will not sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of AES and its Subsidiaries, taken as a whole, to any other Person. (c) AES will not sell or otherwise transfer, or permit to be sold or otherwise transferred, directly or indirectly, any shares of capital stock of any AES Finance Subsidiary or any Material AES Entity which are owned, directly or indirectly, by AES; provided that AES may transfer, or permit the transfer of, shares of capital stock of a Material AES Entity owned, directly or indirectly, by AES if: (i) after giving effect to such transfer, AES will continue to own, directly or indirectly, at least 80% of the outstanding capital stock of each Material AES Entity; (ii) the consideration received by AES or a Subsidiary of AES for such transfer (A) has a value, as determined by AES, at least equal to the fair market value of the shares of capital stock transferred and (B) is in the form of cash or capital stock or partnership or other similar equity interests of a Person the principal assets of which consist of direct or indirect interests in one or more Power Projects, or a combination of the foregoing; (iii) after giving effect to such transfer, no Default shall have occurred and be continuing; (iv) on a pro forma basis after giving effect to such transfer, the Cash Flow Coverage Ratio for the four consecutive fiscal quarters then most recently ended is at least 1.75 to 1.00 (assuming for this purpose that such transfer occurred on the first day of such period of four consecutive fiscal quarters); (v) AES Hawaii, Inc. shall at all times remain a direct Subsidiary of AES Hawaii Management and AES Shady Point, Inc. shall at all times remain a direct Subsidiary of AES Oklahoma; (vi) if AES Cilcorp shall be a Subsidiary Guarantor, Cilcorp and Subsidiaries of Cilcorp holding substantially all of the assets of Cilcorp and its Subsidiaries as of March 4, 1999 shall at all times remain Subsidiaries of AES Cilcorp; 59 (vii) if AES Warrior Run shall be a Subsidiary Guarantor, AES Western Maryland Management, Inc., AES Mexico Farms Inc. and AES Warrior Run Limited Partnership shall at all times remain Subsidiaries of AES Warrior Run and shall hold, directly or indirectly, substantially all of the assets held by them on March 4, 1999; and (viii) if AES Southland shall be a Subsidiary Guarantor, Southland and Subsidiaries of Southland holding substantially all of the assets of Southland and its Subsidiaries as of March 4, 1999 shall at all times remain Subsidiaries of AES Southland. SECTION 5.14. USE OF PROCEEDS; CLEAN-UP PERIODS. (a) The proceeds of the Loans made and Letters of Credit issued under this Agreement will be used by the Borrowers for working capital and other general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U or Regulation G. (b) For at least one period of 30 consecutive days in each twelve month period, the sum of (i) the aggregate stated amount of all Letters of Credit used to support debt service reserves then outstanding and (ii) the aggregate principal amount of all Loans then outstanding shall not exceed $225,000,000. SECTION 5.15. CASH FLOW COVERAGE. The Cash Flow Coverage Ratio for any period of four consecutive fiscal quarters of AES ending after the date hereof (including any pro forma calculation under subsection (b) or (c) of Section 5.07 made by reference to such period) shall not be less than (i) in the case of any period ending after December 31, 1998 and on or prior to March 31, 1999, 1.30 to 1.00, (ii) in the case of any period ending after March 31, 1999 and on or prior to September 30, 1999, 1.40 to 1.00, (iii) in the case of any period ending after September 30, 1999 and on or prior to September 30, 2000, 1.50 to 1.00 and (iv) in all other cases, 1.75 to 1.00. SECTION 5.16. CASH FLOW TO TOTAL DEBT RATIO. The Cash Flow to Total Debt Ratio for any period ending on or after March 31, 1998 shall not be less than (i) 0.10 to 1.00 at any time on or prior to December 31, 1999, (ii) 0.105 to 1.00 at any time after December 31, 1999 and on or prior to March 31, 2000, (iii) 0.125 to 1.00 at any time after March 31, 2000 and on or prior to September 30, 2000 and (iv) 0.15 to 1.00 at any time thereafter. SECTION 5.17. TRANSACTION WITH AFFILIATES. Except pursuant to agreements existing on the date hereof and listed on Schedule I attached hereto, AES will not, and will not permit any Subsidiary of AES to, directly or indirectly, in any transaction involving aggregate consideration in excess of $1,000,000, pay any 60 funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate; PROVIDED, HOWEVER, that the foregoing provisions of this Section shall not prohibit (a) AES from declaring or paying any lawful dividend so long as, after giving effect thereto, no Default shall have occurred and be continuing, (b) AES or any Subsidiary of AES from making sales to or purchases from any Affiliate and, in connection therewith, extending credit or making payments, or from making payments for services rendered by any Affiliate, if such sales or purchases are made or such services are rendered in the ordinary course of business and on terms and conditions at least as favorable to AES or such Subsidiary as the terms and condi tions which would apply in a similar transaction with a Person not an Affiliate, (c) AES or any Subsidiary of AES from making payments of principal, interest and premium on any Debt of AES or such Subsidiary held by an Affiliate if the terms of such Debt are substantially as favorable to AES or such Subsidiary as the terms which could have been obtained at the time of the creation of such Debt from a lender which was not an Affiliate and (d) AES or any Subsidiary of AES from participating in, or effecting any transaction in connection with, any joint enterprise or other joint arrangement with any Affiliate if AES or such Subsidiary participates in the ordinary course of its business and on a basis no less advantageous than the basis on which such Affiliate participates. The provisions of this Section 5.17 shall not apply to (i) transactions between AES or any of its Subsidiaries, on the one hand, and any employee of AES or any of its Subsidiaries, on the other hand, that are approved by the Board of Directors of AES or any committee of the Board of Directors consisting of AES's independent directors and (ii) the payment of reasonable and customary regular fees to directors of AES or a Subsidiary of AES. SECTION 5.18. LIMITATION ON INVESTMENTS. (a) AES will not permit any Specified Subsidiary to make any Investment in, or to consolidate or merge with, any other Person with a direct or indirect interest in any Power Project or unrelated business other than the Power Project or unrelated business in which such Specified Subsidiary has a direct or indirect interest prior to the making of such Investment or the consummation of such consolidation or merger. (b) AES will not permit any Subsidiary of AES with any direct or indirect interest in (i) a Power Project to make any Investment in, or consolidate or merge with, any other Person with a direct or indirect interest in any other Power Project or any unrelated business or (ii) any unrelated business to make any Investment in, or to consolidate or merge with, any other Person with a direct or 61 indirect interest in any Power Project; PROVIDED that (A) one or more Subsidiaries of AES (each, an "INTERMEDIATE HOLDING COMPANY") may serve as holding companies for any or all of AES's direct and indirect interests in Power Projects and unrelated businesses, so long as: (I) each such Intermediate Holding Company's direct and indirect interest in any Power Project or unrelated business shall be limited to the ownership of capital stock or Debt obligations of a Person with a direct or indirect interest in such Power Project or unrelated business; (II) no Lien shall exist upon any asset of any Intermediate Holding Company (other than Liens on the capital stock of AES or a Subsidiary of an Intermediate Holding Company securing Debt of such Intermediate Holding Company or such Subsidiary and Liens securing Debt permitted under clause (ii) of Section 5.07(a)); and (III) no Intermediate Holding Company shall incur, assume, create or suffer to exist any Debt (including any Guarantee of Debt) other than Debt owing to AES or any Intermediate Holding Company and Debt permitted by clauses (i) and (ii) of Section 5.07(a) or (to the extent that such Debt represents a refinancing or replacement of Debt permitted by clause (ii) of Section 5.07(a)) clause (v) of Section 5.07(a) (without giving effect to subsubclauses (I) through (IV) of subclause (B) thereof); and (B) AES Electric may make Investments in Power Projects owned by NIGEN Limited and Medway Power Limited as of the date of this Agreement under any agreement by which it is bound as of the date of this Agreement. SECTION 5.19. ADDITIONAL GUARANTORS. On or prior to the earlier of (x) the date of the consummation of the Cilcorp Acquisition and (y) the date that is six months after the date upon which the First Amendment and Restatement is effective, (i) each Additional Guarantor shall execute and deliver to the Agent a Subsidiary Guaranty, (ii) each Additional Guarantor shall provide to the Agent (A) copies of the bylaws of such Additional Guarantor and of resolutions of the Board of Directors or equivalent governing body of such Additional Guarantor authorizing the execution, delivery and performance by such Additional Guarantor of such Subsidiary Guaranty, certified by a duly authorized officer of such Additional Guarantor (which certificate shall state that such bylaws and resolutions are in full force and effect on the date of such Additional Guarantor's execution and delivery of such Subsidiary Guaranty), (B) copies of all approvals, authorizations or consents of, or notices to or registrations with, any governmental body or agency, if any, required for such Additional Guarantor to enter into such 62 Subsidiary Guaranty, (C) a certificate of a duly authorized officer of such Additional Guarantor certifying the names and true signatures of the officers of such Additional Guarantor authorized to sign such Subsidiary Guaranty and (D) a copy of the certificate or articles of incorporation of such Additional Guarantor, and all amendments thereto, certified by the Secretary of State of the state of incorporation or other constitutive documents of such Additional Guarantor and (iii) the General Counsel of AES shall have provided to the Agent a legal opinion, dated the date on which each Additional Guarantor shall have executed and delivered a Subsidiary Guaranty, covering such matters relating to its existence and good standing and its entry into and performance of such Subsidiary Guaranty and such other matters relating thereto as the Agent shall reasonably request. ARTICLE 6 DEFAULTS SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following events ("EVENTS OF DEFAULT") shall have occurred and be continuing: (a) any Obligor shall fail to pay when due any principal of any Loan or any Reimbursement Obligation, or shall fail to pay within three days of the date when due any interest, fees or other amounts payable under any Financing Document; (b) AES shall fail to observe or perform any covenant contained in Sections 5.07 to 5.19, inclusive, or except in accordance with the terms hereof and thereof, the Subsidiary Guaranty or the guarantees in Article IX shall cease to be in full force and effect; (c) any Obligor shall fail to observe or perform any covenant or agreement contained in any Financing Document (other than those covered by clause (a) or (b) above) for 20 days after written notice thereof has been given to AES by the Agent at the request of any Bank; (d) any representation, warranty, certification or statement made by any Obligor in any Financing Document or in any certificate, financial statement or other document delivered pursuant to any Financing Document shall prove to have been incorrect in any material respect when made (or deemed made); (e) any Borrower shall fail to make any payment in respect of any Material Debt when due or within any applicable grace period; 63 (f) any event or condition shall occur which (i) prior to May 28, 1999, results in the acceleration of the maturity of any Material Debt of AES or any Subsidiary of AES (except AES Placerrita and Central Termica San Nicholas S.A.), (ii) on or after May 28, 1999, results in the acceleration of the maturity of any Material Debt of AES or of any Material Debt of any Subsidiary or Subsidiaries of AES (except AES Placerita and Central Termica San Nicolas S.A.) that, individually or in the aggregate (in each case together with any Person in which such Subsidiary has a direct or indirect equity Investment), contributed 15% or more to Parent Operating Cash Flow for the four most recently completed fiscal quarters of AES, (iii) results in the termination of any commitment to provide financing in an amount in excess of $15,000,000 to AES or any Material AES Entity or (iv) in the case of any Borrower, enables (or, with the giving of notice or lapse of time or both, would enable) the holder of any Material Debt of such Borrower or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) a Borrower or any Significant AES Entity shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against a Borrower or any Significant AES Entity seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against a Borrower or any Significant AES Entity under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $15,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose 64 liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $15,000,000; (j) a judgment or order for the payment of money in excess of $15,000,000 shall be rendered against AES or any Subsidiary of AES, and such judgment or order shall continue unsatisfied and unstayed for a period of 10 days; or (k) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) other than a member of the AES Management Group shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 20% or more of the outstanding shares of common stock of AES; during any period of twelve consecutive calendar months, individuals who were directors of AES on the first day of such period (or who were appointed or nominated for election as directors of AES by at least a majority of the individuals who were directors on the first day of such period) shall cease to constitute a majority of the board of directors of AES; or any AES Finance Subsidiary shall fail, at any time, to be a Wholly-Owned Consolidated Subsidiary of AES; then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Total Exposures, by notice to the Borrowers terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks having more than 50% of the Total Exposures, by notice to the Borrowers declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; PROVIDED that in the case of any Automatic Acceleration Event, without any notice to the Borrowers or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers. SECTION 6.02. NOTICE OF DEFAULT. The Agent shall give notice to AES under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. 65 SECTION 6.03. CASH COLLATERAL. If any Automatic Acceleration Event shall occur or the Loans of the Banks shall have otherwise been accelerated or the Commitments terminated pursuant to Section 6.01, then without any request or the taking of any other action by the Agent or any of the Banks, the Borrowers shall be jointly and severally obligated forthwith to pay to the Agent an amount in immediately available funds equal to the then aggregate amount available for drawings (regardless of whether any conditions to any such drawing can then be met) under all Letters of Credit at the time outstanding, to be held by the Agent as cash collateral as provided in Section 2.15. ARTICLE 7 THE AGENT SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Financing Documents as are delegated to the Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. AGENT AND AFFILIATES. Morgan Guaranty Trust Company of New York shall have the same rights and powers under the Financing Documents as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with AES or any Subsidiary or affiliate of AES as if it were not the Agent under the Financing Documents. SECTION 7.03. ACTION BY AGENT. The obligations of the Agent under the Financing Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. CONSULTATION WITH EXPERTS. The Agent may consult with legal counsel (who may be counsel for any Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. LIABILITY OF AGENT. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates 66 nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with the Financing Documents or any Extension of Credit hereunder; (ii) the performance or observance of any of the covenants or agreements of any Obligor; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of the Financing Documents or any other instrument or writing furnished in connection therewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, and each Fronting Bank, each of their respective affiliates and the respective directors, officers, agents and employees of any of them (to the extent not reimbursed by the Obligors) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with the Financing Documents or any action taken or omitted by such indemnitees thereunder. SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon the Agent, any Fronting Bank or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent, any Fronting Bank or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. SUCCESSOR AGENT. The Agent may resign at any time by giving notice thereof to the Banks and the Borrowers. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall 67 thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. AGENT'S FEE. AES shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between AES and the Agent. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If on or prior to the first day of any Interest Period for any Euro-Dollar Borrowing: (a) the Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the Adjusted London Interbank Offered Rate as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period, the Agent shall forthwith give notice thereof to the Borrowers and the Banks, whereupon until the Agent notifies the Borrowers that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless a Borrower notifies the Agent at least two Domestic Business Days before the date of any Euro-Dollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 8.02. ILLEGALITY. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or 68 not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans to any Borrower and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and AES, whereupon until such Bank notifies AES and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans to such Borrower, or to convert outstanding Loans into Euro-Dollar Loans or continue outstanding Loans as Euro-Dollar Loans, shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day or (ii) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day. Interest and principal on any such Base Rate Loan shall be payable on the same dates as, and on a pro rata basis with, the interest and principal payable on the related Euro-Dollar Loans of the other Banks. SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) or any Fronting Bank (any Bank (or its Applicable Lending Office) and any Fronting Bank being referred to in this Section 8.03 as a "Credit Party") with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Credit Party or shall impose on any Credit Party or on the London interbank market any other condition affecting its Euro-Dollar Loans, its Note or Notes, the Letters of Credit or its participation therein or its obligation to make Euro-Dollar Loans or to issue Letters of Credit or to participate therein and the result of any of the foregoing is to increase the cost to such Credit Party of making or maintaining any Euro- Dollar Loan or issuing any Letter of Credit or participating therein, or to reduce the amount of any sum received or receivable by such Credit Party under this 69 Agreement or under its Note or Notes with respect thereto, by an amount deemed by such Credit Party to be material, then, within 15 days after demand by such Credit Party (with a copy to the Agent), AES shall pay to such Credit Party such additional amount or amounts as will compensate such Credit Party for such increased cost or reduction. (b) If any Credit Party shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Credit Party (or its Parent) as a consequence of such Credit Party's obligations hereunder to a level below that which such Credit Party (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Credit Party to be material, then from time to time, within 15 days after demand by such Credit Party (with a copy to the Agent), AES shall pay to such Credit Party such additional amount or amounts as will compensate such Credit Party (or its Parent) for such reduction. (c) Each Credit Party will promptly notify AES and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Credit Party to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Credit Party, be otherwise disadvantageous to such Credit Party. A certificate of any Credit Party claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Credit Party may use any reasonable averaging and attribution methods. SECTION 8.04. TAXES. (a) Any and all payments by any Borrower to or for the account of any Bank, any Fronting Bank or the Agent hereunder or under any other Financing Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Bank, each Fronting Bank and the Agent, taxes imposed on its income (including branch profit taxes), franchise and similar taxes and other taxes imposed on it that, in any such case, would not have been imposed but for a material connection between such Bank, such Fronting Bank or the Agent (as the 70 case may be) and the jurisdiction imposing such taxes (other than a material connection arising by reason of this Agreement or any other Financing Document or the receipt of payments made hereunder or thereunder) (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Financing Document to any Bank, any Fronting Bank or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank, such Fronting Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions, (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) such Borrower shall furnish to the Agent, at its address referred to in Section 10.01, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, each Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made by it hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Financing Document (hereinafter referred to as "Other Taxes"). (c) Each Borrower agrees to indemnify each Bank, each Fronting Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank, such Fronting Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 15 days from the date such Bank, such Fronting Bank or the Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by AES (but only so long as such Bank remains lawfully able to do so), shall provide AES with two duly completed and accurate copies of Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this 71 Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 8.04(a). (e) For any period with respect to which a Bank has failed to provide AES with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(a) with respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrowers shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If any Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. (g) Each Bank, each Fronting Bank and the Agent agrees that it will promptly (within 30 days) after receiving notice thereof from any taxing authority, notify AES of the assertion of any liability by such taxing authority with respect to Taxes or Other Taxes; PROVIDED, that the failure to give such notice shall not relieve AES of its obligations under this Section 8.04 except to the extent that AES has been prejudiced by such failure and except that AES shall not be liable for penalties, interest or expenses accruing after such 30 day period until such time as it receives the notice contemplated above, after which time it shall be liable for interest, penalties and expenses accruing after such receipt. (h) If any Bank, a Fronting Bank or the Agent shall receive a credit or refund from a taxing authority (as a result of any error in the imposition of Tax or Other Tax by such taxing authority) with respect to and actually resulting from an amount of such Taxes or Other Taxes paid by a Borrower pursuant to subsection (a) or (c) above, such Bank, such Fronting Bank or the Agent shall promptly pay to AES the amount so received (without interest thereon, whether or not received). SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED EURO-DOLLAR LOANS. If (i) the obligation of any Bank to make, or to continue or to convert outstanding Loans as or to, Euro-Dollar Loans to any Borrower has been 72 suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans to any Borrower and such Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies AES that the circumstances giving rise to such suspension or demand for compensation no longer exist, all Loans to such Borrower which would otherwise be made by such Bank as (or continued or converted to) Euro-Dollar Loans shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks). If such Bank notifies such Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. ARTICLE 9 GUARANTY SECTION 9.01. THE GUARANTY. Subject, in the case of any AES Finance Subsidiary, to the provisions of Section 9.07, each Guarantor hereby unconditionally guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Note issued by the applicable Borrower pursuant to this Agreement, and the full and punctual payment of all other amounts payable by such Borrower under this Agreement. Upon failure by a Borrower to pay punctually any such amount, the applicable Guarantor shall, subject, in the case of any AES Finance Subsidiary, to the provisions of Section 9.07, forthwith on demand pay the amount not so paid at the place and in the manner specified in this Agreement. Without limiting the generality of the foregoing, each Guarantor's liability hereunder shall extend to all amounts which constitute part of the obligations guaranteed by it hereunder and would be owed by a Borrower hereunder but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such Borrower. SECTION 9.02. GUARANTY UNCONDITIONAL. The obligations of each Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any other Obligor under any Financing Document, by operation of law or otherwise; 73 (ii) any modification or amendment of or supplement to any Financing Document; (iii) any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of any other Obligor under any Financing Document; (iv) any change in the corporate existence, structure or ownership of any Obligor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any other Obligor or its assets or any resulting release or discharge of any obligation of any other Obligor contained in any Financing Document; (v) the existence of any claim, set-off or other rights which such Guarantor may have at any time against any other Obligor, the Agent, any Fronting Bank, any Bank or any other Person, whether in connection herewith or with any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against any other Obligor for any reason of any Financing Document, or any provision of applicable law or regulation purporting to prohibit the payment by any other Obligor of the principal of or interest on any Note or any other amount payable by it under any Financing Document; or (vii) any other act or omission to act or delay of any kind by any Obligor, the Agent, any Fronting Bank, any Bank or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to a Guarantor's obligations hereunder. SECTION 9.03. DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN CIRCUMSTANCES. Each Guarantor's obligations hereunder shall remain in full force and effect until the Commitments shall have terminated, the principal of and interest on the Notes and all other amounts payable by any Obligor under any Financing Document shall have been paid in full and all Letters of Credit shall have expired or been terminated. If at any time any payment of principal of or interest on any Note or any other amount payable by any Borrower under any Financing Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Borrower or otherwise, the applicable Guarantor's obligations hereunder with respect to such payment shall 74 be reinstated at such time as though such payment had been due but not made at such time. SECTION 9.04. WAIVER BY THE GUARANTORS. Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the applicable Borrower or any other Person. SECTION 9.05. SUBROGATION. Upon making any payment with respect to a Borrower under this Article IX, the applicable Guarantor shall be subrogated to the rights of the payee against such Borrower with respect to such payment; PROVIDED that neither Guarantor shall enforce any payment by way of subrogation until all amounts of principal of and interest on the Notes and all other amounts payable by any Borrower under any Financing Document shall have been paid in full. SECTION 9.06. STAY OF ACCELERATION. In the event that acceleration of the time for payment of any amount payable by a Borrower under any Financing Document is stayed upon insolvency, bankruptcy or reorganization of such Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the applicable Guarantor hereunder forthwith on demand by the Agent made at the request of the requisite proportion of the Banks specified in Article VI of this Agreement. SECTION 9.07. LIMITATION OF LIABILITY. The obligations of any AES Finance Subsidiary under this Article IX shall be limited to an aggregate amount equal to the largest amount that would not render its obligations under this Article IX subject to avoidance under Section 548 of the Bankruptcy Code or any comparable provisions of any applicable state law. ARTICLE 10 MISCELLANEOUS SECTION 10.01. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (w) in the case of AES, any Fronting Bank or the Agent, at its address or telex or facsimile transmission number set forth on the signature pages hereof, (x) in the case of any AES Finance Subsidiary, in care of AES at the address or telex or facsimile transmission number of AES set forth on the signature pages hereof, (y) in the case of any Bank, at its address or telex or facsimile transmission number set forth in its Administrative Questionnaire or (z) in the case of any party, at such other address or telex or facsimile transmission number as such party may hereafter 75 specify for the purpose by notice to the Agent, the Fronting Banks and AES. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in or pursuant to this Section and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in or pursuant to this Section; PROVIDED that notices to the Agent or a Fronting Bank under Article II or Article VIII shall not be effective until received. SECTION 10.02. NO WAIVERS. No failure or delay by the Agent, any Fronting Bank or any Bank in exercising any right, power or privilege hereunder or under any other Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 10.03. EXPENSES; INDEMNIFICATION. (a) AES shall pay (i) all out-of-pocket expenses of the Agent, including reasonable fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of this Agreement and the other Financing Documents, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Agent, each Fronting Bank and each Bank, including (without duplication) the fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) AES agrees to indemnify the Agent, each Fronting Bank and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connec tion with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans or Letters of Credit hereunder or the issuance or deemed issuance of any Letter of Credit hereunder; PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. 76 SECTION 10.04. SHARING OF SET-OFFS. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount due with respect to the Total Outstandings of such Bank which is greater than the proportion received by any other Bank in respect of the aggregate amount due with respect to the Total Outstandings of such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Total Outstandings of the other Banks, and such other adjustments shall be made, as may be required so that all such payments with respect to the Total Outstandings of the Banks shall be shared by the Banks pro rata; PROVIDED that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of a Borrower other than its indebtedness in respect of the Total Outstandings of any Bank. Each Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note or in any Letter of Credit Liability, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of such Borrower in the amount of such participation. SECTION 10.05. AMENDMENTS AND WAIVERS. Any provision of this Agreement or any other Financing Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by each Borrower, each Fronting Bank and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); PROVIDED that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or Reimbursement Obligation or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or Reimbursement Obligation or any fees hereunder or for any reduction or termination of any Commitment, (iv) change the percentage of the Commitments or of the Total Exposures, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement or any other Financing Document, or (v) release either Subsidiary Guarantor from its obligations under Section 2 of the Subsidiary Guaranty or any Guarantor from its obligations under Article IX hereof. SECTION 10.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no Borrower may assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. 77 (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans or participating interests in Letter of Credit Liabilities. