-----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, QRUhspziTGZy/Z4hEjTsV5V/iXHF0W9MnzZ8g3m2U+65D5peqv02YIclrBdCHUGP gx5q30fmNkSyaXgmO6zCPA== 0000950133-96-000899.txt : 19960613 0000950133-96-000899.hdr.sgml : 19960613 ACCESSION NUMBER: 0000950133-96-000899 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960530 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960612 SROS: NONE 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19281 FILM NUMBER: 96579935 BUSINESS ADDRESS: STREET 1: 1001 N 19TH ST CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 7035221315 8-K 1 THE AES CORPORATION FORM 8-K. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 May 30, 1996 Date of Report (Date of earliest event reported) 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 (IRS Employer Identification No.) 1001 North 19th Street Arlington, Virginia 22209 (Address of principal executive office) Telephone Number (703) 522-1315 (Registrant's telephone number, including area code) 2 Item 2. Acquisition or Disposition of Assets. On May 30, 1996, AES, through certain subsidiaries, acquired for approximately $393 million, common shares representing an 11.35% interest (the "Light Interest") in Light Servicos de Eletricidade S.A. ("Light"), a publicly-held Brazilian corporation that operates as the concessionaire of an approximately 3,800 megawatt electric power generation, transmission and distribution system which serves 28 municipalities in the state of Rio de Janeiro, Brazil. AES acquired its interest by bidding in the Brazilian privatization program auction of 60% of Light's outstanding shares held on May 21, 1996. Subsequent to the auction, the winning bidders, including a subsidiary of the Company, formed a consortium (the "Consortium") whose aggregate ownership interest of 50.44% represents a controlling interest in Light. Prior to the privatization auction, Light was owned primarily by the Brazilian government utility holding company, Centrais Eletricas Brasileiras S.A. ("Eletrobras") (81.6%) and public shareholders (17.9%). The Consortium, organized pursuant to a shareholders agreement dated as of May 27, 1996 (the "Shareholder's Agreement"), is comprised of the direct common share ownership interests held in Light by subsidiaries or affiliates of AES (11.35%), Electricite de France ("EDF") (11.35%), Houston Industries Incorporated ("HI") (11.35%), Companhia Siderurgica Nacional ("CSN") (7.25%), and Banco Nacional de Desenvolvimento Economico E Social (BNDES) (9.14%). In addition, pursuant to the terms of an Addendum to the Shareholders Agreement dated May 30, 1996, entered into among the members of the Consortium and InvestLight--Clube de Investimento dos Empregados da Light ("InvestLight"), an investment group owned by Light employees, InvestLight may join the Consortium and become a party to the Shareholder's Agreement if it acquires at least 5% of the total outstanding registered voting common shares of Light on or prior to June 28, 1996. Under the provisions of the Shareholder's Agreement, principal responsibilities for the various aspects of Light's business will be allocated among AES, EDF, HI and CSN. AES will have the principal responsibility for all matters relating to generation and purchasing of electricity by Light. In connection with the privatization process, the Brazilian National Department of Water and Electric Energy ("DNAEE") has requested an opportunity to review and to approve the general terms and conditions of the Shareholder's Agreement. Such review by DNAEE is expected to be completed by the end of June 1996. There can be no assurance that DNAEE will not request modifications to the terms and conditions of the Shareholder's Agreement. 3 Light currently serves approximately 2.8 million customers or approximately 70% of the population of the state of Rio de Janeiro. Light generates about 17% of the total electricity it distributes through four hydroelectric complexes having an aggregate installed generating capacity of approximately 788 megawatts. The remaining electricity distributed by Light (approximately 83% of the total) is purchased from Furnas Centrais Eletricas S.A., a power generation and transmission company owned by Eletrobras. In connection with the purchase of the controlling interest by the Consortium, the Federal Government of Brazil, through the Ministry of Mines and Energy (the "Grantor"), granted a 30-year concession to Light pursuant to the terms of a concession agreement (the "Concession"). The Concession obligates Light to provide electric services to all customers within its concession area and to conduct whatever related projects are necessary to serve such customers. The Concession also grants certain rights and privileges to Light to enable it to fulfill its service obligations. Additionally, Light is obligated to provide open access transmission and distribution services to certain individual customers and to other entities interconnected with the Light system. As a result, beginning in 1998, customers with capacity needs greater than three megawatts have the right to purchase electricity from providers other than Light. The Concession authorizes Light to charge its customers a tariff for electric services which consists of two components - an expense pass-through component and an inflation-adjusted operating cost component. Beginning in 2004, the Grantor has the authority to review Light's costs to determine the adjustment, if any, to the operating cost component for subsequent five-year periods. There can be no assurance that, beginning in 2004, the Grantor will continue to allow adjustments to the operating cost component of the tariff, consistent with adjustments allowed historically or that future adjustments will not be set in a manner that adversely affects Light's revenues. The Company financed its purchase and other related transaction costs of Light through (i) drawings of $179 million under a $425 million credit facility issued pursuant to a credit agreement dated as of May 20, 1996, among AES, certain banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent (the "Bank Credit Agreement"), and (ii) a $225 million reimbursement agreement dated as of May 20, 1996 between AES Light, Inc. ("AES Light"), an indirect subsidiary of AES with an indirect ownership interest in Light, and 4 Morgan Guaranty Trust Company of New York (the "Reimbursement Agreement"). The Bank Credit Agreement has a three-year term, and may be extended for two one-year terms subject to the prior written consent of the parties thereto. The Reimbursement Agreement has an 18-month term, is recourse only to AES Light and is secured by a pledge of approximately 18 million shares of common stock of AES which had been previously contributed to AES Light. Light is the subject of certain lawsuits by industrial customers who have alleged that increases in electricity tariffs introduced by Light and all other electric utilities in Brazil from March through November 1986 during a price freeze imposed by the federal government of Brazil (the "Cruzado Period") were illegal. In these lawsuits, the plaintiffs have demanded reimbursement for amounts relating to such increases paid during the Cruzado Period. Although these lawsuits have not specified the maximum amount of possible alleged damages, Light's internal estimates range up to approximately $75 million. The Company has been informed by Light that the Superior Tribunal of Justice in Brazil has affirmed lower court decisions that Light and the other utilities are required to reimburse their industrial customers for the tariff increase during the Cruzado Period. The Company also has been informed by Light that approximately 10 lawsuits have been filed by industrial customers of Brazilian utilities, including Light, demanding reimbursement of amounts relating to tariff increases introduced after the Cruzado Period on the basis that all future tariff increases were illegal because they took into account the allegedly illegal increase introduced during the Cruzado Period in computing subsequent incremental increases. Although these lawsuits have not specified the maximum amount of possible alleged damages, Light's internal estimates of its possible reimbursement obligations range up to $700 million. The Company has been informed by Light that the Superior Tribunal of Justice has, in an appellate proceeding involving two other utilities, ruled that the plaintiffs in that proceeding are not entitled to reimbursement for tariff increases introduced after the Cruzado Period. Although Brazilian counsel has advised the Company that such counsel does not believe that it is likely that the other lawsuits involving Light will be decided differently by the Superior Tribunal of Justice, no assurance can be given that amounts in excess of $75 million will not be required to be reimbursed by Light. Furthermore, Light has informed the Company that it may be able to recover all or a portion of the amounts reimbursed to its customers resulting from the lawsuits discussed above, although no assurance can be given that Light would be successful in these efforts to recover such amounts reimbursed. 5 Item 5. Other Events. In early June 1996, the Company, through one of its subsidiaries, participated in the bidding for shares of common stock representing an 80% interest in Tiszai Eromu Rt. ("Tiszai"), a 1,281 megawatt electric generating and coal mining company in Hungary, presently owned by the Hungarian government. The sale of the interest in Tiszai is part of the Hungarian government's privatization of its electric and gas industries. The evaluation committee of the Hungarian State Privatization Agency Board (the "APV") is reviewing the bids received in connection with the auction and will recommend a bid for approval to the APV. The APV is expected to formally approve the winning bid by late June 1996. The successful bidder has 120 days to agree to the terms of the government's sale of the interest in Tiszai upon notification from the APV. If the Company's bid is successful, the Company expects to pay in excess of $100 million for its interest in Tiszai, and expects to initially finance such acquisition through borrowings under its Bank Credit Agreement, the incurrence of additional indebtedness, internally generated cash flows or a combination thereof. There can be no assurance that (i) the Company's bid will be recommended for approval, (ii) that the Company's bid, if recommended for approval, will be approved by the APV, or (iii) that if the Company's bid is approved by the APV, the Company will be able to successfully conclude the terms of the sale. Item 7. Financial Statements and Exhibits. a (i). Financial Statements of Business Acquired. The following audited financial statements of Light as of and for the years ended December 31, 1995 and 1994, together with the Independent Auditors' Report are expressed in Brazilian Reais and prepared in accordance with generally accepted accounting principles in Brazil. 6 LIGHT - SERVICOS DE ELETRICIDADE S.A. Financial Statements for the Years ended December 31, 1995 and 1994 and Independent Auditors' Opinion 1 7 INDEPENDENT AUDITORS' REPORT To the Directors and Shareholders of LIGHT - Servicos de Eletricidade S.A. Rio de Janeiro - RJ We have audited the balance sheets of LIGHT - Servicos de Eletricidade S.A. presented under the heading of "Corporate Law and Price-Level Restatement" as of December 31, 1995, and the related statements of operations, changes in stockholders' equity and changes in financial position for the year then ended. We have also audited the balance sheet and the related statements of operations, changes in stockholders' equity and changes in financial position presented under the heading "Price-Level Restatement" as of and for the year ended December 31, 1994. These financial statements, all of which are expressed in Brazilian reais, are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Eletropaulo- Eletricidade de Sao Paulo S.A. (note 8) as of and for the years ended December 31, 1995 and 1994 were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for such company, is based solely upon the report of such other auditors. We conducted our audits in accordance with auditing standards generally accepted in Brazil. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based upon our audits and the report of other auditors, the financial statements described in the first paragraph presented under the heading "Price-Level Restatement" present fairly, in all material respects, the financial position of LIGHT - Servicos de Eletricidade S.A., as of December 31, 1995 and 1994, the results of its operations, the changes in its stockholders' equity and the changes in its financial position for the years then ended, in conformity with accounting principles generally accepted in Brazil. In our opinion, based upon our audits and the report of other auditors, the financial statements described in the first paragraph and presented under the heading "Corporate Law" present fairly, in all material respects, the financial position of LIGHT - Servicos de Eletricidade S.A. as of December 31, 1995, the results of its operations, the changes in its stockholders' equity and the changes in its financial position for the year then ended, in conformity with accounting principles generally accepted in Brazil, as based on Company Law. /s/ DELOITTE TOUCHE TOHMATSU /s/ MARCELO C. ALMEIDA Auditores Independentes Contador CRC-SP 11.609 S/RJ CRC-RJ 36.206-3 Rio de Janeiro, Brazil January 24, 1996, except for note 27, for which the date is May 1996. 2 8 LIGHT - SERVICOS DE ELETRICIDADE S.A. BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994 (Expressed in thousands of Brazilian Reais) - --------------------------------------------------------------------------------
1995 1994 ---- ---- Corporate Law and Price-Level Price-Level ASSETS Restatement Restatement - ------ --------------- ----------- CURRENT ASSETS Cash and banks 772 186 Money market investments 37.101 32.139 Consumers and distributors 230.635 204.035 Allowance for doubtful accounts (605) (1.624) Interest receivable 285.998 271.841 Debentures 35.712 26.448 Current portion of repassed loans and financing 4.350 17.301 Tax and social securities contributions receivable 73.963 107.111 Sundry receivables 37.661 52.611 Inventories - supplies 10.236 9.455 Notes receivable 175.707 185.440 Account receivable - Companhia Sideroergia Nacional - CSN 18.027 16.835 Credits - other 25.796 13.690 Prepaid expenses 4.794 1.591 ------------ ----------- Total current assets 940.147 937.109 ------------ ----------- NON-CURRENT ASSETS Accounts receivable 75.260 84.177 Allowance for doubtful accounts (1.263) Debentures 107.140 105.795 Repassed loans and financing 336.442 424.904 Other 6.431 1.309 ------------ ----------- Total non-current assets 525.273 614.922 ------------ ----------- PERMANENT ASSETS Investments 3.178.768 3.333.813 Fixed assets 2.938.782 2.879.139 Deferred charges 354.646 368.484 ------------ ----------- Total permanent assets 6.472.196 6.581.436 ------------ ----------- TOTAL 7.937.616 8.133.467 ============ ===========
(Continued) The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 3 9 LIGHT - SERVICOS DE ELETRICIDADE S.A. BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994 (Expressed in thousands of Brazilian Reais) - --------------------------------------------------------------------------------
1995 1994 ---- ---- Corporate Law and Price-Level Price-Level LIABILITIES AND STOCKHOLDERS' EQUITY Restatement Restatement - ------------------------------------ --------------- ----------- CURRENT LIABILITIES Suppliers 109.450 110.259 Salaries payable 12.756 2.428 Interest and other financial charges 6.775 21.158 Taxes and social security contributions 69.606 65.943 Dividends 6.879 75.599 Loans and financing 14.535 56.413 Accrued liabilities 86.617 68.446 Loans repaid by consumers payable to Eletrobras 20.176 63.348 Social Security Fund - BRASLIGHT 18.288 385 Other 15.593 11.118 ----------- --------- Total current liabilities 360.675 475.097 ----------- --------- LONG-TERM LIABILITIES Loans and financing 548.482 593.822 Taxes and social security contributions 22.058 52.227 Special obligations 247.702 238.555 Social Security Fund - BRASLIGHT 12.349 9.637 Other 586 735 ----------- --------- Total long-term liabilities 831.177 894.976 ----------- --------- STOCKHOLDERS' EQUITY Capital stock - paid-up and restated 1.183.067 1.183.067 Advances for capital increase 1.936 1.936 Capital reserves 4.494.157 4.462.913 Revaluation reserve of associated company 479.451 454.041 Revenue reserves 502.276 524.675 Retained earnings 84.877 136.762 ----------- --------- Total stockholders' equity 6.745.764 6.763.394 ----------- --------- TOTAL 7.937.616 8.133.467 =========== =========
(Concluded) The accompanying notes are an integral part of the financial statements. 4 10 LIGHT - SERVICOS DE ELETRICIDADE S.A. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (Expressed in thousands of Brazilian Reais, except per share amounts) - --------------------------------------------------------------------------------
1995 1994 ------------------------------ ---------- Corporate Price-Level Price-Level Law Restatement Restatement ---------- ----------- ----------- OPERATING REVENUE Sale of electric power 1.629.471 1.833.457 1.914.467 Taxes - ICMS (275.090) (300.950) (273.324) Other revenue 18.721 20.515 17.505 ----------- ----------- ----------- Gross operating revenue 1.373.102 1.553.022 1.658.648 Quotas for the use of fuel oil (39.818) (43.313) (39.376) Quota for global reserve of reversion of concession (42.355) (44.289) (44.356) ----------- ----------- ----------- Net operating revenue 1.290.929 1.465.420 1.574.916 ----------- ----------- ----------- OPERATING EXPENSES Employees (243.386) (271.123) (308.226) Materials (20.196) (23.269) (17.308) Third-party services (71.277) (78.323) (73.579) Electric power purchased for resale (571.903) (621.529) (743.754) Depreciation and amortization (169.877) (187.954) (180.760) Payroll taxes (40.850) (46.629) (53.564) Other (77.851) (90.810) (80.716) ----------- ----------- ----------- Total operating expenses (1.195.340) (1.319.637) (1.457.907) ----------- ----------- ----------- EQUITY ADJUSTMENT OF ASSOCIATED COMPANY (205.521) (205.521) 48.154 ----------- ----------- ----------- FINANCIAL INCOME (EXPENSES) Interest income 39.402 34.736 21.820 Monetary adjustment and fines - energy sold 69.888 (19.542) Monetary adjustment and fines - energy purchased (4.581) 44.025 Other monetary adjustments 55.791 Interest charges (20.379) (501) 7.583 Accounts receivable income 41.720 51.869 (53.981) Other (1.206) (26.341) (29.461) ----------- ----------- ----------- OPERATING PROFIT 70.703 25 135.607 ----------- ----------- -----------
(Continued) The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 5 11 LIGHT - SERVICOS DE ELETRICIDADE S.A. STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (Expressed in thousands of Brazilian Reais, except per share amounts) - --------------------------------------------------------------------------------
1995 1994 ------------------------- ---------- Corporate Price-Level Price-Level Law Restatement Restatement ---------- ----------- ----------- NON-OPERATING EXPENSES - NET (12.198) (13.241) (18.799) INFLATION ADJUSTMENTS Monetary adjustments of investments, fixed assets, deferred charges and stockholders' equity - net (29.159) Exchange losses and other monetary correction related to financing of fixed assets (45.736) -------- ------------- ------------- Inflation adjustments - net (74.895) (13.241) (18.799) -------- ------------- ------------- PROFIT (LOSS) BEFORE INCOME TAX AND (16.390) (13.216) 116.808 SOCIAL CONTRIBUTION SOCIAL CONTRIBUTION (22.971) (22.971) (5.555) REVERSAL OF INCOME TAX PROVISION 16.775 17.059 79.329 INCOME TAX (88.793) (91.057) (41.132) -------- ------------- ------------- PROFIT (LOSS) FOR THE YEAR (111.379) (110.185) 149.450 ======== ============ ============= PROFIT (LOSS) PER 1000 SHARES - R$ (10,72) (10,60) 14,38 ===== ===== =====
(Concluded) The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 6 12 LIGHT - SERVICOS DE ELETRICIDADE S.A. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CORPORATE LAW FOR THE YEAR ENDED DECEMBER 31, 1995 (Expressed in thousands of Brazilian Reais) - --------------------------------------------------------------------------------
CAPITAL STOCK PAID-UP AND RESTATED ------------------------------------ ADVANCES PAID-UP MONETARY RESTATED FOR CAPITAL CAPITAL CAPITAL CORRECTION CAPITAL INCREASE RESERVES --------- ---------- ---------- ------------ -------- BALANCE, JANUARY 1, 1995 96.102 869.967 966.069 1.581 3.644.326 CAPITAL INCREASE 869.967 (869.967) INCOME TAX ADJUSTMENTS - Law 8.981 REALIZATION OF RESERVE REMUNERATION OF INVESTMENTS IN CONSTRUCTION WORK IN PROGRESS - OWN FUNDS 27.832 MONETARY ADJUSTMENTS 216.998 216.998 355 821.999 REVERSAL OF RESERVE LOSS FOR THE YEAR INCOME TAX ADJUSTMENTS - Law 9.249 PROPOSED DIVIDENDS --------- --------- --------- -------- ----------- BALANCE, DECEMBER 31, 1995 966.069 216.998 1.183.067 1.936 4.494.157 ========= ========= ========= ======= =========== Continued REVALUATION - --------- RESERVE ------------- ASSOCIATED REVENUE RETAINED COMPANY RESERVES EARNINGS TOTAL --------- -------- -------- ----- BALANCE, JANUARY 1, 1995 370.761 428.439 115.291 5.526.467 CAPITAL INCREASE INCOME TAX ADJUSTMENTS - Law 8.981 (45.605) (45.605) REALIZATION OF RESERVE (33.464) 33.464 REMUNERATION OF INVESTMENTS IN CONSTRUCTION WORK IN PROGRESS - OWN FUNDS 27.832 MONETARY ADJUSTMENTS 68.228 96.236 30.703 1.234.519 REVERSAL OF RESERVE (22.399) 22.399 LOSS FOR THE YEAR (111.379) (111.379) INCOME TAX ADJUSTMENTS - Law 9.249 119.531 119.531 PROPOSED DIVIDENDS (5.601) (5.601) --------- --------- --------- --------- BALANCE, DECEMBER 31, 1995 479.451 502.276 84.877 6.745.764 ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 7 13 LIGHT - SERVICOS DE ELETRICIDADE S.A. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - PRICE LEVEL RESTATEMENT FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (Expressed in thousands of Brazilian Reais) - --------------------------------------------------------------------------------
REVALUATION CAPITAL STOCK ADVANCE RESERVE OF PAID-UP AND FOR CAPITAL CAPITAL ASSOCIATED REVENUE RETAINED RESTATED INCREASE RESERVES COMPANY RESERVES EARNINGS TOTAL ------------- ------------ -------- ----------- -------- -------- ----- BALANCE, JANUARY 1, 1994 1.183.067 1.936 4.428.805 501.560 540.047 1 6.655.416 REMUNERATION OF INVESTMENTS IN CONSTRUCTION WORK IN PROGRESS - OWN FUNDS 34.108 34.108 TRANSFER TO RETAINED EARNINGS (47.519) 47.519 PROFIT FOR THE YEAR 149.450 149.450 REVERSAL OF RESERVE (22.161) 22.161 LEGAL RESERVE 6.789 (6.789) PROPOSED DIVIDENDS (75.580) (75.580) ---------- -------- ------------ ------------ --------- -------- -------- BALANCE, DECEMBER 31, 1994 1.183.067 1.936 4.462.913 454.041 524.675 136.762 6.763.394 PRIOR YEAR ADJUSTMENTS 3.228 3.228 INCOME TAX ADJUSTMENTS - Law 8.981 (55.847) (55.847) REMUNERATION OF INVESTMENTS IN CONSTRUCTION WORK IN PROGRESS - OWN FUNDS 31.244 31.244 TRANSFER TO RETAINED EARNINGS (38.274) 38.274 REVERSAL OF RESERVE (22.399) 22.399 LOSS FOR THE YEAR (110.185) (110.185) INCOME TAX ADJUSTMENTS - Law N 1/4 9.249 119.531 119.531 PROPOSED DIVIDENDS (5.601) (5.601) --------- -------- ------------ ------------ -------- --------- -------- BALANCE, DECEMBER 31, 1995 1.183.067 1.936 4.494.157 479.451 502.276 84.877 6.745.764 ========= ===== ========= ======= ======= ======== =========
The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 8 14 LIGHT - SERVICOS DE ELETRICIDADE S.A. STATEMENT OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (Expressed in thousands of Brazilian Reais) - --------------------------------------------------------------------------------
1995 1994 ----------------------------- ----------- Corporate Price-Level Price-Level Law Restatement Restatement ----------- ----------- ----------- FUNDS PROVIDED FROM OPERATIONS: Profit (loss) for the year (111.379) (110.185) 149.450 Income (expenses) that do not affect working capital: Depreciation and amortization 169.877 187.954 180.760 Exchange losses and other monetary adjustments of non-current accounts - net credit 39.176 Monetary adjustments of investments, fixed assets, deferred charges and stockholders' equity - net credit 31.787 Monetary adjustments on long-term loan with associated company (2.628) Equity adjustment 205.521 205.521 (48.154) (Gain) loss on long-term monetary items (25.721) 5.910 Loss on fixed asset disposals 11.712 12.716 14.491 Deferred income tax liability (16.775) (16.775) (90.537) Adjustments to long-term renegotiated receivables 41.261 Allowance for doubtful accounts (1.031) (1.263) 3.424 Other 983 1.054 ---------- --------- ------------ Funds provided from operations 327.243 253.301 256.605 Non-current loans and financing 32.379 37.039 7.283 Transfer from non-current to current assets 88.290 104.394 67.914 Transfer from current liabilities to non-current 506.384 Dividends receivable 16.676 16.676 1.228 Other 8.619 9.529 26.740 ---------- --------- ------------ Total 145.964 167.638 609.549 ---------- --------- ------------ TOTAL FUNDS PROVIDED 473.207 420.939 866.154 ========== ========= ============ FUNDS USED FOR Increase in non-current assets 18.306 20.818 11.187 Investments 8.253 8.838 4.208 Acquisition of fixed assets 185.877 207.518 132.120 Transfer from non-current to current liabilities 53.377 59.703 78.065 Transfer from current assets to non-current 355.194 Proposed dividends 5.601 5.601 75.580 Other 891 1.001 3.373 ---------- --------- ------------ TOTAL FUNDS USED 272.305 303.479 659.579 ========== ========= ============
(Continued) The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 9 15 LIGHT - SERVICOS DE ELETRICIDADE S.A. STATEMENT OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (Expressed in thousands of Brazilian Reais) - --------------------------------------------------------------------------------
1995 1994 --------------------------- ----------- Corporate Price-Level Price-Level Law Restatement Restatement ----------- ----------- ----------- INCREASE IN WORKING CAPITAL FOR THE YEAR 200.902 117.460 206.575 ======= ======= ========= CHANGES IN WORKING CAPITAL Current assets At the beginning of the year 767.302 937.109 1.395.329 At the end of the year 940.147 940.147 937.109 ------- ------- ---------- Total 172.845 3.038 (458.220) ------- -------- --------- Current liabilities At the beginning of the year 388.732 475.097 1.139.892 At the end of the year 360.675 360.675 475.097 ------- -------- ---------- Total (28.057) (114.422) (664.795) ------- -------- ---------- INCREASE IN WORKING CAPITAL FOR THE YEAR 200.902 117.460 206.575 ======= ======= ==========
(Concluded) The accompanying notes are an integral part of the financial statements. - -------------------------------------------------------------------------------- 10 16 LIGHT - SERVICOS DE ELETRICIDADE S.A. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (Expressed in thousands of Brazilian Reais, except dividend per share) - -------------------------------------------------------------------------------- 1. NATURE OF OPERATIONS LIGHT is a Company controlled by Centrais Eletricas Brasileiras S.A. - ELETROBRAS, and operates in 28 municipalities of the State of Rio de Janeiro with an electric power distribution network covering 174.243,3 km, of which 159.969,3 km of the network is aboveground and 14.274,0 km is underground, supplying 2.654.299 consumers. Although the Company's main activity is the distribution of electricity, it also generates about 17% of the total electricity distributed through its four hydroelectric plants, 2.214,9 km of transmission lines and 72 substations. The remaining 83% of the total electricity distributed is purchased from Furnas Centrais Eletricas S.A., 60% in Brazilian reais and 40% in United States dollars (which is passed on to Itaipoe Binacional). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I Corporate Law Financial Statements These financial statements were prepared in accordance with corporate law and the following accounting practices: a) Current and non-current assets Investments in the money market, made through the short-term fixed income fund of the Banco do Brasil S.A., are stated at cost plus interest accrued to the balance sheet date. Warehouse materials and supplies are valued at average cost; such cost does not exceed the market value. Assets, indexed for inflation, have been adjusted to the balance sheet date. The provision for doubtful accounts is made based on an estimate of possible losses. Notes receivable (current and non-current) relate to amounts arising from the sale of assets of the Light - Sao Paulo subsystem to ELETROPAULO and are recorded at their original amounts increased by monetary adjustments based on the exchange rate. b) Permanent assets Permanent assets are adjusted for inflation based on the UFIR index (Unit of Fiscal Reference), which was R$0,8287 at December 31, 1995. The carrying value of the investment in the affiliated Company, ELETROPAULO, is adjusted by the equity method to show LIGHT's participation in the affiliate's net equity. Other investments are stated at cost plus monetary adjustments (see note 8). 11 17 Depreciation is calculated by the straight-line method and is charged either to operations or is capitalized. Depreciation rates are established by DNAEE - National Department of Water and Electric Energy (see note 9). Expenses arising from the remuneration of construction work in progress, included in deferred charges, are amortized at an annual rate of 10% from the month the project is completed or put into service. The amortization of the remuneration is calculated at an annual rate of 10%, in conformity with prevailing legislation, on the Company's own and third-party funds. c) Current and long-term liabilities Liabilities include accrued interest and charges and adjustments for inflation or exchange devaluation. d) Stockholders' equity Stockholders equity has been adjusted for inflation using the same indices as those used to adjust permanent assets. The reserve for unrealized profits has been set up in accordance with corporate law to record the credit arising from the difference between the inflation adjustments of stockholders' equity and the inflation adjustments of permanent assets. The amount of this reserve will be transferred to retained earnings in the same proportion as the depreciation and amortization of fixed assets and deferred charges and dividends received on permanent investments. In 1995, because the Company recorded a net loss, no reserve was created. e) Result for the year The result for the year has been accounted for by the accrual method and includes the effect of accounting for inflation, as determined by corporate law. II Price-Level-Restatement Financial Statements The accompanying price-level-adjusted financial statements are based on those prepared in accordance with Corporate Law as defined by CVM Instruction No. 191/92 and the CVM-circular/CVM/SEP/SNC/(#) 02/95. The financial statements were drawn up using the UMC - Monetary Unit for Accounts, which is based on the value of the UFIR (Fiscal Reference Unit), valued at R$0,8287 on December 31, 1995, as follows: a) Balance sheets Permanent assets and shareholders' equity have been price-level adjusted to December 31, 1995. Other balance sheet accounts have been maintained at their original amounts, since such amounts represent their December 31, 1995 purchasing power. Rights and obligations with pre-fixed values have been maintained at their actual value at December 31, 1995. They have not been adjusted to their present value as such adjustments would be immaterial. b) Statements of income Income and expenses are inflation-adjusted from the month recorded to December 31, 1995 based on the change in the UMC. 12 18 Depreciation and amortization expenses are obtained from a separate ledger maintained in UMC and converted into reais at the December 31, 1995 UMC value. Inflation gains and losses on monetary items are allocated directly to the respective income statement accounts. c) Statements of changes in financial position and the movement of the stockholders' equity. The values in these statements are price-level adjusted to December 31, 1995. III 1994 Financial Statements The 1994 financial statements were adjusted for comparative purposes, to reflect the December 31, 1995 purchasing power using the change in the UMC. IV Taxes a) The statutory corporate income tax rate for 1995 was 25% of taxable profit increased by a surtax of 12% or 18%, if applicable. b) The social contribution tax, established by Law 7689 of 12.15.88, was calculated at a rate of 10%. The Company contested judicially the payment of this tax for the period 1988-1990. For 1988 the case was judged in favor of the Company on January 1, 1995. For 1989 and 1990 the Company is paying the tax in 120 monthly installments. c) The Company has been questioning judicially the constitutionality of the 5% state income tax. Such case has reached the Supreme Court since at lower levels the Company did not obtain a favorable decision. In 1993 the Supreme Court deemed such tax unconstitutional, and the Company is in the process of filing for a refund of the amount paid. d) The Company has been paying COFINS in accordance with the legal requirements, but as a result of a recent Supreme Court decision that deemed the increase in FINSOCIAL unconstitutional, the Company filed a claim in May 1994 to recover the amount overpaid during the period September 1, 1989 to December 31, 1991. 3. INTEREST RECEIVABLE
1995 1994 ---- ---- ELETROBRAS 3.642 36.241 ELETROPAULO 279.604 229.836 Total 2.752 5.764 ------- ------- 285.998 271.841 ======= =======
13 19 4. DEBENTURES AND OTHER
1995 1994 ------------------------------ ------------------------------ Current Non-current Current Non-current ------- ----------- ------- ----------- Debentures 35.712 107.136 26.448 105.791 Other 4 4 ------ ------- ------ ------- 35.712 107.140 26.448 105.795 ====== ======= ====== =======
Non-convertible debentures issued by ELETROPAULO are being redeemed over 20 years from 1991 monetarily adjusted for inflation. The debentures bear interest paid annually based on their nominal value adjusted by a percentage equal to that of the dividend attributed to the preferred shares (see note 8), which is payable annually from the date of issue. During 1992 and 1993 ELETROPAULO did not account for interest on the debentures because the preliminary results, drawn up by the Company, were not positive. In order that the intercompany balances agree, the Company opted not to account for such interest, yet it considers such interest to be due and intends to begin discussions with ELETROPAULO in respect of the payment of such interest. During 1987, in order to state debentures at an uniform number of OTN (Federal Treasury Obligations) in the records of both companies, LIGHT reduced its OTN equivalent by 43.278.430,8388 BTN's. However, this adjustment did not constitute a definitive acceptance of ELETROPAULO's criteria, and Light in 1988 initiated legal action to properly adjust the quantity of debentures and, accordingly, the amount of interest and monetary adjustments on such debentures. With the enactment of the Economic Stabilization Programs of 1989 and 1990, and with the enactment of Laws 8177 and 8178, Light again followed the same criteria as ELETROPAULO to adjust the debentures, although with the understanding that the adjustment did not properly restate the value of the outstanding debentures. 5. REPASSED LOANS AND FINANCING
31.12.95 31.12.94 ------------------------------ ------------------------------ Current Non-current Current Non-current ------- ----------- ------- ----------- ELETROBRAS 2.484 336.442 15.327 424.904 ELETROPAULO 1.866 1.974 ----- ------- ------- ------- 4.350 336.442 17.301 424.904 ===== ======= ====== =======
Repassed loans and financing are restated in the accordance with the same exchange variance as that of the original loans. 6. ACCOUNTS RECEIVABLE - CSN
1995 1994 ------------------------ ------------------------ Current Non-current Current Non-current ------- ----------- ------- ----------- 18.027 75.260 16.325 84.177 ====== ====== ====== ======
This debt, which relates to previous periods, has been renegotiated and is being repaid in 84 monthly installments. The renegotiated balance is subject to monetary correction in accordance with the variation of the IGP-M, plus interest of 12% p.a.. 14 20 7. INVESTMENTS
1995 1994 ---- ---- Permanent investments 3.153.067 3.308.352 Assets for sale 860 860 Studies and projects 23.857 23.619 Other 984 982 --------- --------- Total 3.178.768 3.333.813 ========= =========
8. PERMANENT INVESTMENTS
1995 1994 ---- ---- ELETROPAULO - Eletricidade de Sao Paulo S.A. (see note 27) 3.148.798 3.304.083 Other 4.269 4.269 --------- --------- Total 3.153.067 3.308.352 ========= =========
a) Information in respect of ELETROPAULO at December 31:
1995 1994 ---- ---- Paid-up capital 634.830 659.181 Number of shares 30.863.686.314 30.863.686.314 Number of shares held by LIGHT (class A - preferred nominative) 14.666.666.667 14.666.666.667 Loss for the year (adjusted) 550.329 54.416 Stockholders' equity (adjusted) 6.533.776 6.953.037 Percentage of participation 47,52 47,52 b) Intercompany balances with LIGHT: Receivables 602.982 552.227 Payables 6.276 5.469 Revenue 35.267 (67.480) Expenses 807 746 c) Changes in the ELETROPAULO investment: 1995 1994 ---- ---- Balance at beginning of the year 3.304.083 3.257.157 Prior year adjustments 3.228 Income tax adjustments - Law 8.981/95 (55.847) Income tax adjustments - Law 9.249/95 119.531 Equity (205.521) 48.154 Dividends receivable (16.676) (1.228) --------- --------- Balance at end of the year 3.148.798 3.304.083 ========= =========
15 21 d) The revaluation reserve in an affiliated company is net of the special and complementary monetary correction and taxes, as required by the Brazilian Securities Commission (CVM) Instruction No. 189 of January 25, 1992. e) In determining the amount of annual dividends, ELETROPAULO takes into account the annual return on investment obtained by LIGHT calculated in accordance with DNAEE regulations or a minimum of 25% of net adjusted income. During 1992 and 1993 ELETROPAULO determined that no dividends were payable on preferred shares, because LIGHT was operating at a loss. In order to maintain the accounting records on the same basis, LIGHT did not record dividends receivable. f) LIGHT has a court order to receive from ELETROPAULO additional dividends for 1981-1988 in respect of (1) differences in calculation on the income from investment and (2) differences in the basis used to calculate dividends. g) In an attempt to settle their disagreements in respect of debentures and dividends, LIGHT and ELETROPAULO are discussing with government officials methods to settle all differences. h) LIGHT, in accordance with generally accepted accounting principles, has used the financial statements of ELETROPAULO as of November 30, 1995 to value its investment. 9. FIXED ASSETS The classification by operational activity is as follows:
Annual Depreciation 1995 1994 Rate - % ---- ---- ------------- ASSETS IN USE Generating 677.190 683.034 3 Transmission 1.346.629 1.390.797 3 Distribution 1.792.400 1.727.229 4 Other 741.181 641.322 3 ---------- ---------- Total 4.557.400 4.442.382 Accumulated depreciation and amortization (1.927.213) (1.790.340) --------- --------- Total 2.630.187 2.652.042 ---------- ---------- ASSETS UNDER CONSTRUCTION Generating 66.021 52.352 Transmission 118.430 86.005 Distribution 53.978 26.839 Other 70.166 61.901 --------- --------- Total 308.595 227.097 --------- --------- TOTAL 2.938.782 2.879.139 ========= =========
16 22 10. DEFERRED CHARGES
1995 1994 ---- ---- a) By operational activity: IN USE Generation system 69.818 67.469 Transmission system 142.162 137.379 Distribution system 176.551 170.611 Other 65.554 63.349 -------- -------- Total 454.085 438.808 Amortization (203.318) (159.202) -------- -------- Total 250.767 279.606 -------- -------- UNDER CONSTRUCTION Generation system 20.323 19.044 Transmission system 43.241 17.375 Distribution system 29.877 30.228 Other 10.438 22.231 -------- -------- Total 103.879 88.878 ------- -------- TOTAL 354.646 368.484 ======= =======
Annual rate of amortization 1995 1994 ------------ ---- ---- b) By origin: In phases of amortization: Cost of remuneration of construction work in progress 10 429.535 416.119 Financial charges and inflationary effects 10 24.550 22.689 Accumulated amortization (203.318) (159.202) -------- -------- 250.767 279.606 -------- -------- In formation: Cost of remuneration of construction work in progress 90.656 70.177 Cost of remuneration of studies and projects 10.290 13.150 Financial charges and inflationary effects 2.933 5.551 ------- ------- 103.879 88.878 ------- ------- Total 354.646 368.484 ======= =======
17 23 11. TAXES AND SOCIAL SECURITY CONTRIBUTIONS
1995 1994 ----- ----- Current Non-current Current Non-current ------- ----------- ------- ----------- Deferred tax 5.169 3.594 28.059 Social contribution tax (based on 21.720 12.919 21.930 13.679 profits) ICMS 31.508 5.545 31.948 10.474 INSS 4.065 4.579 COFINS 3.364 3.063 FGTS 1.993 2.273 PASEP 1.093 1.363 Sundry taxes 694 787 ------ ------ ------ ------ Total 69.606 22.058 65.943 52.227 ====== ====== ====== ======
12. LOANS AND FINANCING a) Composition:
1995 1994 ------------------------------------ ------------------------------------ Financial Financial charges Principal charges Principal --------- ---------------------- --------- ---------------------- Current Current Non-current Current Current Non-current --------- ------- ----------- --------- ------- ----------- FOREIGN CURRENCY: ELETROBRAS 1.212 10.630 36.092 14.912 32.738 47.797 Financial institutions 57 51 Federal government - bonus 5.307 3.874 511.958 5.953 2.752 528.082 Banco do Brasil advice 26.507 748.559 Part to be settled with account of results (26.507) (748.559) -------- ---------- ---------- ------- -------- ---------- to be compensated - CRC Total 6.576 14.504 548.050 20.916 35.490 575.879 ----- ------ ------- ------- -------- ------- LOCAL CURRENCY: ELETROBRAS 5 25 432 2 20.804 17.938 Financial institutions 6 1 119 5 Other 194 239 ------ ----------- ----------- -------- ------------ ---------- Total 199 31 432 242 20.923 17.943 ------ --------- ---------- -------- -------- -------- TOTAL 6.775 14.535 548.482 21.158 56.413 593.822 ===== ====== ======= ====== ======== =======
b) Substantially all indebtedness is guaranteed by the Federal Government and/or ELETROBRAS. c) The total due in foreign currency of R$569.130 is equilavent to US$585,224. 18 24 d) The long-term principal balance of R$548.050, equivalent to US$563,548, has maturity dates as follows:
December 31, 1995 ----------------- US$ --- 1997 23,038 1998 25,561 1999 26,369 2000 25,793 After 2000 462,787 ------- Total 563,548 =======
e) Loans in local currency are subject to annual fixed rates of 6% to 10,5% (1994 - 7% to 10,5%) and those in foreign currency at annual floating rates of 4,0% to 8,0% (1994 - 4,0% to 7,25%). 13. GUARANTEE OF OBLIGATIONS In February 1995 LIGHT signed a contract with the pension fund BRASLIGHT (Fundacao de Seguridade Social BRASLIGHT), repurchasing for R$28.890 the buildings that make up the administrative complex of its headquarters. This repurchase was with 24 promissory notes, the first maturing on March 20, 1995 and the last on February 20, 1997. The liability as of December 31, 1995 was R$15,903 short-term and R$1,704 long-term. As a guarantee of payment, an equivalent amount of the account receivable from Companhia Siderurgica Nacional mentioned in note 6 has been pledged. 14. SPECIAL OBLIGATIONS
1995 1994 ---- ---- Reserve for reversion of concession 151.503 151.503 Consumers' contributions 88.965 80.836 Participation of federal government 7.234 6.216 ------- ------- 247.702 238.555 ======= =======
The reserve for reversion of concession arose from provisions made through 1971 under Federal Decree 41.019/57 and represents 50% of the concession fee that was withheld and applied in the expansion of public services for electric power. Consumers' contributions relate to funds obtained to carry out projects necessary to attend to requests for the supply of electric power. Because of the nature of these accounts, they do not represent effective financial obligations, and should not be considered as liabilities for the purpose of calculating economic-financial ratios. 19 25 15. CAPITAL AND RESERVES Capital at December 31, 1995 and 1994 consists of 10.390.846.695 common shares with no par value. Composition of capital and revenue reserves:
December 31, ------------------------- 1995 1994 ---- ---- Capital reserves Subventions for investments 1.769.633 1.769.633 Remuneration of construction work in progress - own funds 261.929 230.685 Special reserve - Law 8200 2.358.664 2.358.664 Other 103.931 103.931 ---------- ---------- Total 4.494.157 4.462.913 ========== ========== Revenue reserves: Legal 83.386 83.386 Unrealized earnings 418.890 441.289 ---------- ---------- Total 502.276 524.675 ========== ==========
16. PROPOSED DIVIDENDS The Company's by-laws require a minimum dividend of 25% of net income, adjusted in accordance with corporate law. Dividends were calculated as follows:
1995 1994 ---- ---- Profit (loss) for the year (111.379) 135.787 Legal reserve (6.789) Compensation of loss 111.379 Realization of unrealized income reserve 22.399 22.161 -------- -------- Basis of calculation 22.399 151.159 ======== ======= Proposed dividend (25% in 1995 and 50% in 1994) 5.601 75.580 ========= ======== Dividend per 1.000 shares 0,539 7,274 ===== =====
a) The Company has proposed that the balance of retained earnings be retained for capital-expenditure requirements. b) The Company has proposed that the dividend be paid within 60 days of the stockholders' meeting. 20 26 17. ENERGY SOLD
1995 1994 --------------------------------- --------------------------------- Mwh R$ Mwh R$ --- -- --- -- Invoiced: Residential 6.199.759 698.824 5.472.573 642.738 Commercial 4.163.290 465.134 3.905.163 492.856 Industrial 8.238.430 465.848 8.101.613 507.671 Rural 31.500 2.685 27.542 2.795 Public authorities 862.234 89.657 807.042 88.027 Public illumination 556.665 31.957 562.370 44.947 Own consumption 70.236 7.444 47.553 6.326 Public services 1.023.021 64.901 1.044.103 63.332 ---------- ----------- ---------- --------- Total 21.145.135 1.826.450 19.967.959 1.848.692 Accrued 7.007 65.775 ---------- ------------ ---------- --------- Total direct sales 21.145.135 1.833.457 19.967.959 1.914.467 ========== ========= ========== ========= Sold for resale 16.612 350 12.611 206 ========== ============= ========== =========
18. PENSION PLAN The Company is a sponsor and is responsible for covering any insufficiency in technical reserves in respect of the employees' supplementary pension benefits, which are administered by the pension fund - BRASLIGHT. The benefit plan's reserves are calculated by actuaries based on the method of capitalization on aggregated values; the last actuarial valuation was at December 31, 1994. LIGHT contributed with 1,59 times that contributed by the participants, increased by an administrative charge of 2,37% of the payroll of those who participate in BRASLIGHT. Based on calculations made by independent actuaries, in addition to the employees' monthly contributions, LIGHT contributed R$19.123 during 1995 (1994 - R$ 21.068). The rates of contribution periods for plans (A) before 1994 and (B) after 1984 are as follows:
A B - - Coverage after 60 Months 120 Months Up to 50% of the social security limit 2,50% 1,75% From 51% to 100% of the social security limit 5,00% 3,50% From the social security limit to three times such limit 9,00% 7,00% Between three to four times the benefit limit 9,60% 7,30% Above four times the limit and up to 80 minimum salaries 15,00% 15,00%
At December 31, 1995, the Company had an obligation with BRASLIGHT in respect of differences on contributions and supplementary employees' benefits resulting from the implementation of new limits on employees' monthly contributions effective January 1, 1991, to be amortized over 30 years in monthly installments, with monetary correction and annual interest of 7%. The amount provided at December 31, 1995 was R$11.087, of which R$442 is due within one year and R$10.645 after one year (1994 provision - R$10.021; R$385 current and R$9.636 non-current). 21 27 19. INSURANCE The Company's principal assets, including fixed assets in service and under construction and materials and supplies, are insured against fire for a total of R$465.448 (1994 - R$449.889). In conformity with specific legislation, a substantial part of the Company's fixed assets, is not coverable by insurance. 20. REMUNERATION OF ADMINISTRATORS AND EMPLOYEES The remuneration paid to administrators and employees in December 1995, expressed in reais, was as follows:
Administrators Employees -------------- --------- R$ R$ -- -- Lowest 7.274,18 463,27 Highest 7.274,18 7.274,18
21. SPECIAL MONETARY CORRECTION The Company's special monetary correction of permanent assets in 1991, made in accordance with Law 8200, is being amortized or depreciated in accordance with the estimated useful lives of these assets. During 1995 this amortization and depreciation aggregated R$66.150. This exppense is not deductible for income tax purposes, nor is it considered in the cost structure used to calculate electricity tariffs. The balance of this special monetary correction as of December 31, 1995 was as follows:
R$ -- Investments 3.220 Fixed assets 757.022 Deferred charges 35.987 -------- Total 796.229 =======
22. CONTINGENCIES a) The Rio de Janeiro Urban Industrial Trade Unions took court action against LIGHT, demanding the payment of wage adjustments resulting from the Bresser Plan and the Collor Plan. Recent pronouncements of the Labor Superior Tribunal consider that no rights have been obtained in relation to the Collor Plan and have restricted the rights obtained in relation to the Bresser Plan up to the date of the union's collective agreement. The amount of these restricted rights is not material, and no provision has been made because in the opinion of the Company's attorneys, the amount is not due. Regarding the Bresser Plan court action, the Company was successful at the first hearing and as to the Collor Plan, similar court hearings have had favorable results. Consequently, no provisions have been made for these labor contingencies, and the Company is confident that it will win both actions. b) There exist other labor actions against the Company, the amounts of which have not yet been defined but will not be material; for this reason no provision has been made. c) Some industrial customers have questioned in the judiciary the readjustment of electric energy tariffs approved by the order of the DNAEE, order 38/86, 45/86, 155/86 - Cruzado Plan. The Company believes 22 28 that there will not be significant net losses incurred from actions already judged. In the opinion of the Companys' attorneys, there is a possibility of the recovery of amounts deemed payable through the tariff insufficiency account. Based on these arguments, LIGHT has not made a provision for the contigencies. 23. RECONCILIATION BETWEEN LOSSES AND STOCKHOLDERS' EQUITY EXPRESSED BY CORPORATE LAW AND PRICE-LEVEL RESTATEMENT
December 31, 1995 --------------------------- Stockholders' Profit Equity ------ ------------- By Corporate law 111.379 6.745.764 Reversal of 1994 adjustments to present value and tax provision (1.194) ------- ---------- Price - level restatement 110.185 6.745.764 ======= =========
24. RELATED PARTY TRANSACTIONS Relevant operations with affiliated companies that are not otherwise disclosed in the financial statements relate to the purchase of electricity from Furnas Centrais Eletricas S.A., as follows:
1995 1994 ---- ---- Current liabilities 100.343 94.111 Expenses 621.529 700.394
25. FINANCIAL INSTRUMENTS On March 23, 1995 the Brazilian Securities and Commission (CVM), through Instruction 235, established the requirement to disclose the market value of financial instruments, whether recognized or not in the financial statements. LIGHT's only relevant financial asset that requires disclosure of market value is the particpating interest in ELETROPAULO. As of November 30, 1995, the adjusted equity value of the investment was the equivalent of R$211,70 per thousand shares, whereas the preferred share price was R$50,70 per thousand shares. 26. INCOME TAX CHANGES In December 1995, the Government introduced changes to the income tax law (effective January 1, 1996), the significant provisions of which are summarized below: Monetary adjustment of the financial statements was discontinued; The basic corporate income tax rate was decreased from 25% to 15%, with the rate of surtax being decreased from 12% and 18% to a single rate of 10%, calculated on taxable income exceeding R$240,000 (US$247,000); The social contribution tax rate was decreased from 10% to 8%. On January 24, 1996 the Company exercised the option under article 7 of Law 9.249/95 to make the tax payment on accumulated inflationary profit as of December 31, 1995 at a rate of 10%. As a result, the provision for income tax was adjusted, resulting in a reduction of such provision for the period of R$15.508. 23 29 27. SUBSEQUENT EVENTS A. In accordance with the terms of Law 9163 and the objectives of the National Privitization Program, LIGHT is conducting a corporate reorganization through the spin-off to a newly formed company, Light Participacoes S.A. - LIGHTPAR, of its assets and liabilities linked to its investment in ELETROPAULO - Eletricidade de Sao Paulo S.A. (note 8). Under the plan of distribution, stockholders receive one share of LIGHTPAR for each share of LIGHT held on December 31, 1995. The principal aim of the spin-off is the separation of the assets that are used for running LIGHT's services of generation, transmission and distribution of electric energy from those that represent its indirect participation in electricity services through its investment in ELETROPAULO. The transaction, which was approved by the stockholders on January 29, 1996 with a base date of December 31, 1995, was effected through the transfer of the following assets and liabilities:
Assets: R$ ------------ Investment in ELETROPAULO 3.148.798 Debentures issued by ELETROPAULO 142.852 Notes receivable from ELETROPAULO 175.707 Interest receivable from these instruments 279.604 Other 4.820 --------- Total 3.751.781 ========= Liabilities 6.277 =========
B. On May 21, 1996, LIGHT's controlling stockholder, Centrais Eletricas Brasileiras S.A. - ELETROBRAS, sold common shares of the Company representing 54,67% of the total common shares and capital, of which a consortium of five companies purchased 50,44% of total capital, as follows:
% E -------- Electricite de France 11,35 AES Corporation (USA) 11,35 Houston Industries (USA) 11,35 BNDES Participacoes (Brazil) 9,14 Companhia Siderurgica Nacional (Brazil) 7,25 ------ Total 50,44 =====
C. As discussed in Note 22(c) there are lawsuits brought by approximately 100 industrial companies against Light, alleging that price increases from March to November 1986 were illegal. The Company's internal estimates of such losses range up to US $75 million. The decisions of the Superior Tribunal (STJ) have been favorable to the consumers, and the Company does not foresee a reduction in the liability. The Company may be able to recover from DNAEE, amounts reimbursed to its customers through future rate increases. Based on the opinion of its internal legal counsel concerning the legal process and the potential recovery of such costs, the Company, in principle, does not believe that the ultimate resolution of such lawsuits will have a material effect on its financial position. Certain consumers, arguing that such rate differences have affected the rates from November 1986 to the present, have brought suits claiming refunds for such differences, which the Company estimates to be in the range of U.S. $700 million; however, the STJ has ruled initially in favor of certain electric distribution companies. The Company's internal legal counsel believes the Company's possibility of winning these cases to be good. - -------------------------------------------------------------------------------- 24 30 a (ii). The following condensed unaudited quarterly financial information of Light as of March 31, 1996 and for the quarters ended March 31, 1996 and 1995 have been derived from the financial report prepared by Light to meet their statutory reporting requirements stipulated by the Comissao de Valores Mobiliarios ("CVM"), the governmental body which regulates securities in Brazil. 31 LIGHT - SERVICOS DE ELETRICIDADE S.A. CONDENSED UNAUDITED STATEMENTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995 (Expressed in thousands of Brazilian Reais, except per share amounts) - --------------------------------------------------------------------------------
1996 1995 ---------- ---------- Net Sales 425,374 402,728 Operating Costs and Expenses: Cost of Sales 292,346 294,074 General and Administrative 40,392 49,925 --------- --------- Total Operating Costs and Expenses 332,738 343,999 --------- --------- Operating Income 92,636 58,729 Interest Expense (3,927) (16,142) Interest Income 8,883 22,094 Other Income (Expense) 743 (2,446) --------- --------- Income Before Taxes 98,335 62,235 Income Taxes 34,069 25,545 --------- --------- NET INCOME $ 64,266 $ 36,690 ========= ========= Income Per 1,000 Shares $6.18 $3.53 ====== ======
See Notes to Condensed Unaudited Financial Information. - -------------------------------------------------------------------------------- 32 LIGHT - SERVICOS DE ELETRICIDADE S.A. CONDENSED UNAUDITED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 (Expressed in thousands of Brazilian Reais) - --------------------------------------------------------------------------------
March 31, December 31, 1996 1995 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents 1,312 772 Investments 59,673 37,101 Accounts receivable 287,679 248,057 Interest receivable -- 285,998 Note receivable -- 175,707 Income taxes receivable 75,364 73,963 Inventories 10,656 10,236 Prepaid and other 56,243 108,313 ----------- ----------- Total current assets 490,927 940,147 ----------- ----------- Fixed Assets 3,293,034 2,938,782 Investments 42,944 3,178,768 Accounts Receivable 73,225 75,260 Other Receivables and Deferred Charges 349,289 804,659 ----------- ----------- TOTAL ASSETS $4,249,419 $7,937,616 =========== ===========
See Notes to Condensed Unaudited Financial Information. - -------------------------------------------------------------------------------- 33 LIGHT - SERVICOS DE ELETRICIDADE S.A. CONDENSED UNAUDITED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 (Expressed in thousands of Brazilian Reais) - --------------------------------------------------------------------------------
March 31, December 31, 1996 1995 ------------ ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade payables $ 116,335 $ 109,450 Accrued payroll 9,656 12,756 Accrued taxes 106,115 69,606 Other accrued liabilities 115,932 168,863 ----------- ----------- Total current liabilities 348,038 360,675 ----------- ----------- LONG-TERM LIABILITIES Debt 552,350 548,482 Reserves 250,136 247,702 Other 33,133 34,993 ----------- ----------- Total long-term liabilities 835,619 831,177 ----------- ----------- STOCKHOLDERS' EQUITY Common stock 526,228 1,183,067 Capital reserves 2,219,596 4,494,157 Revenue reserves 183,059 502,276 Revaluation reserves -- 479,451 Retained earnings 134,943 84,877 Other 1,936 1,936 ----------- ----------- Total stockholders' equity 3,065,762 6,745,764 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,249,419 $7,937,616 =========== ===========
See Notes to Condensed Unaudited Financial Information. - -------------------------------------------------------------------------------- 34 LIGHT-SERVICOS DE ELETRICIDADE S.A. NOTES TO THE CONDENSED UNAUDITED QUARTERLY FINANCIAL INFORMATION 1. Basis of Presentation The condensed unaudited quarterly financial information is derived from the Company's March 31, 1996 statutory report filed with the CVM. All amounts are in Brazilian reais and have been prepared in conformity with accounting principles generally accepted in Brazil. 2. Subsequent Events (a) The stockholders confirmed during the first quarter of 1996, that the payment of the dividend of R$5.6 million which was accrued and proposed at December 31, 1995 should be increased to R$22.4 million. (b) Eletrobras will assume US$346 million of Light's external debt in settlement of a receivable of a similar amount owed by Eletrobras to Light. (c) In the first quarter of 1996 Light conducted a corporate reorganization and spun-off its interest in ELETROPAULO. 35 b. Pro Forma Financial Information On May 30, 1996, AES, through certain subsidiaries, acquired for approximately $393 million, common shares representing an 11.35% interest in Light. The following unaudited pro forma consolidated balance sheet represents AES's financial position at March 31, 1996 as if the acquisition by the Company of the Light Interest had occurred on that date. The unaudited pro forma statements of operations information combine the results of AES's investment in Light for the year ended December 31, 1995 and the three months ended March 31, 1996 on the equity method as if the acquisition by the Company of the Light Interest had occurred on January 1, 1995. The acquisition of Light will be accounted for using the purchase method. The unaudited pro forma adjustments are based upon available information and certain assumptions and estimates which the Company believes are reasonable under the circumstances. The unaudited pro forma results do not purport to be indicative of the results that would have been obtained had the Light acquisition occurred at the beginning of the periods presented, 36 nor are they intended to be a projection of future results. The unaudited pro forma financial information should be read in conjunction with the notes thereto. 37 THE AES CORPORATION UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1996
- ---------------------------------------------------------------------------------------------- Pro Forma Pro Forma The Adjustments As Adjusted AES for Light for Light Corporation Acquisition Acquisition - ---------------------------------------------------------------------------------------------- ($ in millions) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 207 $ -- $ 207 Short-term investments 50 -- 50 Accounts receivable 50 -- 50 Inventory 42 -- 42 Receivable from affiliates 11 -- 11 Prepaid expenses and other current assets 34 -- 34 ---------- --------- --------- TOTAL CURRENT ASSETS 394 -- 394 PROPERTY, PLANT AND EQUIPMENT: Land 10 -- 10 Electric and steam generating facilities 1,619 -- 1,619 Furniture and office equipment 11 -- 11 Accumulated depreciation, depletion, and amort. (235) -- (235) Construction in progress 198 -- 198 ---------- --------- --------- PROPERTY, PLANT AND EQUIPMENT, NET 1,603 -- 1,603 OTHER ASSETS: Deferred costs, net 31 11 (a) 42 Project development costs 43 -- 43 Investments in and advances to affiliates 52 393 (a) 445 Debt service reserves and other deposits 178 -- 178 Goodwill and other intangible assets, net 37 -- 37 Other assets 15 -- 15 ---------- --------- --------- TOTAL OTHER ASSETS 356 404 760 ---------- --------- --------- TOTAL $ 2,353 $ 404 $ 2,757 ========== ========= =========
See Notes to Pro Forma Financial Information 38 THE AES CORPORATION UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1996
- -------------------------------------------------------------------------------------- Pro Forma Pro Forma The Adjustments As Adjusted AES for Light for Light Corporation Acquisition Acquisition - -------------------------------------------------------------------------------------- ($ in millions) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 43 $ -- $ 43 Income taxes payable 4 -- 4 Accrued interest 17 -- 17 Accrued and other liabilities 33 -- 33 Revolving bank loan - current portion 31 54(b) 85 Project financing debt - current portion 84 -- 84 ------- ------- ------- TOTAL CURRENT LIABILITIES 212 54 266 LONG-TERM LIABILITIES: Project financing debt 1,108 -- 1,108 Reimbursement agreement -- 225(b) 225 Revolving bank loan -- 125(b) 125 Other notes payable 125 -- 125 Deferred income taxes 159 -- 159 Other long-term liabilities 9 -- 9 ------- ------- ------- TOTAL LONG-TERM LIABILITIES 1,401 350 1,751 MINORITY INTEREST 158 -- 158 STOCKHOLDERS' EQUITY: Common stock 1 -- 1 Additional paid-in capital 294 -- 294 Retained earnings 300 -- 300 Cumulative foreign currency translation adjustment (10) -- (10) Less treasury stock at cost (3) -- (3) ------- ------- ------- TOTAL STOCKHOLDERS' EQUITY 582 -- 582 ------- ------- ------- TOTAL $ 2,353 $ 404 $ 2,757 ======= ======= =======
See Notes to Pro Forma Financial Information 39 THE AES CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------------ Pro Forma Pro Forma The Adjustments As Adjusted AES for Light for Light Corporation Acquisition Acquisition - ------------------------------------------------------------------------------------ ($ in millions, except per share amounts) REVENUES: Sales and services $ 685 $ -- $ 685 OPERATING COSTS AND EXPENSES: Cost of sales and services 405 -- 405 Selling, general and administrative expenses 32 -- 32 ------ ------ ------ TOTAL OPERATING COSTS AND EXPENSES 437 -- 437 ------ ------ ------ OPERATING INCOME 248 -- 248 OTHER INCOME AND (EXPENSE): Interest expense (122) (27)(d) (149) Interest income 27 -- 27 Equity in earnings of affiliates (net of of income tax) 14 11 (c) 25 ------ ------ ------ INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 167 (16) 151 Income taxes 57 (11)(e) 46 Minority Interest 3 -- 3 ------ ------ ------ NET INCOME $ 107 $ (5) $ 102 ====== ====== ====== NET INCOME PER SHARE $ 1.41 $(0.07) $ 1.34 ====== ====== ======
See Notes to Pro Forma Financial Information 40 THE AES CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1996
- --------------------------------------------------------------------------------------- Pro Forma Pro Forma The Adjustments As Adjusted AES for Light for Light Corporation Acquisition Acquisition - --------------------------------------------------------------------------------------- ($ in millions, except per share amounts) REVENUES: Sales and services $ 172 $ -- $ 172 OPERATING COSTS AND EXPENSES: Cost of sales and services 100 -- 100 Selling, general and administrative expenses 9 -- 9 ------- ------- ------ TOTAL OPERATING COSTS AND EXPENSES 109 -- 109 ------- ------- ------ OPERATING INCOME 63 -- 63 OTHER INCOME AND (EXPENSE): Interest expense (28) (7)(d) (35) Interest income 5 -- 5 Equity in earnings of affiliates (net of income tax) 5 6 (c) 11 ------- ------- ------ INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 45 (1) 44 Income taxes 15 (3)(e) 12 Minority Interest 1 -- 1 ------- ------- ------ NET INCOME $ 29 $ 2 $ 31 ======= ======= ====== NET INCOME PER SHARE $ 0.38 $ 0.03 $ 0.41 ======= ======= ======
See Notes to Pro Forma Financial Information 41 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION 1. Basis of Presentation The AES subsidiary which owns an 11.35% interest in Light is participating in a consortium that owns a 50.44% controlling interest. As a result, the Company has the ability to exert significant influence over the operations of Light, and will record its investment using the equity method. The unaudited pro forma financial information presented is based on Light's financial position and results of operations as of March 31, 1996 and for the periods ended December 31, 1995 and March 31, 1996 during which time it was controlled by Eletrobras, the Brazilian government utility holding company (which owned approximately 81.6%). The unaudited pro forma financial information has been prepared based on the Company's estimate of Light's financial position and results of operation in conformity with U.S. generally accepted accounting principles. Pro forma equity in earnings of Light for the year ended December 31, 1995 has been translated into U.S. dollars at the average rate during the year of R$0.92 to U.S.$1.00, and for the quarter ended March 31, 1996 at the average rate of R$0.99 to U.S.$1.00. 2. Goodwill The estimated excess of the purchase price over the Company's proportionate share of the net assets acquired is being amortized over the 30 year life of the concession. 3. Financing For purposes of the unaudited pro forma balance sheet, the acquisition of the Light Interest was funded initially through drawings of $179 million under the Company's $425 million Credit Agreement and borrowings of $225 million under the Reimbursement Agreement. 42 4. Description of Unaudited Pro Forma Entries (a) represents the investment in Light of $393 million and costs of $11 million financed by borrowings of $225 million under the Reimbursement Agreement and drawings of $179 million under the Credit Agreement. (b) represents the financing of the transaction described in (a). (c) represents equity in earnings of Light, net of goodwill amortization. (d) represents interest expense associated with average borrowings under the Reimbursement Agreement and the Credit Agreement during the period, and amortization of deferred financing costs. (e) represents the income tax benefit related to the interest costs. 43 SIGNATURE 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) BY: WILLIAM R. LURASCHI WILLIAM R. LURASCHI GENERAL COUNSEL AND SECRETARY Dated: June 10, 1996 44 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 10.61 $425,000,000 Credit Agreement, dated as of May 20, 1996, among The AES Corporation, the Banks listed therein, Barclays Bank PLC, Morgan Guaranty Trust Company of New York, and Union Bank of California, N.A., as Fronting Banks, and Morgan Guaranty Trust Company of New York, as Agent. 10.65 Reimbursement Agreement between AES Light, Inc. and Morgan Guaranty Trust Company of New York, dated as of May 20, 1996. 10.66 Pledge Agreement, dated as of May 20, 1996, between AES Light, Inc., and Morgan Guaranty Trust Company of New York. 10.67 Shareholders' Agreement, dated as of May 27, 1996, among AES Coral Reef, Inc., Companhia Siderurgica Nacional, EDF International S.A., Houston Industries Energy - Cayman, Inc. (the "Shareholders") and BNDES Participacoes S.A. 10.68 Addendum to Shareholders Agreement, dated as of May 30, 1996, among the Shareholders and InvestLight - Clube de Investimento dos Empregados da Light. EX-10.61 2 CREDIT AGREEMENT. 1 EXHIBIT 10.61 $425,000,000 CREDIT AGREEMENT dated as of May 20, 1996 among The AES Corporation, The Banks Listed Herein, Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank of California, N.A.,, as Fronting Banks, and Morgan Guaranty Trust Company of New York, as Agent 2 TABLE OF CONTENTS* Page
ARTICLE I DEFINITIONS SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.02. Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . 18
ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.02. Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 2.03. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 2.04. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 2.05. Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 2.06. Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 2.07. Fees. (a) Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 2.08. Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . 32 SECTION 2.09. Mandatory Repayments of the Loans and Cash Collateralization of Letters of Credit . . . . . . . . . . . . . . . . 33 SECTION 2.10. Optional Prepayment of the Loans . . . . . . . . . . . . . . . . . . . . 33 SECTION 2.11. General Provisions as to Payments . . . . . . . . . . . . . . . . . . . . 34 SECTION 2.12. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 2.13. Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . 35 SECTION 2.14. Cash Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE III CONDITIONS SECTION 3.01. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 3.02. AES Finance Addition Date . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 3.03. Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
- -------------------- *The Table of Contents is not a part of this Agreement. i 3 Page
ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 4.02. Corporate and Governmental Authorization; No Contravention . . . . . . . 40 SECTION 4.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.04. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.05. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.06. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 4.07. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 4.08. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 4.09. Material AES Entities . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 4.10. Not an Investment Company . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 4.11. Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . 43 SECTION 4.12. Representations in Subsidiary Guaranty True and Correct . . . . . . . . . 44 SECTION 4.13. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 4.14. Existing Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE V COVENANTS SECTION 5.01. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 5.02. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 5.03. Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . 48 SECTION 5.04. Conduct of Business and Maintenance of Existence . . . . . . . . . . . . 48 SECTION 5.05. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 5.06. Inspection of Property, Books and Records . . . . . . . . . . . . . . . . 49 SECTION 5.07. Limitations on Project Exposure . . . . . . . . . . . . . . . . . . . . . 49 SECTION 5.08. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 5.09. Minimum Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . 51 SECTION 5.10. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 5.11. Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 5.12. Limitations on Investments, Guarantees and Commitments to Invest . . . . 52 SECTION 5.13. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 5.14. Consolidations, Mergers and Sales of Assets . . . . . . . . . . . . . . . 55 SECTION 5.15. Use of Proceeds; Clean-Up Periods . . . . . . . . . . . . . . . . . . . . 56 SECTION 5.16. Cash Flow Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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SECTION 5.17. Cash Flow to Total Debt Ratio . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 5.18. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE VI DEFAULTS SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 6.02. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 6.03. Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 7.02. Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 7.03. Action by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 7.04. Consultation with Experts . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 7.05. Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 7.06. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 7.07. Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 7.08. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 7.09. Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair . . . . . . . . 63 SECTION 8.02. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 8.03. Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . 64 SECTION 8.04. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 8.05. Domestic Loans Substituted for Affected Euro-Dollar Loans . . . . . . . . 68
ARTICLE IX GUARANTY SECTION 9.01. The Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 9.02. Guaranty Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . 69
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SECTION 9.03. Discharge Only Upon Payment In Full; Reinstatement In Certain Circumstances . . . . . . . . . . . . . . . . 70 SECTION 9.04. Waiver by AES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 9.05. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 9.06. Stay of Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 9.07. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE X MISCELLANEOUS SECTION 10.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 10.02. No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 10.03. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 10.04. Sharing of Set-Offs . . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 10.05. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 10.06. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 10.07. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 10.08. Governing Law; Submission to Jurisdiction . . . . . . . . . . . . . . . 76 SECTION 10.09. Counterparts; Integration; Effectiveness . . . . . . . . . . . . . . . . 76 SECTION 10.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 10.11. Fronting Bank Obligations . . . . . . . . . . . . . . . . . . . . . . . 77
