-----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, E4U6M63xj8Ss84wQ+8olzXG3sISqfdt7p+0CVGRS8dlFBj1NLCsCFzPrCslKHGXE KkcUMRzK6MPONu0xjEov4A== 0001005150-98-000277.txt : 19980401 0001005150-98-000277.hdr.sgml : 19980401 ACCESSION NUMBER: 0001005150-98-000277 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AES CORPORATION CENTRAL INDEX KEY: 0000874761 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 541163725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12291 FILM NUMBER: 98580360 BUSINESS ADDRESS: STREET 1: 1001 N 19TH ST STREET 2: STE 2000 CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 7035221315 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 0-19281 THE AES CORPORATION ------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 54-1163725 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1001 NORTH 19TH STREET, ARLINGTON, VIRGINIA 22209 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 522-1315 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTER ------------------- --------------------------------------- Common Stock, par value $0.01 per share New York Stock Exchange $2.6875 Term Convertible Securities, Series A New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Warrants to Purchase Common Stock, par value $.01 per share NASDAQ
------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] ------------------------- The aggregate market value of Registrant's voting stock held by non-affiliates of Registrant, at February 1, 1998, was $5,415,482,847. The number of shares outstanding of Registrant's Common Stock, par value $0.01 per share, at February 1, 1998, was 175,065,659. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held on April 21, 1998. Certain information therein is incorporated by reference into Part III hereof. ================================================================================ PART I ITEM 1. BUSINESS (a) General development of business. OVERVIEW The AES Corporation and its subsidiaries and affiliates (collectively "AES" or the "Company") are helping to meet the world's needs by providing electricity to customers in many countries in a socially responsible way. Until recently, the Company's sales of electricity were almost exclusively made to customers (generally electric utilities or regional electric companies) on a wholesale basis for further resale to end users. This is often referred to as the electricity "generating" business. Sales by these generating companies are usually made under long-term contracts from power plants owned by the Company's subsidiaries and affiliates. The Company's ownership portfolio of power facilities includes new plants constructed for such purposes ("greenfield" plants) as well as existing power plants acquired through competitively bid privatization initiatives and negotiated acquisitions. AES now operates and owns (entirely or in part) a diverse portfolio of electric power plants (including those within the integrated distribution companies discussed below) with a total capacity of 17,636 megawatts (MW). Of that total, 43% are fueled by coal or petroleum coke, 6% are fueled by natural gas, 34% are hydroelectric facilities, 6 % are fueled by oil, and the remaining 11% are capable of using multiple fossil fuels. Of the total MW, 1,069 (six plants) are located in the United States, 1,588 (four plants) are in China, 1,281 (three pants) are in Hungary, 5,856 (thirty-nine plants) are in Brazil, 5,384 (seven plants) are in Kazakhstan (including 4,000 MW attributable to Ekibastuz which currently has a capacity factor of approximately 20%), 210 (one plant) is in the Dominican Republic, 110 (one plant) is in Canada, and 695 (two plants) are in Pakistan. AES is also currently in the process of adding approximately 5,331 MW to its operating portfolio by constructing several new plants. These include a 180 MW coal-fired plant in the United States, four coal-fired plants in China totaling 2,314 MW, a 230 MW natural gas-fired plant in the UK, a 405 MW natural gas-fired plant in the Netherlands, a 288 MW kerosene-fired plant in Australia, an 830 MW natural gas-fired plant in Argentina, a 484 MW natural gas-fired plant in Mexico and a 600 MW natural gas-fired plant in Brazil. As a result, AES's total MW of 84 power plants in operation and under construction is approximately 22,967 and net equity ownership (total MW adjusted for the Company's ownership percentage) represents approximately 12,247 MW. Beginning in 1996 and continuing through 1997, AES has also acquired interests (both majority and minority) in companies that sell electricity directly to commercial, industrial, governmental and residential customers. This is often referred to as the electricity "distribution" business. Electricity sales by AES's distribution businesses are generally made pursuant to the provisions of long-term electricity sale concessions granted by the appropriate governmental authority as part of the original privatization of each distribution company. In certain cases, these distribution companies are "integrated," in that they also own electric power plants for the purpose of generating a portion of the electricity they sell. Each distribution company also purchases, in varying proportions, electricity from third party wholesale suppliers, including in certain cases, other subsidiaries of the Company. AES has majority ownership in two distribution companies in Argentina, one in Brazil and one in El Salvador (purchased in 1998), and less than majority ownership in two additional distribution companies in Brazil. These six companies serve a total of approximately 8 million customers with gigawatt hour sales exceeding 63,000. On a net equity basis, AES's ownership represents approximately 2 million customers and gigawatt hour sales exceeding 15,000. AES has been successful in growing its business and serving additional customers by participating in competitive bidding under privatization initiatives and has been particularly interested in acquiring existing businesses or assets in electricity markets that are promoting competition and eliminating rate of return regulation. In such privatizations, sellers generally seek to complete competitive solicitations in less than one year, much quicker than the time periods associated with greenfield development, and usually require payment in full on transfer. AES believes that its experience in competitive markets and its worldwide integrated group structure, with its significant geographic coverage and presence, enable it