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrowers, the Fronting Banks and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrowers, the Fronting Bank and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrowers hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement or any other Financing Document; PROVIDED that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (v) of Section 10.05 without the consent of the Participant. The Borrowers agree that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $5,000,000) of all, of its rights and obligations under this Agreement and the other Financing Documents, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of AES (which shall not be unreasonably withheld), the Fronting Banks and the Agent; PROVIDED that if an Assignee is an affiliate of such transferor Bank, no such consent shall be required. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrowers shall make appropriate arrangements so that, if required, new Notes are issued to the Assignee. In connection with any such assignment, the transferor Bank shall 78 pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to AES and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and the other Financing Documents to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with AES's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 10.07. COLLATERAL. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U or Regulation G) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 10.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and the other Financing Documents shall be governed by and construed in accordance with the laws of the State of New York. Each Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement and the other Financing Documents or the transactions contemplated hereby. Each Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 10.09. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement and the other Financing Documents constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, 79 relating to the subject matter hereof. This Agreement shall become effective upon receipt by the Agent of counterparts hereof signed by each of the parties hereto, other than any AES Finance Subsidiary (or, in the case of any such party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex, facsimile transmission or other written confirmation from such party of execution of a counterpart hereof by such party). SECTION 10.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE FRONTING BANKS, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 10.11. SEVERABILITY; MODIFICATION TO CONFORM TO LAW. It is the intention of the parties that this Agreement be enforceable to the fullest extent permissible under applicable law, but that the unenforceability (or modification to conform to such law) of any provision or provisions hereof shall not render unenforceable, or impair, the remainder hereof. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, this Agreement shall, as to such jurisdiction, be deemed amended to modify or delete, as necessary, the offending provision or provisions and to alter the bounds thereof in order to render it or them valid and enforceable to the maximum extent permitted by applicable law, without in any manner affecting the validity or enforceability of such provision or provisions in any other jurisdiction or the remaining provisions hereof in any jurisdiction. SECTION 10.12. APPOINTMENT OF AGENT FOR SERVICE OF PROCESS. (a) Each AES Finance Subsidiary hereby irrevocably designates, appoints, authorizes and empowers as its agent for service of process CT Corporation System, at its offices currently located at 1633 Broadway, New York, New York 10019, to accept and acknowledge for and on behalf of such AES Finance Subsidiary service of any and all process, notices or other documents that may be served in any suit, action or proceeding relating to any Financing Document in any New York State or Federal court sitting in The State of New York. SECTION 10.13. JUDGMENT CURRENCY. If for the purposes of enforcing the obligations of any Borrower hereunder it is necessary to convert a sum due from such Person in U.S. dollars ("dollars") into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent, the Fronting Banks and the Banks could purchase dollars 80 with such currency at or about 11:00 A.M. (New York City time) on the Domestic Business Day preceding that on which final judgment is given. The obligations in respect of any sum due to the Agent, the Fronting Banks and the Banks hereunder shall, notwithstanding any adjudication expressed in a currency other than dollars, be discharged only to the extent that on the Domestic Business Day following receipt by the Agent, the Fronting Banks and the Banks of any sum adjudged to be so due in such other currency the Agent, the Fronting Banks and the Banks may in accordance with normal banking procedures purchase dollars with such other currency; if the amount of dollars so purchased is less than the sum originally due to the Agent, the Fronting Banks and the Banks in dollars, each Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such adjudication, to indemnify the Agent, the Fronting Banks and the Banks against such loss, and if the amount of dollars so purchased exceeds the sum originally due to the Agent, the Fronting Banks and the Banks, it shall remit such excess to the applicable Borrower. 81 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. THE AES CORPORATION By____________________________________ Title: 1001 North 19th Street Arlington, VA 22209 Telecopy no.: (703) 528-4510 BANKS - ----- MORGAN GUARANTY TRUST COMPANY OF NEW YORK By____________________________________ Title: NATIONSBANK, N.A. By____________________________________ Title: 82 UNION BANK OF CALIFORNIA, N.A. By____________________________________ Title: By____________________________________ Title: BARCLAYS BANK PLC By____________________________________ Title: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED By____________________________________ Title: THE BANK OF NOVA SCOTIA By____________________________________ Title: 83 BANKBOSTON, N.A. By____________________________________ Title: DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By____________________________________ Title: By____________________________________ Title: THE FIRST NATIONAL BANK OF CHICAGO By____________________________________ Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH By____________________________________ Title: 84 TORONTO DOMINION (TEXAS), INC. By____________________________________ Title: SOCIETE GENERALE By____________________________________ Title: CREDIT LYONNAIS NEW YORK BRANCH By____________________________________ Title: BAYERISCHE HYPO- UND VEREINSBANK AG, NEW YORK BRANCH By____________________________________ Title: By____________________________________ Title: 85 BANQUE NATIONALE DE PARIS By____________________________________ Title: By____________________________________ Title: CIBC INC. By____________________________________ Title: COMMERZBANK AG, NEW YORK BRANCH By____________________________________ Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE By____________________________________ Title: By____________________________________ Title: 86 CREDIT LOCAL DE FRANCE, NEW YORK AGENCY By____________________________________ Title: By____________________________________ Title: FIRST HAWAIIAN BANK By____________________________________ Title: RIGGS BANK N.A. By____________________________________ Title: THE SANWA BANK, LIMITED NEW YORK BRANCH By____________________________________ Title: 87 SUNTRUST BANK, CENTRAL FLORIDA, N.A. By____________________________________ Title: ARAB BANK PLC By____________________________________ Title: FRONTING BANKS - -------------- BARCLAYS BANK PLC, as Fronting Bank By____________________________________ Title: Address: 222 Broadway New York, NY 10038 Attention: Sydney G. Dennis UNION BANK OF CALIFORNIA, N.A., as Fronting Bank By____________________________________ Title: Address: Attention: 88 NATIONSBANK, N.A., as Fronting Bank By___________________________________ Title: Address: 6610 Rockedge Dr. 6th Floor Bethesda, MD 20817 Attention: Paula Z. Kramp AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, as Fronting Bank By____________________________________ Title: Address: 1177 Avenue of the Americas New York, New York 10036-2798 Attention: Beth Waters MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Fronting Bank By____________________________________ Title: 60 Wall Street New York, New York 10260 Attention: 89 AGENT - ----- MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By____________________________________ Title: 60 Wall Street New York, New York 10260 Attention: 90 EX-10.13 3 EXHIBIT 10.13 Exhibit 10.13 AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT dated as of May 21, 1999 to the Credit Agreement dated as of December 19, 1997 (as amended and restated as of March 31, 1999, the "CREDIT AGREEMENT") among THE AES CORPORATION ("AES"), the BANKS party thereto, the FRONTING BANKS party thereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT"). WITNESSETH: WHEREAS, the parties hereto desire to amend the Credit Agreement as provided herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION . DEFINED TERMS; REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION . AMENDMENT TO DEBT COVENANT. Section 5.07(c) of the Credit Agreement is hereby amended to read in its entirety as follows: "(c) In addition to the Debt permitted by subsections (a) and (b) above, AES shall be permitted to incur, assume, create and suffer to exist up to $600,000,000 aggregate principal amount of unsecured senior and/or subordinated Debt issued and sold by way of (i) a registered public offering, (ii) an offering made to qualified institutional buyers pursuant to Rule 144A under the Securities Act and/or (iii) in the form of term loans from banks or other institutional lenders or investors, in each case having terms and provisions applicable to AES and its Subsidiaries that are no more restrictive in any material respect (including, without limitation, covenants and events of default but excluding limitations of the type referred to in clauses (C)(y)(I), (II) and (III) below that are permitted under clause (C)(y) below) than those included in existing outstanding public Debt of AES or otherwise acceptable to the Required Banks; PROVIDED that (A) both before and after giving effect to such issuance no Default shall have occurred and be continuing, (B) on a PRO FORMA basis after giving effect to such issuance 1 and the application of the proceeds thereof (but without increasing or decreasing Parent Operating Cash Flow on account of acquisitions for periods prior to such acquisitions), AES would have been in compliance with Section 5.15 and 5.16 as of the last day of the fiscal quarter ended on, or most recently ended prior to, the date of such issuance (assuming for this purpose that such Debt (and any other Debt of AES outstanding on the date of issuance of such Debt and issued after the first day of the period of four consecutive fiscal quarters ended on such last day) was issued and the proceeds applied on the first day of the period of four consecutive fiscal quarters ended on such last day (but without increasing or decreasing Parent Operating Cash Flow on account of acquisitions for periods prior to such acquisitions)), and (C) such Debt (x) is not guaranteed by any Subsidiary or Affiliate of AES, (y) does not limit (I) the ability of Subsidiaries and Affiliates of AES to guarantee other senior Debt of AES, (II) the ability of AES to grant Liens on stock of Subsidiaries or intercompany advances to secure other senior Debt of AES or (III) the ability of Subsidiaries or Affiliates of AES to grant Liens on their assets (including stock of Subsidiaries and intercompany advances) to secure guarantees of other senior Debt of AES (provided that (aa) a Permitted Negative Pledge shall not be prohibited by this clause (y) and (bb) this clause (y) shall not apply if AES shall have received at least $300,000,000 of gross cash proceeds from the issuance of its common stock after March 1, 1999 and on or prior to June 30, 1999) and (z) does not require any scheduled payment of principal prior to July 14, 2003." SECTION 3. REPRESENTATIONS OF BORROWER. AES represents and warrants that (i) the representations and warranties of AES set forth in Article 4 of the Credit Agreement will be true on and as of the Amendment Effective Date and (ii) no Default will have occurred and be continuing on such date. SECTION 4. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. COUNTERPARTS. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 6. EFFECTIVENESS. This Amendment shall become effective on the date (the "AMENDMENT EFFECTIVE DATE") upon which the Agent shall have received from each of AES, each Guarantor and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Agent) that such party has signed a counterpart hereof. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. THE AES CORPORATION By: -------------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: -------------------------------------- Name: Title: NATIONSBANK, N.A. By: -------------------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A. By: ------------------------------------- Name: Title: 3 BARCLAYS BANK PLC By: -------------------------------- Name: Title: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED By: -------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By: -------------------------------- Name: Title: BANKBOSTON, N.A. By: -------------------------------- Name: Title: DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: 4 THE FIRST NATIONAL BANK OF CHICAGO By: -------------------------------- Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: -------------------------------- Name: Title: TORONTO DOMINION (TEXAS), INC. By: -------------------------------- Name: Title: SOCIETE GENERALE By: -------------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By: -------------------------------- Name: Title: 5 BAYERISCHE HYPO- UND VEREINSBANK AG, NEW YORK BRANCH By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: BANQUE NATIONALE DE PARIS By: -------------------------------- Name: Title: CIBC INC. By: -------------------------------- Name: Title: COMMERZBANK AG, NEW YORK BRANCH By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: 6 WESTDEUTSCHE LANDESBANK GIROZENTRALE By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: CREDIT LOCAL DE FRANCE, NEW YORK AGENCY By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: FIRST HAWAIIAN BANK By: -------------------------------- Name: Title: 7 RIGGS BANK N.A. By: -------------------------------- Name: Title: THE SANWA BANK, LIMITED NEW YORK BRANCH By: -------------------------------- Name: Title: SUNTRUST BANK, CENTRAL FLORIDA, N.A. By: -------------------------------- Name: Title: ARAB BANK PLC By: -------------------------------- Name: Title: 8 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: -------------------------------- Name: Title: The undersigned Guarantors hereby consent to the foregoing Amendment No. 1 to Amended and Restated Credit Agreement: AES HAWAII MANAGEMENT COMPANY, INC. By: --------------------------------- Name: Title: AES OKLAHOMA MANAGEMENT CO., INC. By: --------------------------------- Name: Title: 9 EX-10.14 4 EXHIBIT 10.14 Exhibit 10.14 EXECUTION COPY AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT dated as of July 27, 1999 to the Credit Agreement dated as of December 19, 1997 (as amended and restated as of March 31, 1999 and as further amended prior to the date hereof, the "CREDIT AGREEMENT") among THE AES CORPORATION ("AES"), the BANKS party thereto, the FRONTING BANKS party thereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT"). WITNESSETH: WHEREAS, the parties hereto desire to amend the Credit Agreement as provided herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. AMENDMENT TO DEBT COVENANT. Section 5.07(a) of the Credit Agreement is hereby amended by amending clause (ix) thereof to read in its entirety as follows: "(ix) surety bonds in respect of performance obligations of AES and letters of credit, in an aggregate principal amount at any time outstanding not to exceed $300,000,000;". SECTION 3. REPRESENTATIONS OF BORROWER. AES represents and warrants that (i) the representations and warranties of AES set forth in Article 4 of the Credit Agreement will be true on and as of the Amendment Effective Date and (ii) no Default will have occurred and be continuing on such date. SECTION 4. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. COUNTERPARTS. This Amendment may be signed in any number 1 of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 6. EFFECTIVENESS. This Amendment shall become effective on the date (the "AMENDMENT EFFECTIVE DATE") upon which the Agent shall have received from each of AES, each Guarantor and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Agent) that such party has signed a counterpart hereof. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. THE AES CORPORATION By: -------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: -------------------------------- Name: Title: NATIONSBANK, N.A. By: -------------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A. By: -------------------------------- Name: Title: 3 BARCLAYS BANK PLC By: ------------------------------- Name: Title: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED By: -------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By: -------------------------------- Name: Title: BANKBOSTON, N.A. By: -------------------------------- Name: Title: DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: 4 THE FIRST NATIONAL BANK OF CHICAGO By: -------------------------------- Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: -------------------------------- Name: Title: TORONTO DOMINION (TEXAS), INC. By: -------------------------------- Name: Title: SOCIETE GENERALE By: -------------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By: -------------------------------- Name: Title: 5 BAYERISCHE HYPO- UND VEREINSBANK AG, NEW YORK BRANCH By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: BANQUE NATIONALE DE PARIS By: -------------------------------- Name: Title: CIBC INC. By: -------------------------------- Name: Title: COMMERZBANK AG, NEW YORK BRANCH By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: 6 WESTDEUTSCHE LANDESBANK GIROZENTRALE By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: CREDIT LOCAL DE FRANCE, NEW YORK AGENCY By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: FIRST HAWAIIAN BANK By: -------------------------------- Name: Title: 7 RIGGS BANK N.A. By: -------------------------------- Name: Title: THE SANWA BANK, LIMITED NEW YORK BRANCH By: -------------------------------- Name: Title: SUNTRUST BANK, CENTRAL FLORIDA, N.A. By: -------------------------------- Name: Title: ARAB BANK PLC By: -------------------------------- Name: Title: BARCLAYS BANK PLC, as Fronting Bank By: -------------------------------- Name: Title: 8 UNION BANK OF CALIFORNIA, N.A., as Fronting Bank By: -------------------------------- Name: Title: NATIONSBANK, N.A., as Fronting Bank By: -------------------------------- Name: Title: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, as Fronting Bank By: -------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Fronting Bank By: -------------------------------- Name: Title: 9 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: --------------------------------- Name: Title: The undersigned Guarantors hereby consent to the foregoing Amendment No. 2 to Amended and Restated Credit Agreement: AES HAWAII MANAGEMENT COMPANY, INC. By: ----------------------------- Name: Title: AES OKLAHOMA MANAGEMENT CO., INC. By: ----------------------------- Name: Title: 10 EX-10.15 5 EXHIBIT 10.15 Exhibit 10.15 EXECUTION COPY AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT dated as of September 28, 1999 to the Credit Agreement dated as of December 19, 1997 (as amended and restated as of March 31, 1999 and as further amended prior to the date hereof, the "CREDIT AGREEMENT") among THE AES CORPORATION ("AES"), the BANKS party thereto, the FRONTING BANKS party thereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT"). WITNESSETH: WHEREAS, the parties hereto desire to amend the Credit Agreement as provided herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINED TERMS; REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "HEREOF", "HEREUNDER", "HEREIN" and "HEREBY" and each other similar reference and each reference to "THIS AGREEMENT" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. AMENDMENT TO DEFINITIONS. Section 1.01 of the Credit Agreement is hereby amended by: (a) deleting the definitions of "PERMITTED NEGATIVE PLEDGE" and "SPECIFIED REVOLVER DEBT" appearing therein; and (b) amending the definition of "PARENT OPERATING CASH FLOW" contained therein in by: (i) deleting the word "and" at the end of clause (2) thereof; (ii)replacing the period at the end of clause (3) thereof with "; and"; and (iii)adding a new clause (4) at the end thereof, to read in its entirety as follows: "(4) no dividends, fees or payments made to the Borrowers with the proceeds of any amounts paid to AES or any of its Subsidiaries in connection with the $525,000,000 additional prepayment made by Connecticut Light & Power ("CL&P") pursuant 1 to the First Amendment to the Electricity Purchase Agreement between CL&P and AES Thames, Inc., or any amounts paid to AES or any of its Subsidiaries in connection with any monetization, sale or securitization of any right to receive any such prepayment, shall be included in Parent Operating Cash Flow, except to the extent that such proceeds (x) have been received by AES in cash in such period or an earlier period and (y) are included in Consolidated Net Income for such period.". SECTION 3. AMENDMENT TO DEBT COVENANT. Section 5.07 of the Credit Agreement is hereby amended by: (a) amending clause (ix) of Saection 5.07(a) thereof to read in its entirety as follows: "(ix) surety bonds in respect of performance obligations of AES and letters of credit, in an aggregate principal amount at any time outstanding not to exceed $400,000,000;"; and (b) amending sections 5.07(b) and 5.07(c) to read in their entirety as follows: "(b) AES shall not issue any Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt unless (i) both before and after giving effect to such issuance no Default shall have occurred and be continuing and (ii) on a PRO FORMA basis after giving effect to such issuance and the application of the proceeds thereof (but without increasing or decreasing Parent Operating Cash Flow on account of acquisitions for periods prior to such acquisitions), AES would have been in compliance with Section 5.16 and (unless AES shall have received net cash proceeds of not less than $500,000,000 from the issuance, after September 1, 1999 and on or before the earlier of the date upon which such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, is issued and December 31, 1999, of its common stock to Persons other than Subsidiaries or affiliates of AES) 5.15 as of the last day of the fiscal quarter ended on, or most recently ended prior to, the date of such issuance (assuming for this purpose that (x) such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, (and any other Debt or preferred stock of AES outstanding on the date of issuance of such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, and issued after the first day of the period of four consecutive fiscal quarters ended on such last day) was issued and the proceeds applied on the first day of the period of four consecutive fiscal quarters ended on such last day and (y) all Debt and preferred stock of AES repaid or redeemed prior to or simultaneously with the issuance of such 2 Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, was repaid or redeemed on the day prior to the first day of such period). (c) In addition to the Debt permitted by subsections (a) and (b) above, AES shall be permitted to incur, assume, create and suffer to exist up to an aggregate principal amount, not to exceed the sum of (1) $600,000,000 PLUS (2)an amount equal to 50% of the aggregate net proceeds received by AES from issuances and sales (other than sales to AES or any of its Subsidiaries or Affiliates) of its common stock after September 1, 1999, of unsecured senior and/or subordinated Debt issued and sold by way of (i) a registered public offering, (ii) an offering made to qualified institutional buyers pursuant to Rule 144A under the Securities Act and/or (iii) in the form of term loans from banks or other institutional lenders or investors, in each case having terms and provisions applicable to AES and its Subsidiaries that are no more restrictive in any material respect (including, without limitation, covenants and events of default) than those included in existing outstanding public Debt of AES or otherwise acceptable to the Required Banks (except that limitations on (I) the ability of Subsidiaries and Affiliates of AES to guarantee other senior Debt of AES, (II) the ability of AES to grant Liens on stock of Subsidiaries or intercompany advances to secure other senior Debt of AES or (III) the ability of Subsidiaries or Affiliates of AES to grant Liens on their assets (including stock of Subsidiaries and intercompany advances) to secure guarantees of other senior Debt of AES shall be permitted); PROVIDED that (A) both before and after giving effect to such issuance no Default shall have occurred and be continuing, (B) on a PRO FORMA basis after giving effect to such issuance and the application of the proceeds thereof (but without increasing or decreasing Parent Operating Cash Flow on account of acquisitions for periods prior to such acquisitions) AES would have been in compliance with Section 5.16 and (unless AES shall have received net cash proceeds of not less than $500,000,000 from the issuance, after September 1, 1999 and on or before the earlier of the date upon which such Debt is issued and December 31, 1999 of its common stock to Persons other than Subsidiaries or affiliates of AES) 5.15 as of the last day of the fiscal quarter ended on, or most recently ended prior to, the date of such issuance (assuming for this purpose that (x) such Debt (and any other Debt or preferred stock of AES outstanding on the date of issuance of such Debt and issued after the first day of the period of four consecutive fiscal quarters ended on such last day) was issued and the proceeds applied on the first day of the period of four consecutive fiscal quarters ended on such last day and (y) all Debt and preferred stock of AES repaid or redeemed prior to or simultaneously with the issuance of such Debt was repaid or redeemed on the day prior to the first day of such period) and (C) such Debt (x) is not guaranteed by any Subsidiary or Affiliate of AES and (y) does not require any scheduled payment of principal prior to July 14, 2003.". 3 SECTION 4. AMENDMENT TO NEGATIVE PLEDGE. Section 5.12(f) of the Credit Agreement is hereby amended to read in its entirety as follows: "(f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses or clause (l) of this Section; PROVIDED that such Debt is not increased and is not secured by any additional assets (other than, in the case of Debt permitted under Section 5.07(a)(v), Liens on assets of any Subsidiary permitted under such Section 5.07(a)(v) to be obligated on such Debt);". SECTION 5. CASH FLOW COVERAGE COVENANT. Section 5.15 of the Credit Agreement is hereby amended to read in its entirety as follows: "SECTION 5.15. CASH FLOW COVERAGE. The Cash Flow Coverage Ratio for any period of four consecutive fiscal quarters of AES ending after the date hereof (including any pro forma calculation under subsection (b) or (c) of Section 5.07 made by reference to such period) shall not be less than (i) in the case of any period ending after December 31, 1998 and on or prior to March 31, 1999, 1.30 to 1.00, (ii) in the case of any period ending after March 31, 1999 and on or prior to September 30, 1999, 1.40 to 1.00, (iii) in the case of any period ending after September 30, 1999 and on or prior to September 30, 2000, 1.50 to 1.00 and (iv) in all other cases, 1.75 to 1.00." SECTION 6. CASH FLOW TO TOTAL DEBT RATIO COVENANT. Section 5.16 of the Credit Agreement is hereby amended to read in its entirety as follows: "SECTION 5.16. CASH FLOW TO TOTAL DEBT RATIO. The Cash Flow to Total Debt Ratio for any period ending on or after March 31, 1998 shall not be less than (i) 0.10 to 1.00 at any time on or prior to December 31, 1999, (ii) 0.105 to 1.00 at any time after December 31, 1999 and on or prior to March 31, 2000, (iii) 0.125 to 1.00 at any time after March 31, 2000 and on or prior to September 30, 2000 and (iv) 0.15 to 1.00 at any time thereafter." SECTION 7. REPRESENTATIONS OF BORROWER. AES represents and warrants that (i) the representations and warranties of AES set forth in Article 4 of the Credit Agreement will be true on and as of the Amendment Effective Date and (ii) no Default will have occurred and be continuing on such date. SECTION 8. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 9. COUNTERPARTS. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 10. EFFECTIVENESS. This Amendment shall become effective on the 4 date (the "AMENDMENT EFFECTIVE DATE") upon which: (a) the Agent shall have received from each of AES, each Guarantor, each Fronting Bank and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Agent) that such party has signed a counterpart hereof; and (b) the Agent shall have received, for the account of each Bank that shall have executed and delivered this Amendment to the Agent at or prior to 2:00 p.m. (New York City time) on September 28, 1999 (the "APPROVAL DEADLINE"), an amendment fee in an amount equal to (i) if such Bank shall have executed and delivered this Amendment to the Agent at or prior to 12:00 noon (New York City time) on September 21, 1999 ( the "EARLY APPROVAL TIME"), 0.20% and (ii) if such Bank shall have executed and delivered this Amendment after the Early Approval Time and at or prior to the Approval Deadline, 0.10%, in each case multiplied by the amount of such Bank's Commitment. 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. THE AES CORPORATION By: -------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: -------------------------------- Name: Title: NATIONSBANK, N.A. By: -------------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A. By: -------------------------------- Name: Title: 6 BARCLAYS BANK PLC By: -------------------------------- Name: Title: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED By: -------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By: -------------------------------- Name: Title: BANKBOSTON, N.A. By: -------------------------------- Name: Title: DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: 7 BANK ONE, N.A.(formerly known as THE FIRST NATIONAL BANK OF CHICAGO) By: -------------------------------- Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: -------------------------------- Name: Title: TORONTO DOMINION (TEXAS), INC. By: -------------------------------- Name: Title: SOCIETE GENERALE By: -------------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH By: -------------------------------- Name: Title: 8 BAYERISCHE HYPO- UND VEREINSBANK AG, NEW YORK BRANCH By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: BANQUE NATIONALE DE PARIS By: -------------------------------- Name: Title: CIBC INC. By: -------------------------------- Name: Title: COMMERZBANK AG, NEW YORK BRANCH By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: 9 WESTDEUTSCHE LANDESBANK GIROZENTRALE By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: CREDIT LOCAL DE FRANCE, NEW YORK AGENCY By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: FIRST HAWAIIAN BANK By: -------------------------------- Name: Title: 10 RIGGS BANK N.A. By: -------------------------------- Name: Title: THE SANWA BANK, LIMITED NEW YORK BRANCH By: -------------------------------- Name: Title: SUNTRUST BANK, CENTRAL FLORIDA, N.A. By: -------------------------------- Name: Title: ARAB BANK PLC By: -------------------------------- Name: Title: BARCLAYS BANK PLC, as Fronting Bank By: -------------------------------- Name: Title: 11 UNION BANK OF CALIFORNIA, N.A., as Fronting Bank By: -------------------------------- Name: Title: NATIONSBANK, N.A., as Fronting Bank By: -------------------------------- Name: Title: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, as Fronting Bank By: -------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Fronting Bank By: -------------------------------- Name: Title: 12 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: -------------------------------- Name: Title: The undersigned Guarantors hereby consent to the foregoing Amendment No. 3 to Amended and Restated Credit Agreement: AES HAWAII MANAGEMENT COMPANY, INC. By: ---------------------------------- Name: Title: AES OKLAHOMA MANAGEMENT CO., INC. By: ---------------------------------- Name: Title: 13 EX-10.16 6 EXHIBIT 10.16 SUBSIDIARY GUARANTY GUARANTY, dated as of September 30, 1999 made by AES Oklahoma Management Co., Inc. ("AES OKLAHOMA"), AES Hawaii Management Company, Inc. ("AES Hawaii"), AES Southland Funding LLC, a Delaware limited liability company ("AES SOUTHLAND") and AES Warrior Run Funding LLC, in Delaware limited liability company ("AES WARRIOR RUN"), (each individually a "Guarantor" and, collectively, the "Guarantors"), in favor of the banks (the "Banks") and the fronting banks (the "Fronting Banks") party to the Credit Agreement (as defined below) and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as agent (the "Agent") for the Banks. PRELIMINARY STATEMENTS: (1) The Banks, the Fronting Banks and the Agent have entered into a Credit Agreement, dated as of December 19, 1997 as amended and restated as of March 31, 1999 and as further amended by Amendment No. 1 dated as of May 21, 1999, Amendment No. 2 dated as of July 27, 1999 and Amendment No.3 dated as of September 28, 1999 (as so amended and as further amended from time to time, the "Credit Agreement"), with The AES Corporation, a corporation organized and existing under the laws of Delaware ("AES"), which owns 100% of the outstanding shares of stock of each Guarantor. (2) Each Guarantor and its respective wholly-owned subsidiaries may receive a portion of the proceeds of the Loans made, and the benefit of Letters of Credit issued, under the Credit Agreement and otherwise derive substantial direct and indirect benefit from the Credit Agreement. (3) It is a condition under the Credit Agreement that each Guarantor shall have executed and delivered this Guaranty. NOW, THEREFORE, in consideration of the premises and in order to satisfy the condition on which the Banks, the Fronting Banks and the Agent were willing to enter into the Credit Agreement, the Guarantors hereby jointly and severally agree as follows: SECTION 1. DEFINITIONS. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. SECTION 2. GUARANTY. Subject to Section 10, each Guarantor, jointly and severally, hereby unconditionally guarantees, as primary obligor and not merely as surety, the full and punctual payment as and when the same shall become due and payable (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Note issued by any Borrower pursuant to the Credit Agreement, the full and punctual payment of each Reimbursement Obligation under the Credit Agreement and the full and punctual payment of all other amounts payable by any Borrower under the Credit Agreement. Upon failure by any Borrower to pay punctually any such amount, the Guarantors shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the Credit Agreement. The obligations of the Borrowers guaranteed by the Guarantors are referred to herein as the "Guaranteed Obligations". Without limiting the generality of the foregoing, each Guarantor's liability shall extend to all amounts which constitute part of the Guaranteed Obligations and would be owed by any Borrower under the Credit Agreement but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such Borrower. SECTION 3. GUARANTY ABSOLUTE. Each Guarantor, jointly and severally, guarantees that, subject to Section 10 hereof, the Guaranteed Obligations will be paid strictly in accordance with the terms of the Credit Agreement, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Banks and the Agent with respect thereto. The obligations of the Guarantors under this Guaranty are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against the Guarantors to enforce this Guaranty, irrespective of whether any action is brought against any Borrower or whether any Borrower is joined in any such action or actions. The liability of each Guarantor under this Guaranty shall, subject to Section 10 hereof, be absolute and unconditional and, without limiting the generality of the foregoing, irrespective of: (i) any lack of validity or enforceability of the Credit Agreement or any other agreement or instrument relating thereto, or any provision of applicable law or regulation purporting to prohibit the payment by any Borrower of any of the Guaranteed Obligations or any other amount payable by any Borrower under the Credit Agreement; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment, waiver, extension, renewal, settlement, compromise or release in respect of or any consent to departure from the Credit Agreement including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to AES or any of its Subsidiaries or otherwise; (iii) any taking, exchange, release, impairment, invalidity or nonperfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Guaranteed Obligations; 2 (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other assets of AES or any of its Subsidiaries; (v) any change, restructuring or termination of the corporate structure or existence of AES or any of its Subsidiaries; (vi) any insolvency, bankruptcy, reorganization or other similar proceeding affecting any Borrower or its assets or any resulting release or discharge of any of the Guaranteed Obligations or any other obligation of any Borrower contained in the Credit Agreement (other than as a result of the payment or performance in full thereof); (vii) the existence of any claim, set-off or other rights which the Guarantors may have at any time against any Borrower, the Agent, any Bank or any other corporation or person, whether in connection herewith or with any unrelated transactions, PROVIDED that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; or (viii) any other circumstances which might, but for this Section, otherwise constitute a defense available to, or a discharge of, any Borrower or Guarantor. This Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Agent or any Bank upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had been due but not been made at such time. SECTION 4. CASH COLLATERAL ACCOUNT. (a) Each Guarantor further agrees that if any Borrower shall fail to deposit in the Cash Collateral Account any amount required to be deposited therein pursuant to the Credit Agreement, the Guarantors shall deposit such amount in a subaccount of the Cash Collateral Account as collateral security for each Guarantor's potential obligations hereunder. If the Guarantors fail to furnish such funds, the Agent shall be authorized to debit any accounts the Guarantors maintain with the Agent in such amount. Cash deposited in such subaccount of the Cash Collateral Account pursuant to this Section shall be returned to the Guarantors depositing the same to the extent that funds deposited by any Borrower in the Cash Collateral Account would have been required to be returned to such Borrower under the Credit Agreement. 3 (b) Each Guarantor hereby pledges and grants to the Agent, for the benefit of the Banks and the Agent, a continuing lien on and security interest in all right, title and interest of such Guarantor with respect to any funds held in the Cash Collateral Account from time to time, and all proceeds thereof, as security for the payment of the Guaranteed Obligations. (c) The Agent may, at any time or from time to time after funds are deposited in the Cash Collateral Account, apply funds then held in the Cash Collateral Account to the payment of any of the Guaranteed Obligations, in such order as the Agent may elect, as shall have become or shall become due and payable by any Borrower to the Banks or the Agent under the Credit Agreement. (d) Neither the Guarantors nor any person or entity claiming on behalf of or through the Guarantors shall have any right to withdraw any of the funds held in the Cash Collateral Account. (e) Each Guarantor agrees that it will not (i) sell or otherwise dispose of any interest in the Cash Collateral Account or any funds held therein, or (ii) create or permit to exist any lien, security interest or other charge or encumbrance upon or with respect to the Cash Collateral Account or any funds held therein, except as contemplated by the terms hereof. SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS. Each Guarantor respectively represents and warrants as follows: (a) Such Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. (b) The execution, delivery and performance by such Guarantor of this Guaranty are within such Guarantor's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation applicable to such Guarantor or the certificate of incorporation or by-laws of such Guarantor or any judgment, injunction, order, decree, material agreement or other material instrument binding upon such Guarantor or result in the creation or imposition of any Lien on any asset of AES or any of its Subsidiaries, except as contemplated by the terms hereof. (c) This Guaranty constitutes a valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights generally or by general principles of equity limiting the availability of equitable remedies. 4 SECTION 6. COVENANTS. So long as any Note or Letter of Credit shall remain outstanding or Loan or Reimbursement Obligation shall remain unpaid or any Commitment shall remain outstanding under the Credit Agreement, no Guarantor will, without the written consent of the Required Banks, if, and for so long as, an Actionable Default shall have occurred and be continuing under the Credit Agreement, (i) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of capital stock of such Guarantor (other than stock splits and dividends payable solely in equity securities of such Guarantor), or purchase, redeem or otherwise acquire for value (or permit any of its Subsidiaries to do so) any shares of any class of capital stock of such Guarantor or any warrants, rights or options to acquire any such shares, now or hereafter outstanding or (ii) make any Investment in or otherwise advance any funds to any Borrower, or, except as may be required by the Shady Point Financing Documents (as defined in Schedule I hereto), any Subsidiary of AES. "Actionable Default" means an Event of Default described in clauses (a), (e), (f), (g) and (h) of Section 6.01 of the Credit Agreement. SECTION 7. WAIVER. Each Guarantor hereby waives promptness, diligence, notice of acceptance, presentment, protest and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and waives any requirement that the Agent or any Bank protect, secure, perfect or insure any security interest or lien on any property subject thereto or exhaust any right or take any action against any Borrower or any other person or entity or any collateral. SECTION 8. SUBROGATION. Upon making any payment with respect to a Borrower under this Guaranty, the Guarantor making such payment shall be subrogated to the rights of the payee against such Borrower with respect to such payment; PROVIDED that neither Guarantor shall enforce any payment by way of subrogation until all amounts of principal of and interest on the Notes and all other amounts payable by any Borrower under any Financing Document shall have been paid in full. SECTION 9. STAY OF ACCELERATION. If acceleration of the time for payment of any Guaranteed Obligation is stayed upon the insolvency, bankruptcy or reorganization of any Borrower, all such Guaranteed Obligations otherwise subject to acceleration under the terms of the Credit Agreement shall nonetheless be payable by the Guarantors hereunder forthwith on demand by the Agent made at the request of the requisite proportion of the Banks specified in Article VI of the Credit Agreement. SECTION 10. LIMIT OF LIABILITY. The obligations of each Guarantor hereunder shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 5 of the United States Bankruptcy Code or any comparable provisions of any applicable state law (including, without limitation, the provisions of the Uniform Fraudulent Transfer Act and the Uniform Fraudulent Conveyance Act, to the extent incorporated in applicable state law). SECTION 11. AMENDMENTS, ETC. No amendment or waiver of any provision of this Guaranty, and no consent to any departure by either Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Banks and each Guarantor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED that neither Guarantor shall be released from its obligations under Section 2 hereof without the consent of all of the Banks. SECTION 12. ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered to it, if to a Guarantor, to it in care of The AES Corporation at its address at 1001 North 19th Street, Arlington, Virginia 22209, Attention: Vice President, Chief Financial Officer and Secretary, and if to the Agent, at its address specified in the Credit Agreement, or, as to either party, at such other address as shall be designated by such party in a written notice to the other party. All such notices and other communications shall be effective in the manner and at the time set forth in Section 10.01 of the Credit Agreement. SECTION 13. NO WAIVER; REMEDIES. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 14. CONTINUING GUARANTY; ASSIGNMENT UNDER CREDIT AGREEMENT. This Guaranty is a continuing guaranty and shall (i) remain in full force and effect until the later of (x) the payment in full of the Guaranteed Obligations and all other amounts payable under this Guaranty, (y) the termination of all Commitments under the Credit Agreement and (z) the surrender to the Fronting Bank or the expiration of all Letters of Credit issued under the Credit Agreement, (ii) be binding upon the Guarantors and their respective successors and assigns, and (iii) inure to the benefit of, and be enforceable by, the Banks, the Fronting Banks, the Agent and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), the Agent, any Fronting Bank and any Bank may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement and the Notes to any other person or entity (to the extent therein provided), and such other person or entity shall 6 thereupon become vested with all the benefits in respect thereof granted to such assigning party herein or otherwise, subject, however, to the provisions of Article VII (concerning the Agent) and Section 10.06 of the Credit Agreement. SECTION 15. GOVERNING LAW. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of New York. 7 IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. AES SOUTHLAND FUNDING LLC By: _______________________________ Name: Title: AES WARRIOR RUN FUNDING LLC By:________________________________ Name: Title: AES OKLAHOMA MANAGEMENT CO., INC. By:________________________________ Name: Title: AES HAWAII MANAGEMENT COMPANY, INC. By:________________________________ Name: Title: 8 EX-10.17 7 EXHIBIT 10.17 [EXECUTION COPY] ================================================================================ LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT among THE AES CORPORATION, AS ACCOUNT PARTY THE SEVERAL BANKS AND FINANCIAL INSTITUTIONS PARTIES HERETO FROM TIME TO TIME AS PARTICIPATING BANKS THE LETTER OF CREDIT ISSUING BANKS PARTIES HERETO FROM TIME TO TIME AS ISSUING BANKS UNION BANK OF CALIFORNIA, N.A., AS ADMINISTRATIVE AGENT, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS SYNDICATION AGENT and BANK OF AMERICA, N.A., AS DOCUMENTATION AGENT Dated as of October 19, 1999 ================================================================================ TABLE OF CONTENTS

SCHEDULES I Commitments and Addresses II Pricing Schedule III Existing Agreements with Affiliates IV Existing Letters of Credit EXHIBITS A Form of Commitment Transfer Supplement B Form of Issuing Bank Agreement C Form of Opinion of General Counsel of the Account Party D Form of Opinion of Davis Polk & Wardwell, Special New York Counsel to the Account Party E Form of Opinion of McDermott, Will & Emery, Special Counsel to the Administrative Agent -iv- LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, dated as of October 19, 1999, among THE AES CORPORATION, a Delaware corporation (the "ACCOUNT PARTY"), the several banks and other financial institutions from time to time parties to this Agreement (the "PARTICIPATING BANKS"), the letter of credit issuing banks from time to time parties to this Agreement (in such capacity, and together with any bank or financial institution party to an Issuing Bank Agreement, the "ISSUING BANKS"), UNION BANK OF CALIFORNIA, N.A. ("UNION BANK"), as administrative agent for the Issuing Banks and the Participating Banks hereunder (in such capacity, the "ADMINISTRATIVE AGENT"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN"), as Syndication Agent (in such capacity, the "SYNDICATION AGENT"), and BANK OF AMERICA, N.A., as Documentation Agent (in such capacity, the "DOCUMENTATION AGENT"). PRELIMINARY STATEMENT The Account Party has requested the Issuing Banks and the Participating Banks to provide the letter of credit facility hereinafter described in the amounts and on the terms and conditions set forth herein. The Issuing Banks and the Participating Banks have so agreed on the terms and conditions set forth herein, and the Administrative Agent has agreed to act as agent for the Issuing Banks and the Participating Banks on such terms and conditions. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 DEFINED TERMS. In addition to the terms defined in the preamble hereto, as used in this Agreement, the following terms shall have the following meanings (such meanings to be applicable to the singular and plural forms of the terms defined): "ADDITIONAL GUARANTORS" has the meaning assigned to that term in the Existing Credit Facility (as in effect on the date hereof). "ADDITIONAL PERMITTED SUBORDINATED DEBT AGREEMENT" means an indenture or other agreement pursuant to which any Additional Permitted Subordinated Debt is issued or incurred, as the same may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "ADDITIONAL PERMITTED SUBORDINATED DEBT" means Debt of the Account Party (other than Debt evidenced by the Existing Subordinated Notes) which does not require any scheduled payment of principal prior to December 19, 2003 and which has subordination provisions no less favorable to the Banks than those applicable to the Existing 8-3/8% Subordinated Notes and other 2 terms and provisions applicable to the Account Party and its Subsidiaries that are no more restrictive in any material respect (including, without limitation, covenants and events of default) than those applicable to the Existing 8-3/8% Subordinated Notes or those otherwise acceptable to the Required Banks. "ADJUSTED PARENT OPERATING CASH FLOW" means, for any period, (i) Parent Operating Cash Flow for such period LESS (ii) the sum of the following expenses (determined without duplication), in each case to the extent paid by the Account Party during such period and regardless of whether any such amount was accrued during such period: (A) development expenses; (B) income tax expenses of the Account Party and its subsidiaries; and (C) corporate overhead expenses. "AES ELECTRIC" means Applied Energy Services Electric Limited, an English corporation, and its successors. "AES HAWAII MANAGEMENT" means AES Hawaii Management Company, Inc., a Delaware corporation and a Subsidiary of the Account Party, and its successors. "AES MANAGEMENT GROUP" means (i) individuals who are members of the board of directors or officers of the Account Party or the president of any Material AES Entity, (ii) their respective spouses, children, grandchildren, siblings and parents, (iii) trusts established for the sole or principal benefit of Persons described in clauses (i) and (ii) above, (iv) heirs, executors, administrators and personal or legal representatives of Persons described in clauses (i) and (ii) above, and (v) any corporation or other Person that is controlled by, and a majority of the equity interests in which are directly owned by, Persons described in clauses (i) and (ii) above. "AES JUNE 1999 FORM 10-Q" means the Account Party's quarterly report on Form 10-Q for the fiscal quarter ended June 30, 1999, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "AES 1998 FORM 10-K" means the Account Party's annual report on Form 10-K for the year ended December 31, 1998, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "AES OKLAHOMA" means AES Oklahoma Management Co., Inc., a Delaware corporation and a Subsidiary of the Account Party, and its successors. "AES PLACERITA" means AES Placerita, Inc., a Delaware corporation and an indirect Subsidiary of the Account Party, and its successors. 3 "AES SOUTHLAND" means AES Southland Funding LLC, a Delaware limited liability company and a Wholly-Owned Consolidated Subsidiary of the Account Party, and its successors. "AES WARRIOR RUN" means AES Warrior Run Funding LLC, a Delaware limited liability company and a Wholly-Owned Consolidated Subsidiary of the Account Party, and its successors. "AFFILIATE" means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Account Party (a "CONTROLLING PERSON") or (ii) any Person (other than the Account Party or any Subsidiary of the Account Party) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "AGENCY FEE LETTERS" means, collectively, (i) the fee letter agreement, dated September 10, 1999, between the Account Party and Union Bank, (ii) the fee letter agreement, dated September 13, 1999, between the Account Party and Morgan, and (iii) the fee letter agreement, dated the date hereof, between the Account Party and the Administrative Agent, in each case as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "AGREEMENT" means this Letter of Credit and Reimbursement Agreement, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "ALTERNATE BASE RATE" means a fluctuating interest rate PER ANNUM equal at all times to the higher of (i) the Reference Rate and (ii) 1/2 of one percent PER ANNUM plus the Federal Funds Rate. Each change in the Alternate Base Rate shall take effect concurrently with any change in the Reference Rate or the Federal Funds Rate. "ALTERNATIVE CURRENCY" means (i) any lawful currency (other than Dollars) that is freely transferable and convertible into Dollars or (ii) with respect to any Letter of Credit issued by an Issuing Bank, any other lawful currency (other than Dollars) that such Issuing Bank agrees may be used as the designated currency of such Letter of Credit, PROVIDED that such Issuing Bank is able to provide, and continues to provide, to the Administrative Agent the information required pursuant to Section 2.15(b) with respect to such Letter of Credit. "ALTERNATIVE CURRENCY LETTER OF CREDIT" means any Letter of Credit having a stated amount denominated in an Alternative Currency. "ASSET DISPOSITION" has the meaning set forth in the Existing Subordinated Note Indentures. 4 "AUTOMATIC ACCELERATION EVENT" means the occurrence, with respect to the Account Party, of any of the Events of Default listed in clauses (g) and (h) of Section 6.1. "AVAILABLE AMOUNT" means, for any Letter of Credit on any date of determination, the maximum aggregate amount (which, in the case of any Alternative Currency Letter of Credit, shall be the Dollar Equivalent of such amount) available to be drawn under such Letter of Credit at any time on or after such date, the determination of such maximum amount to assume the compliance with and satisfaction of all conditions for drawing enumerated therein. "AVAILABLE COMMITMENT" means, for each Participating Bank on any day, the unused portion of such Participating Bank's Commitment, computed after giving effect to all Extensions of Credit and all expirations, terminations, cancellations or reductions in the Available Amount of Letters of Credit to be made on such day. "AVAILABLE COMMITMENTS" means the aggregate of the Participating Banks' Available Commitments. "BANKS" means, collectively, the Issuing Banks and the Participating Banks. "BENEFIT ARRANGEMENT" means, at any time, an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "BUSINESS DAY" means a day of the year on which banks are not required or authorized to close in New York City and Los Angeles, California. "CASH COLLATERAL ACCOUNT" has the meaning assigned to that term in Section 2.14. "CASH FLOW COVERAGE RATIO" means, for any period, the ratio of (i) Adjusted Parent Operating Cash Flow for such period to (ii) Corporate Charges for such period. "CASH FLOW TO TOTAL DEBT RATIO" means, at any date, the ratio of (i) Adjusted Parent Operating Cash Flow for the period of four consecutive fiscal quarters ended on, or most recently prior to, such date to (ii) Debt (other than Specified Equity-Related Debt, but only to the extent that the sum of the aggregate principal amount of all Specified Equity-Related Debt plus the liquidation preference of all preferred stock of the Account Party does not exceed 25% of the sum (without duplication) of the aggregate principal amount of such Specified Equity-Related Debt, such preferred stock and Consolidated Net Worth at such date) of the Account Party at such date. "CLOSING DATE" means the Business Day upon which each of the conditions precedent enumerated in Section 4.1 shall be fulfilled to the satisfaction of the Administrative Agent, the Issuing Banks, the Participating 5 Banks and the Account Party. All transactions contemplated to occur on the Closing Date shall occur contemporaneously on or prior to October 29, 1999 at the offices of McDermott, Will & Emery, 50 Rockefeller Plaza, New York, New York 10020, at 10:00 A.M. (New York City time), or at such other place and time as the parties hereto may mutually agree. "COMMITMENT" means, for each Participating Bank, the obligation of such Participating Bank to participate in each Letter of Credit and the related Letter of Credit Liabilities in an aggregate amount no greater than the amount set forth opposite such Participating Bank's name on Schedule I hereto or, if such Participating Bank has entered into one or more Commitment Transfer Supplements with a Purchasing Bank, the aggregate amount set forth for such Participating Bank in the Register maintained by the Administrative Agent pursuant to Section 8.5(d), in each such case as such amount may be reduced from time to time pursuant to Section 2.2. "COMMITMENTS" means the total of the Participating Banks' Commitments hereunder. The Commitments shall in no event exceed $250 million. "COMMITMENT FEE RATE" means a rate PER ANNUM determined in accordance with the Pricing Schedule annexed as Schedule II hereto. "COMMITMENT PERCENTAGE" means, as of any date of determination (i) with respect to a Participating Bank initially a party hereto, the percentage set forth opposite such Participating Bank's name on Schedule I hereto, except as provided in clause (iii) below, (ii) with respect to a Purchasing Bank that became a Participating Bank party hereto by operation of Section 8.5, the Commitment Percentage stated to be assumed by such Purchasing Bank in the relevant Commitment Transfer Supplement, except as provided in clause (iii) below, and (iii) with respect to any Participating Bank described in clause (i) or (ii) above that assigns a percentage of its interests in accordance with Section 8.5, its Commitment Percentage as reduced by the percentage so assigned. "COMMITMENT TRANSFER SUPPLEMENT" means a Commitment Transfer Supplement entered into by a Participating Bank and a Purchasing Bank in accordance with Section 8.5, substantially in the form of Exhibit A hereto. "CONSOLIDATED DEBT" means, at any date, the Debt of the Account Party and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "CONSOLIDATED NET INCOME" means, for any period, the consolidated net income (or loss) of the Account Party and its Consolidated Subsidiaries for such period. "CONSOLIDATED NET WORTH" means, at any date, the consolidated stockholders' equity of the Account Party and its Consolidated Subsidiaries determined as of such date without giving effect to any currency translation adjustments after September 30, 1997. 6 "CONSOLIDATED SUBSIDIARY" means, at any date with respect to any Person, any Subsidiary of such Person or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. "CORPORATE CHARGES" means, for any period, the sum of the following amounts (determined without duplication), in each case to the extent paid by the Account Party during such period and regardless of whether any such amount was accrued during such period: (A) interest expense (including, without limitation, interest expense in respect of Specified Equity-Related Debt) of the Account Party for such period; (B) rental expense of the Account Party for such period; and (C) dividends paid on the Account Party's capital stock during such period. "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all obligations (whether contingent or non-contingent) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, surety or performance bond or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. For purposes hereof, contingent obligations of the type described in clause (v) of this definition with respect to letters of credit not issued hereunder shall not be treated as "Debt" hereunder to the extent that such obligations are cash collateralized or to the extent that the issuer of any such letter of credit is entitled to draw under a Letter of Credit issued hereunder which by its terms requires that drawings under such Letter of Credit be applied only to reimburse such issuer for amounts paid by such issuer under such letter of credit. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DEFAULT RATE" means a fluctuating interest rate equal at all times to 2% PER ANNUM above the Alternate Base Rate in effect from time to time. "DESIGNATED SUBSIDIARY" means each of AES Connecticut Management Co., Inc., AES Oklahoma Management Co., Inc., AES Hawaii Management Co., Inc., AES Thames, Inc., AES Hawaii, Inc., AES Shady Point, Inc., AES Southland and its Subsidiaries, AES Warrior Run and its Subsidiaries, and 7 each Subsidiary of the Account Party that holds a direct or indirect interest in AES Southland or AES Warrior Run. "DOLLAR EQUIVALENT" means, on any date of determination with respect to any Alternative Currency Letter of Credit, (i) in calculating the maximum aggregate amount available to be drawn under such Alternative Currency Letter of Credit at any time on or after such date, the amount thereof in Dollars most recently reported to the Administrative Agent pursuant to Section 2.15(b) and (ii) in calculating the amount of any Drawing under such Alternative Currency Letter of Credit, the aggregate amount of Dollars paid by the relevant Issuing Bank to purchase the Alternative Currency paid by such Issuing Bank in respect of such Drawing. "DOLLARS" and the sign "$" each means lawful currency of the United States. "DRAWING" means a drawing effected under any Letter of Credit. "8% SENIOR NOTES" means the Account Party's 8% Senior Notes due 2008 issued pursuant to the 1998 Senior Note Indenture. "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment, including, without limitation, ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA GROUP" means the Account Party, its Subsidiaries and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Account Party or any of its Subsidiaries, are treated as a single employer under Section 414 of the Internal Revenue Code. "EVENT OF DEFAULT" has the meaning specified in Section 6.1. "EXISTING CREDIT FACILITY" means the Credit Agreement, dated as of December 19, 1997, as amended and restated as of March 31, 1999 and as amended pursuant to Amendment No. 1 thereto dated as of May 21, 1999, Amendment No. 2 thereto dated as of July 27, 1999, and Amendment No. 3 thereto dated as of September 28, 1999, among the Account Party, the banks listed therein, the Fronting Banks listed therein, and Morgan Guaranty Trust 8 Company of New York, as Agent, as the same may be amended, modified, supplemented, extended, renewed, refinanced or replaced and in effect from time to time. "EXISTING 8-3/8% SUBORDINATED NOTES" means the Account Party's 8-3/8% Senior Subordinated Notes due 2007 issued pursuant to the Existing 8-3/8% Subordinated Note Indenture. "EXISTING 8-3/8% SUBORDINATED NOTE INDENTURE" means the Indenture dated as of July 17, 1997 between the Account Party and The Bank of New York, as Trustee, relating to the Existing 8-3/8% Subordinated Notes, as such Indenture may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "EXISTING 8.50% SUBORDINATED NOTES" means the Account Party's 8.50% Senior Subordinated Notes due 2007 issued pursuant to the Existing October 1997 Subordinated Note Indenture. "EXISTING 8.875% SUBORDINATED DEBENTURES" means the Account Party's 8.875% Senior Subordinated Debentures due 2027 issued pursuant to the Existing October 1997 Subordinated Note Indenture. "EXISTING LETTER OF CREDIT" means any letter of credit issued by an Issuing Bank (whether prior to or after the date hereof) for the account of the Account Party or any of its Subsidiaries pursuant to the Existing Credit Facility or any other agreement (other than this Agreement) to which the Account Party is a party, including each of the letters of credit set forth in Schedule IV hereto. "EXISTING OCTOBER 1997 SUBORDINATED NOTE INDENTURE" means the Indenture dated as of October 29, 1997 between the Account Party and The First National Bank of Chicago, as Trustee, relating to the Existing 8.50% Subordinated Notes and the Existing 8.875% Subordinated Debentures, as such Indenture may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "EXISTING SUBORDINATED NOTES" means (i) the Existing 8-3/8% Subordinated Notes, (ii) the Existing 10 1/4% Subordinated Notes, (iii) the Existing 8.50% Subordinated Notes and (iv) the Existing 8.875% Subordinated Debentures. "EXISTING SUBORDINATED NOTE INDENTURES" means (i) the Existing 8-3/8% Subordinated Note Indenture, (ii) the Existing 10-1/4% Subordinated Note Indenture and (iii) the Existing October 1997 Subordinated Note Indenture. "EXISTING 10-1/4% SUBORDINATED NOTES" means the Account Party's 10-1/4% Senior Subordinated Notes due 2006 issued pursuant to the Existing 10-1/4% Subordinated Note Indenture. 9 "EXISTING 10-1/4% SUBORDINATED NOTE INDENTURE" means the Indenture dated as of July 1, 1996 between the Account Party and The First National Bank of Chicago, as Trustee, relating to the Existing 10-1/4% Subordinated Notes, as such Indenture may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "EXTENSION OF CREDIT" means (i) the issuance (or deemed issuance) of a Letter of Credit or (ii) the amendment of any Letter of Credit having the effect of extending the stated expiry or termination date thereof or increasing the Available Amount thereunder. "FEDERAL FUNDS RATE" means, for any day, the rate PER ANNUM (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; PROVIDED that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average (rounded upward, if necessary, to the nearest 1/100 of 1%) of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. 