Appendix Pricing Schedule Schedule I - Existing Debt Schedule II - Existing Liens Schedule III - Existing Agreements with Affiliates Schedule IV - Existing Letters of Credit Schedule V - Non-Conforming Letter of Credit Exhibit A - Note Exhibit B - Subsidiary Guaranty Exhibit C - Closing Date Opinion of the General iv 6 Counsel of AES Borrowers Exhibit D - Opinion of Davis Polk & Wardwell, Special Counsel for the Agent Exhibit E - AES Finance Addition Date Opinion of the General Counsel of AES Exhibit F - Opinion of Counsel to AES Finance in AES Finance's Jurisdiction of Incorporation Exhibit G - Assignment and Assumption Agreement Exhibit H - Form of Extension Agreement v 7 CREDIT AGREEMENT AGREEMENT dated as of May 20, 1996 among THE AES CORPORATION, the BANKS listed on the signature pages hereof, BARCLAYS BANK PLC, MORGAN GUARANTY TRUST COMPANY OF NEW YORK and UNION BANK OF CALIFORNIA, N.A., as Fronting Banks, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "Additional Permitted Subordinated Debt Indenture" means the indenture or other agreement pursuant to which any Additional Permitted Subordinated Debt is issued, as the same may, subject to Section 5.11, 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) (i) in an aggregate principal amount of not more than $225,000,000 and (ii) which does not require any payment of principal prior to December 31, 2002 and which has subordination provisions no less favorable to the Banks than those applicable to the Existing 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 Subordinated Notes or 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 8 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 Coral Reef" means AES Coral Reef, Inc., a limited liability company organized and existing under the laws of The Cayman Islands, and its successors. "AES Deepwater" means AES Deepwater, Inc., a Delaware corporation and a Subsidiary of AES, and its successors. "AES Electric" means Applied Energy Services Electric Limited, an English corporation, and its successors. "AES Finance" means 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 AES Finance, and the successors of such Subsidiary. "AES Finance Addition Date" means 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. "AES Hawaii" means AES Hawaii Management Company, Inc., a Delaware corporation and a Subsidiary of AES, and its successors. "AES Light" means AES Light, Inc., a Delaware corporation and a Subsidiary of AES, and its successors. "AES Light Non-Recourse Facility" means the Reimbursement Agreement dated as of May 20, 1996 between AES 2 9 Light and Morgan Guaranty Trust Company of New York, as LC Issuer, as amended. "AES March 1996 Form 10-Q" means AES's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 1996, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "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 the majority equity interests in which is directly owned by, Persons described in clauses (i) and (ii) above. "AES 1995 Form 10-K" means AES's annual report on Form 10-K for the year ended December 31, 1995, 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. "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 Domestic Loans, its Domes- 3 10 tic 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 Indenture. "Assignee" has the meaning set forth in Section 10.06(c). "Automatic Acceleration Event" means the occurrence, with respect to either 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. "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 AES Finance Addition Date, AES and (ii) from and after the AES Finance Addition Date, AES or AES Finance, as the context may require; prior to the AES Finance Addition Date, "Borrowers" means AES and from and after the AES Finance Addition Date, "Borrowers" means AES and AES Finance. "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 "Domestic Borrowing" if such Loans are Domestic Loans or a "Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans. "Cash Collateral Account" has the meaning set forth 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, on any date, the ratio of (i) Adjusted Parent Operating Cash Flow for the period of four consecutive fiscal quarters ended on, 4 11 or most recently prior to, such date to (ii) Debt of the Borrowers at such date. "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 2.08. "Consolidated Debt" means at any date the Debt of AES 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 AES and its Consolidated Subsidiaries for such period. "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. "Consolidated Tangible Net Worth" means at any date the consolidated stockholders' equity of AES and its Consolidated Subsidiaries less their consolidated Intangible Assets, all determined as of such date. For purposes of this definition "Intangible Assets" means the amount (to the extent reflected in determining such consolidated stockholders' equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to June 30, 1995 in the book value of any asset owned by AES or a Consolidated Subsidiary, (ii) all Investments made after June 30, 1995 in unconsolidated Subsidiaries and all equity investments made after such date in Persons which are not Subsidiaries and (iii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization costs, capitalized project development costs and other intangible assets. "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 5 12 period and regardless of whether any such amount was accrued during such period: (A) interest expense 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 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. "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 Transaction" means the transaction between AES and AES Deepwater described in the memorandum dated August 24, 1995 from AES to the Banks. "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. 6 13 "Domestic Loan" means a Loan to be made by a Bank as a Domestic Loan in accordance with the applicable Notice of Borrowing or pursuant to Article VIII. "Effective Date" means the date this Agreement becomes effective in accordance with Section 10.09. "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 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 to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Borrowing. "Euro-Dollar Margin" has the meaning set forth in Section 2.06(b). 7 14 "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 Convertible Subordinated Debentures" means AES's 6 1/2% Convertible Subordinated Debentures due 2002 issued pursuant to the Existing Convertible Subordinated Debenture Indenture. "Existing Convertible Subordinated Debenture Indenture" means the Indenture dated as of March 1, 1992 between AES and Morgan Guaranty Trust Company of New York, as Trustee, relating to the Existing Convertible Subordinated Debentures, as such Indenture may, subject to Section 5.11, be amended, modified or supplemented and in effect from time to time. "Existing Credit Facility" means the Credit Agreement dated as of September 8, 1995 among AES, the banks listed therein, Barclays Bank PLC and Union Bank as fronting banks and as managing-agents, Banque Nationale de Paris, Credit Lyonnais, New York Branch, The First National Bank of Chicago, The Industrial Bank of Japan Trust Company, NationsBank, N.A. (Carolinas), The Sanwa Bank Limited, New York Branch, Standard Chartered Bank and Toronto Dominion (New York), Inc., as Co-Agents, and Morgan Guaranty Trust Company of New York, as agent, as amended. "Existing Letter of Credit" means a Letter of Credit (as defined in the Existing Credit Facility) issued by Barclays Bank PLC or Union Bank under the Existing Credit Facility that is outstanding on the Effective Date. "Existing Subordinated Notes" means AES's 9 3/4% Senior Subordinated Notes due 2000 issued pursuant to the Existing Subordinated Note Indenture. "Existing Subordinated Note Indenture" means the Indenture dated as of June 15, 1993 between AES and The Bank of New York, as Trustee, relating to the Existing Subordinated Notes, as such Indenture may, subject to Section 5.11, 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. 8 15 "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 the Subsidiary Guaranty. "Fronting Bank" means (i) with respect to the initial Letters of Credit deemed to have been issued pursuant to the second sentence of Section 2.03(a), Barclays Bank PLC or Union Bank of California, as the case may be, and (ii) with respect to all other Letters of Credit, Morgan Guaranty Trust Company of New York. "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 either Borrower, the other Borrower. 9 16 "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: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; 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; and (2) with respect to each Domestic Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that: (a) any Interest Period (other than an Interest Period determined pursuant to clause (b) below) 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; and (b) 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. 10 17 "Investment" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. "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. "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. "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. "LIGHT" means Light-Servicos de Electricidades, S.A., an integrated utility servicing Rio de Janeiro which is being privatized by the government of Brazil. "LIGHT Acquisition" means the acquisition by AES Coral Reef pursuant to the auction of such shares through Sistema Electronico de Negociaco Nacional of shares representing at least a 10% ownership interest in the common equity of LIGHT and at least 10% of the voting power of all 11 18 shares entitled to vote at a general shareholder's meeting of LIGHT. "LIGHT Acquisition Letter of Credit" means a Letter of Credit issued for the account of AES for the benefit of Camara de Liquidacion e Custodia S/A - CLC to secure AES Coral Reef's obligation to pay the purchase price in respect of the LIGHT Acquisition. "Loan" means a Domestic Loan or a Euro-Dollar Loan and "Loans" means Domestic 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 of AES Connecticut Management Co., Inc., AES Thames, Inc., AES Barbers Point, Inc. and AES Shady Point, Inc. 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 Debt (other than the Loans and the Reimbursement Obligations) of either Borrower arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $5,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $1,000,000. "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 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 Indenture. "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. 12 19 "Notice of Borrowing" has the meaning set forth in Section 2.02. "Notice of Issuance" has the meaning set forth in Section 2.03(d). "Obligors" means the Borrowers and the Subsidiary Guarantors. "Other LIGHT Non-Recourse Collateral" means letters of credit, guarantees, bid bonds and similar instruments, cash proceeds of Debt and/or securities purchased with cash proceeds of Debt, in each case which are recourse only to AES Light, AES Coral Reef or any other Subsidiary of AES having a direct or indirect interest in LIGHT. "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; (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. 13 20 For purposes of determining Parent Operating Cash Flow: (1) net cash payments received by AES Electric during any period which could have been, but were not, paid as a dividend to AES during such period due to cash management considerations may be included in Parent Operating Cash Flow for such period; provided that (x) AES Electric shall have satisfied all of the provisions of clauses (x), (y) and (z) of subsection 5.12(c)(i) (without giving effect to the proviso to clause (y) thereof); (y) AES Electric 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 5.12(c)(i)(x), (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 and (E) the making of the Investments the obligations to make which are permitted under Section 5.12(c)(ii) and (z) 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; and (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. "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. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or 14 21 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. "Power Project Debt" means Debt of a Subsidiary of AES permitted by Section 5.08(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. "Reference Banks" means the principal London offices of NationsBank, N.A. (Carolinas), Barclays Bank PLC and Morgan Guaranty Trust Company of New York, 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 U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. 15 22 "Regulation G" means Regulation G 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 66 2/3% in amount of the aggregate Total Exposures at such time. "Restricted Payment" means (i) any dividend or other distribution on any shares of AES's capital stock (except dividends payable solely in shares of its capital 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. "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 Cash Flow for the four most recently completed fiscal quarters of AES constitutes 10% or more of Parent 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. "Subordinated Debt" means Debt in respect of the Existing Subordinated Notes and the Existing Convertible Subordinated Debentures and Additional Permitted Subordinated Debt. "Subordinated Note Indenture" means the Existing Subordinated Note Indenture, the Existing Convertible Subordinated Debenture Indenture and the Additional Permitted Subordinated Debt Indenture. 16 23 "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 (i) prior to the first day, if any, on which both (x) Level I Status shall exist and (y) there is no Debt and no letters of credit outstanding under the AES Light Non-Recourse Facility and all commitments to extend credit thereunder have been terminated, AES Oklahoma and AES Hawaii and (ii) on and after such first day, if any, AES Hawaii. "Subsidiary Guaranty" means the Subsidiary Guaranty, substantially in the form of Exhibit B hereto, given by the 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 Corporation 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 Group 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 17 24 funds" within the meaning of Rule 2a-7 under the Investment Company Act of 1940. "Termination Date" means May 20, 1999, 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 18 25 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 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. ARTICLE II 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 $3,000,000 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 2.10, prepay Loans and reborrow at any time during the Revolving Credit Period. Prior to the earlier of (i) July 31, 1996 and (ii) the date on which AES receives the proceeds of at least $225,000,000 of Additional Permitted Subordinated Debt, Loans may not be used, directly or indirectly, to provide cash collateral to secure AES Coral Reef's bid in connection with the LIGHT Acquisition or to purchase securities used as collateral to secure such bid unless the outstanding amount of Other LIGHT Non-Recourse Collateral posted to secure AES Coral Reef's bid in connection with the LIGHT Acquisition is greater than or equal to $225,000,000. (b) Extension of Termination Date. The Termination Date may be extended, in the manner set forth in this subsection (b), on May 20, 1998 and on May 20, 1999 19 26 (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, 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 Domestic 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 Domestic 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 Domestic Loans or Euro-Dollar Loans, and (iv) in the case of a Euro-Dollar Borrowing, the duration of the 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 20 27 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 either 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 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 2.11, 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, Morgan Guaranty Trust Company of New York, as Fronting Bank, agrees to issue letters of credit under this Section 2.03(a), upon either Borrower's request and for such requesting Borrower's account, 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 21 28 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 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 Credit Liabilities, in the amount required so that the participations of the Banks (including such Fronting Bank's retained participation, if any) 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 V) issued hereunder shall: (i) In the case of any Letter of Credit other than a LIGHT Acquisition Letter of Credit, 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 (except that the term of Letters of Credit used to support debt service reserves shall not exceed 180 days); (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; (iii) be in a form acceptable to the Fronting Bank; and (iv) in the case of a LIGHT Acquisition Letter of Credit, expire no later than July 15, 1996. 22 29 (d) Notice of Issuance. Except in the case of Letters of Credit deemed, pursuant to the second sentence of subsection (a)(ii) 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 specifying whether or not such Letter of Credit is a LIGHT Acquisition Letter of Credit; and (v) the identity of the Fronting Bank for such Letter of Credit, which shall comply with the definition of Fronting Bank. 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 accor- 23 30 dance 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 Borrower. (i) If any amount is drawn under any Letter of Credit issued 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 Domestic 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 Domestic 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 Domestic Loans for such day plus 2%. (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: 24 31 (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 either 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, either 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 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 25 32 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 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 the 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 Domestic 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 circumstance, 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, either Fronting Bank or any other Person for any reason whatsoever; (2) the occurrence or continuance of 26 33 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 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 27 34 Rate on the aggregate amount available for drawing under such Letter of Credit 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 March, June, September and December 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, the 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 the Borrower shall have a claim against the applicable Fronting Bank, and such Fronting Bank shall be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or special, damages suffered by the 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 28 35 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. (i) Fronting Banks and Affiliates. Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank of California 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 Barclays Bank PLC, Morgan Guaranty Trust Company of New York, Union Bank of California 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(a) 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 either 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 29 36 Documents. Each Bank is hereby irrevocably authorized by the Borrowers 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 included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.06. Interest Rates. (a) Each Domestic 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 day. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of or interest on any Domestic 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 Domestic Loans for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the 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 30 37 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. (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 the Interest Period for 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 Domestic 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 Borrowers and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. 31 38 (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. Fees. (a) Commitment Fee. AES shall pay to the Agent for the account of the Banks ratably in proportion to their Commitments of each Class a commitment fee at the Commitment Fee Rate on the daily amount by which the aggregate amount of the Commitments of such Class exceeds the aggregate Total Outstandings of such Class. Such commitment fee shall accrue from and including the Effective Date with respect to such Class to but excluding the Termination Date with respect to such Class (or earlier date of termination of the Commitments of such Class in their entirety). Accrued commitment fees under this Section 2.07 shall be payable quarterly on each March 31, June 30, September 30 and December 31 and upon the date of termination of the Commitments of such Class in their entirety. For this purpose, "Commitment Fee Rate" means a rate per annum determined in accordance with the annexed Pricing Schedule. (b) Other Fees. AES shall pay to Morgan Guaranty Trust Company of New York the fees specified in the Fee Letter at the times and in the amounts specified therein. SECTION 2.08. 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. 32 39 (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 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 2.08 shall be permanent. SECTION 2.09. 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 2.08, 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 2.14. 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 2.10. Optional Prepayment of the Loans. (a) Subject in the case of any Euro-Dollar Borrowing to Section 2.12, the Borrowers may, upon at least one Domestic Business Days' notice to the Agent, prepay any Domestic Borrowing or upon at least three Euro-Dollar Business Days' notice to the Agent, prepay any Euro-Dollar Borrowing, in each case in whole at any time, or from time to time in part in amounts aggregating $1,000,000 or any larger multiple of $500,000 by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment, provided, however, that no partial prepayment of a Euro-Dollar Borrowing may be made if the principal balance of such a Euro-Dollar Borrowing outstanding after such prepayment is less than $3,000,000. Each such optional 33 40 prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing. (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 the Borrower giving such notice. SECTION 2.11. 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 immediately available in New York City, 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 Domestic 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 2.12. Funding Losses. If a Borrower makes any payment of principal with respect to any Euro- 34 41 Dollar Loan (pursuant to Article VI or VIII or otherwise) on any day other than the last day of the 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 or prepay any Euro-Dollar Loans after notice has been given to any Bank in accordance with Section 2.02(b) or 2.10(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 any such payment or failure to borrow or prepay, 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. SECTION 2.13. 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 2.14. Cash Collateral Account. (a) All amounts required to be deposited as cash collateral with the Agent pursuant to Section 2.09 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 2.14. (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 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 35 42 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 2.14; 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 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. 36 43 ARTICLE III CONDITIONS SECTION 3.01. Closing. The closing hereunder shall occur upon receipt by the Agent of (i) the fees for the account of each Bank in the amounts previously agreed by AES and as set forth in the letter agreement (the "Fee Letter") between AES, J.P. Morgan Securities, Inc. and Morgan Guaranty Trust Company of New York dated May 18, 1996 and (ii) the following documents, each dated the Closing Date unless otherwise indicated: (a) 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; (b) the Subsidiary Guaranty, duly executed by the Subsidiary Guarantors; (c) an opinion of the General Counsel of AES, substantially in the form of Exhibit C hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit D hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) evidence satisfactory to the Agent 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; (f) evidence, satisfactory to the Agent, in the form of pro forma calculations, that (i) the LIGHT Acquisition, (ii) the issuance of, and drawings under the letters of credit under the AES Light Non-Recourse Facility and (iii) the making of Borrowings and the issuance of, and drawings under, Letters of Credit under this Agreement are permitted under the terms of the Existing Subordinated Debt Indenture; 37 44 (g) 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); (h) 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; (i) 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; (j) 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); and (k) 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 and the Borrowings requested by AES to be made on such date; and (l) all documents the Agent 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 Addition Date. The AES Finance Addition Date shall occur on the date upon which the Agent shall have received: 38 45 (a) duly executed Notes of AES Finance for the account of each Bank dated on or before the AES Finance Addition Date complying with the provisions of Section 2.04; (b) a counterpart hereof signed by AES Finance; (c) an opinion of the General Counsel of AES substantially in the form of Exhibit E hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) an opinion of counsel to AES Finance from the jurisdiction of incorporation of AES Finance, 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 AES Finance, the corporate authority for and the validity of this Agreement and its Notes as agreements and obligations of AES Finance, 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 the AES Finance 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 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 May 21, 1996; (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; 39 46 (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, (i) the aggregate Total Outstandings of any Bank will not exceed its Commitment and (ii) if such Extension of Credit is the issuance of a LIGHT Acquisition Letter of Credit, prior to the earlier of (x) July 31, 1996 and (y) the date on which AES receives the proceeds of at least $225,000,000 of Additional Permitted Subordinated Debt, the outstanding amount of Other LIGHT Non-Recourse Collateral posted to secure AES Coral Reef's bid in connection with the LIGHT Acquisition equals or exceeds $225,000,000; (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 Borrowing. 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 IV 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, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by each Obligor of the Financing Documents to which 40 47 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; provided that AES makes no representation or warranty hereunder with respect to whether compliance by AES with Section 5.07 would contravene existing agreements pursuant to which Applied Energy Services Electric Limited may make Investments after the date hereof in Power Projects owned by NIGEN Limited and Medway Power Limited. 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, 1995 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 AES's 1995 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 March 31, 1996 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 AES's March 1996 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 41 48 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, 1995 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. SECTION 4.05. Litigation. Except as disclosed in AES's March 1996 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 42 49 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. 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, 43 50 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, 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 either 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 either 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 either 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 IV hereto identifies each Existing Letter of Credit outstanding as of the date hereof and as of the Effective Date. 44 51 ARTICLE V 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 90 days after the end of each fiscal year of AES, a consolidated (and in the case of AES only, consolidating) balance sheet of each Obligor and its Consolidated Subsidiaries as of the end of such fiscal year and an unconsolidated balance sheet of AES as of the end of such fiscal year and the related consolidated, consolidating and unconsolidated (as applicable) statements of operations and cash flows 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 or chief financial officer of AES; (b) as soon as available and in any event within 50 days after the end of each of the first three quarters of each fiscal year of AES, a consolidated (and in the case of AES only, consolidating) balance sheet of each Obligor and its Consolidated Subsidiaries 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, consolidating and unconsolidated (as applicable) statements of operations and cash flows for such quarter and for the portion of such Obligor's fiscal year ended at the end of such quarter, setting forth in the case of such 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 45 52 adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief executive officer, president or chief financial officer of AES; (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 or chief financial officer of AES (i) setting forth in reasonable detail the calculations required to establish whether AES was in compliance with the requirements of Sections 5.08, 5.09, 5.10, 5.12, 5.14, 5.16 and 5.17 on the date of such financial statements, (ii) stating to the knowledge of AES whether any Default exists on the date 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 5.18, 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; 46 53 (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 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 or chief financial 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, executive vice-president or chief financial 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 47 54 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, 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 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 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 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 48 55 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 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 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 to keep, proper books of record and account in which full, true 49 56 and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause and 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. Limitations on Project Exposure. If and for so long as any Power Project Default shall have occurred and shall not have been cured (regardless of whether such Power Project Default shall have been waived), AES shall not, and shall not permit any Subsidiary or Affiliate controlled, directly or indirectly, by AES to, make any Investment in, or enter into any Guarantee of any Debt or other obligation of, any Subsidiary of AES having a direct or indirect interest in the Power Project to which such Power Project Default relates in an amount in excess of $2,000,000 in the aggregate for AES and its Subsidiaries. The foregoing restriction shall not prohibit or limit AES or any Subsidiary from making Investments in AES Light for the purpose of allowing AES Light to pay principal, interest and other amounts due and owing under the AES Light Non-Recourse Facility. SECTION 5.08. Debt. (a) AES shall not, and shall not permit any Subsidiary to, incur, assume, create or suffer to exist any Debt (including any Guarantees of Debt and obligations in respect of letters of credit), except for: (i) Debt under the Financing Documents (subject to Section 5.15); (ii) Debt incurred by a Subsidiary (A) to finance the development, acquisition, construction, maintenance or working capital requirements of a Power Project operated or managed (including on a joint basis with others), directly or indirectly, by AES and in which such Subsidiary has an interest and (B) that is not also the Debt of, or Guaranteed by, any other Subsidiary with an interest in any other Power Project; (iii) Debt existing on the date hereof and identified on Schedule I; 50 57 (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, (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 and (C) if any Debt being refinanced, replaced or refunded is subordinated to the Debt of either 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 Debt permitted by clauses (ii) and (to the extent that the same constitutes a refinancing of Debt permitted under such clause (ii)) (v) above; (vii) Additional Permitted Subordinated Debt; and (viii) Other Debt not described in clauses (i) through (vii) above in an aggregate principal amount at any time outstanding not to exceed $2,000,000. (b) AES shall not issue any Additional Permitted Subordinated 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, AES would have been in compliance with Sections 5.16 and 5.17 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 Additional Permitted Subordinated Debt was issued and the proceeds applied on the first day of the period of four consecutive fiscal quarters ended on such last day). SECTION 5.09. Minimum Consolidated Tangible Net Worth. Consolidated Tangible Net Worth will at no time be less than the sum of (i) $300,000,000 plus (ii) for each fiscal quarter of AES ended after June 30, 1995 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. 51 58 SECTION 5.10. 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 (a) $5 million plus (b) 5% 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 5.11. Subordinated Debt. 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, without the express prior written consent of the Required Banks. SECTION 5.12. Limitations on Investments, Guarantees and Commitments to Invest. (a)(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) (or, at any time prior to April 1, 1996, five (5)), plus (y) the excess, if any, of (A) the aggregate amount of net cash proceeds received by AES from the issuance of equity securities or Additional Permitted Subordinated Debt 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; provided, that for purposes of determining compliance with this clause (a)(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). 52 59 (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 Group or less than Ba3 by Moody's Investors Service, Inc. (b) Except as permitted by Section 5.12(c), AES will not permit any of its Subsidiaries with any direct or indirect interest in (i) a Power Project to make any Investment in, or to 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. (c) (i) 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; provided that: (x) 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; (y) no consensual encumbrance or restriction of any kind shall exist on the ability of any Intermediate Holding Company to make payments, distributions, loans, advances or transfers to AES or any other Intermediate Holding Company, provided that this clause (y) shall not apply to any such restrictions in effect on the date of this Agreement contained in agreements governing Debt of such Intermediate Holding Company outstanding on the date of this Agreement and, if such Debt is renewed, extended or refinanced in compliance with this Agreement, restrictions on such Intermediate Holding Company contained in the agreements governing the renewed, extended or refinancing Debt (and successive renewals, extensions and refinancings thereof) if such restrictions are no more restrictive than those contained in the agreements governing the Debt so renewed, extended or refinanced; and (z) no Intermediate Holding Company shall incur, assume, create or suffer to exist any Debt (including any Guarantee of Debt) other than Debt of the Borrowers hereunder). 53 60 (ii) 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. (iii) AES, AES Hawaii, AES Barbers Point, Inc. and AES Deepwater may enter into and consummate the Designated Transaction. SECTION 5.13. Negative Pledge. Neither AES nor any Subsidiary 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 as set forth on Schedule II; (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; (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 of this Section, provided that such Debt is not increased and is not secured by any additional assets; (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; 54 61 (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 5.14. Consolidations, Mergers and Sales of Assets. (a) Neither 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 and (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 AES Finance or any Material AES Entity which are owned, directly or 55 62 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 than most recently ended is at least 1.80 to 1.00 (assuming for this purpose that such transfer occurred on the first day of such period of four consecutive fiscal quarters); and (v) AES Barbers Point, Inc. shall at all times remain a direct Subsidiary of AES Hawaii and AES Shady Point, Inc. shall at all times remain a direct Subsidiary of AES Oklahoma. SECTION 5.15. 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, (i) the aggregate outstanding principal amount of Loans for each day during such period shall not exceed $125,000,000, and (ii) no Letter of Credit shall be used, directly or indirectly, to fund, in whole or in part, any debt service reserve at any time during such period. 56 63 (c) No debt service reserve may be funded, directly or indirectly, in whole or in part for more than 180 consecutive days with one or more Letters of Credit or the proceeds of Loans. (d) For at least one period of 90 consecutive days during each fiscal year of AES, there shall be no outstanding Loan or Letter of Credit used, directly or indirectly, to fund, in whole or in part, any debt service reserve. SECTION 5.16. Cash Flow Coverage. The Cash Flow Coverage Ratio for any period of four consecutive fiscal quarters of AES shall not be less than 1.80 to 1.00. SECTION 5.17. Cash Flow to Total Debt Ratio. The Cash Flow to Total Debt Ratio shall not be less than 0.17 to 1.00 at any date. SECTION 5.18. Transactions with Affiliates. Except pursuant to agreements existing on the date hereof and listed on Schedule III 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 one million dollars, 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) 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 conditions 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 57 64 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 5.18 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. ARTICLE VI 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 5.18, 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); 58 65 (e) either Borrower shall fail to make any payment in respect of any Material Debt when due or within any applicable grace period; (f) any event or condition shall occur which (i) results in the acceleration of the maturity of any Debt of AES or any Subsidiary of AES (except AES Placerita and Central Termica San Nicolas S.A.) or the termination of any commitment to provide financing to AES or any Material AES Entity or (ii) in the case of either Borrower, enables (or, with the giving of notice or lapse of time or both, would enable) the holder of any Material Debt or any Person acting on such holder's behalf to accelerate the maturity thereof or (iii) enables (or, with the giving of notice or lapse of time or both, would enable) the holder of any Debt outstanding under the AES Light Non-Recourse Facility or any person acting on such holder's behalf to accelerate the maturity thereof or (iv) prior to the earlier of (x) July 31, 1996 and (y) the date on which AES receives the proceeds of at least $225,000,000 of Additional Permitted Subordinated Debt, at any time that a LIGHT Acquisition Letter of Credit is outstanding, the outstanding amount of Other LIGHT Non-Recourse Collateral posted to secure AES Coral Reef's bid in connection with the LIGHT Acquisition is less than $225,000,000; (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 59 66 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 $1,000,000 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 $1,000,000; (j) a judgment or order for the payment of money in excess of $1,000,000 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; 60 67 or AES Finance shall fail, at any time, to be a Wholly-Owned Consolidated Subsidiary; 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. 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 2.14. ARTICLE VII 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. 61 68 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 either 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 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. 62 69 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 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. 63 70 ARTICLE VIII 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, the obligations of the Banks to make Euro-Dollar Loans shall be suspended. 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 Domestic 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 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 either 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 shall be suspended. Before giving any notice to 64 71 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 Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to such Borrower to maturity and shall so specify in such notice, such Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, such Borrower shall borrow a Domestic Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Domestic Loan. 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, 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 Agreement or under its Note 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 65 72 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 Bank 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 either 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 66 73 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 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 either 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 9.01, 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 67 74 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 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 either 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 68 75 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. Domestic Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans to any Borrower has been 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: (a) all Loans to such Borrower which would otherwise be made by such Bank as Euro-Dollar Loans shall be made instead as Domestic Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and (b) after each of its Euro-Dollar Loans to such Borrower has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Domestic Loans to such Borrower instead. ARTICLE IX GUARANTY SECTION 9.01. The Guaranty. Subject, in the case of AES Finance, 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. 69 76 Upon failure by a Borrower to pay punctually any such amount, the applicable Guarantor shall, subject, in the case of AES Finance, 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; (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 70 77 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 AES'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 either 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 be reinstated at such time as though such payment had been due but not made at such time. SECTION 9.04. Waiver by AES. 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 either 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 71 78 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 AES Finance 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 X 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, either 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 AES Finance, 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 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, either 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 72 79 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 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 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. 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 73 80 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 AES 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 neither Borrower may assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment (and a corresponding interest in its Loan 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 74 81 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 75 82 required, new Notes are issued to the Assignee. In connection with any such assignment, the transferor Bank shall 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. 76 83 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 supersedes any and all prior agreements and understandings, oral or written, 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 AES Finance (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. Fronting Bank Obligations. Barclays Bank PLC ("Barclays") and Union Bank of California ("Union") are Fronting Banks only with respect to the Letters of Credit that were Existing Letters of Credit issued by them under the Existing Credit Agreement and they have no Commitments hereunder to make Loans or to purchase participations in Letters of Credit or any obligation to issue any additional Letters of Credit. If following good faith discussions, the terms on which either Barclays or Union, as the case may be, are to become a "Bank" hereunder are not agreed within 30 days following the Effective Date, AES and Morgan Guaranty Trust Company of New York, as Fronting Bank ("Morgan"), agree to use their best efforts to replace the Letters of Credit issued by Barclays or Union, as the case may be, with new Letters of Credit issued by Morgan as soon as is reasonably practicable. 77 84 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: Vice President, Chief Financial Officer and Secretary and Treasurer 1001 North 19th Street Arlington, VA 22209 Telecopy no.: (703) 528-4510 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By -------------------------------- Title: Vice President 78 85 BARCLAYS BANK PLC, as Fronting Bank By -------------------------------- Title: Director 222 Broadway New York, New York 10038 Attention: Letter of Credit Department MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Fronting Bank By -------------------------------- Title: 60 Wall Street New York, New York 10260-0060 Attention: James Finch Telex number: 177615 UNION BANK OF CALIFORNIA, N.A., as Fronting Bank By -------------------------------- Title: 445 South Figueroa Street Los Angeles, California 90071 Attention: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By -------------------------------- Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: James Finch Telex number: 177615 79 86 APPENDIX COMMITMENTS
Name of Bank Commitment ------------ ---------- Morgan Guaranty Trust Company of New York . . . . . . $425,000,000
87 PRICING SCHEDULE The "Euro-Dollar Margin", "Commitment Fee Rate" and "Letter of Credit Commission Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day:
================================================================================================== Level Level Level Level Level Status I II III IV V ================================================================================================== Euro-Dollar Margin 1.00% 1.50% 1.75% 2.00% 2.50% - -------------------------------------------------------------------------------------------------- Commitment Fee Rate 0.25% 0.375% 0.375% 0.50% 0.50% - -------------------------------------------------------------------------------------------------- Letter of Credit Commission Rate 1.00% 1.50% 1.75% 2.00% 2.50% ==================================================================================================
For purposes of this Schedule, the following terms have the following meanings: "Level I Status" exists at any date if, at such date, AES's long-term debt is rated BBB- or higher by S&P and Baa3 or higher by Moody's. "Level II Status" exists at any date if, at such date, (i) AES's long-term debt is rated BB+ or higher by S&P and Ba1 or higher by Moody's and (ii) Level I Status does not exist. "Level III Status" exists at any date if, at such date, (i) AES's long-term debt is rated BB or higher by S&P and Ba2 or higher by Moody's and (ii) neither Level I Status nor Level II Status exists. "Level IV Status" exists at any date if, at such date, (i) AES's long-term debt is rated BB- or higher by S&P and Ba3 or higher by Moody's and (ii) none of Level I Status, Level II Status and Level III Status exists. 2 88 "Level V Status" exists at any date if, at such date, no other Status exists. "Moody's" means Moody's Investors Service, Inc. "S&P" means Standard & Poor's Rating Group. "Status" refers to the determination which of Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status exists at any date. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of AES (including, if no senior unsecured long-term debt securities of AES are outstanding, any such ratings that Moody's or S&P has explicitly stated may be implied from the ratings it has assigned to AES's outstanding subordinated unsecured long-term debt securities) without third-party credit enhancement, and any rating assigned to any other debt security of AES shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. 3 89 Schedule I EXISTING DEBT [TO COME] 90 Schedule II EXISTING LIENS [TO COME] 91 Schedule III EXISTING AGREEMENTS WITH AFFILIATES [TO COME] 92 Schedule IV EXISTING LETTERS OF CREDIT [TO COME] 2 93 Schedule V NON-CONFORMING LETTER OF CREDIT Letter of Credit Number 836978 issued by Barclays Bank PLC, dated June 23, 1994, in favor of Amwest Surety Insurance Company 3 94 EXHIBIT A NOTE New York, New York , 19 For value received, [The AES Corporation] [Name of AES Finance], a Delaware corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of May 20, 1996 among The AES 95 Corporation, the banks listed on the signature pages thereof, Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank, as Fronting Banks, and Morgan Guaranty Trust Company of New York, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the guarantee hereof in certain circumstances, the prepayment hereof and the acceleration of the maturity hereof. [BORROWER] By ------------------------- 2 96 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL
- ------------------------------------------------------------------ Amount of Amount of Type of Principal Maturity Notation Date Loan Loan Repaid Date Made By - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------
3 97 EXHIBIT B SUBSIDIARY GUARANTY GUARANTY, dated as of May 20, 1996, made by AES HAWAII MANAGEMENT CO., INC. ("AES Hawaii") and AES OKLAHOMA MANAGEMENT CO., INC. ("AES Oklahoma"), corporations organized and existing under the laws of Delaware (each individually a "Guarantor" and, collectively, the "Guarantors"), in favor of the banks (the "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, Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank, as Fronting Banks, and the Agent have entered into a Credit Agreement, dated as of even date herewith (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 subsidiary, AES Barbers Point, Inc. ("AES Barbers Point") and AES Shady Point, Inc. ("AES Shady Point"), 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 and the Agent were willing to enter into the Amendment, 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 98 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, 2 99 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; (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 3 100 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. (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: 4 101 (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. 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 the Guarantor (other than stock splits and dividends payable solely in equity securities of the 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 the 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 the Borrower, or, except as may be required by the Shady Point Financing Documents (as defined in Schedule I hereto), any Subsidiary of the Borrower. "Actionable Default" means an Event of Default 5 102 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 either 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 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 6 103 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) subject, in the case of AES Oklahoma, to the provisions of Section 15, 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 Agent and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), the Agent 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 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. 7 104 SECTION 15. Termination of Obligations of AES Oklahoma Upon Attainment of Level I Status. If, at any time, Level I Status exists and no Debt or Letters of Credit are outstanding under the AES Light Non-Recourse Facility and all commitments to extend credit thereunder shall have terminated, the obligations of AES Oklahoma hereunder shall be immediately and irrevocably terminated. SECTION 16. Governing Law. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of New York. 8 105 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 HAWAII MANAGEMENT COMPANY, INC. By: -------------------------- Title: Vice President AES OKLAHOMA MANAGEMENT CO., INC. By: --------------------------- Title: Vice President 9 106 SCHEDULE 1 TO GUARANTY (1) The Application for Letter of Credit and Reimbursement Agreement, dated as of June 23, 1987, among AES Shady Point, certain banks named therein and Security Pacific National Bank, as issuing bank and as agent for such banks, (2) the Subordinated Debt Agreement, dated as of June 23, 1987, among AES Shady Point, the subordinated lenders named therein and Nichimen America, Inc. as agent for such lenders, (3) the Subordinated Debt Agreement, dated as of December 6, 1991, between AES Shady Point and The AES Corporation as subordinated lender (it being understood that this debt may be refinanced by Additional Subordinated Debt (as defined therein) and secured on a pari passu basis with the Nichimen subordinated debt referred to above), and (4) the other "Project Documents" referred to therein, as each of the above may be amended from time to time, and any successor credit facility providing for the refinancing of the Debt under such documents (collectively, the "Shady Point Financing Documents"). 10 107 EXHIBIT C CLOSING DATE OPINION OF THE GENERAL COUNSEL OF AES To the Banks, the Fronting Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: I am the General Counsel of The AES Corporation ("AES") and have acted as counsel for AES and each of the Subsidiary Guarantors (as defined in the Credit Agreement referred to below) in connection with the Credit Agreement (the "Credit Agreement") dated as of May 20, 1996 among AES, the banks listed on the signature pages thereof, Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank, as Fronting Banks (the "Fronting Banks"), and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of the Obligors pursuant to Section 3.01(c) of the Credit Agreement. AES and the Subsidiary Guarantors are sometimes hereinafter referred to as the "Obligors" and each as an "Obligor". I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I am a member of the bar of the State of New York and I do not purport to be expert on or to express any opinion herein concerning any matter governed by any laws other than the State of New York, the general corporation laws of the State of Delaware and the federal laws of the United States of America. 108 Upon the basis of the foregoing, I am of the opinion that: 1. Each of the Obligors is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers and, to the best of my knowledge after due inquiry, all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. 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 the certificate of incorporation or by-laws of such Obligor or, to the best of my knowledge after due inquiry, of applicable law or regulation or of any agreement, judgment, injunction, order, decree or other instrument binding upon AES or any Material AES Entity or result in the creation or imposition of any Lien on any asset of AES or any of its Subsidiaries, except for Liens on amounts deposited in the cash collateral accounts contemplated by the Financing Documents and except as set forth in the proviso to Section 4.02 of the Credit Agreement. 3. The Credit Agreement constitutes a valid and binding agreement of AES and each Note of AES constitutes a valid and binding obligation of AES, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, fraudulent conveyance, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 4. The Subsidiary Guaranty constitutes a valid and binding agreement of each of the Subsidiary Guarantors, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, fraudulent conveyance, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 5. Except as disclosed in AES's March 1996 Form 10-Q, there is no action, suit or proceeding pending against, or to the best of my knowledge 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 2 109 business, consolidated financial position or consolidated results of operations of AES and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of the Credit Agreement, the Note or the Subsidiary Guaranty. 6. Each of the Material AES Entities is a corporation validly existing and in good standing under the laws of 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. 7. None of the Obligors is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 8. 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 Applied Energy Services Electric Limited are exempt holding companies under Section 3(a)(5) of PUHCA by order of the Securities and Exchange Commission. Very truly yours, 3 110 EXHIBIT D OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT May 20, 1996 To the Banks, the Fronting Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of May 20, 1996 among The AES Corporation, a Delaware corporation ("AES"), the banks listed on the signature pages thereof (the "Banks"), Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank, as Fronting Banks (the "Fronting Banks"), and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. The Credit Agreement, the Note and the Subsidiary Guaranty are referred to herein collectively as the "Documents". AES and the Subsidiary Guarantors are referred to herein collectively as the "Obligors". We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 111 The Credit Agreement constitutes a valid and binding agreement of AES, the Note constitutes a valid and binding obligation of AES, and the Subsidiary Guaranty constitutes a valid and binding agreement of each Subsidiary Guarantor, in each case enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. The foregoing opinion is subject to the effect, if any, of Section 548 of the United States Bankruptcy Code or any comparable provision of State law. For purposes of the foregoing opinions, we have assumed with your permission and without independent investigation, that (i) each of the Obligors is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, (ii) the execution, delivery and performance by each Obligor of each Document to which it is a party are within its corporate powers and 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 on such Obligor or any of its Subsidiaries or Affiliates and (iii) the Documents have been duly executed and delivered by each Obligor party thereto. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, 2 112 EXHIBIT E AES FINANCE ADDITION DATE OPINION OF THE GENERAL COUNSEL OF AES To the Banks, the Fronting Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: I am the General Counsel of The AES Corporation ("AES") and have acted as counsel for [Name of AES Finance] ("AES Finance") in connection with the Credit Agreement (the "Credit Agreement") dated as of May 20, 1996 among AES, the banks listed on the signature pages thereof, Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank, as Fronting Banks, and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of AES Finance pursuant to Section 3.02(c) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I am a member of the bar of the State of New York and I do not purport to be expert on or to express any opinion herein concerning any matter governed by any laws other than the State of New York, the general corporation laws of the State of Delaware and the federal laws of the United States of America. 113 Upon the basis of the foregoing, I am of the opinion that: 1. The execution, delivery and performance by AES Finance of the Financing Documents to which it is a party 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, to the best of my knowledge after due inquiry, any provision of applicable law or regulation 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 any of its Subsidiaries, except for Liens on amounts deposited in the cash collateral accounts contemplated by the Financing Documents and except as set forth in the proviso to Section 4.02 of the Credit Agreement. 2. The Credit Agreement constitutes a valid and binding agreement of AES Finance and each Note of AES Finance constitutes a valid and binding obligation of AES Finance, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, fraudulent conveyance, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 3. AES Finance is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4. AES Finance is not 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. Very truly yours, 2 114 EXHIBIT F AES FINANCE ADDITION DATE OPINION OF THE LOCAL COUNSEL OF AES To the Banks, the Fronting Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have acted as counsel to [Name of AES Finance] ("AES Finance") in [jurisdiction of organization of AES Finance] in connection with the Credit Agreement (the "Credit Agreement") dated as of May 20, 1996 among The AES Corporation ("AES"), the banks listed on the signature pages thereof, Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank, as Fronting Banks, and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of AES Finance pursuant to Section 3.02(d) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I am a member of the bar of [jurisdiction of organization of AES Finance] and I do not purport to be expert on or to express any opinion herein concerning any matter governed by any laws other than [jurisdiction of organization of AES Finance]. 115 Upon the basis of the foregoing, I am of the opinion that: 1. AES Finance is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation. 2. The execution, delivery and performance by AES Finance of the Financing Documents to which it is a party are within AES Finance'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 the certificate of incorporation or by-laws of AES Finance or, to the best of my knowledge after due inquiry, of applicable law or regulation 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 any of its Subsidiaries, except for Liens on amounts deposited in the cash collateral accounts contemplated by the Financing Documents and except as set forth in the proviso to Section 4.02 of the Credit Agreement. 3. The choice of New York law to govern the Credit Agreement and the Notes of AES Finance is a valid and effective choice of law under the laws of [jurisdiction of incorporation of AES Finance] and adherence to existing judicial precedents would require a court sitting in [jurisdiction of AES Finance] to abide by such choice of law. 4. There is no income, stamp or other tax of [jurisdiction of incorporation of AES Finance and, if different, of AES Finance's principal place of business] or any taxing authority thereof or therein, imposed by or in the nature of withholding or otherwise, which is imposed on any payment to be made by AES Finance pursuant to the Credit Agreement or any other Financing Document, or is imposed by virtue of the execution, delivery or enforcement of the Credit Agreement or any other Financing Document. Very truly yours, 2 116 EXHIBIT G ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), THE AES CORPORATION ("AES"), BARCLAYS BANK PLC and UNION BANK OF CALIFORNIA, N.A., as Fronting Banks (each a "Fronting Bank"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of May 20, 1996 among AES, the Assignor and the other Banks party thereto, as Banks, Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank as Fronting Banks, and the Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrowers and participate in Letters of Credit issued for the account of the Borrowers in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Loans made to the Borrowers by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof and participations purchased by the Assignor in Letter of Credit Liabilities in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Loans and participating interests in outstanding Letter of Credit Liabilities, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; 117 NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by the Assignor outstanding at the date hereof and the corresponding portion of participating interests purchased by the Assignor in Letter of Credit Liabilities outstanding on the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, AES, each Fronting Bank and the Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof, (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.* It is understood that commitment fees and/or letter of credit commissions accrued to the date hereof are for the account of the Assignor and such fees and commissions accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby - ---------------------------------- *Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. 2 118 agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. SECTION 4. Consent of AES, the Fronting Banks and the Agent. This Agreement is conditioned upon the consent of AES, the Fronting Banks and the Agent pursuant to Section 10.06(c) of the Credit Agreement. The execution of this Agreement by AES, the Fronting Banks and the Agent is evidence of this consent. Pursuant to Section 10.06(c) AES agrees, and agrees to cause each other Borrower, if any, to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein. SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of any Obligor, or the validity and enforceability of the obligations of any Obligor in respect of the Credit Agreement or any other Financing Document. The Assignee acknowledges that it has, independently and without reliance on the Assignor, any other Bank, the Agent or any Fronting 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 and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Obligors. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. 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. 3 119 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By -------------------------- Title: [ASSIGNEE] By -------------------------- Title: THE AES CORPORATION By -------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By -------------------------- Title: BARCLAYS BANK PLC, as Fronting Bank By -------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Fronting Bank By -------------------------- Title: 4 120 UNION BANK OF CALIFORNIA, N.A., as Fronting Bank By -------------------------- Title: 5 121 EXHIBIT H EXTENSION AGREEMENT The AES Corporation 1001 North 19th Street Arlington, VA 22209 Morgan Guaranty Trust Company of New York, as Agent under the Credit Agreement referred to below 60 Wall Street New York, New York 10260 Gentlemen: The undersigned hereby agree to extend, effective [Extension Date], the Termination Date under the Credit Agreement dated as of May 20, 1996 among The AES Corporation, the Banks listed therein, Barclays Bank PLC, Morgan Guaranty Trust Company of New York and Union Bank of Cliafornia, N.A., as Fronting Banks, and Morgan Guaranty Trust Company of New York, as Agent (the "Credit Agreement"), for one year to [date to which the Termination Date is extended]. Terms defined in the Credit Agreement are used herein as therein defined. This Extension Agreement shall be construed in accordance with and governed by the law of the State of New York. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By --------------------------- Title: [NAME OF BANK] By --------------------------- Title: 1 122 Agreed and accepted: THE AES CORPORATION By ----------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By ----------------------- Title: 2 EX-10.65 3 REIMBURSEMENT AGREEMENT. 1 EXHIBIT 10.65 REIMBURSEMENT AGREEMENT between AES Light, Inc. and Morgan Guaranty Trust Company of New York dated as of May 20, 1996 2 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.02. Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE II LETTER OF CREDIT; TERM LOAN COMMITMENT SECTION 2.01. Issuance of the Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.02. Exchange of the Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.03. Term Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.04 Required Terms of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.05 Notice of Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.06 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE III CONDITIONS SECTION 3.01. Conditions Precedent to Issuance of Initial LC . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.02 Conditions Precedent to Issuance of Each Exchange LC . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.03 Conditions Precedent to Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE IV THE LOAN SECTION 4.01. Reimbursement Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4.02. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 4.03. Maturity of the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 4.04. Interest on the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 4.05. Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 4.06. Mandatory Prepayment of the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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Page ---- SECTION 4.07. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 4.08. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.09. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.10. General Provisions as to Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.11. Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 4.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 4.13. [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 4.14. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 4.15. Basis for Determining Interest Rate Inadequate or Unfair . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 4.16. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 4.17. Base Rate Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.01. Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 5.02. Corporate and Governmental Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . . 22 SECTION 5.03. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 5.04. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 5.05. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 5.06. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 5.07. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 5.08. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 5.09. Not an Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE VI COVENANTS SECTION 6.01. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 6.02. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.03. Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.04. Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 6.05. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 6.06. Inspection of Property, Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 6.07. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 6.08. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 6.09. Investments; Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 6.10. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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Page ---- SECTION 6.11. Consolidations, Mergers and Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 6.12. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 6.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 6.14. Permanent Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE VII DEFAULTS SECTION 7.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 8.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 8.04. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 8.05. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 8.06. Limited Liability of the LC Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 8.07. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 8.08. Jurisdiction And Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 8.09. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 8.10. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 8.11. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 8.12. Counterparts; Integration; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 8.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Exhibit A - Form of Letter of Credit Exhibit B - Form of Note Exhibit C - Form of Pledge Agreement Exhibit D - Form of Opinion of Counsel to Borrower Exhibit E - Form of Opinion of Counsel to LC Issuer Exhibit F - Form of Registration Rights Agreement iii 5 REIMBURSEMENT AGREEMENT REIMBURSEMENT AGREEMENT, dated as of May 20, 1996 between AES Light, Inc., a Delaware corporation (together with its successors, the "Borrower"), and Morgan Guaranty Trust Company of New York (together with its successors and assigns, the "LC Issuer"). The LC Issuer and the Borrower hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, shall have the following meanings. "Adjusted Base Rate" means for any day a rate per annum equal to the sum of (i) the Base Rate for such day plus (ii) 1.50%. "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 4.04(a). "AES" means The AES Corporation, a Delaware corporation, and its successors. "AES Coral Reef" means AES Coral Reef, Inc., a limited liability company organized and existing under the laws of The Cayman Islands, and its successors. "AES Senior Credit Agreement" means the Credit Agreement dated as of the date hereof among AES, the banks listed on the signature pages thereof, Barclays Bank PLC, Union Bank and Morgan Guaranty Trust Company of New York, as Fronting Banks, and Morgan Guaranty Trust Company of New York, as Agent, as the same may be amended, modified or supplemented from time to time. "Affiliate" means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Borrower (a "Controlling Person") or (ii) any Person (other than the Borrower or a Subsidiary of the Borrower) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" 6 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. "Agreement" means this Reimbursement Agreement. "Asset Sale and Insurance Proceeds" has the meaning set forth in Section 4.06. "Assignee" has the meaning set forth in Section 8.05. "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. "Beneficiary" means Camara de Liquidacion E Custodia S/A CLC. "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. "Borrowing Date" means the date the Term Loan is made. "Collateral Value Ratio" has the meaning set forth in the Pledge Agreement. "Date of Issuance" means May 20, 1996, the date on which the Initial LC is to be issued pursuant to Section 2.01 hereof. "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 Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (vi) all Debt of others Guaranteed by such Person and (vii) all obligations of such Person (whether contingent or non-contingent) to reimburse any bank or other Person in 2 7 respect of amounts paid under a letter of credit or similar instrument. "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. "Dollars" and the sign "$" means lawful money of the United States. "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. "Drawing" means a drawing under the Letter of Credit. "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 Borrower, any Subsidiary of the Borrower 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 Borrower or any Subsidiary of the Borrower, 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. 3 8 "Euro-Dollar Rate" means a rate of interest determined pursuant to Section 4.04(a) on the basis of an Adjusted London Interbank Offered Rate. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 4.04(a). "Event of Default" has the meaning set forth in Section 7.01. "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 LC Issuer. "Financing Documents" means this Agreement, the Letter of Credit, the Note and the Pledge Agreement, in each case as the same may be amended, modified or supplemented from time to time. "Financing Proceeds" has the meaning set forth in Section 4.06. "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 or in any manner providing for the payment of any Debt of any other Person or otherwise protecting the holder of such Debt against loss (whether arising by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise); 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 4 9 petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "Interest Period" means (i) in the case of the first Interest Period, the period commencing on the date the Loan is made and ending one month thereafter and (ii) in the case of each subsequent Interest Period, the period commencing on the last day of the immediately preceding Interest Period and ending one month thereafter; 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 which would otherwise end after the Maturity Date shall end on the Maturity 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, time deposit or otherwise. "Letter of Credit" means the letter of credit (the "Initial LC") issued on the Date of Issuance pursuant to Section 2.01 and any letter of credit (an "Exchange LC") issued pursuant to Section 2.02 in exchange for the Initial LC or any previously issued Exchange LC. "LC Issuer" has the meaning set forth in the introductory paragraph to this Agreement. "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 5 10 purposes of this Agreement, the Borrower 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. "LIGHT" means Light-Servicos de Electricidades S.A., an integrated utility servicing Rio de Janeiro which is being privatized by the government of Brazil. "LIGHT Acquisition" means the acquisition by AES Coral Reef pursuant to the auction of such shares through Sistema Electronico de Negociacao Nacional of shares representing at least a 10% ownership interest in the common equity of LIGHT and at least 10% of the voting power of all shares entitled to vote at a general shareholder's meeting of LIGHT. "Loan" means either (i) the Reimbursement Obligation, if a Drawing is made under the Letter of Credit or (ii) the Term Loan made to the Borrower at its request pursuant to Section 2.03 simultaneously with the return of the undrawn Letter of Credit. "London Interbank Offered Rate" has the meaning set forth in Section 4.04(a). "Maturity Date" means November 20, 1997, or if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $1,000,000. "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 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. "Note" means a promissory note of the Borrower, substantially in the form of Exhibit B hereto, evidencing the obligation of the Borrower to repay the Loan. "Notice of Borrowing" has the meaning set forth in Section 4.01. 6 11 "Other Letters of Credit" means letters of credit in an aggregate amount of not less than $225,000,000 issued under the AES Senior Credit Agreement in support of the obligation of AES Coral Reef to pay the purchase price payable by it in connection with the LIGHT Acquisition. "Other LIGHT Non-Recourse Collateral" means letters of credit, guarantees, bid bonds and similar instruments, cash proceeds of Debt and/or securities purchased with cash proceeds of Debt, in each case which are recourse only to AES Light, AES Coral Reef or any other Subsidiary of AES having a direct or indirect interest in LIGHT and which are posted to secure AES Coral Reef's bid in connection with the LIGHT Acquisition or are actually paid as part of the purchase price in respect of the LIGHT Acquisition; provided that Letters of Credit and Loans shall not constitute Other LIGHT Non-Recourse Collateral. "Participant" has the meaning set forth in Section 8.05. "Permanent Financing" means the debt or equity securities to be issued by AES or a subsidiary of AES as soon as practicable following the Date of Issuance for the purpose of refinancing the Loan as provided in Section 6.14. "Person" means an individual, corporation, partnership, joint venture, association, business trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "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. "Pledge Agreement" means the Pledge Agreement dated as of the date hereof between the LC Issuer and the Borrower, substantially in the form of Exhibit C hereto. 7 12 "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. "Registration Rights Agreement" means a Registration Rights Agreement made by AES for the benefit of the LC Issuer substantially in the form of Exhibit F hereto. "Regulations G and U" means Regulations G and U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Reimbursement Obligation" has the meaning specified in Section 4.01. "Restricted Payment" means (i) any dividend or other distribution on any shares of the Borrower's capital stock (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's capital stock or (b) any option, warrant or other right to acquire shares of the Borrower's capital stock. "Subsidiary" means, at any date, with respect to any Person, any corporation or other entity of which more than 50% of the capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions is at the time directly or indirectly owned by such Person. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto imposed by any governmental authority, excluding, in the case of the LC Issuer, taxes imposed on or calculated with reference to its net income or net worth, and franchise taxes imposed on it, by the jurisdiction of the office of the LC Issuer that issues the Letter of Credit. "Temporary Cash Investment" means any Investment in (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 Group and P-1 by Moody's Investors Service, Inc., (iii) time deposits with, including certificates of deposit issued by, any office of any bank or trust company that has capital, surplus and undivided profits aggregating at least $500,000,000, (iv) repurchase agreements with respect to securities described in clause 8 13 (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above or (v) 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, provided in each case that such Investment matures within one year from the date of acquisition thereof by the Borrower or a Subsidiary of the Borrower. "Transferee" means an Assignee or a Participant. "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. 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 ("GAAP"), applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent financial statements of the Borrower delivered to the LC Issuer; provided that, if the Borrower notifies the LC Issuer that the Borrower wishes to amend any covenant in Article VI or any related definition to eliminate the effect of any change in GAAP on the operation of such covenant (or if the LC Issuer notifies the Borrower that it wishes to amend Article VI or any related definition for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the LC Issuer. 9 14 ARTICLE II LETTER OF CREDIT; TERM LOAN COMMITMENT SECTION 2.01. Issuance of the Letter of Credit. The LC Issuer agrees that it will issue the Initial LC on the Date of Issuance, provided that the obligation of the LC Issuer to issue the Initial LC shall be subject to satisfaction or waiver of the conditions precedent set forth in Section 3.01. The face amount of the Letter of Credit shall be $225,000,000. SECTION 2.02. Exchange of the Letter of Credit. The LC Issuer agrees, upon two Business Days' prior written notice from the Borrower, to issue, on any date prior to July 15, 1996, an Exchange LC dated the date of its issuance, expiring on the date (which shall not be later than July 15, 1996) and in a face amount (which face amount shall not exceed the face amount of the Letter of Credit in exchange for which such Exchange LC is to be issued) requested by the Borrower in such notice; provided that the obligation of the LC Issuer to issue any Exchange LC shall be subject to the satisfaction or waiver of the conditions precedent set forth in Section 3.02. There shall at no time be more than one Letter of Credit outstanding hereunder at any time. SECTION 2.03. Term Loan Commitment. The LC Issuer agrees, on the terms and conditions set forth in this Agreement and subject to the satisfaction of the conditions set forth in Section 3.03, to make a loan (the "Term Loan") to the Borrower pursuant to this Section on or prior to July 15, 1996 in a principal amount not to exceed the amount available for drawing under the Letter of Credit outstanding on such date. SECTION 2.04 Required Terms of Letters of Credit. Each Letter of Credit issued hereunder shall: (a) by its terms expire not later than July 15, 1996; and (b) be in a face amount (x) in the case of the Initial LC, of $225,000,000 and (y) in the case of any Exchange LC, not in excess of the face amount of the Letter of Credit for which such Exchange LC is to be exchanged. SECTION 2.05 Notice of Issuance. The Borrower may request that a Letter of Credit be issued by giving the 10 15 LC Bank a notice (a "Notice of Issuance") at least two Domestic Business Days before such Letter of Credit is to be issued, specifying: (a) the date of issuance of such Letter of Credit (which (i) shall be the Date of Issuance, in the case of the Initial LC, and (ii) shall not be later than July 14, 1996); (b) the expiry date of such Letter of Credit (which shall comply with the requirements of Section 2.04(a)); and (c) the face amount of such Letter of Credit (which shall comply with the requirements of Section 2.04(b)). SECTION 2.06 Notice of Borrowing. (a) The Borrower shall give the LC Issuer notice (a "Notice of Borrowing") not later than 11:00 A.M. (New York City time) on the third Euro-Dollar Business Day before the making of the Term Loan specifying: (i) the date of borrowing of such Term Loan, which shall be a Euro-Dollar Business Day; and (ii) the principal amount of such Term Loan, which shall not exceed the face amount of the Letter of Credit outstanding on the date of borrowing of the Term Loan. (b) Not later than 2:00 P.M. (New York City time) on the date of the borrowing of the Term Loan, the LC Issuer shall make available to the Borrower the amount of such Term Loan in Federal or other funds immediately available in New York City. ARTICLE III CONDITIONS SECTION 3.01. Conditions Precedent to Issuance of Initial LC. As a condition precedent to the issuance of the Initial LC, (a) the LC Issuer shall have received on or before the Date of Issuance the following, each dated the Date of Issuance, in form and substance satisfactory to the LC Issuer: 11 16 (i) counterparts hereof, of the Pledge Agreement and of the Registration Rights Agreement, each signed by each of the parties hereto and thereto; (ii) a duly executed Note dated the Date of Issuance complying with the provisions of Section 4.05; (iii) the Pledged Stock (as defined in the Pledge Agreement), together with undated stock powers executed in blank; (iv) a duly executed Federal Reserve Form U-1 in connection with the extension of credit under this Agreement; (v) evidence that the AES Senior Credit Agreement shall have become effective and all conditions to the issuance of the Other Letters of Credit shall have been satisfied and all Other Letters of Credit shall have been issued; (vi) an opinion of the General Counsel ofAES, and an opinion of Davis Polk & Wardwell, counsel to the LC Issuer, substantially in the respective forms of Exhibits D and E hereto; (viii) copies of the resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance by the Borrower of the Financing Documents, certified by a duly authorized officer of the Borrower (which certificate shall state that such resolutions are in full force and effect on the Date of Issuance); (ix) certified copies of all approvals, authorizations, or consents of, or notices to or registrations with, any governmental body or agency required for the Borrower, if necessary, to enter into the Financing Documents; (x) a certificate of a duly authorized officer of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign the Financing Documents and the other documents to be delivered by the Borrower hereunder; (xi) payment of all fees and other amounts then payable (including, without limitation, all fees and expenses of counsel to the LC Issuer payable pursuant to Section 8.07) with respect to the Initial LC on the Date of Issuance; 12 17 (xii) a certificate signed by a duly authorized officer of the Borrower dated the Date of Issuance, to the effect that: (a) the representations and warranties contained in Article V hereof are true and correct on and as of the Date of Issuance as though made on and as of such date; and (b) no Default has occurred and is continuing or would result from the issuance of the Letter of Credit; (xiii) a Notice of Issuance inrespect of the Initial LC as required by Section 2.04; and (xiv) such other documents, instruments or approvals (and, if requested by the LC Issuer, certified duplicates of executed copies thereof) as the LC Issuer may reasonably request; (b) each of the representations and warranties of the Borrower contained in any Financing Document shall be true and correct on and as of the Date of Issuance; and (c) no Default will have occurred and be continuing either immediately before or after giving effect to the issuance of the Initial LC. SECTION 3.02 Conditions Precedent to Issuance of Each Exchange LC. The LC Issuer's obligation to issue any Exchange LC shall be subject to the satisfaction of each of the following conditions: (i) receipt by the LC Issuer of a Notice of Issuance in respect of such Exchange LC, as required by Section 2.04; (ii) arrangements satisfactory to the LC Issuer shall have been made for the simultaneous return, undrawn, to the LC Issuer, for cancellation of the Letter of Credit to be exchanged for such Exchange LC; (iii) each of the representations and warranties of the borrower set forth in any Financing Document shall be true and correct on and as of the date of issuance of such Exchange LC; (iv) no Default will have occurred and be continuing either immediately before or after the issuance of such Exchange LC; and (v) the sum of (x) the face amount of such Exchange LC and (y) the aggregate amount of Other LIGHT Non-Recourse Collateral outstanding immediately after 13 18 the issuance of such Exchange LC and the cancellation of the Letter of Credit for which such Exchange LC is exchanged will not be less than $225,000,000. SECTION 3.03 Conditions Precedent to Term Loan. The LC Issuer's obligation to make the Term Loan is subject to the satisfaction of the following conditions: (i) all of the conditions set forth in Section 3.01 shall have been satisfied, the Initial LC shall have been issued and no Drawing shall have been made under any Letter of Credit; (ii) receipt by the LC Issuer of a Notice of Borrowing as required by Section 2.06; (iii) arrangements satisfactory to the LC Issuer shall have been made for (x) the simultaneous return to the LC Issuer of the Letter of Credit undrawn for cancellation and (y) the use of the proceeds of the Term Loan solely to pay the purchase price payable by AES Coral Reef in connection with the LIGHT Acquisition; (iv) each of the representations and warranties of the Borrower contained in any Financing Document shall be true and correct on and as of the date of borrowing of the Term Loan, and (v) no Default will have occurred and be continuing either immediately before or after giving effect to the making of the Term Loan. ARTICLE IV THE LOAN SECTION 4.01. Reimbursement Obligation. If at any time the LC Issuer shall make a payment to the Beneficiary in respect of the Drawing, the Borrower shall be irrevocably and unconditionally obligated to reimburse the LC Issuer for the amount of such payment, together with interest thereon as hereinafter provided. The obligation of the Borrower to so reimburse the LC Issuer with respect to payments made in respect of the Drawing is referred to herein as the "Reimbursement Obligation". The amount of any payments made in respect of the Drawing giving rise to the Reimbursement Obligation is referred to herein as the "principal" amount of the Reimbursement Obligation. 14 19 SECTION 4.02. Obligations Absolute. The obligations of the Borrower in respect of Reimbursement Obligation, the Loan and the other obligations hereunder 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: (a) any lack of validity or enforceability of the Letter of Credit or any of the other Financing Documents; (b) any amendment or waiver of or any consent to departure from this Agreement or any of the other Financing Documents; (c) the existence of any claim, setoff, counterclaim, defense or other rights which the Borrower may have at any time against any beneficiary of the Letter of Credit, the LC Issuer or any other Person, whether in connection with this Agreement, the other Financing Documents or any unrelated transactions; (d) any statement or any other document presented under the 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; (e) payment by the LC Issuer under the Letter of Credit against presentation of a draft or certificate which does not comply with the terms of the Letter of Credit; or (f) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; provided that such other circumstance or happening shall not have been the result of the gross negligence or wilful misconduct of the LC Issuer. SECTION 4.03. Maturity of the Loan. The Loan shall mature, and the outstanding principal amount thereof, together with accrued and unpaid interest thereon to the date of payment, shall become due and payable on the Maturity Date. SECTION 4.04. Interest on the Loan. (a) Except as provided in Sections 4.15, 4.16 and 4.17, the Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period related thereto, at 15 20 a rate per annum equal to the sum of 2.5% 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. 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 1/100 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 1/16 of 1%) of the respective rates per annum at which one-month deposits in dollars are offered to Morgan Guaranty Trust Company of New York in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Loan. "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 the Loan is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of the LC Issuer 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. (b) Interest based on the Adjusted Base Rate pursuant to Section 4.15, 4.16 or 4.17 shall be payable monthly in arrears on the last Domestic Business Day of each month. (c) Any overdue principal of or interest on the 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 Adjusted Base Rate for such day. SECTION 4.05. Note. The Loan shall be evidenced by a single Note payable to the order of the LC Issuer in an 16 21 amount equal to the aggregate unpaid principal amount of the Loan. SECTION 4.06. Mandatory Prepayment of the Loan. (a) Promptly upon receipt, directly or indirectly, by AES or any Subsidiary of AES having a direct or indirect interest in LIGHT, of the cash proceeds (net of commissions, fees and expenses incurred by AES or such Subsidiary in connection therewith) from the issuance of (i) Debt for borrowed money (other than Debt incurred by AES under the AES Senior Credit Agreement) or (ii) common stock or other equity securities (other than common stock of AES issued in connection with employee stock options, director stock options or other employee benefit plans) (collectively, "Financing Proceeds"), such Financing Proceeds shall be applied (x) to prepay the aggregate principal amount of the Loan then outstanding, if any, until paid in full or (y) if the Letter of Credit is outstanding and no Drawing shall have been made under the Letter of Credit, to cash collateralize the Letter of Credit up to the full amount available for drawing thereunder (without regard to whether any conditions to drawing can then be met). (b) Promptly upon receipt, directly or indirectly, by AES or any Subsidiary of AES of the cash proceeds (net of reasonable costs of sale and amounts required to be retained as collateral) of sales of assets (other than sales made in the ordinary course of business) or any proceeds of any casualty insurance, condemnation awards or other recoveries ("Asset Sale and Insurance Proceeds"), such Asset Sale and Insurance Proceeds shall (to the extent not required to be applied to the prepayment of other Debt by the terms of any agreements as in effect on the date hereof) be applied (x) to prepay the aggregate principal amount of the Loan then outstanding, if any, until paid in full or (y) if the Letter of Credit is outstanding and no Drawing shall have been made under the Letter of Credit, to cash collateralize the Letter of Credit up to the full amount available for drawing thereunder (without regard to whether any conditions to drawing can then be met). (c) Each payment of principal with respect to the Loan under this Section 4.06 shall be made together with accrued and unpaid interest on the principal amount being prepaid to the date of prepayment. SECTION 4.07. Optional Prepayments. Subject to Section 4.14, the Borrower may prepay the Loan, in whole or in part (in principal amounts of at least $500,000) upon at least one day's prior irrevocable written notice to the LC 17 22 Issuer (and such amount specified in such notice shall become due and payable on the date so specified) by paying an amount equal to the aggregate principal amount being prepaid, together, in each case, with accrued and unpaid interest on the principal amount being prepaid to the date of prepayment. SECTION 4.08. Computation of Interest. Interest on the Loan, and all fees hereunder, 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 4.09. Fees. (a) The Borrower agrees to pay to the LC Issuer a letter of credit fee on the amount available to be drawn under the Letter of Credit (without regard to whether any conditions to drawing can then be met), for each day from the Date of Issuance to the earlier of the date of the Drawing, if any, and the Termination Date, at a rate (the "LC Fee Rate") per annum equal to 2.5%; provided that the LC Fee Rate for any day shall be 1% per annum with respect to the portion (if any) of such amount which has been cash collateralized pursuant to Section 4.06. Such fee shall be payable in arrears on the earlier of the date of the Drawing, if any, and the Termination Date. (b) The Borrower shall pay to the LC Issuer at the times and in the amounts set forth therein the fees specified in the letter agreement dated May 18, 1996 between AES, the LC Issuer and J.P. Morgan Securities Inc. (c) Any overdue fees shall bear interest, payable on demand, for each day until paid at a rate per annum equal to 2% plus the Adjusted Base Rate for such day. SECTION 4.10. General Provisions as to Payments. The Borrower shall make each payment of principal of, and interest on, the Loan and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in lawful currency of the United States of America and in immediately available funds to the LC Issuer at its address referred to in Section 8.02. Whenever any payment of principal of, or interest on, the Loan in respect of a period during which interest on the Loan is determined on the basis of the Adjusted London Interbank Offered Rate 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. Whenever any other 18 23 payment hereunder 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. If the date for the payment of principal is extended by operation of law or otherwise, interest shall be payable for such extended time. SECTION 4.11. Increased Cost and Reduced Return. (a) If any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof shall either (i) impose, modify or deem applicable any reserve, special deposit, insurance assessment or similar requirement against letters of credit issued, or loans made, by the LC Issuer or any Transferee or (ii) impose on the LC Issuer or any Transferee any other condition regarding the Financing Documents and the result of any event referred to in clause (i) or (ii) of this subsection shall be to increase the cost to the LC Issuer or any Transferee of issuing or maintaining the Letter of Credit or the Loan then, within 10 days of demand by the LC Issuer or any Transferee (which demand shall set forth in reasonable detail the events giving rise to such increased cost and the basis of the LC Issuer's or such Transferee's computation thereof), the Borrower shall pay to the LC Issuer or such Transferee all additional amounts as shall be demanded by the LC Issuer or such Transferee as sufficient to compensate the LC Issuer or such Transferee for such increased cost incurred by the LC Issuer or such Transferee. A certificate as to such increased cost incurred by the LC Issuer or any Transferee as a result of any event mentioned in clause (i) or (ii) of this subsection shall be submitted by the LC Issuer or such Transferee to the Borrower and shall be conclusive (absent manifest error) as to the amount thereof. (b) If after the date hereof the LC Issuer or any Transferee shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, 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 the LC Issuer or any Transferee with any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the LC Issuer's or such Transferee's capital as a consequence of the LC Issuer's obligations under (or such Transferee's 19 24 participation in) the Letter of Credit or the Loan to a level below that which the LC Issuer or such Transferee could have achieved but for such adoption, change or compliance (taking into consideration the LC Issuer's or such Transferee's policies with respect to capital adequacy) then, within ten days after demand by the LC Issuer or such Transferee, the Borrower shall pay to the LC Issuer or such Transferee such additional amount or amounts as will compensate the LC Issuer or such Transferee for such reduction. A certificate of the LC Issuer or any Transferee claiming compensation under this subsection (b) and setting forth the additional amount or amounts to be paid to it hereunder and setting forth in reasonable detail the basis therefor and the manner of calculation thereof shall be prepared and submitted by the LC Issuer or such Transferee to the Borrower and shall be conclusive in the absence of manifest error. In determining such amount, the LC Issuer or such Transferee may use any reasonable averaging and attribution method. SECTION 4.12. Taxes. All payments due from the Borrower hereunder shall be free of all withholding with respect to Taxes and in the event that any such withholding shall be required by law with respect to any such payments, the amount payable shall be increased so that after making all required withholdings the LC Issuer and any Transferee receives an amount equal to the amount it would have received had such withholdings not been made. SECTION 4.13. [Intentionally Omitted] SECTION 4.14. Funding Losses. If the Borrower makes any payment of principal of the Loan on any day other than the last day of the Interest Period applicable thereto, or if the Loan bears interest at a rate based on the Adjusted Base Rate pursuant to Section 4.16 or 4.17 commencing on a day other than the last day of the Interest Period applicable thereto, or if the Borrower fails to prepay any portion of the Loan after notice has been given to the LC Issuer in respect of such portion in accordance with Section 4.07, the Borrower shall reimburse the LC Issuer within 15 days after demand for any resulting loss or expense incurred by it (or by any Participant or prospective Participant), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or change of interest rate or prepay, provided that the LC Issuer shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. 20 25 SECTION 4.15. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period: (a) deposits in dollars (in the applicable amounts) are not being offered to the LC Issuer in the London interbank market for such Interest Period, or (b) the LC Issuer determines that the rate determined in accordance with Section 4.04(a) will not adequately and fairly reflect the cost to it of funding the Loan for such Interest Period, the LC Issuer shall forthwith give notice thereof to the Borrower, whereupon until the LC Issuer notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the Loan shall bear interest at the Adjusted Base Rate beginning on the last day of the then current Interest Period (or if the notice is given prior to a Drawing under a Letter of Credit, beginning on the first day of the first Interest Period). SECTION 4.16. 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 the LC Issuer with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for the LC Issuer to make, maintain or fund the Loan bearing interest in accordance with Section 4.04(a) and the LC Issuer shall so notify the Borrower, then until the LC Issuer notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the Loan shall bear interest at the Adjusted Base Rate from (a) the last day of the then current Interest Period if the LC Issuer may lawfully continue to maintain and fund the Loan bearing interest in accordance with Section 4.04(a) to such day, (b) immediately if the LC Issuer determines that it may not lawfully continue to maintain and fund the Loan or (c) the first day of the first Interest Period if such notice is given prior to such first day. Before giving any notice pursuant to this Section, the LC Issuer shall designate a different office through which it shall fund or maintain the Loan if such designation will avoid the need for giving such notice and will not, in the judgment of the LC Issuer, be otherwise disadvantageous to it. 21 26 SECTION 4.17. Base Rate Election. If the LC Issuer has demanded compensation under Section 4.11 with respect to the Loan and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to the LC Issuer, have elected that the provisions of this Section shall apply, then, unless and until the LC Issuer notifies the Borrower that the circumstances giving rise to such demand for compensation no longer exist, the Loan shall bear interest at the Adjusted Base Rate. ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower hereby represents and warrants to the LC Issuer that: SECTION 5.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of 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. SECTION 5.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of the Financing Documents are within the Borrower'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 Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries (except for the Liens created by the Financing Documents). SECTION 5.03. Binding Effect. Each Financing Document (other than the Note) constitutes a valid and binding agreement of the Borrower and the Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower. SECTION 5.04. Full Disclosure. All information heretofore furnished by the Borrower to the LC Issuer for 22 27 purposes of or in connection with any Financing Document or any transaction contemplated hereby or thereby was true and accurate in all material respects on the date as of which such information was stated or certified. The Borrower has disclosed to the LC Issuer in writing any and all facts known to the Borrower which materially and adversely affect or could reasonably be expected to materially and adversely affect (to the extent it can now reasonably foresee), its business, operations or financial condition, or its ability to perform its obligations under any Financing Document. SECTION 5.05. Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower 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 Borrower or any of its Subsidiaries or which in any manner draws into question the validity of any Financing Document. SECTION 5.06. 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 presently 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 under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 5.07. Environmental Matters. In the ordinary course of its business, the Borrower conducts, or AES on behalf of the Borrower conducts, ongoing reviews of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, 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 23 28 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, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, to the best of the Borrower's knowledge, there are no violations of Environmental Laws that would reasonably be expected to have a material adverse effect on its business, financial condition, results of operations or prospects. SECTION 5.08. Taxes. All Federal, state and local tax returns, reports and statements required to be filed by or with respect to the Borrower have been filed with the appropriate governmental agencies in all jurisdictions in which such returns, reports and statements are required to be filed, and all taxes (including real property) and other charges shown thereon to be due and payable have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for nonpayment thereof. All state and local sales and use taxes required to be paid by the Borrower have been paid. All Federal and state returns have been filed by the Borrower for all periods for which returns were due with respect to employee income tax withholding, social security and unemployment taxes, and the amounts shown thereon to be due and payable have been paid in full or adequate provisions therefor have been made. SECTION 5.09. Not an Investment Company. The Borrower is not required to register as an "investment company" within the meaning of the Investment Company Act of 1940, as amended. ARTICLE VI COVENANTS The Borrower covenants and agrees that so long as the Letter of Credit has not expired or been terminated or any amount payable under the Note remains unpaid: SECTION 6.01. Information. The Borrower will deliver to the LC Issuer: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a balance sheet of the Borrower, as of the end of such fiscal 24 29 year and the related statements of operations and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all certified as to fairness of presentation, generally accepted accounting principles and consistency by the chairman of the board, president or chief financial officer of the Borrower; (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, a balance sheet of the Borrower, as of the end of such quarter and the related statements of operations and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case such comparative information with respect to the Borrower's previous fiscal year as is customarily set forth in such statements by the Borrower, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chairman of the board, president or chief financial officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chairman of the board, president or chief financial officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Section 3(b) of the Pledge Agreement and Section 6.10 on the date of such financial statements, (ii) stating to the knowledge of the Borrower 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 Borrower is taking or proposes to take with respect thereto and (iii) with respect to the financial statements referred to in clause (a) above, accompanied by a schedule setting forth in reasonable detail a description of material contingent liabilities not disclosed in such financial statements; (d) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chairman of the board, president or chief financial officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (e) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statement so mailed; 25 30 (f) as soon as practicable prior to the anticipated receipt by AES or any of its Subsidiaries of Financing Proceeds or Asset Sale and Insurance Proceeds, a certificate of the chairman of the board, president or chief financial officer of the Borrower setting forth a description of the transaction giving rise to such Financing Proceeds or Asset Sale and Insurance Proceeds, the date or dates upon which such Financing Proceeds or Asset Sale and Insurance Proceeds are anticipated to be received by AES or any of its Subsidiaries and the amount of Financing Proceeds or Asset Sale and Insurance Proceeds anticipated to be received on such date or each of such dates; (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 Borrower 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 reasonably be expected to result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chairman of the board, president or chief financial officer of the Borrower setting forth details as to such occurrence and the action, if any, 26 31 which the Borrower or the applicable member of the ERISA Group is required or proposes to take; (i) promptly after receipt by the Borrower, 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 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 Borrower, or due to the operations or activities of the Borrower or any other Person on or in connection with any such property or any part thereof; and (j) from time to time such additional information regarding the financial position or business of the Borrower as the LC Issuer may reasonably request. All information furnished by the Borrower to the LC Issuer pursuant to the Financing Documents will be true and accurate in all material respects on the date as of which such information is stated or certified. SECTION 6.02. Payment of Obligations. The Borrower will pay and discharge, at or before maturity, all its obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings or where the failure to so pay and discharge would not reasonably be expected to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower taken as a whole, and will maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. SECTION 6.03. Maintenance of Property; Insurance. (a) The Borrower will keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will maintain, with financially sound and responsible insurance companies, insurance on all its properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar 27 32 business; and will furnish to the LC Issuer upon request information presented in reasonable detail as to the insurance so carried. SECTION 6.04. Conduct of Business and Maintenance of Existence. The Borrower (a) will not engage in any business other than (i) entering into and performing its obligations under the Financing Documents and (ii) acquiring and holding direct or indirect interests in LIGHT pursuant to the LIGHT Acquisition and (b) will preserve, renew and keep in full force and effect its corporate existence and its rights, privileges and franchises necessary or desirable in the normal conduct of its business. SECTION 6.05. Compliance with Laws. The Borrower will 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) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. SECTION 6.06. Inspection of Property, Books and Records. The Borrower will keep proper books of record and account in accordance with customary accounting and bookkeeping practices reflecting all financial transactions in relation to the conduct of its business; and will permit representatives of the LC Issuer, upon reasonable notice during normal business hours and at the LC Issuer's expense, to visit and inspect any of its properties, to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers, employees and independent public accountants, all during normal business hours and as often as may reasonably be desired. SECTION 6.07. Debt. The Borrower shall not assume, incur, create or suffer to exist any Debt of the Borrower except for Debt under the Financing Documents and Debt in respect of Other LIGHT Non-Recourse Collateral that constitutes Debt of the Borrower solely by virtue of a Lien on the capital stock of AES Coral Reef permitted under Section 6.10. SECTION 6.08. Restricted Payments. The Borrower shall not declare or make any Restricted Payment. SECTION 6.09. Investments; Contingent Liabilities. (a) The Borrower shall not make, acquire or hold any Investment in any Person other than (i) Temporary 28 33 Cash Investments, (ii) Investments consisting of common stock of AES and (iii) Investments in LIGHT acquired pursuant to the LIGHT Acquisition. (b) The Borrower will not guarantee, endorse or otherwise be or become contingently liable, directly or indirectly, with respect to any obligations, stock or dividends of any Person (including, without limitation, pursuant to any letter of credit, performance bond, performance guarantee, surety bond, indemnification agreement or agreement to post cash collateral (collectively, for purposes of this subsection, "guarantees")), except for the guarantees given by it pursuant to the Financing Documents. SECTION 6.10. Negative Pledge. The Borrower will not create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by the Borrower (including, without limitation, shares of capital stock of LIGHT or any intermediate entity through which the Borrower holds its interest in LIGHT), except: (a) Liens created under the Financing Documents and (b) Liens on capital stock of AES Coral Reef securing Debt the proceeds from which are applied as required by Section 4.06, but only if the Collateral Value Ratio equals or exceeds 4.00 to 1.00 at the time that any such Lien attaches and after giving effect to the application of the proceeds of such Debt in accordance with Section 4.06. SECTION 6.11. Consolidations, Mergers and Sales of Assets. The Borrower shall not consolidate or merge with or into any other Person. The Borrower shall not sell, lease, transfer or otherwise dispose of, directly or indirectly, any of its assets to any other Person. SECTION 6.12. Use of Proceeds. (a) Neither the Letter of Credit nor any of the proceeds thereof 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 Regulations G or U. (b) The proceeds of the Loan shall be used solely to pay the purchase price for the LIGHT Acquisition. SECTION 6.13. Transactions with Affiliates. The Borrower will not, directly or indirectly, pay any funds to or for the account of, make any investment (whether by 29 34 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 except that the Borrower may hold the AES common stock pledged to the LC Issuer pursuant to the Pledge Agreement. SECTION 6.14. Permanent Financing. The Borrower will use its best efforts to take all actions necessary or desirable to cooperate in obtaining Permanent Financing through the issuance of its debt and/or equity securities, or the debt and/or equity securities of AES or any other Subsidiary of AES, in amounts sufficient to produce net proceeds available to the Borrower of not less than $225,000,000. The Borrower will enter into, and will cooperate with AES and its other Subsidiaries in entering into, such agreements as are customary in connection with financings of such type on terms and conditions reasonably satisfactory to the Borrower in light of then prevailing market conditions and shall make, and cooperate in the making of, such filings and public disclosures as shall be required to permit the Permanent Financing and take such steps as are necessary to cause such filings to become effective or as are otherwise required to permit the securities to be issued in such Permanent Financing to be sold; provided that the Borrower will not be obligated to qualify to do business as a foreign corporation in any jurisdiction in which it is not then so qualified to facilitate the Permanent Financing. The Borrower hereby covenants and agrees that the proceeds available to it from the Permanent Financing shall be used, to the extent required, as set forth in Section 4.06. ARTICLE VII DEFAULTS SECTION 7.