10 "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, Guarantee, time deposit or otherwise (but not including any demand deposit). "INVESTMENT AND GUARANTEE COMMITMENTS" means, without duplication, (i) all commitments (contingent or otherwise) by the Account Party to make Investments and (ii) all obligations (contingent or otherwise but excluding obligations hereunder) of the Account Party to make payments under Guarantees. "ISSUING BANK" has the meaning assigned to such term in the preamble hereto and includes (i) any Participating Bank designated by the Account Party that accepts such designation and (ii) any other financial institution designated by the Account Party and acceptable to the Administrative Agent that accepts such designation, in each case in accordance with Section 2.1, as the issuer of a Letter of Credit pursuant to an Issuing Bank Agreement. As of the date hereof, the Account Party has designated Union Bank, Morgan and the other financial institutions set forth in Schedule IV hereto as Issuing Banks. "ISSUING BANK AGREEMENT" means an agreement between an Issuing Bank and the Account Party, substantially in the form of Exhibit B or otherwise in form and substance satisfactory to the Administrative Agent (it being understood that any such agreement that (i) contains a provision substantially similar to Section 2.01 of the form of Issuing Bank Agreement attached hereto as Exhibit B and (ii) does not contain any terms that are inconsistent with any of the terms of this Agreement, shall be deemed to be satisfactory to the Administrative Agent), providing for the issuance (or deemed issuance) of one or more Letters of Credit. "LETTER OF CREDIT" means a letter of credit issued (or deemed issued) by an Issuing Bank pursuant to Section 2.1 (including each Existing Letter of Credit set forth in Schedule IV) for the account of the Account Party or one or more of its Subsidiaries (PROVIDED, that the Account Party shall remain liable with respect to the reimbursement of all Drawings thereunder pursuant to this Agreement), as such letter of credit may from time to time be increased, extended or otherwise modified in accordance with the terms of this Agreement and the Issuing Bank Agreement to which it relates. "LETTER OF CREDIT COMMISSION RATE" means a rate PER ANNUM determined in accordance with the Pricing Schedule annexed as Schedule II hereto. "LETTER OF CREDIT EXPIRATION DATE" means the date that occurs five Business Days prior to the then-scheduled Termination Date. 11 "LETTER OF CREDIT LIABILITIES" means, at any time and in respect of any Letter of Credit, the sum, without duplication, of (i) the Available Amount of such Letter of Credit PLUS (ii) the aggregate unpaid amount of all Reimbursement Obligations in respect of previous Drawings made under such Letter of Credit. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, the Account Party or any of its Subsidiaries shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "LOAN DOCUMENTS" means this Agreement, the Issuing Bank Agreements, the Agency Fee Letters and all other agreements, instruments and documents now or hereafter executed and delivered by the Account Party or any Subsidiary Guarantor pursuant hereto or thereto. "MATERIAL AES ENTITY" means (i) any Subsidiary Guarantor, (ii) any Specified Subsidiary and (iii) any other Person in which the Account Party has a direct or indirect equity Investment if such Person's contribution to Parent Operating Cash Flow for the four most recently completed fiscal quarters of the Account Party constitutes 15% or more of Parent Operating Cash Flow for such period. "MATERIAL DEBT" means, with respect to any Person, Debt (other than the Reimbursement Obligations) of such Person arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $15,000,000. "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $15,000,000. "MAXIMUM OUTSTANDING EXPOSURE" has the meaning assigned to that term in Section 2.15(a). "MINIMUM CP RATING" means (i) A-1 for Standard & Poor's Ratings Services, (ii) P-1 for Moody's Investors Service, Inc., (iii) F-1 for Fitch IBCA, Inc. and (iv) D-1 for Duff & Phelps Credit Rating Co. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. 12 "NET CASH PROCEEDS" has the meaning set forth in the Existing Subordinated Note Indentures. "1998 SENIOR NOTE INDENTURE" means the Senior Indenture, dated as of December 8, 1998, between the Account Party and The First National Bank of Chicago, as Trustee, relating to the Senior Notes, as such Indenture may, subject to Section 5.10, be amended, modified or supplemented and in effect from time to time. "9.50% SENIOR NOTES" means the Account Party's 9.50% Senior Notes due 2009 issued pursuant to the 1998 Senior Note Indenture. "PARENT OPERATING CASH FLOW" means, for any period, the sum of the following amounts (determined without duplication), but only to the extent received in cash by the Account Party from any other Person during such period: (A) dividends paid to the Account Party by its Subsidiaries during such period; (B) consulting and management fees paid to the Account Party for such period; (C) tax sharing payments made to the Account Party during such period; (D) interest and other distributions paid during such period with respect to cash and other Temporary Cash Investments of the Account Party (other than with respect to amounts on deposit in any account to cash collateralize Letters of Credit issued (or deemed issued) hereunder or letters of credit issued (or deemed issued) under the Existing Credit Facility); and (E) other cash payments made to the Account Party by its Subsidiaries other than (i) returns of invested capital, (ii) payments of the principal of Debt of any such Subsidiary to the Account Party, and (iii) payments in an amount equal to the aggregate amount released from debt service reserve accounts upon the issuance of Letters of Credit for the benefit of the beneficiaries of such accounts. 13 For purposes of determining Parent Operating Cash Flow: (1) net cash payments received by a Qualified Holding Company during any period which could have been (without regard for any cash held by such Qualified Holding Company at the beginning of such period), but were not, paid as a dividend to the Account Party during such period due to tax or other cash management considerations may be included in Parent Operating Cash Flow for such period; PROVIDED that any amounts so included will not be included in Parent Operating Cash Flow if and when paid to the Account Party in any subsequent period; (2) if at any time there shall exist an event or condition which permits any holder to accelerate the maturity date of any Debt of, or terminate its commitment to extend credit to, any Subsidiary of the Account Party, then the contributions of such Subsidiary to Parent Operating Cash Flow for any period ending at or prior to such time shall be eliminated and Parent Operating Cash Flow shall be calculated after giving effect to such elimination; (3) if any Subsidiary of the Account Party is sold or otherwise disposed of (by way of merger, sale of capital stock, sale of assets or otherwise), (x) the net cash proceeds from such sale or other disposition shall not be included in Parent Operating Cash Flow for any period and (y) the contributions of such Subsidiary to Parent Operating Cash Flow for any period shall be eliminated and Parent Operating Cash Flow shall be calculated after giving effect to such elimination; and (4) no dividends, fees or payments made to the Account Party with the proceeds of any amounts paid to the Account Party or any of its Subsidiaries in connection with the $525,000,000 additional prepayment made by The Connecticut Light and Power Company ("CL&P") pursuant to the First Amendment to the Electricity Purchase Agreement between CL&P and AES Thames, Inc., or any amounts paid to the Account Party or any of its Subsidiaries in connection with any monetization, sale or securitization of any right to receive any such prepayment, shall be included in Parent Operating Cash Flow, except to the extent that such proceeds (x) have been received by the Account Party in cash in such period or an earlier period and (y) are included in Consolidated Net Income for such period. "PARTICIPANT" has the meaning assigned to such term in Section 8.5(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITTED SENIOR UNSECURED DEBT" means unsecured Debt of the Account Party that (i) is not guaranteed by any Subsidiary or Affiliate of the Account Party and (ii) that is in an aggregate principal amount not exceeding the lesser of (x) $300,000,000 and (y) $600,000,000 less the aggregate amount of the Commitments (as defined in the Existing Credit Facility). 14 "PERSON" means an individual, partnership, corporation (including, without limitation, a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture, Governmental Authority, or other entity or organization of whatever nature. "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "POWER PROJECT" means an electric power or thermal energy generation or cogeneration facility or related facilities, and its or their related electric power transmission, distribution, fuel supply and fuel transportation facilities, together with its or their related power supply, thermal energy and fuel contracts as well as other contractual arrangements with customers, suppliers and contractors. "POWER PROJECT DEBT" means Debt of a Subsidiary of the Account Party permitted by Section 5.7(a)(ii). "POWER PROJECT DEFAULT" means any event or condition which results in the acceleration of the maturity of any Power Project Debt or enables the holder of such Power Project Debt or any Person acting on such holder's behalf to then accelerate the maturity thereof, or failure to pay any Power Project Debt at the final maturity thereof. "PURCHASING BANKS" has the meaning assigned to that term in Section 8.5(c). "QUALIFIED HOLDING COMPANY" means any Wholly-Owned Consolidated Subsidiary of the Account Party that satisfies, and all of whose direct or indirect holding companies (other than the Account Party) are Wholly-Owned Consolidated Subsidiaries of the Account Party that satisfy, the following conditions: (i) its direct and indirect interest in any Power Project or unrelated business shall be limited to the ownership of capital stock or Debt obligations of a Person with a direct or indirect interest in such Power Project or unrelated business; (ii) no consensual encumbrance or restriction of any kind shall exist on its ability to make payments, distributions, loans, advances or transfers to the Account Party; (iii) it shall not have outstanding any Debt other than Guarantees of Debt of the Account Party under the Existing Credit 15 Facility (subject to Section 5.7(a)(iv)) and under the Loan Documents and Debt to other Qualified Holding Companies; and (iv) it shall engage in no business or other activity, shall enter into no binding agreements and shall incur no obligations other than (A) the holding of the capital stock and Debt obligations permitted under clause (i) above, (B) the holding of cash received from its Subsidiaries and the investment thereof in Temporary Cash Investments, (C) the payment of dividends to the Account Party, (D) ordinary business development activities, (E) the making (but not the entering into binding obligations to make) of Investments in Power Projects owned by its Subsidiaries, and (F) in the case of AES Electric, the making of Investments in Power Projects owned by NIGEN Limited and Medway Power Limited as of the date of this Agreement under any agreement by which it is bound as of the date of this Agreement. "QUALIFIED PREFERRED EQUITY" means, at any date, equity interests in a Consolidated Subsidiary of the Account Party (i) that are not (A) required to be redeemed or redeemable at the option of the holder thereof prior to the fifth anniversary of the Termination Date or (B) convertible into or exchangeable for (unless solely at the option of the Account Party) equity interests referred to in clause (A) above or Debt having a scheduled maturity, or requiring any repayments or prepayments of principal or any sinking fund or similar payments in respect of principal or providing for any such repayment, prepayment, sinking fund or other payment at the option of the holder thereof prior to the fifth anniversary of the Termination Date and (ii) as to which, at such date, AES has the right to defer the payment of all dividends and other distributions in respect thereof for the period of at least 19 consecutive quarters beginning at such date. "REFERENCE RATE" means the rate of interest announced publicly by Union Bank in Los Angeles, California, from time to time, as the Union Bank Reference Rate (it being acknowledged that such Reference Rate may not necessarily be the lowest rate of interest charged to any class of borrowers by Union Bank). "REGISTER" has the meaning assigned to that term in Section 8.5(d). "REGULATION G" means Regulation G of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REIMBURSEMENT OBLIGATIONS" means at any date the obligations then outstanding of the Account Party under Section 2.4 to reimburse the Issuing Banks for amounts drawn under Letters of Credit. 16 "RELATED PARTIES" means, with respect to any specified Person, such Person's affiliates (including its Affiliates and Subsidiaries) and the respective directors, officers, employees, agents, attorneys-in-fact and advisors of such Person and such Person's affiliates (including its Affiliates and Subsidiaries). "REQUEST FOR ISSUANCE" has the meaning assigned to that term in Section 2.1(c). "REQUIRED BANKS" means, on any date of determination, Participating Banks who, collectively, on such date (i) have Commitment Percentages in the aggregate of greater than 50% or (ii) if the Commitments have been terminated, hold participations in a majority of the then aggregate outstanding Letter of Credit Liabilities. "REQUIREMENT OF LAW" means, as to any Person, any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority (including, without limitation, any judgment, writ, injunction, decree, or order of any court), in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESTRICTED PAYMENT" means (i) any dividend or other distribution on any shares of the Account Party's common stock (except dividends payable solely in shares of its common stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Account Party's capital stock or (b) any option, warrant or other right to acquire shares of the Account Party's capital stock. "SENIOR NOTES" means, collectively, the 8% Senior Notes and the 9.50% Senior Notes. "SIGNIFICANT AES ENTITY" means (i) any Material AES Entity and (ii) any other Person in which the Account Party has a direct or indirect equity Investment if (A) such Person's contribution to Parent Operating Cash Flow for the four most recently completed fiscal quarters of the Account Party constitutes 10% or more of Parent Operating Cash Flow for such period, or (B) the Account Party's direct or indirect interest in the total assets of such Person if such Person is a Consolidated Subsidiary or in the net assets of such Person in all other cases is at least equal to 10% of the consolidated assets of the Account Party and its Consolidated Subsidiaries, taken as a whole, or the Account Party's direct or indirect interest in the total net income of such Person (for the preceding fiscal quarter) is at least equal to 10% of the net income of the Account Party and its Consolidated Subsidiaries (for the preceding fiscal quarter) taken as a whole. "SOUTHLAND" means AES Southland Holdings, LLC. "SPECIFIED EQUITY-RELATED DEBT" means, at any date, (i) Debt of the Account Party (A) that is owed to a Consolidated Subsidiary of the Account 17 Party, (B) that is issued in connection with the issuance by such Consolidated Subsidiary of Qualified Preferred Equity, (C) that is subordinated to other Debt of the Account Party of at least the types and to at least the extent as was, on the date of issuance thereof, the Junior Subordinated Debentures issued by the Account Party in connection with the issuance by AES Trust II of its $2.75 Term Convertible Securities, Series B, on October 29, 1996, (D) as to which, at such date, the Account Party has the right to defer the payment of all interest for the period of at least 19 consecutive quarters beginning at such date and (E) that does not mature, in whole or in part, and is not subject to any required repayment or prepayment, any required sinking fund or similar payment or any repayment or prepayment or sinking fund or similar payment at the option of the holder thereof, prior to the fifth anniversary of the Termination Date, and (ii) Guarantees by the Account Party of the obligations of the issuer of any Qualified Preferred Equity in respect of such Qualified Preferred Equity. "SPECIFIED SUBSIDIARY" means each Designated Subsidiary and each other Subsidiary of the Account Party that holds, directly or indirectly, any interest in any Designated Subsidiary. "SUBORDINATED DEBT" means Debt in respect of the Existing Subordinated Notes and the Additional Permitted Subordinated Debt. "SUBORDINATED NOTE INDENTURES" means the Existing Subordinated Note Indentures and the Additional Permitted Subordinated Debt Agreements. "SUBSIDIARY" means, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "SUBSIDIARY GUARANTORS" has the meaning assigned to that term in the Existing Credit Facility (as in effect on the date hereof). "SUBSIDIARY GUARANTY" has the meaning assigned to that term in the Existing Credit Facility (as in effect on the date hereof). "TEMPORARY CASH INVESTMENT" means any Investment in (A)(i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least the Minimum CP Rating by any two of Standard & Poor's Ratings Services, Moody's Investors Service, Inc., Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co., PROVIDED that one of such two Minimum CP Ratings is by Standard & Poor's Ratings Services or Moody's Investors Service, Inc., (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized or licensed under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) medium term notes, asset backed securities, bonds, notes 18 and letter of credit supported instruments, issued by any entity organized under the laws of the United States, or any state or municipality of the United States and rated in any of the three highest rated categories by Standard & Poor's Ratings Services or Moody's Investors Service, Inc., (v) repurchase agreements with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above, (vi) eurodollar certificates of deposit issued by any bank or trust company which has capital and unimpaired surplus of not less than $500,000,000 or (vii) with respect to any Subsidiary of the Account Party, any category of investment designated as permissible investments under such Subsidiary's project loan documentation, PROVIDED in each case (except clause (vii)) that such Investment matures within fifteen months from the date of acquisition thereof by the Account Party or any of its Subsidiaries, and (B) registered investment companies that are "money market funds" within the meaning of Rule 2a-7 under the Investment Company Act of 1940. "TERMINATION DATE" means the earlier to occur of (i) the third anniversary of the date hereof or such later date to which the Termination Date is extended in accordance with Section 2.13 and (ii) the date of termination or reduction in whole of the Commitments pursuant to Section 2.2 or 6.2. "TRANSFEREE" has the meaning assigned to that term in Section 8.5(f). "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "WHOLLY-OWNED CONSOLIDATED SUBSIDIARY" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Account Party. "YEAR 2000 COMPLIANT" has the meaning assigned to that term in Section 3.13. SECTION 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. 19 (b) Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Account Party's independent public accountants) with the most recent audited consolidated financial statements of the Account Party and its Consolidated Subsidiaries delivered to the Banks; PROVIDED that, if the Account Party notifies the Administrative Agent that the Account Party wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Account Party that the Required Banks wish to amend Article 5 for such purpose), then the Account Party's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Account Party and the Required Banks. (c) Unless otherwise indicated, each reference in this Agreement to a specific time of day is a reference to New York City time. In the computation of periods of time under this Agreement, any period of a specified number of days or months shall be computed by including the first day or month occurring during such period and excluding the last such day or month. In the case of a period of time "FROM" a specified date "TO" or "UNTIL" a later specified date, the word "FROM" means "FROM AND INCLUDING" and the words "TO" and "UNTIL" each means "TO BUT EXCLUDING". (d) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "INCLUDE", "INCLUDES", and "INCLUDING" shall be deemed to be followed by the phrase "WITHOUT LIMITATION". The word "WILL" shall be construed to have the same meaning and effect as the word "SHALL". Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person's successors and assigns, (iii) the words "HEREIN", "HEREOF" and "HEREUNDER", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iv) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (v) the words "ASSET" and "PROPERTY" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.3 CURRENCY EQUIVALENTS GENERALLY. For all purposes of this Agreement, the equivalent in any Alternative Currency of an amount in Dollars shall be determined at the rate of exchange quoted by the Administrative Agent in Los Angeles, California, at 11:00 a.m. (Los Angeles time) on the date of determination, to prime banks in Los 20 Angeles, California for the spot purchase in the Los Angeles foreign exchange market of such amount of Dollars with such Alternative Currency. ARTICLE 2 LETTERS OF CREDIT; REIMBURSEMENT SECTION 2.1 ISSUING BANKS; ISSUANCE OF LETTERS OF CREDIT. (a) Subject to the terms and conditions hereof, the Account Party may from time to time identify and arrange for one or more Participating Banks or other financial institutions to act as Issuing Banks hereunder. Any such designation by the Account Party shall be accepted by the proposed Issuing Bank and shall be notified to the Administrative Agent at least three Business Days prior to the first date upon which the Account Party proposes that such Issuing Bank issue (or, pursuant to subsection (d) below, be deemed to have issued) its first Letter of Credit. Within two Business Days following the receipt of any such designation of a financial institution (other than a Participating Bank) as a proposed Issuing Bank, the Administrative Agent shall notify the Account Party as to whether such designee is acceptable to the Administrative Agent. The failure by the Administrative Agent to provide such notice to the Account Party within such time period shall be deemed to be an approval of such proposed Issuing Bank. Nothing contained herein shall be deemed to require any Participating Bank to agree to act as an Issuing Bank, if it does not so desire. (b) Each Participating Bank severally agrees, on the terms and conditions hereinafter set forth, to participate in each Letter of Credit issued hereunder and the related Letter of Credit Liabilities during the period from the Closing Date until the Termination Date, in an aggregate outstanding amount not to exceed on any day such Participating Bank's Commitment. The Commitments are revolving in nature and, within the limits hereinafter set forth, the Account Party may, from the Closing Date until the Termination Date, request Extensions of Credit hereunder at any time up to the Available Commitments at such time in accordance with the terms hereof. (c) Each Letter of Credit (other than an Existing Letter of Credit) shall be issued (or the stated maturity thereof extended or be amended or modified to increase the Available Amount thereof) on not less than two Business Days' (or such shorter period of time as shall be acceptable to the Administrative Agent and the relevant Issuing Bank) prior written notice thereof to the Administrative Agent (which shall promptly distribute copies thereof to the Participating Banks) and the relevant Issuing Bank. Each such notice (a "REQUEST FOR ISSUANCE") shall specify (i) the date (which shall be a Business Day, but in no event later than ten Business Days immediately preceding the Termination Date) of issuance of such Letter of Credit (or the date of effectiveness of such extension or increase, as the case may be) and the stated expiry date thereof (which shall be no later than the earlier to occur of (A) the date that occurs two years after the date of issuance of such Letter of Credit and (B) the Letter of Credit Expiration Date), (ii) the proposed stated amount of such Letter of Credit (which shall be in Dollars or an Alternative Currency and shall not be less than $300,000 (or the equivalent thereof in an Alternative Currency)); PROVIDED, HOWEVER, that up to five Letters of Credit may be issued with stated amounts less than $300,000 (or the equivalent thereof in an Alternative Currency), (iii) 21 the proposed terms of such Letter of Credit (or the proposed form thereof shall be attached to such Request for Issuance), (iv) the transaction that is to be supported or financed with such Letter of Credit, including identification of the Power Project, if any, to which such transaction relates and the name of the proposed account party for such Letter of Credit (which may be the Account Party or one or more of its Subsidiaries), (v) the identity of the Issuing Bank for such Letter of Credit and (vi) such other information as shall demonstrate compliance of such Letter of Credit with the requirements specified therefor in this Agreement and the relevant Issuing Bank Agreement. Each Request for Issuance shall be irrevocable unless modified or rescinded by the Account Party prior to the time that the Administrative Agent distributes copies thereof to the Participating Banks. Not later than 12:00 noon (or such later time as shall be acceptable to the Account Party and the relevant Issuing Bank) on the proposed date of issuance (or effectiveness) specified in such Request for Issuance, and upon fulfillment of the applicable conditions precedent and the other requirements set forth herein and in the relevant Issuing Bank Agreement, such Issuing Bank shall issue (or extend or increase, as the case may be) such Letter of Credit and provide notice and a copy thereof to the Administrative Agent, which shall promptly furnish copies thereof to the Participating Banks. (d) Subject to the requirements of subsection (c) above, upon at least five Business Days prior written notice to the Administrative Agent, the Account Party may request that an Existing Letter of Credit (other than the Existing Letters of Credit set forth in Schedule IV) be deemed to be a Letter of Credit issued hereunder. Such request shall be accompanied by a copy of such Existing Letter of Credit and a consent of the bank or other financial institution that issued such Existing Letter of Credit to its deemed issuance hereunder. If the Administrative Agent determines that such Existing Letter of Credit meets the requirements specified therefor in this Agreement (including the requirements set forth in clauses (i) and (ii) of subsection (c) above and in subsection (e) below) and the relevant Issuing Bank Agreement, then (i) the Administrative Agent shall promptly provide a copy of such Existing Letter of Credit to the Participating Banks and (ii) subject to the satisfaction of the conditions precedent set forth in Section 4.2, and notwithstanding any reference in such Existing Letter of Credit to the Existing Credit Facility or any other credit facility pursuant to which such Existing Letter of Credit was issued, such Existing Letter of Credit shall be deemed to constitute a Letter of Credit and to have been issued hereunder on the date set forth in the Account Party's notice to the Administrative Agent (by the Issuing Bank that issued or was deemed to have issued such Existing Letter of Credit under the Existing Credit Facility or such other credit facility); PROVIDED, HOWEVER, that nothing contained in this Section 2.1 shall extend, modify or otherwise affect the existing expiry date under any such Existing Letter of Credit (PROVIDED, that the expiry date of each such Existing Letter of Credit shall comply with the requirements set forth in clause (i) of subsection (c) above). In addition, and notwithstanding any reference to the Existing Credit Facility contained in any of the Existing Letters of Credit set forth in Schedule IV hereto, on and as of the Closing Date each Existing Letter of Credit set forth in Schedule IV shall be deemed to be a Letter of Credit and to have been issued on the Closing Date (by the Issuing Bank that issued or was deemed to have issued such Existing Letter of Credit under the Existing Credit Facility) pursuant to this Section 2.1; PROVIDED HOWEVER, that nothing contained in this 22 Section 2.1 shall extend, modify or otherwise affect the existing expiry date under any such Existing Letter of Credit. (e) Notwithstanding any other provision contained herein to the contrary, in no event shall any Letter of Credit be (i) issued (or deemed issued) or (ii) amended or modified to increase the Available Amount thereof if, after giving effect to such issuance or amendment, the principal amount outstanding hereunder would exceed the Commitments. (f) The Account Party shall provide to the Administrative Agent a copy of each amendment or modification to a Letter of Credit (other than any amendment or modification that constitutes an Extension of Credit) not later than two Business Days prior to the effective date of any such amendment or modification. The Administrative Agent shall promptly provide a copy of each such amendment or modification received by it to the Participating Banks. SECTION 2.2 TERMINATION OR REDUCTION OF THE COMMITMENTS. (a) The Account Party may, upon at least three Business Days' notice to the Administrative Agent (which shall promptly distribute copies thereof to the Participating Banks), terminate in whole or reduce ratably in part the unused portions of the Commitments; PROVIDED that any such partial reduction shall be in the aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof; and PROVIDED, FURTHER, that the Commitments shall in no event be reduced pursuant to this subsection (a) to an amount which is less than the aggregate Available Amount of all Letters of Credit then outstanding. (b) In the event that the Account Party or any of its Subsidiaries shall at any time, or from time to time, receive any Net Cash Proceeds of any Asset Disposition, the Commitments of the Participating Banks shall, unless the Required Banks otherwise agree, be ratably reduced by such amounts and at such times as may be required to avoid any requirement that all or any portion of such Net Cash Proceeds be applied to repay, prepay, repurchase or defease any Subordinated Debt (after taking into account (i) any reductions in the "Commitments" under the Existing Credit Facility and (ii) the application of such Net Cash Proceeds to repay any other Debt (other than Subordinated Debt) of the Account Party or its Subsidiaries), PROVIDED that any such reduction that requires the deposit of cash collateral or the delivery of a standby letter of credit pursuant to Section 2.15(c) shall not take effect until such cash collateral is deposited or such letter of credit is delivered (as the case may be) pursuant to Section 2.15(c). (c) The Commitments shall terminate on the Termination Date, and any Reimbursement Obligations then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.3 COMMISSIONS AND FEES. (a) The Account Party agrees to pay to the Administrative Agent for the account of each Participating Bank a commitment fee on the average daily amount of such Participating Bank's Available Commitment at a rate PER ANNUM equal to the Commitment Fee Rate in effect from time to time, from the date of this Agreement until the Termination Date, payable quarterly in 23 arrears on the last Business Day of each January, April, July and October, commencing on the first such date to occur following the date hereof, and on the Termination Date. (b) The Account Party hereby agrees to pay to the Administrative Agent, for the account of the Participating Banks ratably in accordance with their respective Commitment Percentages, a letter of credit commission with respect to each Letter of Credit on the Available Amount of such Letter of Credit in effect from time to time from the date of issuance of such Letter of Credit until the Letter of Credit Expiration Date at a rate equal to the Letter of Credit Commission Rate, payable quarterly in arrears on the last Business Day of January, April, July and October in each year, commencing on the first such date to occur following the date of issuance of the Letter of Credit, and on the Letter of Credit Expiration Date. (c) The Account Party also agrees to pay to the Administrative Agent, for the account of Administrative Agent, the Syndication Agent, the Documentation Agent, the Participating Banks, and the Issuing Banks, such other fees as may be agreed upon from time to time by the Account Party and such parties. (d) Notwithstanding anything to the contrary contained in Section 2.15, in calculating the fees payable by the Account Party pursuant to subsections (a) and (b) above for each quarterly period referred to therein, the Letter of Credit Liabilities and the Available Amount in respect of each Alternative Currency Letter of Credit outstanding from time to time during such period shall be deemed to equal, at all times during each calendar month in such period, the Dollar Equivalent thereof as of the first Business Day of such calendar month (as reported to the Administrative Agent pursuant to Section 2.15(b)); PROVIDED, HOWEVER, that (i) in the case of any Alternative Currency Letter of Credit issued during such calendar month, the Letter of Credit Liabilities and the Available Amount in respect thereof shall be deemed to equal, at all times during such calendar month following the date of such issuance, the Dollar Equivalent thereof as of such date of issuance (as reported to the Administrative Agent pursuant to Section 2.15(b)), and (ii) in the case of any increase or decrease in the Available Amount of any Alternative Currency Letter of Credit during such calendar month (other than any increase or decrease attributable solely to currency exchange rate fluctuations), the Letter of Credit Liabilities and the Available Amount in respect thereof shall be deemed to equal, at all times during such calendar month following the date of such increase or decrease (as the case may be), the Dollar Equivalent thereof after giving effect to such increase or decrease (as the case may be) (as reported to the Administrative Agent pursuant to Section 2.15(b)). SECTION 2.4 REIMBURSEMENT AND OTHER PAYMENTS BY THE ACCOUNT PARTY. If any amount is drawn under any Letter of Credit, the Account Party irrevocably and unconditionally agrees to reimburse the applicable Issuing Bank in Dollars for all amounts paid by such Issuing Bank upon such Drawing (which, in the case of any Drawing under an Alternative Currency Letter of Credit, shall be the Dollar Equivalent thereof), together with any and all reasonable charges and expenses which any Bank may pay or incur relative to such Drawing, and all such amounts due from the Account Party shall bear interest, payable on the date upon which such amounts shall be due and payable, for each day from and including the date of such Drawing to 24 but excluding the date such reimbursement payment is due and payable, at a rate equal to the Alternate Base Rate in effect from time to time PLUS 1.0% PER ANNUM. Such reimbursement payment, together with all accrued interest thereon, shall be due and payable not later than 12:00 noon on the fifth Business Day succeeding the date of such Drawing. Each Issuing Bank shall promptly notify the Administrative Agent and the Account Party of each drawing under any Letter of Credit issued by such Issuing Bank (and, in the case of any drawing under an Alternative Currency Letter of Credit, the Dollar Equivalent of such drawing). SECTION 2.5 PARTICIPATION; REIMBURSEMENT OF ISSUING BANKS. (a) Upon the issuance (or deemed issuance) of each Letter of Credit by an Issuing Bank under Section 2.1, such Issuing Bank shall be deemed, without further action by any party hereto, to have sold and transferred to each Participating Bank, and each Participating Bank shall be deemed, without further action by any party hereto, to have purchased and acquired from such Issuing Bank, an undivided interest and participation in such Letter of Credit and the related Letter of Credit Liabilities, in the amount required so that the participations of the Participating Banks therein shall be in proportion to their respective Commitment Percentages. (b) If any Issuing Bank shall not have been reimbursed in full for any payment made by such Issuing Bank under any Letter of Credit on the date of such payment, the Issuing Bank shall promptly notify the Administrative Agent and the Administrative Agent shall promptly notify each Participating Bank of such non-reimbursement, the amount thereof (which, in the case of any payment under an Alternative Currency Letter of Credit, shall be the Dollar Equivalent thereof) and, subject to subsection (g) below, the amount of such Participating Bank's participation therein. Upon receipt of such notice from the Administrative Agent, each Participating Bank shall, subject to the last sentence of subsection (d) below and to subsection (g) below, pay to the applicable Issuing Bank, directly, an amount equal to such Participating Bank's ratable portion (according to such Participating Bank's Commitment Percentage) of such unreimbursed amount paid by such Issuing Bank, plus interest on such amount at a rate PER ANNUM equal to the Federal Funds Rate from the date of such payment by such Issuing Bank to the date of payment to such Issuing Bank by such Participating Bank. All such payments by each Participating Bank shall be made in Dollars and in same day funds: (x) not later than 3:00 p.m. on the day such notice is received by such Participating Bank if such notice is received at or prior to 12:00 noon on a Business Day; or (y) not later than 12:00 noon on the Business Day next succeeding the day such notice is received by such Participating Bank, if such notice is received after 12:00 noon on a Business Day. If a Participating Bank shall have paid to the applicable Issuing Bank its ratable portion of any unreimbursed amount paid by such Issuing Bank, together with all interest thereon required by the second sentence of this subsection (b), such Participating Bank shall be entitled to receive its ratable share of all interest paid by the Account Party in respect of such unreimbursed amount from the date paid by such 25 Issuing Bank. If such Participating Bank shall have made such payment to such Issuing Bank, but without all such interest thereon required by the second sentence of this subsection (b), such Participating Bank shall be entitled to receive its ratable share of the interest paid by the Account Party in respect of such unreimbursed amount only from the date it shall have paid all interest required by the second sentence of this subsection (b). Each Participating Bank shall be subrogated to the rights of the applicable Issuing Bank against the Account Party to the extent such payment due from such Participating Bank to such Issuing Bank is paid. (c) If the Account Party shall reimburse an Issuing Bank for any Drawing after the Participating Banks shall have made funds available to such Issuing Bank with respect to such Drawing in accordance with subsection (b) above, such Issuing Bank shall promptly upon receipt of such reimbursement distribute to each Participating Bank its PRO RATA share thereof (based upon such Participating Bank's Commitment Percentage), including interest, to the extent received by such Issuing Bank. If an Issuing Bank is required at any time (whether before or after the Termination Date) to return to the Account Party or to a trustee, receiver, liquidator, custodian or other similar official any portion of the payments made by the Account Party to such Issuing Bank in payment of any Reimbursement Obligation or interest thereon upon the insolvency of the Account Party, or the commencement of any case or proceeding under any bankruptcy, insolvency or other similar law with respect to the Account Party, each Participating Bank shall, on demand of such Issuing Bank, forthwith return to such Issuing Bank any amounts transferred to such Participating Bank by such Issuing Bank in respect thereof pursuant to this subsection PLUS such Participating Bank's PRO RATA share (based upon such Participating Bank's Commitment Percentage) of any interest on such payments required to be paid to the Person recovering such payments PLUS interest on the amount so demanded from the day such demand is made, if such demand is made by 12:00 noon, or from the next succeeding Business Day, if such demand is made after 12:00 noon, to but not including the day such amounts are returned by such Participating Bank to such Issuing Bank at a rate PER ANNUM for each day equal to (1) the Federal Funds Rate for the day of such demand and (2) the Alternate Base Rate for each day thereafter. (d) Each Participating Bank's obligation to make each payment to any Issuing Bank, and such Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, (i) any of the circumstances set forth in Section 2.11, (ii) the occurrence or continuance of any Default or Event of Default, (iii) the failure of any other Participating Bank to make any payment under this Section 2.5, (iv) any set-off, counterclaim, recoupment, defense or other right which any such Participating Bank or any other Person may have against the Administrative Agent, any Issuing Bank or any other Person for any reason whatsoever, (v) the termination of the Commitments or any Letter of Credit, (vi) any adverse change in the condition (financial or otherwise) of the Account Party or any other Person, (vii) any breach of any Loan Document by any party thereto, (viii) the fact that any condition precedent to the issuance of, or the making of any payment under, any Letter of Credit was not in fact met, (ix) any violation or asserted violation of law by any Bank or any affiliate thereof, or (x) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. Each Participating Bank further agrees that each such payment shall be 26 made without any set-off, abatement, withholding or reduction whatsoever. Notwithstanding the foregoing or any other provision contained herein, in no event shall any Participating Bank be obligated to make any payment to an Issuing Bank to the extent that such payment would result in such Participating Bank's Commitment Percentage of the principal amount outstanding hereunder to exceed such Participating Bank's Commitment; PROVIDED, that the foregoing shall not affect the obligation of the Account Party (which is absolute, unconditional and irrevocable) to reimburse each Issuing Bank for the entire amount of each payment made by such Issuing Bank under a Letter of Credit, including any amount thereof that is not paid by any Participating Bank to such Issuing Bank (pursuant to this sentence or otherwise). (e) The failure of any Participating Bank to make any payment to any Issuing Bank in accordance with this Section 2.5 shall not relieve any other Participating Bank of its obligation to make payment, but neither any Issuing Bank nor any Participating Bank shall be responsible for the failure of any other Participating Bank to make such payment. Nothing herein shall in any way limit, waive or otherwise reduce any claims that any party hereto may have against any non-performing Participating Bank. (f) If any Participating Bank shall fail to make any payment to any Issuing Bank in accordance with this Section 2.5, then, in addition to other rights and remedies which such Issuing Bank may have, the Administrative Agent is hereby authorized, at the request of such Issuing Bank, to withhold and apply to the payment of such amounts owing by such Participating Bank to such Issuing Bank and any related interest, that portion of any payment received by the Administrative Agent that would otherwise be payable to such Participating Bank. In furtherance of the foregoing, if any Participating Bank shall fail to make any payment to any Issuing Bank in accordance with subsection (b) above, and such failure shall continue for five (5) Business Days following written notice of such failure from such Issuing Bank to such Participating Bank, such Issuing Bank may acquire, or transfer to a third party in exchange for the sum or sums due from such Participating Bank, such Participating Bank's interest in the related unreimbursed amounts and all other rights of such Participating Bank hereunder in respect thereof, without, however, relieving such Participating Bank from any liability for damages, costs and expenses suffered by such Issuing Bank as a result of such failure. The purchaser of any such interest shall be deemed to have acquired an interest senior to the interest of such Participating Bank and shall be entitled to receive all subsequent payments which such Issuing Bank or the Administrative Agent would otherwise have made hereunder to such Participating Bank in respect of such interest. (g) In the event that, on the date of any Drawing, (i) the outstanding principal amount hereunder exceeds the Maximum Outstanding Exposure, (ii) the applicable Issuing Bank is not reimbursed by the Account Party on such date pursuant to Section 2.4 for the entire amount of such Drawing, and (iii) the Participating Banks, pursuant to the last sentence of subsection (d) above, are not obligated to reimburse such Issuing Bank for the entire amount of such Drawing, the Administrative Agent shall, solely for purposes of determining the portion of such Drawing to be reimbursed by each Participating Bank, (A) allocate the respective Commitments of the Participating Banks to the Letter of Credit Liabilities of each Letter of Credit on such 27 date on a PRO RATA basis (based upon (1) the proportion of the Commitments to the aggregate amount of the Letter of Credit Liabilities of all outstanding Letters of Credit and (2) each Participating Bank's Commitment Percentage), (B) based on such allocation, determine the reimbursement obligation of each Participating Bank with respect to such Drawing and (C) promptly notify each Participating Bank of the amount of its reimbursement obligation with respect to such Drawing. SECTION 2.6 PAYMENTS AND COMPUTATIONS. (a) The Account Party shall make each payment hereunder not later than 12:00 noon on the day when due, in each case in lawful money of the United States to the Administrative Agent at its address referred to in Section 8.2 in immediately available funds (except payments to be made directly to any Issuing Bank as expressly provided herein), without set-off, abatement, withholding, counterclaim or other deduction. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of reimbursements, principal, interest, fees or other amounts payable to the Issuing Banks and the Participating Banks to whom the same are payable, ratably, at its address set forth in Section 8.2 (in the case of the Issuing Bank) or for the account of their respective lending offices (in the case of the Participating Banks), in each case to be applied in accordance with the terms of this Agreement. Upon the Administrative Agent's acceptance of a Commitment Transfer Supplement and recording of the information contained therein in the Register pursuant to Section 8.5, from and after the effective date specified in such Commitment Transfer Supplement, the Administrative Agent shall make all payments hereunder in respect of the interest assigned thereby to the Purchasing Bank thereunder, and the parties to such Commitment Transfer Supplement shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. Notwithstanding anything to the contrary contained herein, in no event shall any Participating Bank make or receive any payment in an Alternative Currency. (b) All computations of interest based on the Alternate Base Rate, if and so long as the Alternate Base Rate is based on the Reference Rate, shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be. All other computations of interest hereunder (including computations of the Alternate Base Rate if and so long as such rate is based on the Federal Funds Rate), and all computations of fees, commissions and other amounts hereunder, shall be made by the Administrative Agent or the party claiming such other amounts, as the case may be, on the basis of a year of 360 days. In each such case, such computation shall be made for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest, commissions or fees are payable. Each such determination by the Administrative Agent or a Participating Bank, as the case may be, shall be conclusive and binding for all purposes, absent manifest error. (c) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest, commissions and fees hereunder. (d) Unless the Administrative Agent shall have received notice from the Account Party prior to the date on which any payment is due to any Bank hereunder 28 that the Account Party will not make such payment in full, the Administrative Agent may assume that the Account Party has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to such Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Account Party shall not have so made such payment in full to the Administrative Agent, such Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank, together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. (e) If, after the Administrative Agent has paid to any Bank any amount pursuant to subsection (a) above, such payment is rescinded or must otherwise be returned or must be paid over by the Administrative Agent to any Person, whether pursuant to any bankruptcy or insolvency law, Section 2.10 or otherwise, such Bank shall, at the request of the Administrative Agent, promptly repay to the Administrative Agent an amount equal to its ratable share of such payment, together with any interest required to be paid by the Administrative Agent with respect to such payment. (f) Unless an Issuing Bank shall have received notice from the Account Party prior to the date on which any payment is due to any Participating Bank hereunder that the Account Party will not make such payment in full, such Issuing Bank may assume that the Account Party has made such payment in full to such Issuing Bank on such date and such Issuing Bank may, in reliance upon such assumption, cause to be distributed to such Participating Bank on such due date an amount equal to the amount then due such Participating Bank. If and to the extent the Account Party shall not have so made such payment in full to such Issuing Bank, such Participating Bank shall repay to such Issuing Bank forthwith on demand such amount distributed to such Participating Bank, together with interest thereon, for each day from the date such amount is distributed to such Participating Bank until the date such Participating Bank repays such amount to such Issuing Bank, at the Federal Funds Rate. SECTION 2.7 DEFAULT INTEREST. Any amounts payable by the Account Party hereunder that are not paid when due shall (to the fullest extent permitted by law) bear interest, from the date when due until paid in full, at the Default Rate, payable on demand. SECTION 2.8 REQUIREMENTS OF LAW. (a) In the event that any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Bank with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Bank to any tax of any kind whatsoever with respect to the Letters of Credit, its participation interest therein, this Agreement or any other Loan Document, or change the basis of taxation of payments to such Bank in respect thereof (except for taxes covered by Section 2.9 and changes in the rate of tax on the overall net income or the gross receipts, as applicable, of such Bank); 29 (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against letters of credit, participation interests therein or other similar liabilities in or for the account of, or other extensions of credit by, any office of any Bank; or (iii) shall impose on any Bank any other condition; and the result of any of the foregoing is to increase the cost to such Bank, by an amount which such Bank deems to be material, of issuing or maintaining any Letter of Credit or its participation interest therein (as the case may be) or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Account Party shall promptly (but in no event more than ten (10) days after notice is received by the Account Party in respect thereof) pay such Bank, upon its demand, any additional amounts necessary to compensate such Bank for such increased cost or reduced amount receivable. If any Bank becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Account Party, through the Administrative Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this Section submitted by such Bank, through the Administrative Agent, to the Account Party shall be conclusive in the absence of manifest error. The agreements in this Section 2.8 shall survive the termination of this Agreement and the payment of all amounts payable hereunder. (b) In the event that any Bank shall have determined that any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Bank or any corporation controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Bank or such corporation could have achieved but for such change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, after submission by such Bank to the Account Party (with a copy to the Administrative Agent) of a written request therefor, the Account Party shall promptly (but in no event more than ten (10) days after such request is received by the Account Party) pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. (c) Each Bank will promptly notify the Account Party and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, that will entitle such Bank to compensation pursuant to this Section and will designate a different lending office through which it issues or participates in (as the case may be) Letters of Credit hereunder if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. 29 SECTION 2.9 TAXES. (a) All payments made by the Account Party under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, EXCLUDING, in the case of the Administrative Agent and each Bank, net income taxes, gross receipt taxes (imposed in lieu of net income taxes) and franchise taxes (imposed in lieu of net income taxes) imposed on the Administrative Agent or such Bank, as the case may be, as a result of a present or former connection between the jurisdiction of the government or taxing authority imposing such tax and the Administrative Agent or such Bank (excluding a connection arising solely from the Administrative Agent or such Bank having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement) (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter called "TAXES"). If any Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Bank hereunder, the amounts so payable to the Administrative Agent or such Bank shall be increased to the extent necessary to yield to the Administrative Agent or such Bank (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement. Whenever any Taxes are payable by the Account Party, as promptly as possible thereafter the Account Party shall send to the Administrative Agent for its own account or for the account of such Bank, as the case may be, a certified copy of an original official receipt received by the Account Party showing payment thereof. If the Account Party fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Account Party shall indemnify the Administrative Agent and the Banks for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Bank as a result of any such failure. The agreements in this Section shall survive the termination of this Agreement and all other amounts payable hereunder. (b) In addition, the Account Party agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made by it hereunder or under any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "OTHER TAXES"). (c) The Account Party agrees to indemnify each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 2.9) paid by such Bank or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 15 days from the date such Bank or the Administrative Agent (as the case may be) makes demand therefor. (d) Each Bank that is not incorporated under the laws of the United States or a state thereof agrees that it will deliver to the Account Party and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form W- 31 8BEN or W-8ECI or successor applicable form, as the case may be. Each such Bank also agrees to deliver to the Account Party and the Administrative Agent two further copies of said Form W-8BEN or W-8ECI, or successor applicable forms or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Account Party or the Administrative Agent, and such extensions or renewals thereof as may reasonably be requested by the Account Party or the Administrative Agent, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank so advises the Account Party and the Administrative Agent. Such Bank shall certify that it is entitled to receive payments under this Agreement and the other Loan Documents without deduction or withholding of any United States federal income taxes and that it is entitled to an exemption from United States backup withholding tax. (e) For any period with respect to which a Bank has failed to provide the Account Party with the appropriate form pursuant to subsection (d) above (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under this Section 2.9 with respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Account Party shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Account Party is required to pay additional amounts to or for the account of any Bank pursuant to this Section 2.9, then such Bank will change the jurisdiction of its lending office through which it issues or participates in (as the case may be) Letters of Credit hereunder so as to eliminate or reduce any such additional amounts that may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. (g) Each Bank and the Administrative Agent agrees that it will promptly, but in any event within 30 days, after receiving notice thereof from any taxing authority, notify the Account Party of the assertion of any liability by such taxing authority with respect to Taxes or Other Taxes; PROVIDED, that the failure to give such notice shall not relieve the Account Party of its obligations under this Section 2.9 except to the extent that the Account Party has been prejudiced by such failure and except that the Account Party shall not be liable for penalties, interest or expenses accruing after such 30 day period until such time as it receives the notice contemplated above, after which time it shall be liable for interest, penalties and expenses accruing after such receipt. (h) If any Bank or the Administrative Agent shall receive a credit or refund from a taxing authority (as a result of any error in the imposition of Tax or Other Tax by such taxing authority) with respect to and actually resulting from an amount of such Taxes or Other Taxes paid by the Account Party pursuant to this Section 2.9, 32 such Bank or the Administrative Agent (as the case may be) shall promptly pay to the Account Party the amount so received (without interest thereon, whether or not received). SECTION 2.10 SHARING OF PAYMENTS, ETC. If any Participating Bank shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, but excluding any proceeds received by assignments or sales of participations in accordance with Section 8.5 to a Person that is not an Affiliate or Subsidiary of the Account Party) on account of its participation interest in the Letter of Credit Liabilities or other amounts owing to it (other than pursuant to Section 2.8 or 2.9) in excess of its ratable share of payments on account of the participation interests or other amounts obtained by all the Participating Banks, such Participating Bank shall forthwith purchase from the other Participating Banks such participations in the portions of such participation interests and other amounts owing to them as shall be necessary to cause such purchasing Participating Bank to share the excess payment ratably with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from such purchasing Participating Bank, such purchase from each Participating Bank shall be rescinded and such Participating Bank shall repay to the purchasing Participating Bank the purchase price to the extent of such recovery together with an amount equal to such Participating Bank's ratable share (according to the proportion of (i) the amount of such Participating Bank's required repayment to (ii) the total amount so recovered from the purchasing Participating Bank) of any interest or other amount paid or payable by the purchasing Participating Bank in respect of the total amount so recovered. The Account Party agrees that any Participating Bank so purchasing a participation from another Participating Bank pursuant to this Section 2.10 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Participating Bank were the direct creditor of the Account Party in the amount of such participation. Notwithstanding the foregoing, if any Participating Bank shall obtain any such excess payment involuntarily, such Participating Bank may, in lieu of purchasing a participation from the other Participating Banks in accordance with this Section 2.10, on the date of receipt of such excess payment, return such excess payment to the Administrative Agent for distribution in accordance with Section 2.6. SECTION 2.11 OBLIGATIONS ABSOLUTE. The obligations of the Account Party under this Agreement shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement (as the same may be amended from time to time) under all circumstances, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of any Loan Document, any Letter of Credit or any document or agreement delivered in connection herewith or therewith; (b) any change in the time, manner, or place of payment of, or in any other term of, all or any of the obligations of the Account Party in respect of any Letter of Credit or any other amendment or waiver of or any consent to 32 departure from all or any of the Loan Documents or any document or agreement delivered in connection therewith; (c) the existence of any claim, set-off, defense or other right which the Account Party may have at any time against the beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such beneficiary or transferee may be acting), the Administrative Agent, any Issuing Bank, any Participating Bank, or any other Person, whether in connection with this Agreement, the transactions contemplated in any of the Loan Documents, or any unrelated transaction; (d) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (e) payment by an Issuing Bank under any Letter of Credit against presentation of a draft, document or certificate which does not comply with the terms of such Letter of Credit; (f) any exchange of, release of, or non-perfection of any interest in any collateral, or any release or amendment or waiver of or consent to departure from any guarantee, for all or any of the obligations of the Account Party in respect of any Letter of Credit; or (g) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. The foregoing shall not affect the Account Party's right to assert a claim against any Issuing Bank pursuant to Section 8.7 (and the liability of such Issuing Bank with respect to any such claim shall be limited as set forth in Section 8.7). SECTION 2.12 EVIDENCE OF INDEBTEDNESS. Each Issuing Bank and Participating Bank shall maintain, in accordance with their usual practice, an account or accounts evidencing the indebtedness of the Account Party resulting from each drawing under a Letter of Credit (in the case of each Issuing Bank) and from each participation interest therein (in the case of each Participating Bank) made or acquired, respectively, from time to time hereunder and the amounts of principal and interest payable and paid from time to time hereunder; PROVIDED, that a Bank's failure to make (or any error in making) any recordation or entry in such account or accounts shall not affect the Account Party's obligations hereunder or under any other Loan Document. SECTION 2.13 EXTENSION OF THE TERMINATION DATE. At least 30 but not more than 90 days prior to each anniversary of the date hereof (but in any event no later than 60 days prior to the then-scheduled Termination Date), the Account Party may, by delivering a written notice to such effect to the Administrative Agent (each such request being irrevocable), request that each Bank consent to a one-year extension of the Termination Date. Upon receipt of any such notice, the Administrative Agent shall promptly communicate such request to the Banks. Within 30 days following the giving of such notice by the Account Party, the Banks shall indicate to the 34 Administrative Agent whether the Account Party's request to so extend the then-scheduled Termination Date is acceptable to the Banks (and, if so, the conditions, if any, relating to such acceptance, including conditions relating to renewal fees payable and legal documentation), it being understood that the unanimous written consent of the Issuing Banks and the Participating Banks shall be required to effect any such requested extension, that the determination by each Bank will be in its sole and absolute discretion and that the failure of any Bank to so respond within such period shall be deemed to constitute a refusal by such Bank to consent to such request (with the result being that such request is denied). The Administrative Agent shall promptly notify the Account Party and the Banks of the result of such request, and if such request shall have been consented to by all of the Banks, upon the satisfaction of all of the conditions for extension (including the payment of any renewal fees and the costs and expenses of effecting the extension of the Termination Date), and provided that no Default shall have occurred and then be continuing, the Termination Date shall be extended to the first anniversary of the then-scheduled Termination Date; PROVIDED, HOWEVER, that the Termination Date shall be so extended notwithstanding the existence of one or more Issuing Banks (the "NONEXTENDING ISSUING BANKS") that have elected not to extend (or failed to notify the Administrative Agent of its (or their) consent to extend) if each such Nonextending Issuing Bank has been terminated as an Issuing Bank hereunder, and all Letters of Credit issued (or deemed issued) by such Nonextending Issuing Bank have been cancelled or replaced by new Letters of Credit issued by one or more other Issuing Banks pursuant to the terms hereof. SECTION 2.14 CASH COLLATERAL ACCOUNT; LETTER OF CREDIT IN LIEU OF CASH COLLATERAL. (a) All amounts required to be deposited as cash collateral with the Administrative Agent pursuant to Section 2.15(c) or Section 6.2 shall be deposited in a cash collateral account (the "CASH COLLATERAL ACCOUNT") established by the Account Party with the Administrative Agent and under the exclusive dominion and control of the Administrative Agent, to be held, applied or released for application as provided in this Section 2.14. (b) If and when any portion of the Letter of Credit Liabilities on which any deposit of cash collateral was based (the "RELEVANT CONTINGENT EXPOSURE") shall become fixed (a "DIRECT EXPOSURE") as a result of the payment by an Issuing Bank of a draft presented under any relevant Letter of Credit (including any such payment under an Alternative Currency Letter of Credit for which the relevant Issuing Bank, as a result of fluctuations in currency exchange rates, is not reimbursed in full by the Participating Banks), the amount of such Direct Exposure (but not more than the amount in the Cash Collateral Account at the time) shall be withdrawn by the Administrative Agent from the Cash Collateral Account and shall be paid to the relevant Issuing Bank to be applied against such Direct Exposure and the Relevant Contingent Exposure shall thereupon be reduced by such amount. (c) Interest and other payments and distributions made on or with respect to the cash collateral held by the Administrative Agent shall be for the account of the Account Party and shall constitute cash collateral to be held by the Administrative Agent or returned to the Account Party in accordance with Section 2.15(d); PROVIDED that the Administrative