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal payable by it under any Financing Document or shall fail to pay within 3 days of the date when due any interest, fees or other amounts payable under any Financing Document; or 30 35 (b) the Borrower shall fail to observe or perform any covenant contained in Sections 6.01(f) or 6.06 through 6.14, inclusive, or Section 3(b) of the Pledge Agreement; or (c) the Borrower shall fail to observe or perform any covenant or agreement contained in any Financing Document (other than those covered by clauses (a) or (b) above) for 10 days after written notice thereof has been given to the Borrower by the LC Issuer; or (d) any representation, warranty, certification or statement made by the Borrower 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); or (e) the Borrower shall fail to make any payment in respect of any Debt when due or within any applicable grace period; or (f) any event or condition shall occur which results in the acceleration of the maturity of any Debt of the Borrower or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) an Event of Default (as defined in the AES Senior Credit Agreement) shall have occurred and be continuing; or (h) the Borrower 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; or (i) an involuntary case or other proceeding shall be commenced against the Borrower seeking liquidation, 31 36 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 Borrower under the bankruptcy laws as now or hereafter in effect; or (j) a judgment or order for the payment of money shall be rendered against the Borrower, and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or (k) AES shall cease to be the owner, directly or indirectly, of 100% of the outstanding shares of common stock of the Borrower; or (l) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $250,000 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; or (m) any provision of any Financing Document shall at any time for any reason cease to be valid and binding on the Borrower or shall be declared by any court having jurisdiction over the Borrower to be null and void in any manner that would materially adversely affect the rights of the LC Issuer, or the Lien created by the Pledge Agreement at any time shall fail to constitute a valid and perfected Lien on all of the collateral purported to be covered thereby, subject to no prior or equal Lien, or the Borrower shall deny that it has any or further liability or obligation on any Financing Document; 32 37 then, and in every such event, the LC Issuer may, by notice to the Borrower, declare the Note (together with accrued interest thereon) to be, and the Note 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 Borrower; provided that in the case of any of the Events of Default specified in clause (h) or (i) above, without any notice to the Borrower or any other act by the LC Issuer, the Note (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 Borrower. In addition, if an Event of Default shall have occurred and is continuing, the Borrower shall be obligated forthwith to pay to the LC Issuer, at its request (or, in the case of an Event of Default specified in clause (h) or (i) above, without any request of the LC Issuer or any other act of the LC Issuer), an amount in immediately available funds equal to 102% of the then aggregate amount available for drawing under the Letter of Credit (without regard to whether any condition to drawing can then be met), to be held by the LC Issuer as cash collateral until all Events of Default shall have been cured or waived. If and to the extent that cash collateral subject to a valid and perfected first priority Lien in favor of the LC Issuer is posted with the LC Issuer pursuant to the immediately preceding sentence, then the LC Issuer shall release from the Lien created by the Pledge Agreement shares of Pledged Stock subject thereto to the extent, if any, that the value of the Pledged Stock subject to such Lien exceeds two and one-half times (or, if any capital stock of AES Coral Reef is subject to a Lien securing Debt of AES Coral Reef, four times) (A) the sum of the amount available for drawing under the Letter of Credit, if any (without regard to whether any condition to drawing can then be met), or the aggregate principal amount of Loan then outstanding, if any, less (B) the amount of such cash collateral divided by 1.02. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments and Waivers. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by the LC Issuer. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 33 38 SECTION 8.02. Notices. All notices, requests and other communications to either party hereunder shall be in writing (including bank wire, telex, telecopy or similar writing) and shall be given to such party at its address, telex or telecopy number set forth below or such other address, telex or telecopy number as such party may hereafter specify for the purpose by notice to the other party. 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 this Section and the appropriate answerback is received, or (ii) if given by any other means, when received at the address or at the telecopier number specified in this Section. The Borrower AES Light, Inc. c/o The AES Corporation 1001 N. 19th Street Arlington, VA 22209 Telecopier No.: (703) 528-4510 Attention: Chief Financial Officer LC Issuer Morgan Guaranty Trust Company of New York 60 Wall Street New York, NY 10260 Telex Number: 177615 Attention: James Finch SECTION 8.03. No Waiver; Remedies. No failure on the part of the LC Issuer 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 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 8.04. Indemnification. The Borrower hereby agrees to indemnify and hold harmless the LC Issuer and each Participant from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which the LC Issuer or such Participant may incur (or which may be claimed against the LC Issuer or such Participant by any person or entity whatsoever) by reason of or in connection with the execution and delivery of, transfer of, or payment or failure to pay under, the Letter of Credit or arising out of or in connection with any other Financing Document or any agreement entered into by the LC Issuer and any of the parties to the Financing Documents; provided that the Borrower shall not be required to indemnify the LC 34 39 Issuer or any Participant for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the willful misconduct or gross negligence of the LC Issuer or such Participant, as the case may be. Nothing in this Section is intended to limit the obligations of the Borrower under the Financing Documents. SECTION 8.05. Successors and Assigns. The obligations of the Borrower under the Financing Documents shall continue until the later of (a) the Termination Date and (b) the date upon which all amounts due and owing to the LC Issuer thereunder shall have been paid in full, and shall (i) be binding upon the Borrower and its successors and assigns and (ii) inure to the benefit of and be enforceable by the LC Issuer, each Participant and their respective successors, transferees and assigns; provided, however, that (x) the Borrower may not assign all or any part of the Financing Documents without the prior written consent of the LC Issuer and (y) the obligations of the Borrower pursuant to Sections 8.04 and 8.07 shall survive the termination of this Agreement. The LC Issuer may at any time, without the consent of the Borrower, grant to one or more banks or other institutions (each a "Participant") participating interests in the Letter of Credit or the Reimbursement Obligation or the Term Loan. In the event of any such grant by the LC Issuer of a participating interest to a Participant, whether or not upon notice to the Borrower, the LC Issuer shall remain responsible for the performance of its obligations hereunder and under the Letter of Credit, and the Borrower shall continue to deal solely and directly with the LC Issuer in connection with the LC Issuer's rights and obligations hereunder and thereunder. The LC Issuer may at any time, without the consent of the Borrower, assign to one or more banks or other institutions (each an "Assignee") all or any portion of its rights hereunder and under the Note. No Transferee shall be entitled to receive any greater payment under Section 4.11 or 4.12 than the LC Issuer would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 4.16 requiring the LC Issuer to designate a different office for holding or maintaining the Loan under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 8.06. Limited Liability of the LC Issuer. The Borrower assumes all risks of the acts or omissions of the beneficiary of the Letter of Credit with respect to such Person's use of the Letter of Credit. Neither the LC Issuer nor any of its officers or directors shall be liable or 35 40 responsible for: (a) the use which may be made of the Letter of Credit or for any acts or omissions of any beneficiary 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 LC Issuer against presentation of documents which do not comply with the terms of the Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; (d) any actual or alleged misrepresentation or omission (except an intentional or grossly negligent misrepresentation or omission) by the LC Issuer; or (e) any other circumstances whatsoever in making or failing to make payment under the Letter of Credit, except only that the Borrower shall have a claim against the LC Issuer, and the LC Issuer shall be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Borrower which the Borrower proves were caused by (i) the LC Issuer's willful misconduct or gross negligence in determining whether documents presented under the Letter of Credit comply with the terms thereof or (ii) the LC Issuer's willful failure to pay under the Letter of Credit after the presentation to it of a draft and certificate strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the LC Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 8.07. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery, filing and administration of the Financing Documents and any other documents which may be delivered in connection therewith, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the LC Issuer with respect thereto and with respect to advising the LC Issuer as to its rights and responsibilities under the Financing Documents or any waiver or amendment of, or the enforcement of, the Financing Documents and such other documents which may be delivered in connection therewith. In addition, the Borrower agrees to pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of the Financing Documents and such other documents and agrees to save the LC Issuer harmless from and against any and all liabilities with respect to or 36 41 resulting from any delay in paying or omission to pay such taxes and fees. SECTION 8.08. Jurisdiction And Venue. The Borrower irrevocably submits to the non-exclusive jurisdiction of any New York State or federal court sitting in The City of New York over any suit, action or proceeding arising out of or relating to the Financing Documents or the transactions contemplated thereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now have or hereafter acquire to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. The foregoing shall not limit the rights of the LC Issuer to bring proceedings against the Borrower in the competent courts of any jurisdiction or jurisdictions. SECTION 8.09. Severability. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 8.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 8.11. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 8.12. 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 constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective upon receipt by the LC Issuer of counterparts hereof signed by each of the parties hereto. SECTION 8.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR 37 42 RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 38 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. AES LIGHT, INC. By ------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------- Title: 39 EX-10.66 4 PLEDGE AGREEMENT. 1 EXHIBIT 10.66 PLEDGE AGREEMENT PLEDGE AGREEMENT (this "Agreement") dated as of May 20, 1996 by and between AES LIGHT, INC., a Delaware corporation (with its successors, the "Pledgor") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a trust company organized and existing under the laws of the State of New York (with its successors, the "Lender"). WHEREAS, the Pledgor is an indirect wholly-owned subsidiary of The AES Corporation, a Delaware corporation ("AES"), and is obligated to reimburse the Lender for amounts that may become due under that certain Reimbursement Agreement dated as of May 20, 1996 between the Pledgor and the Lender (the "Reimbursement Agreement"); WHEREAS, pursuant to the Reimbursement Agreement, the Lender has agreed to make available a letter of credit (the "Letter of Credit") in favor of Camara de Liquidacion E Custodia S/A CLC and to provide a term loan if certain conditions are satisfied; WHEREAS, the Lender's willingness to enter into the Reimbursement Agreement is conditioned upon the pledge by the Pledgor of AES Common Stock (as defined below) to the Lender; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions Terms defined in the Reimbursement Agreement and not otherwise defined herein have, as used herein, the respective meanings provided for therein. The following additional terms, as used herein, have the following respective meanings: "Act" means the Securities Act of 1933, as amended. "AES Common Stock" means shares of the common stock, $.01 par value, of AES. 2 "Collateral" has the meaning assigned to such term in Section 3(a). "Collateral Value" of the Pledged Stock means at any time the product of (x) the number of shares of AES Common Stock then held by the Lender as Collateral, multiplied by (y) the closing price for a share of AES Common Stock on the most recent day during which AES Common Stock was traded through the National Association of Securities Dealers' Automated Quotations National Market System. "Collateral Value Ratio" means at any time the ratio of the Collateral Value of the Pledged Stock to an amount equal to the sum of (i) the amount then available for drawing under the Letter of Credit plus (ii) the aggregate principal amount of the Loan then outstanding. "Initial Shares" means 18,181,819 shares of AES Common Stock. "Pledged Stock" means (i) the Initial Shares and (ii) any other AES Common Stock required to be pledged to the Lender pursuant to Section 3(b). "Secured Obligations" means the obligations of the Pledgor hereunder and under the Reimbursement Agreement and the Note (including, without limitation, any obligation to pay interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Pledgor or which would have accrued but for such case, proceeding or other action) and any renewals or extensions of any of the foregoing. "Security Interest" means the security interest in the Collateral granted hereunder securing the Secured Obligations. Unless otherwise defined herein, or unless the context otherwise requires, all terms used herein that are defined in the New York Uniform Commercial Code as in effect on the date hereof shall have the meanings therein stated. SECTION 2. Representations and Warranties The Pledgor represents and warrants as follows: (a) Title to Pledged Stock. The Pledgor owns all of the Pledged Stock, free and clear of any Liens other than the Security Interest. All of the Pledged Stock has been 2 3 duly authorized and validly issued, and is fully paid and non-assessable, and is subject to no rights or options to purchase of any Person. The Pledgor is not and will not become a party to or otherwise bound by any agreement, other than this Agreement, which restricts in any manner the rights of any present or future holder of any of the Pledged Stock with respect thereto. (b) Validity, Perfection and Priority of Security Interest. Upon the delivery of a certificate or certificates representing the Pledged Stock to the Lender in accordance with Section 4, the Lender will have a valid and perfected first priority security interest in the Collateral. No registration, recordation or filing with any governmental body, agency or official is required in connection with the execution or delivery of this Agreement or necessary for the validity or enforceability hereof or for the perfection or enforcement of the Security Interest. The Pledgor has not performed and will not perform any acts which might prevent the Lender from enforcing any of the terms and conditions of this Agreement or which would limit the Lender in any such enforcement. SECTION 3. The Security Interest In order to secure the full payment of the Secured Obligations in accordance with the terms thereof and to secure the performance of all of the obligations of the Pledgor hereunder: (a) The Pledgor hereby assigns, pledges and grants to the Lender a security interest in the Pledged Stock, and all of its rights and privileges with respect to the Pledged Stock, and all proceeds, income and profits thereon, and all interest, dividends and other payments and distributions with respect thereto (the "Collateral"). On or before the date hereof, the Pledgor shall deliver to the Lender certificates representing the Initial Shares, and the Lender shall deliver a receipt therefor to the Pledgor. (b) If AES at any time issues any additional shares of AES Common Stock as a dividend or other distribution on or with respect to any or all of the Pledged Stock, the Pledgor shall immediately pledge to the Lender such additional shares of AES Common Stock, and shall deliver to the Lender certificates representing such additional shares of AES Common Stock. If the Collateral Value Ratio is less than 1.50 to 1.00 (or 3.50 to 1.00 if AES Coral Reef stock or the stock of any other Subsidiary of Pledgor having a direct or indirect interest in LIGHT is 3 4 pledged (a "Subsidiary Pledge") to secure Debt of AES Coral Reef or any such Subsidiary) for any three consecutive Domestic Business Days, the Pledgor shall, on the next succeeding Domestic Business Day, pledge to the Lender sufficient additional shares of AES Common Stock such that the Collateral Value Ratio is increased to at least 2.00 to 1.00 (or 4.00 to 1.00 if there is a Subsidiary Pledge) and deliver to the Lender certificates representing such additional shares of AES Common Stock. All such additional shares delivered pursuant to this subsection constitute Pledged Stock and shall be subject to all provisions of this Agreement. (c) The Lender agrees that if the number of shares of AES Common Stock represented by the certificate delivered by the Pledgor pursuant to Section 3(a) exceeds the number of the Initial Shares, the Pledgor will, at any time within 7 days after the date hereof, accept a substitute certificate representing the number of Initial Shares. (d) The Security Interest is granted as security only and shall not subject the Lender to, or transfer or in any way affect or modify, any obligation or liability of the Pledgor with respect to any of the Collateral or any transaction in connection therewith. SECTION 4. Delivery of Pledged Stock (a) All certificates representing Pledged Stock delivered to the Lender by the Pledgor pursuant hereto shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, all in form and substance satisfactory to the Lender. (b) The Lender acknowledges that, as of the date hereof, the Pledged Stock has not been registered under the Act, or under any state securities law. (c) The Lender understands that, except during such times that the Pledged Stock is subject to a currently effective registration statement under the Act, the Pledged Stock constitutes "restricted securities" under the Act and that the rules of the Securities and Exchange Commission provide in substance that holders thereof may dispose of the Pledged Stock only pursuant to an effective registration statement under the Act or an exemption from such registration, if available. 4 5 (d) The Lender hereby acknowledges that, except during such times that the Pledged Stock is subject to a currently effective registration statement under the Act, the certificates for the Pledged Stock may bear a legend stating: "The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be offered, sold or transferred in the absence of a favorable opinion of recognized counsel or other evidence reasonably satisfactory to the issuer to the effect that registration thereof under such Act is not required or the effective registration thereof under such Act." SECTION 5. Filing; Further Assurances The Pledgor agrees that it will, at its expense and in such manner and form as the Lender may reasonably require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or that the Lender may reasonably request, in order to create, preserve, perfect or validate the Security Interest or to enable the Lender to exercise and enforce its rights hereunder with respect to any of the Collateral. To the extent permitted by applicable law, the Pledgor hereby authorizes the Lender to execute and file, in the name of the Pledgor or otherwise, Uniform Commercial Code financing statements (which may be carbon, photographic, photostatic or other reproductions of this Agreement or of a financing statement relating to this Agreement) which the Lender in its sole discretion may deem necessary or appropriate to further perfect the Security Interest. The Lender may at any time or from time to time, in its sole discretion, cause any or all of the Pledged Stock to be transferred of record into the name of the Lender or its nominee. The Pledgor will promptly give to the Lender copies of any notices or other communications received by it with respect to Pledged Stock registered in the name of the Pledgor and the Lender will promptly give the Pledgor copies of any notices and communications received by the Lender with respect to Pledged Stock registered in the name of the Lender or its nominee. SECTION 6. Right to Receive Distributions on Collateral Unless and until a Default has occurred and is continuing, and except as provided in Section 3(b) with respect to stock dividends, the Pledgor shall be entitled to receive and retain all dividends, interest and other 5 6 payments made on or with respect to the Collateral ("Dividends"). During the continuance of a Default, the Lender shall have the right to receive and to retain as Collateral hereunder all Dividends and the Pledgor shall take all such action as the Lender may deem necessary or appropriate to give effect to such right. If the Lender receives any cash Dividend at time when a Default is not continuing, the Lender shall pay to the Pledgor such Dividend. Any Dividends that are received by the Pledgor during the continuance of a Default shall be received in trust for the benefit of the Lender and, if the Lender so directs, shall be segregated from other funds of the Pledgor and shall, forthwith upon demand by the Lender, be paid to the Lender as Collateral in the same form as received (with any necessary endorsement). After all Defaults have been cured, the Lender's right to retain Dividends under this Section 6 shall cease and the Lender shall pay over to the Pledgor any such Collateral retained by it during the continuance of a Default. SECTION 7. Right to Vote Pledged Stock If an Event of Default shall have occurred and be continuing, the Lender shall have the right, to the extent permitted by law, and the Pledgor shall take all such action as may be necessary or appropriate to give effect to such right, to vote and to give consents, ratifications and waivers, and take any other action with respect to any or all of the Pledged Stock, with the same force and effect as if the Lender was the absolute and sole owner thereof. Unless and until an Event of Default has occurred and is continuing, the Pledgor shall have the sole right to vote and to give consents, ratifications and waivers, and take any other actions with respect to any or all of the Pledged Stock as it deems necessary or appropriate and the Lender shall, upon receiving a written request from the Pledgor accompanied by a certificate signed by its principal financial officer stating that no Event of Default has occurred and is continuing, deliver to the Pledgor such proxies, powers of attorney, consents, ratifications and waivers in respect of any of the Pledged Stock which is registered in the name of the Lender or its nominee as shall be specified in such request and be in form and substance reasonably satisfactory to the Lender. SECTION 8. General Authority 6 7 The Pledgor hereby irrevocably appoints the Lender its true and lawful attorney, with full power of substitution, in the name of the Pledgor, the Lender or otherwise, for the sole use and benefit of the Lender, but at the expense of the Pledgor, to the extent permitted by law to exercise, at any time and from time to time while an Event of Default has occurred and is continuing, all or any of the following powers with respect to all or any of the Collateral: (i) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof, (ii) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto, (iii) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Lender were the absolute owner thereof, and (iv) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; provided that the Lender shall give the Pledgor not less than ten days' prior notice of the time and place of any sale or other intended disposition of any of the Collateral except any Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Lender and the Pledgor agree that such notice constitutes "reasonable notification" within the meaning of Section 9-504(3) of the Uniform Commercial Code. SECTION 9. Remedies (a) If an Event of Default shall have occurred and be continuing then, in addition to the remedies described in Sections 6 and 7 above, the Lender may exercise all the rights of a secured party under the Uniform Commercial Code (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Lender may, without being required to give any notice except as herein provided or as may be required by mandatory provisions of law, (A) apply the cash, if any, then held by it as Collateral as specified in Section 12 and (B) if there shall be no such cash or to the extent such cash shall be insufficient to pay all the Secured 7 8 Obligations in full, sell, subject to Section 9(b), the Collateral or any part thereof at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Lender may deem satisfactory and hold the proceeds as Collateral hereunder or apply such proceeds as specified in Section 12. The Lender may be the purchaser of any or all of the Collateral sold pursuant to this subsection at any public sale (or, if the Collateral so sold is Pledged Stock or other Collateral of a type customarily sold in a recognized market or of a type which is the subject of widely distributed standard price quotations, at any private sale). The Lender, instead of exercising the power of sale conferred upon it in this subsection, may proceed by a suit or suits at law or in equity to foreclose the Security Interest and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. (b) The Lender is authorized, in connection with any sale pursuant to this Agreement, if it deems it advisable to do so, (i) if the Pledged Stock is not then subject to a currently effective registration statement under the Act or if otherwise necessary to comply with the Act or any other law, to restrict the prospective bidders on or purchasers of any of the Pledged Stock to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Pledged Stock, (ii) if the Pledged Stock is not then subject to a currently effective registration statement under the Act, to cause to be placed on certificates for any or all of the Pledged Stock or on any other securities pledged hereunder a legend to the effect that such security has not been registered under the Act and may not be disposed of in violation of the provisions of the Act, and (iii) to impose such other limitations or conditions in connection with any such sale as the Lender deems necessary or advisable in order to comply with the Act or any other law. (c) The Pledgor covenants and agrees that it will execute and deliver such documents and take such other action as the Lender deems necessary or advisable in order that any sale of Collateral permitted hereunder may be made in compliance with law. Upon any such sale the Lender shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold absolutely free from any claim or right of whatsoever kind, including any equity or right of redemption of the Pledgor which may 8 9 be waived, and the Pledgor, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal that it has or may have under any law now existing or hereafter adopted. Any notice of a sale required by law shall (1) in the case of a public sale, state the time and place fixed for such sale, (2) in the case of sale at a broker's board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Collateral, or the portion thereof so being sold, will first be offered for sale at such board or exchange, and (3) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Lender may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Lender may determine. The Lender shall not be obligated to make any such sale pursuant to any such notice. The Lender may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Lender until the selling price is paid by the purchaser thereof, but the Lender shall not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may again be sold upon like notice. SECTION 10. Expenses The Pledgor agrees that it will forthwith upon demand pay to the Lender: (i) the amount of any taxes that the Lender may have been required to pay by reason of the Security Interest or to free any of the Collateral from any Lien thereon, and (ii) the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and disbursements of legal counsel and of any other experts, which the Lender may incur in connection with (A) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank 9 10 and value of any Security Interest, (B) the collection, sale or other disposition of any of the Collateral permitted hereunder, or (C) the exercise by the Lender of any of the rights conferred upon it hereunder. Any such amount not paid on demand shall bear interest at a per annum rate of 2% plus the Adjusted Base Rate. SECTION 11. Limitation on Duty of the Lender in Respect of Collateral Beyond the exercise of reasonable care in the custody thereof, the Lender shall have no duty as to any Collateral in its possession or control. The Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the 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 Collateral, or for any diminution in the value thereof, by reason of any act or omission of any agent or bailee selected by the Lender in good faith, other than any act or omission caused by the gross negligence or willful misconduct of such bailee or any act or omission made in breach of this Agreement. SECTION 12. Application of Proceeds Upon the occurrence and during the continuance of an Event of Default, the proceeds of any sale of, or other realization upon, all or any part of the Collateral and any cash held shall be applied by the Lender in the following order of priority: first, to payment of the reasonable expenses for which the Lender is to be reimbursed pursuant to Section 8.07 of the Reimbursement Agreement or Section 10 hereof and unpaid fees owing to the Lender under the Reimbursement Agreement; second, to the ratable payment of accrued but unpaid interest on the Secured Obligations in accordance with the provisions of the Reimbursement Agreement; third, to the ratable payment of unpaid principal of the Secured Obligations; 10 11 fourth, to the ratable payment of all other Secured Obligations, until all Secured Obligations shall have been paid in full; and finally, to payment to the Pledgor or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. SECTION 13. Termination of Security Interest: Release of Collateral When no amount is due and payable by the Pledgor hereunder or under the Reimbursement Agreement and the Letter of Credit has been terminated without a drawing being outstanding thereunder, the Security Interest shall terminate and all rights to the Collateral shall revert to the Pledgor. Upon such termination of the Security Interest, the Lender will, at the expense of the Pledgor, execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence the termination of the Security Interest or the release of such Collateral, as the case may be. SECTION 14. Notices All notices, communications and distributions hereunder shall be given in accordance with Section 8.02 of the Reimbursement Agreement. SECTION 15. Waivers. Non-Exclusive Remedies No failure on the part of the Lender to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by the Lender of any right under the Reimbursement Agreement or this Agreement preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the Reimbursement Agreement are cumulative and are not exclusive of any other remedies provided by law. SECTION 16. Successors and Assigns This Agreement is for the benefit of the Lender and its successors and assigns, and in the event of an 11 12 assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Agreement shall be binding on the Pledgor and its successors and assigns. SECTION 17. Changes in Writing Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated except in a writing signed by the Pledgor and the Lender. SECTION 18. New York Law This Agreement shall be construed in accordance with and governed by the laws of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than New York are governed by the laws of such jurisdiction. SECTION 19. Severability If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (a) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions of the parties hereto as nearly as may be possible; and (b) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 12 13 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AES LIGHT, INC. By: ----------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ------------------------------ Name: Title: Vice President 13 EX-10.67 5 SHAREHOLDERS AGREEMENT. 