Agent shall have no obligation to invest any cash collateral on behalf of the Account Party or any other Person. Beyond the exercise of reasonable 35 care in the custody thereof, the Administrative Agent shall have no duty as to any cash collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of the cash collateral in its possession if the cash collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the cash collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Administrative Agent in good faith. All expenses and liabilities incurred by the Administrative Agent in connection with taking, holding and disposing of any cash collateral (including customary custody and similar fees with respect to any cash collateral held directly by the Administrative Agent) shall be paid by the Account Party from time to time upon demand. Upon a Default, the Administrative Agent shall be entitled to apply (and, at the request of the Required Banks but subject to applicable law, shall apply) cash collateral or the proceeds thereof to payment of any such expenses, liabilities and fees. (d) Notwithstanding the foregoing subsections of this Section 2.14 or any other provision contained herein, the Account Party shall be required to comply with the foregoing subsections of this Section 2.14 and the requirements set forth in Sections 2.15(c) and 6.2 to provide cash collateral only to the extent that such compliance and such requirements are not prohibited by the Existing Credit Facility. (e) If and to the extent that the Existing Credit Facility prohibits the Account Party from providing cash collateral pursuant to this Section 2.14 or if the Account Party otherwise so elects, the Account Party shall, pursuant to Sections 2.15(c) and 6.2, deliver to the Administrative Agent an irrevocable standby letter of credit in lieu of such cash collateral. If and when any portion of the Letter of Credit Liabilities on which any delivery of such a letter of credit was based (the "RELEVANT LC CONTINGENT EXPOSURE") shall become fixed (a "DIRECT LC EXPOSURE") as a result of the payment by an Issuing Bank of a draft presented under any relevant Letter of Credit (including any such payment under an Alternative Currency Letter of Credit for which the relevant Issuing Bank, as a result of fluctuations in currency exchange rates, is not reimbursed in full by the Participating Banks), the Administrative Agent shall be entitled to draw under such standby letter of credit an amount equal to such Direct LC Exposure and shall pay such amount to the relevant Issuing Bank to be applied against such Direct LC Exposure and the Relevant LC Contingent Exposure shall thereupon be reduced by such amount. SECTION 2.15 COMPUTATIONS OF OUTSTANDINGS; DETERMINATION OF AVAILABLE AMOUNT OF ALTERNATIVE CURRENCY LETTERS OF CREDIT. (a) Whenever reference is made in this Agreement to the principal amount outstanding on any date under this Agreement, such reference shall refer to the aggregate Letter of Credit Liabilities of all Letters of Credit outstanding on such date, after giving effect to all Extensions of Credit to be made on such date. For purposes of calculating the principal amount outstanding hereunder on any date of determination, the aggregate Available Amount in respect of all Alternative Currency Letters of Credit shall be deemed to equal the amount thereof most recently reported to the Administrative Agent pursuant to subsection (b) below. At no time shall the principal amount outstanding under this Agreement exceed the sum of (i) the 36 aggregate amount of the Commitments, PLUS (ii) the aggregate amount of cash collateral held by the Administrative Agent in the Cash Collateral Account, PLUS (iii) the aggregate stated amount of all outstanding irrevocable standby letters of credit delivered to the Administrative Agent pursuant to Section 2.14(e) (such sum being referred to herein as the "MAXIMUM OUTSTANDING EXPOSURE"). References to the unused portion of the Commitments shall refer to the excess, if any, of the Commitments over the principal amount outstanding hereunder; and references to the unused portion of any Participating Bank's Commitment shall refer to such Participating Bank's Commitment Percentage of the unused Commitments. (b) Each Issuing Bank that issues an Alternative Currency Letter of Credit shall (i) on the first Business Day of each calendar month, deliver to the Administrative Agent a schedule listing (A) each outstanding Alternative Currency Letter of Credit issued by such Issuing Bank, (B) the maximum aggregate amount available to be drawn under each such Alternative Currency Letter of Credit at any time on or after such date (denominated in the applicable Alternative Currency), assuming the compliance with and satisfaction of all conditions for drawing enumerated therein, and (C) the equivalent in Dollars of such amount (as determined by such Issuing Bank on the basis of exchange rates available to or otherwise used by such Issuing Bank), together with the applicable exchange rate utilized by such Issuing Bank and the source thereof, (ii) on the date of issuance of any Alternative Currency Letter of Credit (including, if any Alternative Currency Letters of Credit are issued or deemed issued on the Closing Date, on the Closing Date), deliver to the Administrative Agent a schedule listing the information described in clauses (B) and (C) above, (iii) on the date of any increase or decrease in the Available Amount of any Alternative Currency Letter of Credit (other than any increase or decrease attributable solely to currency exchange rate fluctuations), deliver to the Administrative Agent a schedule listing the information described in clauses (B) and (C) above after giving effect to such increase or decrease (as the case may be), and (iv) not later than one Business Day after its receipt of a written request therefor from the Administrative Agent or any Participating Bank, deliver to the Administrative Agent a schedule listing the information described in clauses (A), (B) and (C) above. The Administrative Agent shall promptly after its receipt thereof deliver a copy of each such schedule to the Account Party and the Participating Banks. For all purposes under this Agreement, unless otherwise expressly set forth herein, the Available Amount in respect of each Alternative Currency Letter of Credit shall be deemed to equal, on any date of determination, the Dollar Equivalent thereof as most recently reported to the Administrative Agent by the relevant Issuing Bank pursuant to this subsection (b). (c) If, on (i) the date that any schedule is delivered by an Issuing Bank to the Administrative Agent pursuant to subsection (b) above, (ii) any date, after giving effect to any reduction in the Commitments pursuant to Section 2.2(b) or (c), or (iii) any other date, the aggregate principal amount outstanding hereunder on such date (calculated pursuant to subsections (a) and (b) above) exceeds the Maximum Outstanding Exposure, then within two Business Days thereafter (A) the Account Party shall be obligated (but only to the extent not prohibited under the Existing Credit Facility) to deposit cash collateral with the Administrative Agent in the Cash Collateral Account in an amount equal to such excess to be held, applied or released for application as provided in Section 2.14, or (B) if such deposit of cash collateral is prohibited by the Existing Credit Facility or if the Account Party otherwise so elects, 37 the Account Party shall be obligated to deliver to the Administrative Agent (for the benefit of the Issuing Banks and the Participating Banks) an irrevocable standby letter of credit (issued pursuant to the Existing Credit Facility or any other credit facility or agreement (other than this Agreement) to which the Account Party is a party) having a stated amount equal to such excess, which letter of credit shall be issued by a commercial bank, and shall be in form and substance, satisfactory to the Administrative Agent. (d) If at any time the Maximum Outstanding Exposure exceeds the principal amount outstanding hereunder, the Account Party may provide a written notice to the Administrative Agent requesting the Administrative Agent to (1) withdraw such excess amount from the Cash Collateral Account and pay such amount to the Account Party and/or (2) reduce the stated amount of, or cancel, one or more of such standby letters of credit (in an aggregate amount not to exceed such excess), and, provided that no Default shall have occurred and be continuing, the Administrative Agent shall promptly undertake such actions in accordance with the instructions of the Account Party. If a Default shall have occurred and be continuing, the Administrative Agent shall not take any of the foregoing actions and, if and when requested by the Required Banks, the amounts held in the Cash Collateral Account shall be withdrawn by the Administrative Agent, and the Administrative Agent shall draw upon such standby letters of credit, and the proceeds thereof shall be applied by the Administrative Agent FIRST to repay the Reimbursement Obligations and other due and unpaid amounts required to be paid by the Account Party hereunder and SECOND, so long as no Letters of Credit are then outstanding, any remaining amounts shall be paid to the Account Party. ARTICLE 3 REPRESENTATIONS AND WARRANTIES The Account Party hereby represents and warrants to the Administrative Agent, each Issuing Bank and each Participating Bank that: SECTION 3.1. CORPORATE EXISTENCE AND POWER. The Account Party is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 3.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Account Party of the Loan Documents to which it is a party are within the Account Party's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Account Party or of any agreement, judgment, injunction, order, decree or other instrument binding upon 38 the Account Party or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Account Party or of any Material AES Entity. SECTION 3.3. BINDING EFFECT. This Agreement constitutes a valid and binding agreement of the Account Party and each other Loan Document to which the Account Party is a party, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Account Party, in each case enforceable in accordance with its terms. This Agreement has been, and each other Loan Document to which the Account Party is a party when executed and delivered in accordance with this Agreement will be, duly executed and delivered by the Account Party. SECTION 3.4. FINANCIAL INFORMATION (a) The consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of December 31, 1998 and the related consolidated statements of operations and cash flows for the fiscal year then ended, reported on by Deloitte & Touche LLP and set forth in the AES 1998 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Account Party and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of June 30, 1999 and the related unaudited consolidated statements of operations and cash flows for the fiscal quarter and the portion of the Account Party's fiscal year then ended, set forth in the AES June 1999 Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Account Party and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal quarter and portion of such fiscal year (subject to normal year-end adjustments). (c) Since December 31, 1998 there has been no material adverse change in the business, financial position, results of operations or prospects of the Account Party and its Consolidated Subsidiaries, considered as a whole. SECTION 3.5 LITIGATION. Except as disclosed in the AES June 1999 Form 10-Q, there is no action, suit or proceeding pending against, or to the knowledge of the Account Party threatened against or affecting, the Account Party or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Account Party and its Consolidated Subsidiaries or which in any manner draws into question the validity of any Loan Document. 39 SECTION 3.6 COMPLIANCE WITH ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the currently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability in excess of $100,000 under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 3.7 ENVIRONMENTAL MATTERS. In the ordinary course of its business, each of the Account Party and its Subsidiaries conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Account Party or such Subsidiary, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances by the Account Party or its Subsidiaries, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Account Party has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a material adverse effect on the business, financial condition, results of operations or prospects of the Account Party and its Consolidated Subsidiaries, considered as a whole. SECTION 3.8 TAXES. United States Federal income tax returns of the Account Party and its Subsidiaries have been examined and closed through the fiscal year ended December 31, 1992. The Account Party and its Subsidiaries have filed all United States Federal income tax returns and the Account Party and all Material AES Entities have filed all other material tax returns which are required to be filed by them and have paid all taxes due as indicated on such returns or pursuant to any assessment received by the Account Party or any of its Subsidiaries or any Material AES Entity other than any such taxes that are being diligently contested in good faith through appropriate proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principals. The charges, accruals and reserves on the books of the Account Party, its Subsidiaries and all Material AES Entities in respect of taxes or other governmental charges are, in the opinion of the Account Party, adequate. 40 SECTION 3.9 MATERIAL AES ENTITIES. Each Material AES Entity is a corporation duly incorporated, validly existing and (other than any Material AES Entity that is not incorporated under the laws of the United States or any political subdivision thereof) in good standing under the laws of its jurisdiction of incorporation. Each Material AES Entity has all corporate powers and all material governmental licenses, authorization, consents and approvals required to carry on its business as proposed to be conducted and has all governmental licenses, authorizations, consents and approvals required to have been obtained prior to the date hereof and which are material to the operation of its business as proposed to be conducted, except to the extent that the failure to obtain any such license, authorization, consent or approval, individually or in the aggregate, could not reasonably be expected to have a material adverse effect upon the business, financial condition, operations, property and prospects of the Account Party and its Consolidated Subsidiaries, taken as a whole. SECTION 3.10 NOT AN INVESTMENT COMPANY. The Account Party is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 3.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Account Party nor any of its Subsidiaries is subject to regulation as a "holding company" or a "subsidiary company" of a holding company or an "affiliate" of a subsidiary or holding company or a "public utility company" under Section 2(a) of the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), except that the Account Party, its subsidiary in the United Kingdom (Applied Energy Services Electric Limited) and certain other Subsidiaries of the Account Party, are exempt holding companies under Section 3(a)(5) of PUHCA by order of the Securities and Exchange Commission. SECTION 3.12 FULL DISCLOSURE. All information heretofore furnished by the Account Party to the Administrative Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Account Party to the Administrative Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Account Party has disclosed to the Banks in writing any and all facts which materially and adversely affect or may affect (to the extent the Account Party can now reasonably foresee), the business, operations or financial condition of the Account Party and its Consolidated Subsidiaries, taken as a whole, or the ability of the Account Party to perform its obligations under the Loan Documents. SECTION 3.13 YEAR 2000 COMPLIANCE. The Account Party has (i) initiated a review and assessment of all areas within the business and operations of the Account Party and its Subsidiaries (including those areas affected by suppliers and vendors) that could be adversely affected by the "YEAR 2000 PROBLEM" (that is, the risk that computer applications used by them (or their respective suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) to date, 41 implemented such plan in accordance with such timetable, except to the extent that the failure to do so could not reasonably be expected to have a material adverse effect upon the business, financial position or results of operations of the Account Party and its Consolidated Subsidiaries, taken as a whole. The Account Party reasonably believes that all computer applications (including those of suppliers and vendors) that are material to the business or operations of the Account Party and its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000 (that is, be "YEAR 2000 COMPLIANT"), except to the extent that the failure to do so could not reasonably be expected to have a material adverse effect upon the business, financial position or results of operations of the Account Party and its Consolidated Subsidiaries, taken as a whole. ARTICLE 4 CONDITIONS PRECEDENT SECTION 4.1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT. The effectiveness of this Agreement and the obligation of any Issuing Bank to issue any Letter of Credit on the Closing Date is subject to the fulfillment of the following conditions precedent: (a) LOAN DOCUMENTS. The Administrative Agent shall have received on or before the Closing Date the following, each dated on or as of the Closing Date, in form and substance satisfactory to the Administrative Agent, and (except for the Agency Fee Letter referred to in clause (iii) below) in sufficient copies for each Participating Bank: (i) Counterparts of this Agreement, duly executed by the Account Party, with a counterpart for each Participating Bank; (ii) Issuing Bank Agreements, duly executed by the Account Party and each of Union Bank, Morgan and the other Issuing Banks listed in Schedule IV, in form and substance satisfactory to the Administrative Agent; and (iii) the Agency Fee Letter between the Account Party and the Administrative Agent, duly executed by the Account Party. (b) CORPORATE DOCUMENTS AND PROCEEDINGS. The Administrative Agent shall have received on or before the Closing Date a certificate of the Secretary or an Assistant Secretary of the Account Party, dated the Closing Date, in form and substance satisfactory to the Administrative Agent and in sufficient copies for each Participating Bank, certifying: (i) the names and true signatures of the officers of the Account Party authorized to sign each Loan Document to which it is a party and the other documents to be delivered by the Account Party hereunder; (ii) that attached thereto are true, correct and complete copies of (A) the Certificate of Incorporation and By-laws of the Account Party, in each case 42 together with all amendments thereto, as in effect on such date; (B) the resolutions of the Board of Directors of the Account Party approving each Loan Document to which it is a party and the other documents to be delivered by or on behalf of the Account Party hereunder and thereunder; and (C) all documents evidencing other necessary corporate or other similar action, if any, with respect to the execution, delivery and performance by the Account Party of each Loan Document to which it is a party; (iii) that the resolutions referred to in the foregoing clause (ii)(B) have not been modified, revoked or rescinded and are in full force and effect on such date; and (iv) that attached thereto are true and correct copies of good standing certificates of the Account Party from the Secretary of State (or other appropriate governmental official) of the State of Delaware and the Commonwealth of Virginia. (c) REPRESENTATIONS AND WARRANTIES; EVENT OF DEFAULT. The Administrative Agent shall have received on or before the Closing Date a certificate of a duly authorized officer of the Account Party, dated the Closing Date, in form and substance satisfactory to the Administrative Agent and in sufficient copies for each Participating Bank, certifying that, on and as of the Closing Date, (i) the representations and warranties of the Account Party contained in Article 3 of this Agreement are true and correct and (ii) no event has occurred and is continuing that constitutes a Default or an Event of Default, in each case both before and after giving effect to the transactions contemplated by the Loan Documents. (d) NO VIOLATION. The consummation of the transactions contemplated by the Loan Documents shall not contravene, violate or conflict with, nor involve the Administrative Agent, any Issuing Bank or any Participating Bank in any violation of, any Requirement of Law. (e) FEES AND EXPENSES. All fees and other amounts payable pursuant to Section 2.3, Section 8.4, and the Agency Fee Letters shall have been paid in full (to the extent then due and payable). (f) LEGAL OPINIONS. The Administrative Agent shall have received, with a counterpart for each Participating Bank, the executed legal opinions of (i) William R. Luraschi, Esq., General Counsel to the Account Party, in substantially the form of Exhibit C, (ii) Davis Polk & Wardwell, special New York counsel to the Account Party, in substantially the form of Exhibit D, and (iii) McDermott, Will & Emery, special counsel to the Administrative Agent, in substantially the form of Exhibit E. Such legal opinions shall be dated the Closing Date and shall cover such other matters incident to the transactions contemplated by the Loan Documents as the Administrative Agent may reasonably require. (g) ADDITIONAL MATTERS. All corporate and other proceedings, and all approvals, documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be 43 satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other approvals, opinions and documents in respect of any aspect or consequence of the transactions contemplated hereby or thereby as the Administrative Agent shall reasonably request. SECTION 4.2 CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. The obligation of each Issuing Bank to issue any Letter of Credit or to make any other Extension of Credit shall be subject to the further conditions precedent that, on the date of issuance (or deemed issuance) of such Letter of Credit or the date of such other Extension of Credit, as the case may be, and after giving effect thereto: (a) The following statements shall be true (and each of the giving of the applicable notice or request with respect thereto and the making of such Extension of Credit shall constitute a representation and warranty by the Account Party that, on the date of such Extension of Credit, such statements are true): (i) the representations and warranties contained in Article 3 of this Agreement are true and correct on and as of the date of such Extension of Credit, before and after giving effect to such Extension of Credit, as though made on and as of such date; and (ii) no Default has occurred and is continuing, or would result from such Extension of Credit. (b) The Administrative Agent shall have received such other approvals, opinions and documents as any Bank, through the Administrative Agent, may reasonably and in good faith request, and such approvals, opinions and documents shall be in form and substance satisfactory to the Administrative Agent. SECTION 4.3 RELIANCE ON CERTIFICATES. The Administrative Agent, the Issuing Banks and the Participating Banks shall be entitled to rely conclusively upon the certificates delivered from time to time by officers of the Account Party as to the names, incumbency, authority and signatures of the respective persons named therein until such time as the Administrative Agent may receive a replacement certificate, in form acceptable to the Administrative Agent, from an officer of the Account Party identified to the Administrative Agent as having authority to deliver such certificate, setting forth the names and true signatures of the officers and other representatives of the Account Party thereafter authorized to act on behalf of the Account Party and, in all cases, the Administrative Agent, the Issuing Banks and the Participating Banks may rely on the information set forth in any such certificate. ARTICLE 5 COVENANTS The Account Party agrees that, so long as any Participating Bank has any Commitment hereunder or any Letter of Credit or Reimbursement Obligation remains outstanding: 44 SECTION 5.1 INFORMATION. The Account Party will deliver to the Administrative Agent and each of the Participating Banks: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Account Party, a consolidated and consolidating balance sheet of the Account Party as of the end of such fiscal year, an unconsolidated balance sheet of the Account Party as of the end of such fiscal year, the related consolidated, consolidating and unconsolidated (as applicable) statements of operations for such fiscal year, the related consolidated and unconsolidated statements of cash flows for such fiscal year and a statement of the cash flow to the Account Party of each Subsidiary of the Account Party for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, said consolidated financial statements to be reported on, in a manner acceptable to the Securities and Exchange Commission, by Deloitte & Touche LLP or other independent public accountants of nationally recognized standing and such consolidating and unconsolidated financial statements to be certified as to fairness of presentation, generally accepted accounting principles (other than failure to consolidate) and consistency by the chief executive officer, president, chief financial officer or chief accounting officer of the Account Party; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Account Party, a consolidated balance sheet of the Account Party as of the end of such quarter and an unconsolidated balance sheet of the Account Party as of the end of such fiscal quarter and the related consolidated and unconsolidated statements of operations for such quarter and for the portion of the Account Party's fiscal year ended at the end of such quarter and the related consolidated and unconsolidated statements of cash flows for the portion of the Account Party's fiscal year ended at the end of such quarter, and a statement of the cash flow to the Account Party of each Subsidiary of the Account Party for such quarter and for the portion of the Account Party's fiscal year ended at the end of such quarter, setting forth in the case of such consolidated statements of operations and cash flows, in comparative form, the figures for the corresponding quarter and the corresponding portion of the Account Party's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief executive officer, president, chief financial officer or chief accounting officer of the Account Party; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief executive officer, president, chief financial officer or chief accounting officer of the Account Party (i) setting forth in reasonable detail the calculations required to establish whether the Account Party was in compliance with the requirements of Sections 5.7, 5.8, 5.9, 5.11, 5.13, 5.15, 5.16 and 5.18 on the date of such financial statements, (ii) stating to the knowledge of the Account Party whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Account Party is taking or proposes to take with respect thereto and (iii) accompanied by a schedule setting forth in reasonable detail a description, including, where applicable, the expected and maximum dollar amounts thereof, of all material contingent liabilities not disclosed in such financial statements; 45 (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention as a result of their audit (which was not directed primarily toward obtaining knowledge of noncompliance) to cause them to believe that the Account Party has failed to comply with the terms, covenants, provisions or conditions as they relate to accounting of financial matters addressed in Sections 5.7 to 5.17, inclusive, and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within five days after any officer of the Account Party obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief executive officer, president, executive vice-president or chief financial officer of the Account Party setting forth the details thereof and the action which the Account Party is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Account Party generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Account Party shall have filed with the Securities and Exchange Commission; (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief executive officer, president, chief financial officer or chief accounting officer of the Account Party setting forth details as to such occurrence and the action, if any, which the Account Party or the applicable member of the ERISA Group is required or proposes to take; 46 (i) not less than 10 days prior to the anticipated receipt by the Account Party or any Subsidiary of the Account Party of Net Cash Proceeds from any Asset Disposition, a certificate of the chief executive officer, president, chief financial officer or chief accounting officer of the Account Party setting forth a description of the transaction giving rise to such Net Cash Proceeds, the date or dates upon which such Net Cash Proceeds are anticipated to be received by the Account Party or such Subsidiary and the amount of Net Cash Proceeds anticipated to be received on such date or each of such dates; (j) promptly after receipt by the Account Party or any Subsidiary of the Account Party or any Material AES Entity, a copy of each complaint, order, citation, notice or other written communication from any Person with respect to the existence or alleged existence of a material violation of any applicable Environmental Law or the incurrence of any liability, obligation, loss, damage, cost, expense, fine, penalty or sanction or the requirement to commence any remedial action resulting from or in connection with any air emission, water discharge, noise emission, Hazardous Substance or any other environmental, health or safety matter at, upon, under or within any of the properties now or previously owned, leased or operated by the Account Party, any of its Subsidiaries or any Material AES Entity, or due to the operations or activities of the Account Party, any Subsidiary of the Account Party, any Material AES Entity or any other Person on or in connection with any such property or any part thereof; and (k) from time to time such additional information regarding the financial position or business of the Account Party and its Subsidiaries as the Administrative Agent, at the request of any Participating Bank, may reasonably request. SECTION 5.2 PAYMENT OF OBLIGATIONS. The Account Party will pay and discharge all its material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each of its Subsidiaries to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. SECTION 5.3 MAINTENANCE OF PROPERTY; INSURANCE. (a) The Account Party will keep, and will cause each of its Subsidiaries to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Account Party will, and will cause each of its Subsidiaries to, maintain (either in the name of the Account Party or in such Subsidiary's own name), with financially sound and responsible insurance companies, insurance of such types, in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in similar circumstances in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to each Bank upon request information presented in reasonable detail as to the insurance so carried. 47 SECTION 5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Account Party (a) will continue, and will cause each Material AES Entity to continue, to engage in business of the same general type as now conducted by the Account Party and its Subsidiaries, (b) will continue, and will cause each Material AES Entity to continue, to operate their respective businesses on a basis substantially consistent with the policies and standards of the Account Party or such Material AES Entity as in effect on the date hereof and (c) will preserve, renew and keep in full force and effect, and will cause each Material AES Entity to preserve, renew and keep in full force and effect, their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; PROVIDED that nothing in this Section 5.4 shall prohibit (i) the merger of a Subsidiary of the Account Party into the Account Party or the merger or consolidation of any such Subsidiary with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary of the Account Party and if, in each case, after giving effect thereto, (x) no Default shall have occurred and be continuing and (y) the Account Party shall not be liable for any Debt of such Subsidiary except to the extent that it was liable for such Debt prior to giving effect to such merger or (ii) the termination of the corporate existence of any Subsidiary of the Account Party if the Account Party in good faith determines that such termination is in the best interest of the Account Party and is not materially disadvantageous to the Banks. SECTION 5.5 COMPLIANCE WITH LAWS. The Account Party will comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) (a) except for such non-compliance as would result solely in the payment of monetary compensation by the Account Party or such Subsidiary in an amount not to exceed $200,000 for each such non-compliance and (b) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. SECTION 5.