1 EXHIBIT 10.67 SHAREHOLDERS AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into as of this 27th day of May, 1996, in the City of Rio de Janeiro, State of Rio de Janeiro, Brazil, by and among: AES Coral Reef, Inc. ("AES") 1001 North 19th Street Arlington, Virginia 22209 Attention: Tom Tribone Facsimile: 001-703-528-4510; Companhia Siderugica Nacional ("CSN") Rua Lauro Muller, 116 - 36 degrees Rio de Janeiro - RJ Attention: Sylvio Coutinho Facsimile: 55-21-545-1318 or 55-21-545-1529; EDF International S.A. ("EDF") 16 Place des Etats-Unis 75016 Paris, France Attention: Jack Cizain Facsimile: 33-1-40-42-5441; and Houston Industries Energy - Cayman, Inc. ("HIE") 1111 Louisiana, 39th Floor Houston, Texas 77002 Attention: Edward Monto Facsimile: 001-713-207-5563; hereinafter sometimes collectively referred to as the "Operators' Group"; and BNDES Participacoes S.A. ("BNDESPAR") Av. Republica do Chile, 100 - 10 degrees andar Rio de Janeiro - RJ Attention: Gabriel Stoliar Facsimile: 55-021-533-1538 - 1 - 2 hereinafter sometimes referred to as the "Brazilian Partner"; the Operators' Group and the Brazilian Partner hereinafter sometimes collectively referred to as the "Parties" or the "Controlling Group" or severally the "Party. WITNESSETH THAT: (A) WHEREAS, the Parties have purchased in the auction (the "Auction") promoted by Banco Nacional de Desenvolvimento Economico e Social ("BNDES"), in its capacity as the Brazilian Federal Government's agent for the National Privatization Program, 5,240,700,000 registered voting common shares of the capital stock of Light Servicos de Eletricidade S.A. ("Light"), a publicly-held corporation headquartered in the City of Rio de Janeiro, State of Rio de Janeiro, Brazil, which shares represent not less than fifty percent (50%) plus one share of the aggregate outstanding registered voting common shares of Light, the Parties becoming, therefore, controlling shareholders of Light; (B) WHEREAS, Light is engaged in the generation, transmission and distribution of electricity and to that end has applied for and obtained various concessions granted by the regulator of the Brazilian power sector, Departamento Nacional de Aguas e Energia Eletrica ("DNAEE"); (C) WHEREAS, each of the Parties desires to enter into a shareholders' agreement in the form hereof in order to establish the rules governing their relationships with respect to the decisions to be taken as shareholders of Light and their relationship with respect to the conduct of the business and operations of Light after the sale of the controlling interest by BNDES in the Auction; and (D) WHEREAS, the Parties are willing to record herein in writing their agreements and covenants intending to be legally bound; NOW, THEREFORE, the Parties hereby agree as follows: - 2 - 3 SECTION 1. MEASURES TO BE TAKEN PROMPTLY AFTER TAKE OVER MEASURES TO BE TAKEN UPON THE TAKE OVER 1.1 For any and all purposes of this Agreement, the take over shall be deemed to be the consummation of the transfer to the Parties of the shares of Light purchased at the Auction and the assumption by the Parties of the management and operations of Light (the "Take Over"). 1.2 Within six (6) months after the Take Over, the Parties shall agree on a detailed business plan for Light (the "Business Plan"). In this regard, EDF has prepared a preliminary draft of a financial forecast and will provide copies thereof to each of the other Parties not later than ten (10) days after the date of this Agreement. The Business Plan shall be based upon certain basic assumptions regarding the business of Light to be mutually agreed upon by the Parties and shall reflect a macroeconomic approach to the business and operations of Light to be built on the basis of the knowledge of the Parties of the local environment, the outcome of their audit and due diligence of Light and taking into account the expertise of the Parties in the power sector and the results of the Parties' past experience in similar cases. The Parties hereby agree that the Business Plan will be a valuable instrument to assist them in strategic planning for Light and to enable them to evaluate the results of Light after the Take Over. 1.3 Simultaneously with or forthwith upon the Take Over, the Parties shall ensure that a call for the holding of the Extraordinary General Meeting of Shareholders of Light is issued and such General Meeting of Shareholders shall deliberate, inter alia, upon (i) the adoption of the new by-laws of Light and (ii) the election of the members of the Board of Directors of Light, in each case in accordance with the more particular requirements of this Agreement. 1.4 In order to deliberate upon the matters to - 3 - 4 be submitted to the shareholders of Light, the Parties shall, prior to the date of such General Meeting of Shareholders, hold a Partners' Meeting, as provided in Section 5 of this Agreement. SECTION 2. GENERAL AND OPERATING PRINCIPLES 2.1 The Parties hereby expressly and unconditionally acknowledge that as a result of their purchase in the Auction of the requisite number of nominative shares of Light, such Parties are the controlling group of shareholders of Light. Conscious of the responsibilities imposed by law on the controlling shareholders of a publicly-held corporation, the Parties understand that they must prioritize the benefits of any nature that may accrue to Light and its related companies as well as to all Light's shareholders, including the Parties, and to the customers of Light. In order to implement the foregoing principles which shall at all times govern the relationship among the Parties, and between the Parties and Light and its related companies, simultaneously with the Take Over, the Parties have entered into this Agreement. It is the intention of the Parties that this Agreement be binding on them for its entire term and, to that end, each of the Parties shall cause the taking of any action deemed required by law to ensure the enforceability of the obligations to be assumed by them hereunder. 2.2 In order to preserve intact the concessions granted by the Federal Government to Light, in making any decisions with respect to the business and operations of Light, the Parties shall, and shall cause the individuals appointed by them to, abide at all times by the provisions of Light's concession agreements and the obligations assumed by the Parties thereunder. Furthermore, the Parties hereby agree that Light shall be managed in accordance with the following general managerial principles implemented in the manner determined by the Board of Directors and Executive Committee of Light: (a) Light shall provide services in accordance with operating, cost, quality and reliability standards - 4 - 5 compatible with the requirements of the market and the economic and financial terms of the concession agreements; (b) Light shall identify areas and business opportunities that may complement its existing activities with a view to contribute to the enhancement of its results and profits and to increase the economic return to its shareholders; (c) Light and its related companies shall, at all times, be committed to seek high standards of efficiency, productivity, competitiveness and profitability; (d) strategic decisions adopted by Light and its related companies shall always take into consideration the interest of the Parties in maximizing the return on their investments; (e) Light and its related companies shall use their best endeavors to maximize the benefits accruing from the expertise of the Parties in Light's field of activity and to that end shall foster the establishment and increase of their relationship with the Parties, provided, however, that the relationship between Light and its related companies and the Parties shall be based on technical, merit-based, criteria and shall be established and maintained at all times on an arm's-length basis; (f) Light and its related companies shall seek a continuous and constant relationship with its customers, the communities within which they operate and the governmental authorities with whom they must interact; (g) the corporate bodies of Light shall ensure the adoption of human resources policies compatible with the conditions prevailing in the market and the other principles set forth in this Section 2.2 and consistent with the performance of its employees; (h) the participation of the employees and the commitment of the same to the mission of Light shall be fostered by the management of Light with a view to promote the development of Light's human resources; (i) to the extent required by applicable law, Light shall ensure the participation of its employees in its - 5 - 6 future profits in proportion to the performance of Light; (j) the management of Light shall establish, upon defining any adjustments to be made to the permanent staff of Light, the criteria applicable to the enhancement of the performance of the human resources of Light and to the creation of incentive dismissal programs, the operating needs of Light being strictly observed; (k) the management of Light shall ensure the strict observance of the provisions of article 50 of Presidential Decree No. 1,204, of July 25, 1994, in order to preserve the six-month training program for dismissed employees and their outplacement in the market; (l) the management of Light shall foster the technological enhancement of Light's operations and the improvement of the quality of services to be rendered to its customers, taking into account the conditions then prevailing for the commercialization of energy in the Brazilian market and the rationalization and reduction of operating costs; (m) the generation capacity of Light shall be managed with a view to serving adequately its own customers and to incorporate customers in other regions; (n) the management of Light shall seek operating alternatives to increase its revenues by the implementation of new businesses, provided that Light's primary activities are not adversely affected thereby; (o) the management of Light shall keep itself informed about projects aimed at developing the economic and social conditions of the State of Rio de Janeiro, and, to the extent Light's strategic planning is affected by such projects, shall implement such strategic planning with a view to maximizing the return on investments made by Light and its shareholders; and (p) the development of the activities of Light shall at all times abide by the basic principles of the programs established by the applicable governmental authorities having jurisdiction over the properties and operations of Light for the preservation of environmental conditions. - 6 - 7 2.3 With a view to implementing the operating principles spelled out hereinabove, the Parties shall cause the management of Light and its related companies to take such actions as they may deem fit to discharge the duties associated with such principles. 2.4 It is the intention of the Parties that certain policies be established by Light respecting the relationship of Light with its employees both as a general matter and in connection with the implementation by Light of the Business Plan which the parties expect will contemplate detailed operating plans for Light, measures to improve the organizational structure and efficiency of Light, and the development of Light as a profitable, privatized company. The management of Light shall periodically provide to a duly designated representative of the employees of Light (the "Employees' Representative") information pertaining to significant human resources, economic, financial and technical matters affecting or relating to the management and operations of Light. The Chief Executive Officer shall meet every three months with the Employees' Representative in order to discuss matters of concern to the employees of Light. Commencing on the date two years after the Take Over, the Employees' Representative may propose to the management of Light such modifications to the provisions of this Section 2.4 as shall, in its view, improve relations and communications between the employees of Light and the management of Light and the management of Light shall meet with the Employees' Representative at a mutually convenient time to discuss and consider such proposal. 2.5 The principles set forth in this Section 2 are intended to provide general guidance for the Board of Directors and Executive Committee of Light in conducting the business of Light. SECTION 3. CAPITAL DISTRIBUTION AND BY-LAWS OF LIGHT 3.1 The Parties are the holders of 5,240,700,000 registered voting common shares of the capital stock of Light representing 50.436% of the total capital stock of Light (the "Shares"). The Shares are - 7 - 8 distributed among the Parties as follows: AES is the holder of 1,179,000,000 Shares; CSN is the holder of 753,700,000 Shares; EDF is the holder of 1,179,000,000 Shares; HIE is the holder of 1,179,000,000 Shares; and BNDESPAR is the holder of 950,000,000 Shares. It is irrevocably and unconditionally understood and agreed that any and all Shares purchased by any of the Parties in the Auction, and all other common voting shares of Light which, pursuant to the terms of this Agreement become Shares, and, to the extent provided in Section 6.12, all common voting shares purchased by any Party in any open-market purchase, are subject to the provisions of this Agreement. 3.2 The new by-laws of Light to be adopted by the General Meeting of Shareholders, which are subject to approval by DNAEE, to be held in pursuance of Section 1.3(i) hereof shall be in the form attached hereto as Exhibit I and the same may be amended and modified from time to time by decision of the shareholders of Light as more particularly provided in this Agreement and in accordance with the applicable provisions of the Brazilian Corporations Law. SECTION 4. ADMINISTRATIVE MEASURES AND MANAGEMENT OF LIGHT MANAGEMENT OF LIGHT AND EXERCISE OF VOTING RIGHTS 4.1 In its capacity as a publicly-held corporation and in pursuance of the provisions of the Brazilian Corporations Law, Light is managed and administered by a Board of Directors ("Conselho de Administrgao") and by officers ("Diretoria"), as more fully described in Light's by-laws. - 8 - 9 4.2 The Parties hereby agree that the Board of Directors of Light shall consist of at least nine (9) members and at most fifteen (15) members. In order to implement such provision, the Parties agree to exercise, in the General Meeting of Shareholders of Light to be held as contemplated in Section 1.3, their voting rights so as to cause the amendment of Light's by-laws as aforesaid. 4.3 The Parties hereby agree to vote their Shares at the General Meeting of Shareholders of Light held pursuant to Section 1.3(i) and at subsequent General Meetings of Shareholders so as to elect a Board of Directors composed of members selected by the Parties (and the Employees' Representative) in the numbers set forth below:
Party (or other group) Number of Members ---------------------- ----------------- AES 2 CSN 1 EDF 2 HIE 2 BNDESPAR* 1 BNDESPAR/CSN** 1 Employees' Representative 1
* Subject to the provisions of Section 5.8. ** To be designated on a rotating basis by BNDESPAR and CSN with CSN designating the first such member. In order to enable the election of the members of the Board of Directors and to comply with the law, each of the Parties hereby agrees to transfer, on a fiduciary basis, to the individual(s) appointed by it to be a member of the Board of Directors of Light one (1) share of Light out of those held by it. In the event that any shareholder of Light shall require the adoption by Light at a General Meeting of Shareholders of a cumulative or multiple voting system for the election of members of the Board of Directors, each of the Parties shall vote their respective Shares so as to cause the election of a majority of the members of the Board of Directors by the Parties with all of the Parties being represented thereon by at least one (1) member. - 9 - 10 4.4 The Chairman of the Board of Directors of Light, who shall not have executive authority, shall be appointed by AES, HIE, EDF and CSN on a rotating basis. CSN shall select the first Chairman of the Board who shall serve for a three-year period commencing on the Take Over and, subject to the unanimous vote of AES, HIE, EDF and CSN in a Partners' Meeting, shall serve for an additional three-year period. At the end of such three-year period or such additional three-year period, if applicable, the Chairman of the Board of Light shall be elected by unanimous vote of AES, HIE, EDF and CSN from persons nominated by such Parties, provided that any such Party which has theretofore selected the Chairman of the Board, shall not have the right to nominate a candidate for such position until each such other Party has selected the Chairman of the Board, with such rotation process to continue throughout the term of this Agreement. The Chairman of the Board shall have the following duties and responsibilities: (a) to call Board of Directors meetings and General Meetings of Shareholders at the request of any member of the Board of Directors appointed by any Party, (b) to designate the secretary of the Board of Directors meetings and General Meetings of Shareholders who shall maintain the records of the same, and (c) to prepare the agenda for Board of Directors meetings and General Meetings of Shareholders including therein any matters requested by the other members of the Board of Directors. The Chairman of the Board of Directors shall not be entitled to any tie-breaking vote. In the event three of the four members of the Operators' Group in a Partners' Meeting request that the Chairman of the Board resign at any time during his term (which request shall not be arbitrary or capricious), the Parties shall cause the Chairman of the Board to promptly tender his resignation to the Board of Directors. The Party that appointed the Chairman of the Board who resigned shall thereafter be entitled to appoint a successor to serve for the balance of the term of the individual he is replacing. The Chairman of the Board shall be a person selected by a Party other than the Party which nominated the then-serving Chief Executive Officer. 4.5 The Parties hereby expressly agree to exercise their voting rights in the General Meetings of Shareholders of Light to ensure the compulsory election of the members appointed by each of them as members of the - 10 - 11 Board of Directors. 4.6 The Parties hereby expressly acknowledge that, pursuant to the Brazilian Corporations Law, the officers of Light are to be elected by the Board of Directors. It is the intention of the Parties that the officers of Light are, at all times, professionals of recognized capacity and reputation in the market who are able to dedicate themselves full time to the discharge of their duties. 4.6.1 The Parties hereby expressly acknowledge that Light shall have a Chief Executive Officer who shall be one of the Executive Officers comprising the Executive Committee of Light. The principal functions of the Chief Executive Officer shall be (a) to foster and achieve consensus among the Executive Officers comprising the Executive Committee and, if no such consensus is achieved with respect to a particular matter, to decide the matter in question; provided that if any such decision is objected to by any other Executive Officer on the Executive Committee, such matter will be referred to the Board of Directors (and a Partners' Meeting) for resolution, (b) to coordinate the activities of Light in strategic negotiations respecting matters of critical importance to the activities and business of Light, and (c) to conduct and settle any litigation or other dispute involving Light and third parties (except for any suit between any of the Parties and Light arising out of or relating to this Agreement). In addition, the public relations department, the internal auditors and the legal department of Light shall report directly to the Chief Executive Officer, provided that, the internal auditors shall prepare such reports as may be requested from time to time by the Board of Directors or any member of the Executive Committee and a copy of any reports so prepared shall be provided to all members of the Board of Directors. The Parties agree to review the role, function and responsibilities of the Chief Executive Officer at the end of twelve (12) months following the Take Over date with a view towards assessing whether the arrangement set forth hereinabove for the Chief Executive Officer is the optimal arrangement for the - 11 - 12 operation of Light. 4.6.2 The Chief Executive Officer shall be selected by AES, HIE, EDF and CSN on a rotating basis. EDF shall select the first Chief Executive Officer whom the Parties shall cause the Board of Directors to elect to serve for a three-year term commencing on the Take Over and, subject to the unanimous vote of AES, HIE, EDF and CSN in a Partners' Meeting, to be re-elected to serve an additional three-year term. The second Chief Executive Officer shall be selected by HIE and the Parties shall cause such person to be elected as Chief Executive Officer by the Board of Directors to serve for a three-year term. Thereafter, the Chief Executive Officer shall be selected in a Partners' Meeting by the unanimous vote of AES, HIE, EDF, and CSN from persons nominated by such Parties and the Parties shall cause such person to be elected as Chief Executive Officer in General Meetings of Shareholders to serve for a three-year term, provided that any such Party which has theretofore selected the Chief Executive Officer, shall not have the right to nominate a candidate for such position until each such other Party has selected the Chief Executive Officer, with such rotation process to continue throughout the term of this Agreement. 4.6.3 In the event three of the four members of the Operators' Group in a Partners' Meeting request that the Chief Executive Officer or any of the Executive Officers comprising the Executive Committee resign at any time during his term (which request shall not be arbitrary or capricious), the Parties shall cause the Chief Executive Officer or such Executive Officer promptly to tender his resignation to the Board of Directors. The Party that appointed the Chief Executive Officer or such Executive Officer who resigned shall thereafter be entitled to appoint a successor to serve for the balance of the term of the individual he is replacing. 4.6.4 In addition to the Chief Executive Officer, the Board of Directors shall elect a President of Light to serve at the discretion of the - 12 - 13 Board of Directors. The President shall not have an executive function and will act only as a special advisor and consultant to the members of the Board of Directors and to the Executive Officers comprising the Executive Committee. The President shall be chosen from among Brazilian citizens of high esteem and shall be an individual of irreproachable moral character. The President shall be invited to attend meetings of the Board of Directors and shall be available for other national or international duties as may be assigned to him by the Board of Directors. The Parties agree to review the role, function and responsibilities of the President at the end of twelve (12) months following the Take Over date with a view towards assessing whether the arrangement set forth hereinabove for the President is the optimal arrangement for the operation of Light. 4.7 The Parties agree that the business of Light will be controlled by an Executive Committee consisting of the following four (4) members each of whom shall be an officer of Light: (a) The Executive Officer for Distribution, who will be appointed by EDF, will have responsibility for all matters relating to customers and distribution, including (i) establishing and implementing a commercial policy and quality of service, (ii) collection of bills and implementing measures to combat fraud in all aspects, (iii) supporting activities including workforce adjustments, reorganization of distribution districts, and procurement, (iv) managing investments in distribution and subtransmission, including related strategic planning, (v) establishing tariffs and conducting general economic and institutional studies, and (vi) dealings with customers in the bulk power market within Light's concession area; (b) The Executive Officer for Bulk Power Supply, who will be appointed by AES, will have responsibility for all matters relating to the generation and purchasing of electricity, including (i) operations, maintenance, generating additions, - 13 - 14 and dispatching of generating units, (ii) energy purchases (contract and spot), (iii) new generation project development, (iv) development of and participation in the bulk power market, and (v) sales of bulk power outside of the concession area; (c) The Executive Officer for Finance, who will be appointed by HIE, will have responsibility for finance and all matters relating to finance, including (i) management of Light's bank accounts and relationships with financial institutions; (ii) financial resource allocation; (iii) long- and short-term financial planning, including analysis, evaluation, and making recommendations to the Executive Committee regarding new investments by and capital expenditures of Light and the financing of these investments, (iv) investor relations, including interfacing and coordinating matters with stock exchange representatives, (v) cash management, (vi) purchasing (provided that the Executive Officer for Administration will have certain responsibilities during the six-month period following the Take Over date as provided in Section 4.7(d)(x) below), and (vii) budgeting and cost management; (d) The Executive Officer for Administration, who will be appointed by CSN, will have responsibility for all matters relating to administration, including (i) human resources and Light's pension fund, (ii) information systems, methods and data processing, (iii) tax planning and optimization, (iv) accounting and controllership, (v) communications and advertising, including relations with governmental entities and environmental regulatory entities, (vi) real estate management and control and maintenance of properties, (vii) business development in areas other than the energy sector, (ix) insurance management, and (x) coordination of the working group of Light in renegotiating contracts (except banking and related contracts) and coordination of the working group of Light in charge of purchasing and inventory control, in each case during the six-month period following the Take Over date. - 14 - 15 In no event shall any Executive Officer be involved in or have any responsibility over any matter that involves or may involve a conflict of interest with the Party which designated such Executive Officer (or such Party's affiliates). 4.8 The Executive Officers will have responsibility for administering their respective Divisions of Light as they deem appropriate, but, before being appointed, they must agree to work together as a team with the other Executive Officers to effectively administer the overall business of Light. They will agree to co-ordinate with each other so that the best overall results are obtained for Light, including, without limitation, by using their best efforts to meet as regularly as they deem appropriate. Each Executive Officer will prepare a Division Plan (including Strategy, Budgets and Objectives for its area of responsibility) and the Executive Committee as a team will combine the individual Division Plans into an overall plan for Light. The Executive Committee will present the overall plan to the Board of Directors for approval or modification. The Executive Officers will then be responsible for executing the Division Plan for their respective Divisions as approved by the Board. In addition to the foregoing: (i) the Parties agree to disclose the existence of this Agreement to the individuals appointed by them to be elected Board members and with a view for the same to abide by the agreements of the Parties entered into hereunder; (ii) the Parties hereby agree to cause the individuals appointed by them to fulfill any positions in the Board of Directors of Light to abide by the decisions of the Parties at the level of the Partners' Meetings; and (iii) any of the Parties may, at any time, with or without cause, decide to replace the individuals appointed by it to fulfill any positions in the Board of Directors of Light. The Parties hereby expressly agree to use their voting rights to cause the call of a General Meeting of Shareholders of Light to elect the replacement member and, further, to cause the election of the - 15 - 16 individual appointed by the Party replacing a Board of Directors member. 4.9 The Parties shall cause each of the members of the Board of Directors of Light appointed by them to establish (at the first meeting of the Board of Directors of Light held promptly after the General Meeting of Shareholders of Light wherein such members of the Board of Directors are elected), implement and maintain a distribution policy (the "Distribution Policy") for Light. The Distribution Policy shall at all times comply with applicable provisions and limitations of the Brazilian Corporations Law and shall be consistent with the following priorities set forth in order of importance: first, the short- and long-term maintenance, in full force and effect, of Light's concession agreements and the performance of Light's obligations under all applicable laws; second, the maintenance of the financial soundness of Light (including, without limitation, by funding to the extent required by the Brazilian Corporations Law any reserve fund of Light which must be funded prior to any distribution of profits to the shareholders of Light); and third, distribution of all remaining net profits and all other cash amounts available for distribution to all of the shareholders of Light. 4.10 Unless otherwise agreed by each of the members of the Operators' Group or as may be necessary to maintain Light's concession agreements in full force and effect, the Parties shall cause each of the members of the Board of Directors appointed by them, and shall in any General Meeting of the Shareholders of Light vote their Shares, to cause Light not to incur any additional Indebtedness (as defined below) which, taken together with other outstanding Indebtedness of Light, would exceed 25% of Light's total assets as ascertained in the most recent audited annual financial statements for Light. For purposes of this Section 4.10, "Indebtedness" means any obligations for borrowed money, including under any guaranties in respect of the obligations of others for borrowed money. 4.11 Notwithstanding the foregoing, the Parties hereby agree to seek a common position on any matters to be submitted to the shareholders of Light in the context of a Partners' Meeting, as regulated by - 16 - 17 Section 5 below, including, but not limited to, the appointment of Board of Directors' members and the officers of Light. 4.12 The Parties acknowledge the importance to the business and operations of Light of the maintenance of professional and harmonious relationships with its employees. In this regard, the Parties acknowledge the positive contributions input from the employees of Light can have in ensuring the future success of Light and to this end the Parties agree that the Employees' Representative shall have the right to participate in the working groups to be formed following the Take Over for the purpose of: (i) developing and recommending to the Executive Officers of Light a new organizational structure for Light, (ii) developing and recommending to the Executive Officers proposals for the reorganization and reformulation of the policies of BrasLight, and (iii) identifying and assisting in the implementation of means for mitigating the social impact of any organizational restructuring of the activities of Light. 4.13 The Parties also acknowledge the importance to the business and operations of Light of the maintenance of professional and harmonious relationships with its customers. The Parties agree to cause Light to develop, promptly following the execution of this Agreement, a new communications policy for Light which shall be consistent with the goal of maintaining such professional and harmonious relationships, with development of new market relations in the Brazilian power sector and with Light's status as a private company. Should the members of the Operators' Group deem appropriate, Light may hire consultants to assist Light in developing such communications policy. SECTION 5. PARTNERS' MEETINGS 5.1 The Parties understand and accept that it is appropriate for the Parties to discuss in meetings to be attended by the Parties ("Partners' Meetings") prior to the holding of any Board of Directors' Meeting or General Meeting of Shareholders of Light any matters submitted to the deliberation of the Board of Directors or - 17 - 18 shareholders, as the case may be, of Light in order to agree on a common position with respect to such matters. 5.2 The Partners' Meetings shall be held with reasonable anticipation of (but not less than two days prior to) the date scheduled for the holding of any Board of Directors meeting or General Meeting of Shareholders, as the case may be, and shall be called by any member of the Operators' Group in a notice specifying the date, time and location of such meeting and delivered to and received by each Party not less than five (5) days prior to such meeting. Notwithstanding the Partners' Meetings to be held pursuant hereto, the Parties agree that it is beneficial for them to exchange their views on the items included in the respective agenda. To that end, the Parties agree to exchange their views in a telephone conference call of which all Parties receive reasonable prior notice of by telecopy sent to all Parties in advance of the holding of the relevant Partners' Meeting so as to ensure that all matters included in the agenda for the Board of Directors meeting or General Meeting of Shareholders are considered in advance of the relevant Partners' Meeting by the Parties. 5.3 In the absence of a common position of all of the Parties, any proposal shall only be deemed validly approved by the Partners' Meetings if such proposal was approved by the Parties holding not less than sixty-one percent (61%) of the Shares. All decisions approved in a Partners' Meeting as provided herein shall be reflected in writing in minutes to be prepared at the end of each meeting and such minutes shall be signed by each of the representatives of the Parties attending such meeting. 5.4 Without limiting the generality of the foregoing, the following matters pertaining to Light shall always be submitted by the Parties for deliberation in the course of Partners' Meetings and shall require the approval by Parties holding not less than sixty-six and two thirds percent of the Shares, which sixty-six and two thirds percent vote must include the affirmative vote of each member of the Operators' Group: (a) any amendments to the by-laws which may affect the rights and obligations of the Parties under this Agreement or any changes in the corporate purpose of Light - 18 - 19 as provided in Light's by-laws; (b) capital increases or reductions, the issuance of convertible debentures, subscription bonuses or any options for the acquisition of shares aggregating in any one-year period in excess of 10% of the total capital of Light, as such total capital is ascertained in the most recent audited annual financial statement for Light; (c) the incurrence of Indebtedness aggregating in any one-year period in excess of 10% of the total capital of Light, as such total capital is ascertained in the most recent audited annual financial statement for Light; (d) the merger (other than mergers with existing or future affiliates or subsidiaries of Light in which Light is the surviving company), consolidation, spin-off of Light and/or any of its related companies as well as the conversion into another corporate type; (e) the liquidation, dissolution and any other voluntary act that may imply a financial restructuring; (f) cancellation of the listing of the shares of Light on any stock exchange; (g) the pledge or assignment of any revenues or credit rights of Light and/or its related companies as collateral for any financial operations to be entered into by Light and/or its related companies or the creation of any liens or encumbrances affecting the assets of Light, in each case whenever the total aggregate amount of all of Light's assets affected by such pledge, assignment, liens or encumbrances exceeds 10% of the total net worth of Light, as such total net worth is ascertained in the most recent audited annual financial statements of Light; (h) the acquisition or disposal of any fixed assets whose amount exceeds 10% of the total capital of Light, as such total capital is ascertained in the most recent audited annual financial statements of Light; (i) the disposition or acquisition of, or subscription for, equity holdings in other companies now or hereafter existing, including, without limitation, through participation by Light in the privatizations of - 19 - 20 CERJ and CEG; (j) the participation in any public bidding for the granting of any concessions for the provision of public utilities; (k) any change in the functions of the Executive Officers comprising the Executive Committee; and (l) the entering into of any contract or agreement, or any transaction with any Party or any affiliate of any Party. All decisions approved in a Partners' Meeting as provided herein shall be reflected in writing in minutes to be prepared at the end of each meeting and such minutes shall be signed by the representatives of each one of the Parties attending such meeting. 5.5 The decisions made in accordance with the provisions of this Section 5, shall be binding upon all Parties, including any dissenting Party or any Party choosing not to be represented therein, and the Parties agree to cause the member or members of the Board of Directors appointed by them, or to exercise their voting rights in the relevant General Meeting of Shareholders of Light, as the case may be, to cause the approval of such decision on the identical terms and conditions as were so approved by the non-dissenting Parties. 5.6 The failure by a Party to cause the member or members of the Board of Directors appointed by it or to exercise its voting rights, or to vote its Shares at a General Meeting of Shareholders, as deliberated and agreed to by the Parties in a Partners' Meeting shall give rise to the right of any of the other Parties to obtain specific performance of the obligations of the defaulting Party to cause the member or members of the Board of Directors appointed by it or to exercise such voting rights, or to vote such Party's Shares in a General Meeting of Shareholders, in strict accordance with the agreement of the Parties reached in such Partners' Meeting. 5.7 Notwithstanding any decisions made by the Parties in a Partners' Meeting, each of the Parties shall - 20 - 21 be entitled, at any time, either directly or through its appointees, to conduct an audit of the books, records, files, business and operations of Light, provided, however, that any such audit is conducted during normal business hours and does not interfere with the normal course of conduct of the business of Light and provided, further, that any and all costs associated with the conduct of such audit shall be exclusively borne by the Party requesting or conducting such audit. 5.8 As provided in Section 4.2, BNDESPAR has the right individually to elect one member of the Board of Directors and, as a Party to this Agreement, to participate in Partners' Meetings as provided in Section 5.1. BNDESPAR may elect not to exercise its rights to elect such member of the Board of Directors and not to participate in Partners' Meetings, but must be timely notified of, and may attend, all such meetings and all documents delivered to the other Parties in connection with any such meeting shall be concurrently delivered to BNDESPAR, in each event as if BNDESPAR were actually represented on the Board of Directors and in the Partners' Meetings. 5.8.1 If BNDESPAR shall elect to be represented at any Partners' Meeting, BNDESPAR shall be granted the right to participate and vote at such Partners' Meetings, and shall vote jointly with the other Parties to cause the approval of the matters decided at the Partners' Meeting by the Board of Directors or in a General Meeting of Shareholders, as the case may be. 5.8.2 Notwithstanding the provisions of Section 5.4, the Parties agree that the following actions pertaining to Light shall require the affirmative vote of BNDESPAR acting in any Partners' Meeting as a requirement for such action to be submitted to the Board of Directors or a General Meeting of Shareholders: (a) any amendments to the by-laws which may affect the rights and obligations of BNDESPAR under this Agreement or any changes in the corporate purpose of Light as provided in Light's by-laws; - 21 - 22 (b) in any one year, capital increases or reductions, the issuance of convertible debentures, subscription bonuses or any options for the acquisition of shares aggregating in excess of twenty percent (20%) of the total capital of Light, as such total capital is ascertained in the most recent audited annual financial statement for Light; (c) in any one year, the issuance of debentures or the establishment of any other form of indebtedness of Light aggregating in excess of fifty percent (50%) of the total assets of Light, as such total assets are ascertained in the most recent audited annual financial statement for Light; (d) the merger (other than mergers with existing or future affiliates or subsidiaries of Light in which Light is the surviving company) or consolidation, spin-off of Light and/or any of its related companies as well as the conversion of Light into another corporate type; (e) the liquidation or dissolution of Light and any other voluntary act that may imply a financial restructuring of Light; and (f) cancellation of the listing of the shares of Light on any stock exchange. 5.8.3 The provisions of Section 6 of this Agreement shall not apply to BNDESPAR. BNDESPAR may freely sell its Shares in accordance with BNDESPAR rules, provided, however, that in order to permit the other Parties to take appropriate measures to maintain management stability at Light, BNDESPAR shall not sell its Shares for a period of two years following the Take Over date, unless each of the Parties and BNDESPAR collectively decide that such sale should be effected sooner. BNDESPAR shall only - 22 - 23 be entitled to sell its Shares in a single block to a single purchaser or a group of purchasers jointly purchasing and holding such Shares. Notwithstanding the foregoing, in the event that the other Parties shall purchase additional shares of Light which have been deemed, by the unanimous consent of the Parties, to be Shares under this Agreement such that the total number of Shares held by such other Parties is at least equal to fifty percent (50%) plus one share of all outstanding registered voting common shares of Light, then BNDESPAR shall not be required to sell its Shares in a single block. 5.8.4 In case of the sale by BNDESPAR of all of its Shares to a third party or a group of purchasers jointly purchasing and holding such Shares (the "New Shareholder"), the New Shareholder shall, at its election, be entitled to the following rights: (a) to participate and vote in the Partners' Meetings (including, without limitation, to exercise the rights provided for in Section 5.8.2); (b) to elect one (1) member of the Board of Directors and with CSN (on a rotating basis) to elect a second member of the Board of Directors as contemplated in Section 4.3; and (c) to appoint one Executive Officer who shall be an additional member of the Executive Committee and who shall have such specific functions and duties as are jointly determined by all of the Parties in a Partners' Meeting. The New Shareholder shall be bound, in all respects, by the provisions of this Agreement (including, without limitation, Section 6 hereof) and shall execute an instrument affirmatively evidencing that the New Shareholder is so bound by the terms of this Agreement. If BNDESPAR shall, pursuant to Section 5.8.3, sell its Shares other than in a block, then the purchasers thereof shall not be parties to this Agreement and the Shares so sold shall no longer be - 23 - 24 deemed to be Shares under this Agreement. 5.8.5 Unless otherwise agreed by all of the Parties, at least seventy-five (75) days prior to the proposed date of any auction or other sale by BNDESPAR of its Shares, BNDESPAR shall announce the auction and allow thirty (30) days for third parties to apply for pre-qualification to participate at such auction or sale. In order to prevent a third party unacceptable to the other Parties from participating in the management of Light, and to prevent any party from becoming aware of internal information which might be used against the interests of Light, BNDESPAR shall, immediately following the thirty (30) day period allowed for the pre-qualification of third parties, disclose to the other Parties the identities of all third parties applying for pre-qualification to participate at such auction or sale, each of which third parties shall be subject to the prior approval of each of the other Parties (which approval shall not be unreasonably withheld). Any such refusal must be given within thirty (30) days of receipt of the notice of the pre-qualified third parties and shall clearly identify the reasons on which it is based. If BNDESPAR is of the view that approval of any such third party was not reasonably withheld, it shall so inform the other Parties in a writing stating the reasons for its disagreement. Thereafter, BNDESPAR and the other Parties shall negotiate in good faith in an effort to resolve such dispute. SECTION 6. TRANSFER OF SHARES RIGHT OF FIRST REFUSAL 6.1 Except as provided in Section 5.8, the transfer of any of the Shares, including any transfer of subscription rights to additional shares granted to holders of the Shares ("Subscription Rights"), shall only be validly made after a two-year period commencing on the Take Over date and shall thereafter be made in accordance with the following rules. 6.2 If any of the Parties wishes to assign and - 24 - 25 transfer all or part of its Shares or Subscription Rights (the "Selling Shareholder"), the other Parties (the "Other Parties") shall have a right of first refusal to acquire the Shares or Subscription Rights on offer. 6.3 The Selling Shareholder shall evidence its intention, in writing, to the Other Parties setting forth the price and payment terms for such sale. Should there exist a bona fide third-party offer, the right granted hereby shall be exercised under the same terms and conditions contained in such bona fide third-party offer. In the absence of a bona fide third-party offer, the price and payment terms and conditions shall be those contained in the proposal submitted by the Selling Shareholder (collectively, with a bona fide offer, an "Offer"). 6.4 Each of the Other Parties shall have a period of forty-five (45) days from the date of receipt of said notice to elect to acquire the Shares or Subscription Rights being offered on the same terms and conditions contained in the Offer, in proportion to the number of remaining Shares of Light held by such Party to the number of remaining Shares held by all of the Other Parties, it being understood that such Parties may either purchase the Shares or Subscription Rights on offer or appoint a third party of their own choosing to acquire such Shares or Subscription Rights; provided, however, that the appointee (and not the appointee's nominee) is made known to the other Parties. Upon expressing their intention to acquire the Shares or Subscription Rights on offer, the purchasing Parties may also express their intention to acquire the Shares or Subscription Rights which the Other Parties are entitled to purchase but have declined to acquire the Shares. In such case, should there be any Shares or Subscription Rights unpurchased, such Shares or Subscription Rights shall be allocated, pro rata in accordance with their respective holdings of Shares, among the purchasing Parties that expressed their intention to acquire the same. Such allocation shall be completed within the period of ten (10) days following the expiration of the original 45-day period. 6.5 In the event that the Other Parties, within the aforesaid 45-day period and the 10-day allocation period, do not exercise, either directly or through an appointee, the right to purchase all of the - 25 - 26 Shares or Subscription Rights on offer, then none of such Shares or Subscription Rights may be purchased by the Other Parties and all of such Shares may be freely offered to the bona fide third party which made the original Offer or to another third party, as the case may be, by the Selling Shareholder, within an additional period of forty-five (45) days, for a price never lower and/or under conditions never more favorable than those originally stated in the Offer notice and provided, however, that, for any transfer of Shares proposed to be made within the 6-year period following the Take Over date, the transferee is not a competitor of the Other Parties or any affiliate of a Party (as reasonably determined by such Parties). In the event of any sale of Shares, it shall be a condition to the effectiveness of such sale that the purchasing shareholder become, by execution of an adopting instrument reasonably acceptable to the other Parties, a party to this Agreement. 6.6 If, at the end of the aggregate period of ninety (90) days, the Selling Shareholder has not sold the offered Shares or Subscription Rights and is still willing to dispose of them, or if the terms and conditions of the Offer have changed, the Selling Shareholder shall re-offer its Shares or Subscription Rights to the Other Parties, in accordance with the procedures contained in this Section 6. 6.7 The acquisition of part of the Shares or Subscription Rights then offered is forbidden, unless otherwise agreed by the Selling Shareholder and, in such case disclosed to the other Parties in advance of such sale. 6.8 In the event that any member of the Operators' Group shall sell or transfer in excess of 50% of the Shares owned by it on the date of the Take Over, such Party shall no longer be included in the Operators' Group. If any member of the Operators' Group shall sell or transfer in excess of 50% of the Shares owned by it on the date of the Take Over to a single purchaser, such purchaser shall become a member of the Operators' Group. 6.9 Notwithstanding anything herein to the contrary, each of the Parties acknowledges that the Shares of AES, EDF, CSN and HIE may from time to time be pledged - 26 - 27 as collateral security to any bank, financial institution or other person providing financing or refinancing for such Party's investment in Light (any such bank, financial institution or other person a "Lender" and any of them together, the "Lenders"), and any restrictions on transfers herein imposed on the Parties shall not apply to any transfer of the Shares or pledge to the Lenders or any transfer made in connection with the exercise of the Lenders' rights and remedies with respect to such pledged Shares (or any Subscription Rights related thereto), unless otherwise required by applicable law or Light's concession agreements, and each of the Parties hereby waives, to the maximum extent permitted by applicable law, the applicability of any such restrictions or obligations to the extent necessary to give effect to the foregoing. VIOLATION OF RULES 6.10 Any transfer of the Shares and/or Subscription Rights made in violation of the rules provided herein and any attempted voluntary encumbrance or pledge of rights in respect of the Shares and/or Subscription Rights made in violation of the rules provided herein shall be deemed null and of no effect and Light is hereby expressly directed by the Parties to not register in its corporate books any assignment and transfer or encumbrance or pledge of the Shares and/or Subscription Rights made in violation of said rules. PERMITTED TRANSFERS AND ENCUMBRANCES 6.11 In addition to the transfer, on a fiduciary basis, of one share to each one of the individuals appointed by the Parties to be a member of the Board of Directors of Light, any Party may transfer all or part of its Shares (and any Subscription Rights related thereto) without the prior written consent of the other Parties (which intended transfer shall nevertheless be communicated to the other Parties) in the following circumstances: (a) subject to the requirement that upon any such transfer the transferee company or person become, by execution of an adopting instrument, a Party to this - 27 - 28 Agreement, the transfer to any subsidiary or to the transferor's parent company or to its ultimate individual shareholders or, further, to any company which is controlled, directly or indirectly, by the ultimate individual shareholders of the transferor or which is under common control with the transferor; (b) subject to the requirement that upon any such transfer the transferee company or person become, by execution of an adopting instrument, a Party to this Agreement, the transfer to any person with which it merges or which acquires substantially all of its assets, provided that the transferring Party shall provide documentation of any such merger or acquisition to the other Parties; (c) any pledge by any member of the Operators' Group of its Shares to any Lender as security for its obligations in respect of any financing or refinancing of any such member's investment in Light; or (d) the transfer to any Lender (or its designee) upon the foreclosure by such Lender on any pledge of Shares by any Party. 6.12 Except as provided in Section 6.13, in the event that any Party shall acquire additional shares of Light through open-market purchases of such shares, such shares shall not for purposes of any vote in a Partners' Meeting be deemed to be Shares, except that the Party purchasing such shares shall be obligated hereunder to vote such shares in any General Meeting of Shareholders of Light in the same manner as such Party's Shares. 6.13 The Parties agree that CSN may acquire such additional number of shares of Light as shall, taken together with the Shares held by CSN on the date of this Agreement, equals 1,179,000,000 shares (or such other number of Shares as shall be held by AES, EDF or HIE to the extent that each such Party's original holdings of Shares has, as a result of any capital increase or reduction, increased or decreased), which shares shall, for all purposes of this Agreement be deemed to be Shares, provided that the price of such additional shares is at least equal to the price per share paid at - 28 - 29 the Auction. In the event BNDESPAR shall sell its Shares at a price lower than the price paid in the Auction, each of the members of the Operators' Group (other than BNDESPAR) may acquire an amount of such Shares on the same proportionate basis as such member of the Operators, Group's Shares bears to the aggregate number of Shares held by the Operators' Group, and any Shares so purchased shall continue to be deemed Shares for all purposes of this Agreement. In any such sale of the Shares of BNDESPAR, the members of the Operators' Group which desire to purchase such Shares agree that they shall agree upon, and at all times bid, common bid prices for such Shares. SECTION 7. NEGATIVE COVENANTS 7.1 None of the Parties or their respective Affiliates (as defined below) shall engage in power generation, transmission or distribution projects in the State of Rio de Janeiro (other than any such project publicly-announced or disclosed in writing to the other Parties and in development on the date of this Agreement) without first offering such opportunity to Light. Should Light decide not to participate in such project, the right to participate in it shall be automatically transferred to the Parties and if any of the Parties shall elect not to participate in such project, the right to participate therein shall continue to be held by the remaining Parties. 7.2 Nothing contained herein shall, however, prevent any of the Parties or their Affiliates from implementing any power generating project for captive use by such Party or its Affiliates ("Self Generation"); provided that any excess energy generated and not utilized by such Party or its Affiliates shall be offered for sale to Light; in its capacity as the local utility company, as provided by the relevant provisions of the Brazilian laws in force, mainly the Waters Code. 7.3 For purposes of this Section 7, "Affiliate" means, with respect to any person, any other person that (a) owns the first person, (b) is owned by the first person, (c) is under common ownership with the first person, where "owns" for purposes of this definition, - 29 - 30 means ownership of (i) more than fifty percent (50%) of the equity interests or rights to distributions on account of equity of the person, or (ii) the power to direct the management or policies of the person. Notwithstanding the foregoing, none of the shareholders of CSN shall be deemed an Affiliate of CSN. SECTION 8. ADHERENCE TO THE TERMS OF THIS AGREEMENT 8.1 The Parties hereby agree that any shareholders of Light may, at any time during the term of this Agreement, become a party to this Agreement subject to the prior consent of all of the Parties. SECTION 9. REGISTRATION OF THE AGREEMENT WITH THE COMPANY 9.1 In order to secure the performance of the obligations set forth herein, and in accordance with the provisions of Article 118 of the Brazilian Corporations Law, this Agreement shall be registered in the Book of Registered Shares and in the Book of Transfer of Registered Shares of Light and the respective share certificates, whenever issued, shall also reflect the existence of this Agreement. SECTION 10. TERM OF THE AGREEMENT 10.1 This Agreement shall come into force on the date of the execution hereof and shall remain in full force and effect for a term of thirty (30) years from the date hereof. 10.2 In the ninth year of the term of this Agreement and from time to time thereafter (but not more than once in any three-year period), the Parties shall review the terms of this Agreement and, to the extent they deem appropriate, negotiate in good faith such modifications to the terms of this Agreement as they - 30 - 31 believe, based upon the experiences of the Parties with the operation of the terms of this Agreement, will optimize the relations of the Parties and promote the efficient and profitable operation of Light; provided, that none of the Parties shall be under any obligation to agree to any such modification if such Party believes that such modification would be prejudicial to the optimal relations of the Parties, the efficient and profitable operation of Light, or its own interests as a Party to this Agreement. SECTION 11. SPECIFIC PERFORMANCE 11.1 Any Party shall be entitled to claim in Court the specific performance of the obligations assumed by the other Parties hereunder, or of any portion hereof, in pursuance of the relevant Sections of the Brazilian Code of Civil Procedure, including, but not limited to, Sections 461, 632, 639 inter alia, as well as Article 118 of the Brazilian Corporations Law. 11.2 Without limiting the rights or remedies of the Parties, the Parties hereby acknowledge that the payment of damages by the defaulting Party to the nondefaulting Parties shall not be deemed adequate indemnification for the failure by a Party to comply with its obligations hereunder. 11.3 Any of the Parties shall be entitled to apply for a declaration by the Chairman of the General Meeting of Shareholders of Light that any vote by the other Parties in violation of the provisions of this Agreement shall not be computed and shall be of no effect. SECTION 12. MISCELLANEOUS 12.1 This Agreement shall be governed by and construed in accordance with the laws of the Federal Republic of Brazil. If any dispute or claim between two or more of the Parties (each a "disputing party") arising out of or derived from the construction, interpretation or performance of any obligations under this Agreement (a - 31 - 32 "claim") has not been resolved by mutual agreement on or before the 30th day following the first notice of the subject matter of the claim to or from the disputing parties, then any disputing party may (a) bring an action in the Central Court of the City of Rio de Janeiro, which the Parties agree shall be competent to resolve any such claim, or (b) refer the claim to arbitration under Sections 12.2 through 12.4 below. 12.2 Any arbitration proceeding conducted hereunder shall be settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, of Paris, France by three (3) arbitrators. The nondefaulting Parties, on the one hand, and the defaulting Party, on the other, shall be entitled to appoint one (1) arbitrator and the arbitrators appointed by the parties shall, within the period of fifteen (15) calendar days following the acceptance of their appointment, nominate the third arbitrator who shall be the Chairman of the arbitral tribunal. If such arbitrators may not reach a consensus as to the name of the third arbitrator within the period provided hereinabove, such third arbitrator shall then be appointed by the International Court of Arbitration of ICC in pursuance of the Rules. 12.3 The arbitration proceedings shall be held in the City of London, England (for any arbitration in which no award is being sought therein against a Brazilian Party) or Rio de Janeiro, Brazil (for any arbitration in which an award is being sought against a Brazilian Party), and such proceedings shall be conducted in the English language. 12.4 To the maximum extent permitted under applicable law, (a) the arbitral award shall be final and binding upon the parties and shall not be subject to any appeal, and (b) such award shall be enforceable in the courts of any jurisdiction where any assets of the Party against whom enforcement is sought are found. 12.5 This Agreement may be modified only by a written instrument duly executed by all Parties. 12.6 Any notices or other communications required or permitted hereunder shall be given in writing to the Parties to the addressees indicated herein or to - 32 - 33 any other address as the Parties may, from time to time, indicate to the others. 12.7 This Agreement shall be binding upon and inure to the benefit of the Parties, their successors and assigns, to the extent permitted hereunder. 12.8 Except as expressly contemplated in Section 5.8 and 6 and except for such rights as do not arise expressly or by direct implication under the terms of this Agreement and the assignment of which could not materially affect the obligations of the assigning Party or the rights of the other Parties, none of the Parties may assign its rights and obligations hereunder, unless the prior written approval of the other Parties is first secured. 12.9 In the event that any provision of this Agreement is declared unenforceable, illegal or invalid by virtue of violation of norms of public policy or otherwise or is required to be modified by DNAEE as a condition to its approval of this Agreement, the remaining provisions shall not be affected and shall remain in full force and effect, and in such a case the Parties shall be obliged to replace the unenforceable, illegal or invalid provision with such other provision or provisions, or to modify such provision, in each case so as to achieve the purposes envisaged by that provision. 12.10 This Agreement is executed in both the Portuguese and English language versions, but in case of conflict the English language version shall prevail over any and all translations hereof. 12.11 Each Party represents and warrants to the other Parties as follows: (a) such Party is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has all requisite power and authority to own, lease and operate its properties and to carry out its business as it is now being conducted; (b) the execution, delivery and performance by such Party of this Agreement has - 33 - 34 been authorized by all necessary corporate actions and does not and will not: (i) require any consent or approval not already obtained, (ii) violate any law, rule, regulation, order, or decree presently in effect and having applicability to it, (iii) violate the charter, by-laws or other applicable organizational documents thereof, or (iv) violate any permit, concession, grant, franchise, license or other governmental authorization, approval, judgment, order or decree or any mortgage agreement, deed of trust, indenture or any other instrument to which such Party is a party or by which such Party or any of its properties or assets are bound or which is otherwise applicable to such Party; and (c) this Agreement is the legal and binding obligation of such Party, enforceable against it in accordance with its terms; and any other document in connection with this Agreement to be delivered by such Party, when duly executed and delivered by such Party, will be the legal and binding obligation of such Party, enforceable against it in accordance with its terms, in each case except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity (regardless of whether enforcement thereof is sought in a proceeding at law or in equity). 12.12 The Parties shall comply with all applicable laws, including the United States Foreign Corrupt Practices Act, in connection with all matters arising out of or relating in any way to the subject matter of this Agreement. Without limiting the generality of the foregoing, each Party agrees not to give anything of value, either directly or indirectly, to an official of the Brazilian or any other government for the purpose of influencing an act or decision of any such government or its officials in connection with this Agreement or the operation of Light. 12.13 Each of the Parties represents that it - 34 - 35 has not entered into any other agreements with any other Party or third party (excluding any Lender) affecting the manner in which it exercises its rights or performs its obligations under this Agreement. 12.14 This Agreement is solely for the benefit of the Parties and their respective successors and permitted assigns, and this Agreement shall not otherwise be deemed to confer upon or give any third party any remedy, claim, liability, cause of action or other right. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in five (5) counterparts of equal tenor in the presence of two (2) witnesses on the day and year first above written. AES CORAL REEF, INC. By: /s/ HENRY PASZELARTR ------------------------------ Name: Henry Paszelartr Title: Vice Presidet BNDES PARTICIPACOES S.A. By: [sig] ------------------------------ Name: Title: COMPANHIA SIDERURGICA NACIONAL By: /s/ SYLVIO COUTINHO ------------------------------ Name: Title: - 35 - 36 EDF INTERNATIONAL S.A. By: [sig] ------------------------------ Name: Title: General Counsel EDF, International Division HOUSTON INDUSTRIES ENERGY - CAYMAN, INC. By: /s/ EDWARD A. MONTO ------------------------------ Name: Edward A. Monte Title: Director Witnesses: [sig] - ----------------------------------- [sig] #131823502 [sig] - ----------------------------------- [sig] R.N. 8.857.240 - 36 - EX-10.68 6 ADDENDUM TO SHAREHOLDERS AGREEMENT. 1 EXHIBIT 10.68 ADDENDUM TO SHAREHOLDERS AGREEMENT THIS ADDENDUM TO SHAREHOLDERS AGREEMENT (the "Addendum") is made and entered into as of this 30th day of May, 1996 in the City of Rio de Janeiro, State of Rio de Janeiro, Brazil, by and among: AES Coral Reef, Inc. ("AES") 1001 North 19th Street Arlington, Virginia 22209 Attention: Tom Tribone Facsimile: 001-703-528-4510; Companhia Siderugica Nacional ("CSN") Rua Lauro Muller, 116-36 degrees Rio de Janeiro - RJ Attention: Sylvio Coutinho Facsimile: 55-21-545-1318 or 55-21-545-1529; EDF International S.A. ("EDF") 16 Place des Etats-Unis 75016 Paris, France Attention: Jack Cizain Facsimile: 33-1-40-42-5441; Houston Industries Energy - Cayman, Inc. ("HIE") 1111 Louisiana, 39th Floor Houston, Texas 77002 Attention: Edward Monto Facsimile: 001-713-207-5563; and BNDES Participacoes S.A. Av. Republica do Chile, 100 - 10 degrees andar Rio de Janeiro - RJ Attention: Gabriel Stolier Facsimile: 55-21-533-1538; hereinafter sometimes referred to as the "Original Parties" or, severally, an "Original Party"; and 2 InvestLight-Clube de Investimento dos Empregados da Light ("InvestLight") Av. Presidente Vargas, 642 Rio de Janeiro - RJ Attention: Paulo Roberto Monteiro de Barros Facsimile: 55-21-211-2697; InvestLight and the Original Parties sometimes collectively referred to as the "Amending Parties" or, severally, an "Amending Party." WITNESSETH THAT: (A) WHEREAS, the Original Parties are the parties to that certain Shareholders Agreement, dated as of May 27, 1996 (the "Shareholders Agreement"), pursuant to which the Original Parties have constituted themselves as the controlling group of Light Servicos de Eletricidade S.A. ("Light"), a publicly-held corporation headquartered in the City of Rio de Janeiro, State of Rio de Janeiro, Brazil, and have established the rules governing their relationships with respect to the decisions to be taken as shareholders of Light; (B) WHEREAS, InvestLight is in the process of acquiring up to 5.9% of the registered voting common shares of the capital stock of Light (the "InvestLight Shares") and is the representative of the employees of Light; (C) WHEREAS, the Original Parties and InvestLight have executed that certain Statement of Principles of Participation of InvestLight - Clube de Investimento dos Empregados da Light in the Controlling Group of Light Servicos de Electricidade S.A., dated May 28, 1996, wherein the Original Parties and InvestLight have stated their mutual desire that, upon InvestLight acquiring within a certain period of time a specified percentage of the total outstanding registered voting common shares of Light, InvestLight shall become a member of the controlling group of Light and a party to the Shareholders Agreement on the basis of the principles set forth therein; (D) WHEREAS, the Original Parties and InvestLight desire to enter into this Addendum so as to cause InvestLight to became a member of the controlling 2 3 group and a party to the Shareholders Agreement on the terms and conditions hereinbelow set forth; and (E) WHEREAS, the Amending Parties are willing to record herein in writing their agreements and covenants intending to be legally bound; NOW THEREFORE, the Amending Parties hereby agree as follows: 1. Definitions. Capitalized terms used herein without definition shall have the meanings ascribed thereto in the Shareholders Agreement. 2. InvestLight as Party to Shareholders Agreement. In the event that InvestLight shall, on or prior to June 28, 1996, own at least five percent (5%) of the total outstanding registered voting common shares of Light (the "Initial InvestLight Percentage"), then InvestLight shall automatically and without any further action by any of the Amending Parties, become a Party to the Shareholders Agreement with the rights and obligations of a Party thereunder and all of the InvestLight Shares (but not in excess of shares representing five percent (5%) of the total outstanding registered common voting shares of Light) shall be included in and deemed to be a part of the Shares under the Shareholders Agreement, in each case subject to the more particular provisions hereof. In the event that InvestLight shall not have acquired, on or prior to June 28, 1996, sufficient registered voting common shares of Light such that it owns the Initial InvestLight Percentage, then InvestLight shall not become a Party to the Shareholders Agreement and this Addendum shall automatically terminate on such date and be of no further force or effect. Such rights include, without limitation, the right provided for in Section 4.3 thereof to select the one member of the Board of Directors of Light designated therein as the "Employees' Representative" and to designate an individual to attend and vote in Partners' Meetings convened under Section 5 of the Shareholders Agreement. Such obligations include, without limitation, the obligation to cause the member of the Board of Directors appointed by it, or to exercise its voting rights in a General Meeting of Shareholders of Light, as the case may be, to cause the approval of any decision made by the Parties in a Partners' Meeting pursuant to the provisions 3 4 of Section 5.3 or 5.4 on the identical terms and conditions as were approved by the Parties in such Partners' Meeting. 3. Concession Agreement. It is the intention of the Amending Parties that, on or about June 4, 1996, the Original Parties and Investlight shall execute the concession agreement for Light. In the event that InvestLight shall not own the Initial InvestLight Percentage on or prior to June 28, 1996, InvestLight shall promptly take any and all actions necessary to cause InvestLight to not be a party to such concession agreement. 4. Employee's Representative. For so long as InvestLight shall remain a Party to Shareholders Agreement, the Employees' Representative shall be InvestLight. InvestLight may designate different persons to fulfill the various responsibilities of the Employees' Representative under Sections 2.4, 4.3 and 4.12 of the Shareholders Agreement, respectively. In addition, the representative of InvestLight at any Partners' Meeting may be a person other than the person appointed by InvestLight as the Employees' Representative on the Board of Directors of Light. 5. Minimum Ownership. InvestLight shall remain a Party to the Shareholders Agreement and a member of the Controlling Group only for so long as it owns three percent (3%) or more of the total outstanding registered common stock of Light (the "Minimum Percentage") and, if it shall no longer own the Minimum Percentage, it shall be released from all further obligations, and shall have no further rights, under the Shareholders Agreement. In addition, to the provisions of Section 6 of the Shareholders Agreement, InvestLight agrees that, for the three-year period commencing on the date of the Take-Over, it shall not transfer any of its Shares if as a result of such transfer it would not thereafter own the Initial InvestLight Percentage. The rights of InvestLight set forth in this Addendum to appoint the Employees' Representative member of the Board of Directors, and to act as Employee Representative under Sections 2.4, 4.3 and 4.12 of the Shareholders Agreement are personal to InvestLight, for so long as it shall remain a Party to the Shareholders Agreement, and shall not inure to the benefit of any of its transferees, successors or assigns. In the event that InvestLight shall no longer be a Party to the Shareholders Agreement, it shall not disclose to any third-party any and 4 5 all information obtained by it in connection with any Partners' Meeting. 6. Additional Principles. Section 2.2 of the Shareholders Agreement is hereby amending by adding thereto the following provisions: "(q) in selecting the managers of Light, Light will give full consideration to the existing managers of Light with the intention in each case of selecting from such existing managers or hiring from other sources the most qualified person for each such position; and "(r) in the event that the former employees of Light shall form cooperatives or companies for the purposes of providing services which are within Light's areas of business, Light will give full consideration to using the services of any such cooperative or company, provided that in each case it shall contract for such services only on competitive market prices and terms." 7. Approval Percentage. For so long as InvestLight is a Party to the Shareholders Agreement, the percentage of the Shares set forth in Section 5.3 of the Shareholders Agreement shall be deemed, for all purposes of such agreement, to be fifty-one percent (51%), which fifty-one percent vote must include the affirmative vote of at least three (3) members of the Operators' Group. 8. Representations and Warranties; Termination. InvestLight makes to each of the Original Parties, as to itself, each of the representations and warranties contained in Section 12.11 of the Shareholders Agreement. InvestLight hereby further represents and warrants to each of the Original Parties that it is the duly designated and proper representative of the employees of Light for all purposes contemplated hereunder and is entitled to appoint a member of the Board of Directors of Light, as contemplated in Light's concession agreements. In the event that another person shall successfully claim that it is the duly designated and proper representative of the employees of Light and is entitled to appoint a member of the Board of Directors of Light, as contemplated in Light's concession agreements, then InvestLight shall no longer be a Party to the Shareholders Agreement and all of its 5 6 further rights and obligations hereunder and thereunder shall terminate. 9. Miscellaneous. (a) Except as expressly amended by this Addendum, the Shareholders Agreement shall remain unmodified and in full force and effect. (b) This Addendum shall be governed by and construed in accordance with the laws of the Federal Republic of Brazil and any dispute or claim arising hereunder shall be resolved as provided in the Shareholders Agreement. (c) Any notices or other communications to InvestLight under the Shareholders Agreement shall be given as provided therein to the address indicated herein or to any other address as InvestLight may, from time to time, indicate to the other Parties. (d) This Addendum is executed in both the Portuguese and English language versions, but in case of conflict the English language version shall prevail over any and all translations hereof. (e) This Addendum is solely for the benefit of the Amending Parties and their respective successors and permitted assigns, and this Addendum shall not otherwise be deemed to confer upon or give any third party any remedy, claim, liability, cause of action or other right. 6 7 IN WITNESS WHEREOF, the Amending Parties have caused this Addendum to be executed in six (6) counterparts of equal tenor in the presence of two (2) witnesses on the day and year first above written. AES CORAL REEF, INC. By: [sig] ---------------------------- Name: Title: BNDES PARTICIPACGES S.A. By: ---------------------------- Name: Title: By: ---------------------------- Name: Title: COMPANHIA SIDERCRGICA NACIONAL By: [sig] ---------------------------- Name: Title: 7 8 EDF INTERNATIONAL S.A. By: [sig] ---------------------------- Name: Title: General Counsel, EDF International Division HOUSTON INDUSTRIES ENERGY - CAYMAN, INC. By: /s/ STEVEN H. SCHULER ---------------------------- Name: Steven H. Schuler Title: Director INVESTLIGHT - CLUBE DE INVESTIMENTO DOS EMPREGADOS DA LIGHT By: [sig] ---------------------------- Name: Title: Witnesses: [sig] IFP3466285 - ------------------------------------ [sig] IFP2142611 - ------------------------------------ 8 -----END PRIVACY-ENHANCED MESSAGE-----