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Account Party will keep, and will cause each of its Subsidiaries to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Significant AES Entity to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.7 DEBT. (a) The Account Party shall not, and shall not permit any of its Subsidiaries to, incur, assume, create or suffer to exist any Debt (including any Guarantees of Debt, surety bonds and obligations in respect of letters of credit), except for: (i) Debt under the Loan Documents and any Guarantees thereof; 48 (ii) Debt incurred by a Subsidiary (A) (1) to finance the development, acquisition, construction, operation, maintenance or working capital requirements of a Power Project or any unrelated business operated or managed (including on a joint basis with others), directly or indirectly, by the Account Party and in which such Subsidiary has a direct or indirect interest or (2) in respect of any letter of credit issued in replacement of funds on deposit in any debt service reserve or other similar account of a Power Project in which such Subsidiary has a direct or indirect interest (up to a maximum aggregate stated amount of all such letters of credit of all Subsidiaries equal to $100,000,000) to the extent that such funds so replaced are received by the Account Party as a result of such funds being used to pay dividends or make distributions on the capital stock of such Subsidiary and any other Subsidiary in the chain of ownership between the Account Party and such Subsidiary and (B) that is not also the Debt of, or Guaranteed by, any other Subsidiary with an interest in any other Power Project or unrelated business (except for Debt incurred or assumed by Subsidiaries of the Account Party (other than Specified Subsidiaries) which, at the time such Debt was incurred or assumed, in the aggregate, represent less than 50% of the Parent Operating Cash Flow (other than Parent Operating Cash Flow attributable to Specified Subsidiaries) for the immediately preceding four fiscal quarters); (iii) Debt existing on the date hereof (other than Debt under the Existing Credit Facility); (iv) Debt under the Existing Credit Facility; PROVIDED, HOWEVER, that the aggregate principal amount of such Debt at any time outstanding, and the aggregate amount of commitments under the Existing Credit Facility, shall not exceed $650,000,000 UNLESS (A) the Subsidiary Guaranties are irrevocably released or terminated in their entirety (so that the Existing Credit Facility does not have the benefit of any Guarantees) or (B) the Account Party's obligations hereunder and under the other Loan Documents are equally and ratably guaranteed by the Subsidiary Guarantors pursuant to guaranty agreements in form and substance substantially similar to the Subsidiary Guaranties; (v) Debt owing to the Account Party or a Consolidated Subsidiary of the Account Party; (vi) Debt of the Account Party or its Subsidiaries representing a refinancing, replacement or refunding of Debt permitted by clauses (ii) and (iii) above; PROVIDED that (A) the aggregate principal amount of such Debt outstanding or available will not be increased at the time of such refinancing, replacement or refunding (other than (1) in the case of Debt ("HAWAII REFINANCING DEBT") refinancing, replacing or refunding Debt of AES Hawaii, Inc. outstanding on May 15, 1997 ("REPLACED HAWAII DEBT") (so long as such Hawaii Refinancing Debt has no scheduled principal repayments, or principal payments at the option of the holder thereof in the absence of the occurrence of specified events, in any such case in excess of those required under the Replaced Hawaii Debt, prior to June 1, 2004), an increase of up to $300,000,000 in excess of the aggregate principal amount of Debt that is being 49 refinanced, replaced or refunded to the extent that proceeds in at least the amount of such increase are received by the Account Party as a result of such proceeds being used to pay dividends or make distributions on the capital stock of such Subsidiary and any other Subsidiary in the chain of ownership between the Account Party and such Subsidiary, (2) in the case of Debt refinancing, replacing or refunding Debt of the corporations or other entities that hold the Account Party's interest in the Tiszai II and Tiszaipalkonya Power Projects (including, without limitation, Debt of a Subsidiary of the Account Party that does not have a direct or indirect interest in any other Power Project, the proceeds of which are used to refinance such Debt of such corporations or other entities and to pay dividends to the Account Party) outstanding on October 21, 1997, an increase of up to $85,000,000 in excess of the aggregate principal amount of Debt that is being refinanced, replaced or refunded to the extent that proceeds of at least $45,000,000 are received by the Account Party as a result of such proceeds being used to pay dividends or make distributions on the capital stock of such Subsidiary and any other Subsidiary in the chain of ownership between the Account Party and such Subsidiary and (3) in the case of Debt refinancing, replacing or refunding Debt of Dominican Power Partners, LDC ("DPP") outstanding on October 21, 1997 (including, without limitation, Debt of AES Los Mina Finance Company the proceeds of which are used to refinance such Debt of DPP and to pay dividends to the Account Party), an increase of up to $100,000,000 in excess of the aggregate principal amount of Debt that is being refinanced, replaced or refunded to the extent that proceeds of at least $80,000,000 are received by the Account Party as a result of such proceeds being used to pay dividends or make distributions on the capital stock of such Subsidiary and any other Subsidiary in the chain of ownership between the Account Party and such Subsidiary), (B) no obligor shall be liable for any such Debt except to the extent that it was liable for the Debt so refinanced, replaced or refunded (except that (I) AES Los Mina Finance Company may incur Debt the proceeds of which are used to refinance Debt of DPP and pay dividends to the Account Party, (II) a Subsidiary of the Account Party that does not have a direct or indirect interest in any other Power Project may incur Debt the proceeds of which are used to refinance Debt of the corporations or other entities that hold the Account Party's interest in the Tiszai II and Tiszaipalkonya Power Projects and pay dividends to the Account Party, (III) a Subsidiary of the Account Party that does not have a direct or indirect interest in any Power Project other than AES Sul Distribudora Gaucha de Energia S.A. ("AES SUL") may incur Debt the proceeds of which are used to refinance Debt of AES Sul and (IV) a Subsidiary of the Account Party (the "REFINANCING SUBSIDIARY") that has a direct or indirect interest in a Power Project may incur Debt the proceeds of which are used to refinance Debt of another Subsidiary of the Account Party (the "REFINANCED SUBSIDIARY") that has a direct or indirect interest in such Power Project, PROVIDED that the Refinancing Subsidiary has no direct or indirect interest in any Power Project other than Power Projects in which the Refinanced Subsidiary has a direct or indirect interest) and (C) if any Debt being refinanced, replaced or refunded is subordinated to the Debt of the Account Party hereunder or of any Subsidiary under any Guarantee thereof, such Debt shall be subordinated at least to the same extent; 50 (vii) Guarantees by the Account Party of (x) Debt permitted by clause (ii)(A)(1) above, (y) Debt permitted by clause (ii)(A)(2) above in respect of letters of credit issued in replacement of debt service reserve or other similar accounts related to the AES Hawaii (formerly known as Barbers Point), Shady Point or Thames Power Projects and (z) to the extent that the same constitutes a refinancing of Debt referred to in subclause (x) or (y) above, Debt permitted under clause (vi) above; (viii) Additional Permitted Subordinated Debt; (ix) Permitted Senior Unsecured Debt; (x) surety bonds in respect performance obligations of the Account Party and letters of credit, in an aggregate principal amount at any time outstanding not to exceed the excess of (A) $400,000,000 over (B) the Letter of Credit Liabilities; (xi) the Subsidiary Guaranties; and (xii) other Debt not described in clauses (i) through (xi) above in an aggregate principal amount at any time outstanding not to exceed $10,000,000; PROVIDED, HOWEVER, that notwithstanding any other provision contained herein, the Subsidiary Guarantors shall not directly or indirectly Guarantee any Debt of the Account Party (other than the Debt referred to in clause (iv) above) unless the Account Party's obligations hereunder and under the other Loan Documents are equally and ratably guaranteed by the Subsidiary Guarantors pursuant to guaranty agreements in form and substance substantially similar to the Subsidiary Guaranties. (b) The Account Party shall not issue any Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt unless (i) both before and after giving effect to such issuance no Default shall have occurred and be continuing and (ii) on a PRO FORMA basis after giving effect to such issuance and the application of the proceeds thereof (but without increasing or decreasing Parent Operating Cash Flow on account of acquisitions for periods prior to such acquisitions), the Account Party would have been in compliance with Section 5.16 and (unless the Account Party shall have received net cash proceeds of not less than $500,000,000 from the issuance, after September 1, 1999 and on or before the earlier of the date upon which such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, is issued and December 31, 1999, of its common stock to Persons other than Subsidiaries or affiliates of the Account Party) 5.15 as of the last day of the fiscal quarter ended on, or most recently ended prior to, the date of such issuance (assuming for this purpose that (x) such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable (and any other Debt or preferred stock of the Account Party outstanding on the date of issuance of such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, and issued after the first day of the period of four consecutive fiscal quarters ended on such last day), was issued and the proceeds applied on the first day of the period of four consecutive 51 fiscal quarters ended on such last day and (y) all Debt and preferred stock of the Account Party repaid or redeemed prior to or simultaneously with the issuance of such Additional Permitted Subordinated Debt or Permitted Senior Unsecured Debt, as applicable, was repaid or redeemed on the day prior to the first day of such period). (c) In addition to the Debt permitted by subsections (a) and (b) above, the Account Party shall be permitted to incur, assume, create and suffer to exist up to an aggregate principal amount not to exceed the sum of (1) $600,000,000 PLUS (2) an amount equal to 50% of the aggregate net proceeds received by the Account Party from issuances and sales (other than sales to the Account Party or any of its Subsidiaries or Affiliates) of its common stock after September 1, 1999 of unsecured senior and/or subordinated Debt issued and sold by way of (i) a registered public offering, (ii) an offering made to qualified institutional buyers pursuant to Rule 144A under the Securities Act and/or (iii) in the form of term loans from banks or other institutional lenders or investors, in each case having terms and provisions applicable to the Account Party and its Subsidiaries that are no more restrictive in any material respect (including, without limitation, covenants and events of default) than those included in existing outstanding public Debt of the Account Party or otherwise acceptable to the Required Banks (except that limitations on (I) the ability of Subsidiaries and Affiliates of the Account Party to guarantee other senior Debt of the Account Party, (II) the ability of the Account Party to grant Liens on stock of Subsidiaries or intercompany advances to secure other senior Debt of the Account Party or (III) the ability of Subsidiaries or Affiliates of the Account Party to grant Liens on their assets (including stock of Subsidiaries and intercompany advances) to secure guarantees of other senior Debt of the Account Party shall be permitted); PROVIDED that (A) both before and after giving effect to such issuance no Default shall have occurred and be continuing, (B) on a PRO FORMA basis after giving effect to such issuance and the application of the proceeds thereof (but without increasing or decreasing Parent Operating Cash Flow on account of acquisitions for periods prior to such acquisitions) the Account Party would have been in compliance with Section 5.16 and (unless the Account Party shall have received net cash proceeds of not less than $500,000,000 from the issuance, after September 1, 1999 and on or before the earlier of the date upon which such Debt is issued and December 31, 1999, of its common stock to Persons other than Subsidiaries or affiliates of the Account Party) 5.15 as of the last day of the fiscal quarter ended on, or most recently ended prior to, the date of such issuance (assuming for this purpose that (x) such Debt (and any other Debt or preferred stock of the Account Party outstanding on the date of issuance of such Debt and issued after the first day of the period of four consecutive fiscal quarters ended on such last day) was issued and the proceeds applied on the first day of the period of four consecutive fiscal quarters ended on such last day and (y) all Debt and preferred stock of the Account Party repaid or redeemed prior to or simultaneously with the issuance of such Debt was repaid or redeemed on the day prior to the first day of such period) and (C) such Debt (x) is not guaranteed by any Subsidiary or Affiliate of the Account Party and (y) does not require any scheduled payment of principal prior to July 14, 2003. SECTION 5.8 MINIMUM CONSOLIDATED NET WORTH. Consolidated Net Worth will at no time be less than the sum of (i) $1,160,000,000 PLUS (ii) for each fiscal quarter of the Account Party ended after December 19, 1997 and at or prior to such 52 time for which Consolidated Net Income is a positive number, an amount equal to 50% of Consolidated Net Income for such fiscal quarter PLUS (iii) an amount equal to 75% of the cumulative net proceeds to the Account Party from issuances of equity securities made by the Account Party from and after December 19, 1997. SECTION 5.9 RESTRICTED PAYMENTS. Neither the Account Party nor any of its Subsidiaries will declare or make any Restricted Payment unless, after giving effect thereto, the aggregate of all Restricted Payments declared or made subsequent to June 30, 1995 does not exceed the sum of $5 million PLUS 5% (or, if such amount is a loss, MINUS 100%) of Consolidated Net Income of the Account Party and its Consolidated Subsidiaries for the period from June 30, 1995 through the last day of the fiscal quarter of the Account Party then most recently ended (treated for this purpose as a single accounting period). Nothing in this Section shall prohibit the payment of any dividend or distribution within 45 days after the declaration thereof if such declaration was not prohibited by this Section. SECTION 5.10 SUBORDINATED DEBT AND SENIOR NOTES. (a) The Account Party will not, and will not permit any of its Subsidiaries to, consent to or solicit any amendment, supplement, waiver or other modification of any Subordinated Note Indenture or any other agreement or instrument evidencing or governing any Subordinated Debt that would (i) increase the interest rate applicable thereto, (ii) shorten the time or increase the amount of any principal payment thereunder, (iii) change, in any manner, the subordination provisions thereof or (iv) change any of the covenants, events of default or other provisions thereof in any manner that could make any such covenant, event of default or other provision more restrictive or that could otherwise be disadvantageous to the Account Party or the Participating Banks, without the express prior written consent of the Required Banks. (b) The Account Party will not, and will not permit any of its Subsidiaries to, consent to or solicit any amendment, supplement, waiver or other modification of the 1998 Senior Note Indenture or any other agreement or instrument evidencing or governing any Senior Notes that (i) would increase the interest rate applicable thereto, (ii) shorten the time or increase the amount of any principal payment thereunder or (iii) change any of the covenants, events of default or other provisions thereof in any manner that could make any such covenant, event of default or other provision more limiting or that could otherwise be disadvantageous to the Account Party or the Participating Banks, without the express prior written consent of the Required Banks. SECTION 5.11 LIMITATIONS ON GUARANTEES AND COMMITMENTS. (a) The aggregate amount of Investment and Guarantee Commitments shall not at any time exceed an amount equal to the sum of: (i) the product of (A) Parent Operating Cash Flow for the period of four consecutive fiscal quarters then most recently ended MULTIPLIED by (B) four (4), PLUS (ii) the excess, if any, of (A) the aggregate amount of net cash proceeds received by the Account Party from the issuance of equity securities and from the disposition of Material AES Entities during the period from December 19, 1997 to such time (to the extent not used to prepay Subordinated Debt or to permanently retire 53 any other Debt) over (B) the aggregate amount of cash Investments (other than Temporary Cash Investments) and cash payments made by the Account Party under Guarantees during such period PLUS $430,000,000; PROVIDED, that for purposes of determining compliance with this subsection (a), the aggregate amount of Investment and Guarantee Commitments at any time shall be reduced to the extent collateralized with cash and cash equivalents and any deposit or other posting by the Account Party of cash or cash equivalents as collateral for any Investment and Guarantee Commitment shall be treated as a cash Investment for purposes of clause (ii)(B) of this subsection (a). (b) The Account Party shall not make or enter into any Investment and Guarantee Commitments at any time that the Account Party's senior unsecured Debt is rated less than BB- by Standard & Poor's Ratings Services or less than Ba3 by Moody's Investors Service, Inc. SECTION 5.12 NEGATIVE PLEDGE. Neither the Account Party nor any Subsidiary of the Account Party will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary of the Account Party and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, PROVIDED that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Account Party or a Subsidiary of the Account Party and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Account Party or a Subsidiary of the Account Party and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses or clause (l) of this Section; PROVIDED that such Debt is not increased and is not secured by any additional assets (other than, in the case of Debt permitted under Section 5.7(a)(vi), Liens on assets of any Subsidiary permitted under such Section 5.7(a)(vi) to be obligated on such Debt); (g) Liens arising in the ordinary course of its business which (i) do not secure Debt, (ii) do not secure any obligation in any amount exceeding $25,000,000 54 and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (h) Liens in connection with worker's compensation, social security obligations, taxes, assessments, statutory obligations or other similar charges, good faith deposits in connection with tenders, contracts or leases to which the Account Party or any of its Subsidiaries is a party or other deposits required to be made in the ordinary course of business and not in connection with borrowing money or obtaining advances or credit, PROVIDED in each case that the obligation or liability arises in the ordinary course of business and if overdue is being contested in good faith by appropriate proceedings; (i) inchoate materialmen's, mechanics', workmen's, repairmen's, employees', carriers', warehousemen's, or other like Liens arising in the ordinary course of business of the Account Party or its Subsidiaries; (j) with respect to real property, easements, rights of way, reservations and other minor defects or irregularities in title which do not materially impair the use thereof for the purposes for which it is held by the Account Party or its Subsidiaries; (k) Liens on cash collateral securing (i) Investment and Guarantee Commitments, (ii) the Letter of Credit Liabilities and (iii) the "Letter of Credit Liabilities" (as defined in the Existing Credit Facility); and (l) Liens securing Power Project Debt or utility obligations or other customer, supplier or contractor obligations associated with a Power Project that are limited to the assets and revenues of the related Power Project and the capital stock or other assets (including contract rights) of Subsidiaries of the Account Party having a direct or indirect interest in such Power Project. SECTION 5.13 CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. (a) The Account Party will not will consolidate or merge with or into any other Person; PROVIDED that the Account Party may merge with another Person if (i) the Account Party is the corporation surviving such merger or the corporation surviving such merger assumes all obligations of the Account Party under the Loan Documents and (ii) immediately after giving effect to such merger, no Default shall have occurred and be continuing. (b) The Account Party will not sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Account Party and its Subsidiaries, taken as a whole, to any other Person. (c) The Account Party will not sell or otherwise transfer, or permit to be sold or otherwise transferred, directly or indirectly, any shares of capital stock of any Material AES Entity which are owned, directly or indirectly, by the Account Party; PROVIDED that the Account Party may transfer, or permit the transfer of, shares of capital stock of a Material AES Entity owned, directly or indirectly, by the Account Party if: 55 (i) after giving effect to such transfer, the Account Party will continue to own, directly or indirectly, at least 80% of the outstanding capital stock of each Material AES Entity; (ii) the consideration received by the Account Party or a Subsidiary of the Account Party for such transfer (A) has a value, as determined by the Account Party, at least equal to the fair market value of the shares of capital stock transferred and (B) is in the form of cash or capital stock or partnership or other similar equity interests of a Person the principal assets of which consist of direct or indirect interests in one or more Power Projects, or a combination of the foregoing; (iii) after giving effect to such transfer, no Default shall have occurred and be continuing; (iv) on a PRO FORMA basis after giving effect to such transfer, the Cash Flow Coverage Ratio for the four consecutive fiscal quarters then most recently ended is at least 1.75 to 1.00 (assuming for this purpose that such transfer occurred on the first day of such period of four consecutive fiscal quarters); (v) AES Hawaii, Inc. shall at all times remain a direct Subsidiary of AES Hawaii Management and AES Shady Point, Inc. shall at all times remain a direct Subsidiary of AES Oklahoma; (vi) AES Western Maryland Management, Inc., AES Mexico Farms Inc. and AES Warrior Run Limited Partnership shall at all times remain Subsidiaries of AES Warrior Run and shall hold, directly or indirectly, substantially all of the assets held by them on March 4, 1999; and (vii) Southland and Subsidiaries of Southland holding substantially all of the assets of Southland and its Subsidiaries as of March 4, 1999 shall at all times remain Subsidiaries of AES Southland; PROVIDED, HOWEVER, that the foregoing clauses (v), (vi) and (vii) shall not apply if the corresponding covenants in the Existing Credit Facility are permanently deleted pursuant to an amendment thereto or otherwise have no further force or effect thereunder. SECTION 5.14 USE OF LETTERS OF CREDIT. The Letters of Credit will be used to support bidding activities, other performance and financial obligations and other general corporate purposes of the Account Party and its Subsidiaries. None of the proceeds of any Letter of Credit will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U or Regulation G. SECTION 5.15 CASH FLOW COVERAGE. The Cash Flow Coverage Ratio for any period of four consecutive fiscal quarters of the Account Party ending after the date hereof (including any PRO FORMA calculation under subsection (b) or (c) of Section 5.7 made by reference to such period) shall not be less than (i) in the case of any 56 period ending after the date hereof and on or prior to September 30, 2000, 1.50 to 1.00 and (ii) in all other cases, 1.75 to 1.00. SECTION 5.16 CASH FLOW TO TOTAL DEBT RATIO. The Cash Flow to Total Debt Ratio shall not, at any time after the date hereof, be less than (i) 0.10 to 1.00 at any time on or prior to December 31, 1999, (ii) 0.105 to 1.00 at any time after December 31, 1999 and on or prior to March 31, 2000, (iii) 0.125 to 1.00 at any time after March 31, 2000 and on or prior to September 30, 2000 and (iv) 0.15 to 1.00 at any time thereafter. SECTION 5.17 TRANSACTION WITH AFFILIATES. Except pursuant to agreements existing on the date hereof and listed on Schedule III attached hereto, the Account Party will not, and will not permit any of its Subsidiaries to, directly or indirectly, in any transaction involving aggregate consideration in excess of $1,000,000, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate; PROVIDED, HOWEVER, that the foregoing provisions of this Section shall not prohibit (a) the Account Party from declaring or paying any lawful dividend so long as, after giving effect thereto, no Default shall have occurred and be continuing, (b) the Account Party or any Subsidiary of the Account Party from making sales to or purchases from any Affiliate and, in connection therewith, extending credit or making payments, or from making payments for services rendered by any Affiliate, if such sales or purchases are made or such services are rendered in the ordinary course of business and on terms and conditions at least as favorable to the Account Party or such Subsidiary as the terms and conditions which would apply in a similar transaction with a Person not an Affiliate, (c) the Account Party or any Subsidiary of the Account Party from making payments of principal, interest and premium on any Debt of the Account Party or such Subsidiary held by an Affiliate if the terms of such Debt are substantially as favorable to the Account Party or such Subsidiary as the terms which could have been obtained at the time of the creation of such Debt from a lender which was not an Affiliate and (d) the Account Party or any Subsidiary of the Account Party from participating in, or effecting any transaction in connection with, any joint enterprise or other joint arrangement with any Affiliate if the Account Party or such Subsidiary participates in the ordinary course of its business and on a basis no less advantageous than the basis on which such Affiliate participates. The provisions of this Section 5.17 shall not apply to (i) transactions between the Account Party or any of its Subsidiaries, on the one hand, and any employee of the Account Party or any of its Subsidiaries, on the other hand, that are approved by the Board of Directors of the Account Party or any committee of the Board of Directors consisting of the Account Party's independent directors and (ii) the payment of reasonable and customary regular fees to directors of the Account Party or a Subsidiary of the Account Party. SECTION 5.18 LIMITATION ON INVESTMENTS. (a) The Account Party will not permit any Specified Subsidiary to make any Investment in, or to consolidate or merge with, any other Person with a direct or indirect interest in any Power Project or unrelated business other than the Power Project or 57 unrelated business in which such Specified Subsidiary has a direct or indirect interest prior to the making of such Investment or the consummation of such consolidation or merger; PROVIDED, HOWEVER, that this subsection (a) shall not apply if the corresponding covenant in the Existing Credit Facility is permanently deleted pursuant to an amendment thereto or otherwise has no further force or effect thereunder. (b) The Account Party will not permit any Subsidiary of the Account Party with any direct or indirect interest in (i) a Power Project to make any Investment in, or consolidate or merge with, any other Person with a direct or indirect interest in any other Power Project or any unrelated business or (ii) any unrelated business to make any Investment in, or to consolidate or merge with, any other Person with a direct or indirect interest in any Power Project; PROVIDED that one or more Subsidiaries of the Account Party (each, an "INTERMEDIATE HOLDING COMPANY") may serve as holding companies for any or all of the Account Party's direct and indirect interests in Power Projects and unrelated businesses, so long as: (A) each such Intermediate Holding Company's direct and indirect interest in any Power Project or unrelated business shall be limited to the ownership of capital stock or Debt obligations of a Person with a direct or indirect interest in such Power Project or unrelated business; (B) no Lien shall exist upon any asset of any Intermediate Holding Company (other than Liens on the capital stock of the Account Party or a Subsidiary of an Intermediate Holding Company securing Debt of such Intermediate Holding Company or such Subsidiary and Liens securing Debt permitted under clause (ii) of Section 5.7(a)); (C) no Intermediate Holding Company shall incur, assume, create or suffer to exist any Debt (including any Guarantee of Debt) other than Debt owing to the Account Party or any Intermediate Holding Company and Debt permitted by clauses (i) and (ii) of Section 5.7(a) or (to the extent that such Debt represents a refinancing or replacement of Debt permitted by clause (ii) of Section 5.7(a)) clause (vi) of Section 5.7(a) (without giving effect to clauses (I) through (IV) of subclause (B) thereof); and (D) AES Electric may make Investments in Power Projects owned by NIGEN Limited and Medway Power Limited as of the date of this Agreement under any agreement by which it is bound as of the date of this Agreement. SECTION 5.19 YEAR 2000 COMPLIANCE. The Account Party shall promptly notify the Administrative Agent in the event that the Account Party discovers or determines that any computer application (including those of its suppliers, vendors and customers) that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 compliant, except to the extent that such failure could not reasonably be expected to have a material adverse effect upon the business, financial position or results of operations of the Account Party and its Consolidated Subsidiaries, taken as a whole. 58 ARTICLE 6 EVENTS OF DEFAULT SECTION 6.1 EVENTS OF DEFAULT. The following events shall each constitute an "EVENT OF DEFAULT", if the same shall occur and be continuing after the grace period and notice requirement (if any) applicable thereto: (a) the Account Party shall fail to pay when due any Reimbursement Obligation, or shall fail to pay within three days of the date when due any interest, fees or other amounts payable under any Loan Document; or (b) The Account Party shall fail to observe or perform any covenant contained in Sections 5.7 to 5.18, inclusive; or (c) the Account Party shall fail to observe or perform any covenant or agreement contained in any Loan Document (other than those covered by clause (a) or (b) above) for 20 days after written notice thereof has been given to the Account Party by the Administrative Agent at the request of any Bank; or (d) any representation, warranty, certification or statement made by the Account Party in any Loan Document or in any certificate, financial statement or other document delivered pursuant to any Loan Document shall prove to have been incorrect in any material respect when made (or deemed made); or (e) the Account Party shall fail to make any payment in respect of any Material Debt when due or within any applicable grace period; or (f) any event or condition shall occur which (i) results in the acceleration of the maturity of any Material Debt of AES or of any Material Debt of any Subsidiary or Subsidiaries of the Account Party (except AES Placerita and Central Termica San Nicolas S.A.) that, individually or in the aggregate (in each case together with any Person in which such Subsidiary has a direct or indirect equity Investment), contributed 15% or more to Parent Operating Cash Flow for the four most recently completed fiscal quarters of the Account Party, (ii) results in the termination of any commitment to provide financing in an amount in excess of $15,000,000 to the Account Party or any Material AES Entity or (iii) enables (or, with the giving of notice or lapse of time or both, would enable) the holder of any Material Debt of the Account Party or any Person acting on such holder's behalf to accelerate the maturity thereof; or (g) the Account Party or any Significant AES Entity shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any 59 bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (h) an involuntary case or other proceeding shall be commenced against the Account Party or any Significant AES Entity seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Account Party or any Significant AES Entity under the federal bankruptcy laws as now or hereafter in effect; or (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $15,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $15,000,000; or (j) a judgment or order for the payment of money in excess of $15,000,000 shall be rendered against the Account Party or any Subsidiary of the Account Party, and such judgment or order shall continue unsatisfied and unstayed for a period of 10 days; or (k) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) other than a member of the AES Management Group shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 20% or more of the outstanding shares of common stock of the Account Party; or during any period of twelve consecutive calendar months, individuals who were directors of the Account Party on the first day of such period (or who were appointed or nominated for election as directors of the Account Party by at least a majority of the 60 individuals who were directors on the first day of such period) shall cease to constitute a majority of the board of directors of the Account Party. SECTION 6.2 REMEDIES UPON EVENTS OF DEFAULT. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent shall at the request of the Required Banks, upon notice to the Account Party (i) declare the Commitments and the commitments of the Issuing Banks to make any Extension of Credit to be terminated, whereupon the same shall forthwith terminate (PROVIDED, that the obligations of the Participating Banks under Section 2.5 shall continue notwithstanding any such termination), (ii) declare all amounts payable hereunder by the Account Party, whether matured or unmatured (including all Reimbursement Obligations and all interest thereon), to be immediately due and payable, whereupon the same shall immediately become due and payable without demand, presentment, protest or further notice of any kind, all of which are hereby expressly waived by the Account Party, and/or (iii) make demand upon the Account Party to, and forthwith upon such demand the Account Party shall, (A) subject to Section 2.14(d), pay to the Administrative Agent in immediately available funds at the Administrative Agent's office designated in such demand, for deposit in the Cash Collateral Account or any other account designated by the Administrative Agent, as provided in Section 2.14, an amount equal to the aggregate Available Amount at such time, or (B) deliver to the Administrative Agent (for the benefit of the Issuing Banks and the Participating Banks) an irrevocable standby letter of credit (issued pursuant to the Existing Credit Facility or any other credit facility or agreement (other than this Agreement) to which the Account Party is a party) having a stated amount equal to the aggregate Available Amount at such time, which letter of credit shall be issued by a commercial bank, and shall be in form and substance, satisfactory to the Administrative Agent; PROVIDED, HOWEVER, that upon the occurrence of any Automatic Acceleration Event, (A) the Commitments and the commitments of the Issuing Banks to make Extensions of Credit shall automatically be terminated, (B) all amounts payable hereunder by the Account Party, whether matured or unmatured (including all Reimbursement Obligations and all interest thereon), shall immediately become due and payable without demand, presentment, protest or further notice of any kind, all of which are hereby expressly waived by the Account Party, and (C) without any request or the taking of any other action by the Administrative Agent or any Participating Bank, (1) subject to Section 2.14(d), the Account Party shall be obligated forthwith to pay to the Administrative Agent in immediately available funds for deposit in the Cash Collateral Account, as provided in Section 2.14, an amount equal to the aggregate Available Amount at such time, or (2) the Account Party shall be obligated to deliver to the Administrative Agent (for the benefit of the Issuing Banks and the Participating Banks) an irrevocable standby letter of credit (issued pursuant to the Existing Credit Facility or any other credit facility or agreement (other than this Agreement) to which the Account Party is a party) having a stated amount equal to the aggregate Available Amount at such time, which letter of credit shall be issued by a commercial bank, and shall be in form and substance, satisfactory to the Administrative Agent. Notwithstanding anything to the contrary contained herein, no notice given or declaration made by the Administrative Agent pursuant to this Section 6.2 shall affect (1) the obligation of any Issuing Bank to make any payment under any Letter of Credit issued by such Issuing Bank in accordance with the terms of such Letter of Credit, or (2) the participatory interest of each Participating Bank in each such payment. 61 ARTICLE 7 THE ADMINISTRATIVE AGENT, THE PARTICIPATING BANKS AND THE ISSUING BANKS SECTION 7.1 APPOINTMENT. Each of the Issuing Banks and the Participating Banks hereby irrevocably designates and appoints Union Bank as the Administrative Agent under this Agreement and irrevocably authorizes Union Bank, as Administrative Agent, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or any other Loan Document, the Administrative Agent and the Issuing Banks shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Participating Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent or the Issuing Banks. SECTION 7.2 DELEGATION OF DUTIES. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. SECTION 7.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent, the Issuing Banks nor any of their respective Related Parties shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Participating Banks for any recitals, statements, representations or warranties made by the Account Party or any officer thereof contained in any Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, any Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any Loan Document or for any failure of the Account Party to perform its obligations hereunder or thereunder. Except as otherwise expressly set forth herein, the Administrative Agent and the Issuing Banks shall not be under any obligation to any Participating Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Account Party. Neither the Syndication Agent nor the Documentation Agent shall have any liabilities, duties or obligations in such capacity under any of the Loan Documents. 62 SECTION 7.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent and the Issuing Banks shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Account Party), independent accountants and other experts selected by the Administrative Agent or any Issuing Bank, as the case may be. The Administrative Agent shall be fully justified in failing or refusing to take any action under any Loan Document unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Participating Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under any Loan Document in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Participating Banks. SECTION 7.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default unless the Administrative Agent has received notice from a Participating Bank, an Issuing Bank or the Account Party referring to this Agreement, describing such Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Issuing Banks and the Participating Banks. The Administrative Agent shall take such action with respect to such Default as shall be reasonably directed by the Required Banks; PROVIDED that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Participating Banks. SECTION 7.6 NON-RELIANCE ON ADMINISTRATIVE AGENT, ISSUING BANKS AND OTHER PARTICIPATING BANKS. Each Participating Bank expressly acknowledges that neither the Administrative Agent, the Issuing Banks nor any of their respective Related Parties has made any representations or warranties to it and that no act by the Administrative Agent or any Issuing Bank hereinafter taken, including any review of the affairs of the Account Party, shall be deemed to constitute any representation or warranty by the Administrative Agent or such Issuing Bank to any Participating Bank. Each Participating Bank represents to the Administrative Agent and the Issuing Banks that it has, independently and without reliance upon the Administrative Agent, any Issuing Bank or any other Participating Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Account Party and made its own decision to enter into this Agreement. Each Participating Bank also represents that it will, independently and without reliance upon the Administrative Agent, any Issuing Bank or any other Participating Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and to make such 63 investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Account Party. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Participating Bank with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Account Party that may come into the possession of the Administrative Agent or any of its Related Parties. SECTION 7.7 INDEMNIFICATION. The Participating Banks agree to indemnify each of the Administrative Agent and the Issuing Banks in its capacity as such (to the extent not reimbursed by the Account Party and without limiting the obligation of the Account Party to do so), ratably according to their respective Commitment Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of all amounts arising under this Agreement) be imposed on, incurred by or asserted against the Administrative Agent or any Issuing Bank in any way relating to or arising out of this Agreement, any Letter of Credit, any other Loan Document or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent or such Issuing Bank under or in connection with any of the foregoing; PROVIDED that no Participating Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's or any Issuing Bank's gross negligence or willful misconduct. The agreements in this Section shall survive the termination of this Agreement and the payment of all amounts payable hereunder. SECTION 7.8 ADMINISTRATIVE AGENT AND ISSUING BANKS IN INDIVIDUAL CAPACITY. The Administrative Agent and each Issuing Bank and their respective affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Account Party as though the Administrative Agent was not the Administrative Agent hereunder and such Issuing Bank was not an Issuing Bank hereunder. The Administrative Agent and each Issuing Bank shall have the same rights and powers under this Agreement and the other Loan Documents as any Participating Bank and may exercise the same as though it were not the Administrative Agent or an Issuing Bank, and the terms "PARTICIPATING BANK" and "PARTICIPATING BANKS" shall include the Administrative Agent and each Issuing Bank (to the extent applicable) in their individual capacity. SECTION 7.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon ten (10) days' notice to the Banks and the Account Party. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Required Banks shall appoint from among the Participating Banks a successor agent for the Participating Banks, which successor agent shall be approved by the Account Party (PROVIDED that such approval shall not be required upon the occurrence and during the continuance of an Event of Default), whereupon such successor agent shall succeed to the rights, powers and duties of the 64 Administrative Agent, and the term "ADMINISTRATIVE AGENT" shall mean such successor agent effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. ARTICLE 8 MISCELLANEOUS SECTION 8.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any other Loan Document may be amended, supplemented or modified except in accordance with the provisions of this Section. With the written consent of the Required Banks, the Administrative Agent and the Account Party may, from time to time, enter into written amendments, supplements or modifications of any Loan Document for the purpose of adding any provisions to such Loan Document or changing in any manner the rights of the Participating Banks, the Issuing Banks or of the Account Party hereunder or thereunder or waiving, on such terms and conditions as the Required Banks may specify in such instrument, any of the requirements of such Loan Document or any Default and its consequences; PROVIDED, HOWEVER, that no amendment, waiver or consent shall, unless in writing and signed by all of the Participating Banks, do any of the following: (a) waive, modify or eliminate any of the conditions specified in Section 4.1, (b) increase or decrease the Commitment of any Participating Bank (except for a ratable decrease in Commitments of all Participating Banks) or subject any Participating Bank to any additional obligations, (c) reduce the principal of, or interest on, the Reimbursement Obligations or any fees or other amounts payable hereunder (other than any fees payable to the Administrative Agent, any Issuing Bank, the Syndication Agent or the Documentation Agent pursuant to the Agency Fee Letters, any Issuing Bank Agreement or Section 2.3(c)), (d) extend the Termination Date or postpone any date fixed for any payment of principal of, or interest on, any Reimbursement Obligations or any fees or other amounts payable hereunder (other than any fees payable to the Administrative Agent, any Issuing Bank, the Syndication Agent or the Documentation Agent pursuant to the Agency Fee Letters, any Issuing Bank Agreement or Section 2.3(c)), (e) amend, modify or waive the definition of "REQUIRED BANKS" contained in Section 1.1 or otherwise change the percentage of the Commitments or of the participations in the aggregate outstanding Letter of Credit Liabilities, or the number of Participating Banks, which shall be required for the Participating Banks or any of them to take any action hereunder, (f) amend this Agreement or any other Loan Document in a manner intended to prefer one or more Participating Banks over any other Participating Banks, (g) release all or any portion of any cash collateral held in the Cash Collateral Account (or any other similar account) other than in accordance with the terms of this Agreement, (h) release any Guarantee of a Subsidiary Guarantor that guaranties the obligations of the Account Party hereunder, (i) amend, waive or modify this Section 8.1, or (j) amend, waive or modify the last sentence of Section 2.1(a); and PROVIDED, FURTHER, that no amendment, waiver or 65 consent shall, unless in writing and signed by the Administrative Agent in addition to the Participating Banks required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and PROVIDED, FURTHER, that no amendment, waiver or consent shall, unless in writing and signed by each Issuing Bank in addition to the Participating Banks required above to take such action, affect the rights or duties of such Issuing Bank under this Agreement or any other Loan Document; and PROVIDED, FURTHER, that any agreement entered into pursuant to Section 2.3(c) may be amended, supplemented or otherwise modified by the parties thereto. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Participating Banks and shall be binding upon the Account Party, the Participating Banks, the Issuing Banks and the Administrative Agent. In the case of any waiver, the Account Party, the Participating Banks, the Issuing Banks and the Administrative Agent shall be restored to their former position and rights hereunder, and any Default waived shall be deemed to be cured and not continuing, but only to the extent so waived; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 8.2 NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy, telegraph or telex), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or five (5) days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, or, in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answerback received, addressed as follows or to such other address as may be hereafter notified by the respective parties hereto: Account Party: The AES Corporation 1001 North 19th Street Arlington, Virginia 22209 Attention: Chief Financial Officer Telephone: (703) 522-1315 Telecopy: (703) 528-4510 Administrative Agent: Union Bank of California, N.A. Power and Utilities 445 South Figueroa Street Los Angeles, CA 90071 Attention: Susan Johnson Telephone: (213) 236-4125 Telecopy: (213) 236-4096 Each Issuing Bank: As set forth in the Issuing Bank Agreement to which it is a party Each Participating Bank As set forth in Schedule I hereto or in the Commitment Transfer Supplement to which it is a party; 66 PROVIDED that any notice, request or demand to or upon the Administrative Agent or the Participating Banks pursuant to Article 2 shall not be effective until received. SECTION 8.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent, any Issuing Bank or any Participating Bank, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION 8.4 PAYMENT OF EXPENSES AND TAXES; GENERAL INDEMNITY. (a) The Account Party shall pay (i) all out-of-pocket expenses of the Administrative Agent, including reasonable fees and disbursements of special counsel for the Administrative Agent, in connection with the preparation and administration of this Agreement and the other Loan Documents, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Administrative Agent, each Issuing Bank and each Participating Bank, including (without duplication) the fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Account Party agrees to indemnify the Administrative Agent, the Syndication Agent, the Documentation Agent, each Issuing Bank and each Participating Bank, and the Related Parties of the foregoing (each an "INDEMNITEE") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Letters of Credit or the issuance or deemed issuance of any Letter of Credit; PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. (c) The Account Party's obligations under this Section 8.4 shall survive the repayment of all amounts owing to the Participating Banks, the Issuing Banks, the Administrative Agent, the Syndication Agent and the Documentation Agent under the Loan Documents and the termination of the Commitments. If and to the extent that the obligations of the Account Party under this Section 8.4 are unenforceable for any reason, the Account Party agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law. SECTION 8.5 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING BANKS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of 67 the parties hereto and their respective successors and assigns, except that the Account Party may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Participating Bank may at any time grant to one or more banks or other institutions (each, a "PARTICIPANT") participating interests in its Commitment or any or all of its participating interests in Letter of Credit Liabilities. In the event of any such grant by a Participating Bank of a participating interest to a Participant, whether or not upon notice to the Account Party, the Issuing Banks and the Administrative Agent, such Participating Bank shall remain responsible for the performance of its obligations hereunder, and the Account Party, the Issuing Banks and the Administrative Agent shall continue to deal solely and directly with such Participating Bank in connection with such Participating Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Participating Bank may grant such a participating interest shall provide that such Participating Bank shall retain the sole right and responsibility to enforce the obligations of the Account Party hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement or any other Loan Document; PROVIDED that such participation agreement may provide that such Participating Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (b), (c), (d), (g) or (h) of Section 8.1 without the consent of the Participant. The Account Party agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Sections 2.8 and 2.9 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (h) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Participating Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any Participating Bank or any affiliate thereof and, with the consent of the Account Party (which consent of the Account Party shall not be unreasonably withheld or delayed, and shall not be required upon the occurrence and during the continuance of an Event of Default), the Issuing Banks and the Administrative Agent, to one or more additional banks or financial institutions ("PURCHASING BANKS") all or any part of its rights and obligations under this Agreement pursuant to a Commitment Transfer Supplement executed by such Purchasing Bank and such transferor Participating Bank (and, in the case of a Purchasing Bank that is not then a Participating Bank or an affiliate thereof, by the Account Party (except as set forth above), the Issuing Banks and the Administrative Agent) and delivered to the Administrative Agent for its acceptance and recording in the Register, together with a processing and recordation fee of $4,000. The amount of the Commitment of the transferor Participating Bank being transferred pursuant to each such Commitment Transfer Supplement shall in no event be less than the lesser of the aggregate amount of such Participating Bank's Commitment and $5,000,000 and shall be an integral multiple of $1,000,000. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement, (x) the Purchasing Bank thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Participating 68 Bank hereunder with a Commitment and a Commitment Percentage as set forth therein, and (y) the transferor Participating Bank thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Participating Bank's rights and obligations under this Agreement, such transferor Participating Bank shall cease to be a party hereto). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such transferor Participating Bank under this Agreement. (d) The Administrative Agent shall maintain at its address referred to in Section 8.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the "REGISTER") for the recordation of the names and addresses of the Participating Banks and the Commitment of each Participating Bank from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Account Party, the Administrative Agent, the Issuing Banks and the Participating Banks may treat each Person whose name is recorded in the Register as the owner of the Commitment recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Account Party, any Issuing Bank or any Participating Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly executed Commitment Transfer Supplement, the Administrative Agent shall (i) promptly accept such Commitment Transfer Supplement, and (ii) on the Transfer Effective Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Issuing Banks, the Participating Banks and the Account Party. (f) The Account Party authorizes each Participating Bank to disclose to any Participant or Purchasing Bank (each, a "TRANSFEREE") and any prospective Transferee any and all financial information in such Participating Bank's possession concerning the Account Party and its Affiliates and Subsidiaries which has been delivered to such Participating Bank by or on behalf of the Account Party pursuant to this Agreement or which has been delivered to such Participating Bank by or on behalf of the Account Party in connection with such Participating Bank's credit evaluation of the Account Party and its Affiliates and Subsidiaries prior to becoming a party to this Agreement; PROVIDED, that, prior to any such disclosure, the Transferee or prospective Transferee shall agree to preserve the confidentiality of any such information received by it from such Participating Bank. (g) If, pursuant to this Section, any interest in this Agreement is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Participating Bank shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Participating Bank (for the benefit of the transferor Participating Bank, the Administrative Agent and the Account Party) that under applicable law and treaties no 69 taxes will be required to be withheld by the Administrative Agent, the Account Party or the transferor Participating Bank with respect to any payments to be made to such Transferee hereunder, (ii) to furnish to the transferor Participating Bank (and, in the case of any Purchasing Bank registered in the Register, the Administrative Agent and the Account Party) either U.S. Internal Revenue Service Form W-8BEN or U.S. Internal Revenue Service Form W-8ECI (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Participating Bank, the Administrative Agent and the Account Party) to provide the transferor Participating Bank (and, in the case of any Purchasing Bank registered in the Register, the Administrative Agent and the Account Party) a new Form W-8BEN or W-8ECI upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (h) Nothing herein shall prohibit any Participating Bank from pledging or assigning its Commitment or its participation interest in any Reimbursement Obligations it to any Federal Reserve Bank in accordance with applicable law. No such pledge or assignment shall release the assigning Participating Bank from its obligations hereunder. (i) No Transferee shall be entitled to receive any greater payment under Section 2.8 or 2.9 than the transferor Participating Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Account Party's prior written consent or by reason of the provisions of Section 2.8 or 2.9 requiring such transferor Participating Bank to designate a different lending office through which it participates in Letters of Credit hereunder under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 8.6 SET-OFF. In addition to any rights and remedies of the Issuing Banks and the Participating Banks provided by law, each Issuing Bank and Participating Bank shall have the right, without prior notice to the Account Party, any such notice being expressly waived by the Account Party to the extent permitted by applicable law, upon any amount becoming due and payable by the Account Party hereunder (whether at the stated maturity, by acceleration or otherwise), to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Issuing Bank or such Participating Bank or any affiliate, branch or agency thereof to or for the credit or the account of the Account Party. Each Issuing Bank and Participating Bank agrees promptly to notify the Account Party and the Administrative Agent after any such set-off and application made by such Issuing Bank or such Participating Bank, as the case may be, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. 70 SECTION 8.7 ISSUING BANKS NOT LIABLE. As between the Administrative Agent, the Issuing Banks and the Participating Banks on the one hand, and the Account Party on the other, the Account Party assumes all risks of the acts or omissions of the beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Administrative Agent, any Issuing Bank, any Participating Bank, nor any of their respective Related Parties shall be liable or responsible for: (a) the use which may be made of any Letter of Credit or any acts or omissions of the beneficiary or any transferee thereof in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement(s) thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by any Issuing Bank against presentation of documents which do not comply with the terms of any Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, EXCEPT that the Account Party shall have a claim against the applicable Issuing Bank, and such Issuing Bank shall be liable to the Account Party, to the extent, but only to the extent, of any direct, as opposed to consequential or special, damages suffered by the Account Party which the Account Party proves were caused by (i) such Issuing Bank's willful misconduct or gross negligence, as determined by a final, nonappealable judgment of a court of competent jurisdiction, in determining whether documents presented under any Letter of Credit are genuine or comply with the terms of such Letter of Credit or (ii) such Issuing Bank's willful or grossly negligent failure, as determined by the final, nonappealable judgment of a court of competent jurisdiction, to make lawful payment under any Letter of Credit after the presentation to it by the beneficiary (or any transferee of such Letter of Credit) of a draft and other required documentation strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing, an Issuing Bank may accept sight drafts and accompanying documents presented under a Letter of Credit that appear on their face to be in order, without responsibility for further investigation. SECTION 8.8 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement in any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Account Party and the Administrative Agent. SECTION 8.9 SEVERABILITY. It is the intention of the parties that this Agreement be enforceable to the fullest extent permissible under applicable law, but that the unenforceability (or modification to conform to such law) of any provision or provisions hereof shall not render unenforceable, or impair, the remainder hereof. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, this Agreement shall, as to such jurisdiction, be deemed amended to modify or delete, as necessary, the offending provision or provisions and to alter the bounds thereof in order to render it or them valid and enforceable to the maximum extent permitted by applicable law, without in any manner affecting the validity or enforceability of such provision or provisions in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 71 SECTION 8.10 INTEGRATION. This Agreement represents the agreement of the Account Party, the Administrative Agent, the Issuing Banks and the Participating Banks with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Issuing Banks or any Participating Bank relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. SECTION 8.11 GOVERNING LAW. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. SECTION 8.12 SUBMISSION TO JURISDICTION; WAIVERS. The Account Party hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the United Stated District Court for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Account Party at its address set forth in Section 8.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; and (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. SECTION 8.13 ACKNOWLEDGMENTS. The Account Party hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) none of the Administrative Agent, the Issuing Banks nor any Participating Bank has any fiduciary relationship to the Account Party, and the relationship between the Administrative Agent, the Issuing Banks and the Participating Banks, on the one hand, and the Account Party, on the other hand, is solely that of creditor and debtor; and 72 (c) the Loan Documents do not create or constitute a joint venture among the Participating Banks or among the Account Party and the Participating Banks. SECTION 8.14 JUDGMENT CURRENCY. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder or under any other Loan Document in any currency (the "ORIGINAL CURRENCY") into another currency (the "OTHER CURRENCY") the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the Original Currency with the Other Currency at 11:00 a.m. (Los Angeles time) on the Business Day preceding that on which final judgment is given. (b) The obligation of the Account Party in respect of any sum due in the Original Currency from it to any Bank or the Administrative Agent hereunder or under any other Loan Document shall, notwithstanding any judgment in any Other Currency, be discharged only to the extent that on the Business Day following receipt by such Bank or the Administrative Agent (as the case may be) of any sum adjudged to be so due in such Other Currency such Bank or the Administrative Agent (as the case may be) may in accordance with normal banking procedures purchase the Original Currency with such Other Currency; if the amount of the Original Currency so purchased is less than the sum originally due to such Bank or the Administrative Agent (as the case may be) in the Original Currency, the Account Party agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Bank or the Administrative Agent (as the case may be) against such loss, and if the amount of the Original Currency so purchased exceeds the sum originally due to any Bank or the Administrative Agent (as the case may be) in the Original Currency, such Bank or the Administrative Agent (as the case may be) agrees to remit to the Account Party such excess. SECTION 8.15 WAIVERS OF JURY TRIAL. THE ACCOUNT PARTY, THE ADMINISTRATIVE AGENT, THE ISSUING BANKS AND THE PARTICIPATING BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 8.16 DESIGNATED SENIOR DEBT. The Account Party hereby designates this Agreement and all Debt and other obligations of the Account Party hereunder and under the other Loan Documents as "Designated Senior Debt", as contemplated by, and for all purposes under, the Subordinated Note Indentures. S-1 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. THE AES CORPORATION By:_________________________________________ Title: UNION BANK OF CALIFORNIA, N.A., as Administrative Agent and a Participating Bank By:_________________________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Syndication Agent and a Participating Bank By:_________________________________________ Title: BANK OF AMERICA, N.A., as Documentation Agent and a Participating Bank By:_________________________________________ Title: S-2 PARTICIPATING BANKS BARCLAYS BANK PLC, NEW YORK BRANCH By:____________________________________________ Title: CITIBANK, N.A. By:____________________________________________ Title: EXPORT DEVELOPMENT CORPORATION By:____________________________________________ Title: THE ROYAL BANK OF SCOTLAND PLC By:____________________________________________ Title: THE INDUSTRIAL BANK OF JAPAN, LTD. By:____________________________________________ Title: S-3 ARAB AMERICAN BANK By:____________________________________________ Title: By:____________________________________________ Title: BANKBOSTON, N.A. By:____________________________________________ Title: THE BANK OF NOVA SCOTIA By:____________________________________________ Title: BAYERISCHE LANDESBANK GIROZENTRALE By:____________________________________________ Title: By:____________________________________________ Title: THE CHASE MANHATTAN BANK By:____________________________________________ Title: S-4 SUNTRUST BANK, CENTRAL FLORIDA, N.A. By:____________________________________________ Title: NATIONAL BANK OF EGYPT INTERNATIONAL LIMITED By:____________________________________________ Title: By:____________________________________________ Title: EX-11 8 EXHIBIT 11 EXHIBIT 11 THE AES CORPORATION FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998

EX-27 9 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE AES CORPORATION AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 702 49 679 49 146 1,866 5,990 718 12,106 1,878 6,837 550 0 2 1,500 12,106 2,111 14 1,432 1,432 44 7 417 214 55 116 0 0 0 116 0.62 0.61

~~-----END PRIVACY-ENHANCED MESSAGE-----~~