to react quickly and creatively in such situations. Because of this relatively quick process or other considerations, it may not always be possible to arrange "project financing" (the Company's historically preferred financing method, which is discussed further under Item 7, "Discussion and Analysis of Financial Condition and Results of Operations" herein) for specific potential acquisitions. Additionally, as in the past, certain acquisitions or the commencement of construction in several greenfield developments would potentially require the Company to obtain substantial additional financing including both debt and equity. OUTLOOK All over the world, electricity markets continue to be restructured and there is a trend away from government-owned and government-regulated electricity systems toward deregulated, competitive market structures. Many countries have rewritten their laws and regulations to allow foreign investment and private ownership of electricity generation, transmission or distribution companies. Some countries (for example the UK, Brazil and some of those of the former Soviet Union, among others) have or are in the process of "privatizing" their electricity systems by selling all or part of such systems to private investors. This global trend of electricity market restructuring provides significant new business opportunities for companies like AES. Several states in the United States are also beginning to follow this trend. In particular, some regulated public utilities have begun to sell or auction their generation capacity. Substantially all of the transmission and distribution services in the United States continue, however, to be regulated under a state and Federal regulatory framework. In addition, many states have passed or are considering new legislation that would permit utility customers to choose their electricity supplier in a competitive electricity market (so-called "retail access" or "customer choice" laws). While each state's plan differs in details, there are certain consistent elements, including allowing customers to choose their electricity suppliers by a certain date (the dates in the existing or proposed legislation vary between 1998 and 2003), allowing utilities to recover "stranded assets" (the remaining costs of uneconomic generating or regulatory assets) and a reaffirmation of the validity of contracts like the Company's U.S. contracts. AES's investments and involvement in the development of new projects and the acquisition of existing power plants and distribution companies in locations outside the United States is increasing. The financing, development and operation of such businesses may entail significant political and financial uncertainties and other structuring issues (including uncertainties associated with the legal environments, with first-time privatization efforts in the countries involved, currency exchange rate fluctuations, currency repatriation restrictions, currency inconvertibility, political instability, civil unrest, and in severe cases possible expropriation). Although AES attempts to minimize these risks, these issues have the potential to cause substantial delays or material impairment to the value of the project being developed or business being operated. The Company, a corporation organized under the laws of Delaware, was formed in 1981. AES has its principal offices located at 1001 North 19th Street, Suite 2000, Arlington, Virginia 22209, and its telephone number is (703) 522-1315. CAUTIONARY STATEMENTS AND RISK FACTORS The Company wishes to caution readers that the following important factors, among others, indicate areas affecting the Company which involve risk and uncertainty. These factors should be considered when reviewing the Company's business, and are relied upon by AES in issuing any forward-looking statements. Such factors could affect AES's actual results and cause such results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, AES. Some or all of these factors may apply to the Company's businesses as currently maintained or to be maintained. o Changes in company-wide operation and availability (including wholly- and partially-owned facilities) compared to the Company's historical performance; changes in the Company's historical operating cost structure, including but not limited to those costs associated with fuel, operations, supplies, raw materials, maintenance and repair, people, transmission of electricity and insurance. o In certain non-U.S. countries where the Company is or is seeking to conduct business: unexpected changes in electricity tariff rates or tariff adjustments for increased expenses; the ability or inability of AES to obtain, or hedge against, foreign currency; foreign exchange rates and fluctuations in those rates; the economic, political and military conditions affecting property damage, interruption of business and expropriation risks; changes in trade, monetary and fiscal policies, laws and regulations; other activities of governments, agencies and similar organizations; social and economic conditions; local inflation and monetary fluctuations; import and other charges or taxes; conditions or restrictions impairing repatriation of earnings or other cash flow; nationalizations and unstable governments and legal systems, and intergovernmental disputes. o Changes in the amount of and rate of growth in, AES's selling, general and administrative expenses; the impact of AES's ongoing evaluation of its development costs, business strategies and asset valuations, including, but not limited to, the effect of a failure to successfully complete certain development projects. o Legislation intended to promote competition in U.S. and non-U.S. electricity markets, such as those currently receiving serious consideration in the United States Congress to repeal (i) the Public Utility Regulatory Policies Act of 1978, as amended, or at least to repeal the obligation of utilities to purchase electricity from qualifying facilities, and (ii) the Public Utility Holding Company Act of 1935, as amended; changes in regulatory rule-making by the Federal Energy Regulatory Commission or other regulatory bodies; changes in energy taxes; or new legislative or regulatory initiatives in non-U.S. countries; changes in national, state or local environmental, safety, tax and other laws and regulations applicable to the Company or its operations. o The prolonged failure by any customer of the Company or any of its subsidiaries to fulfill its contractual payment obligations presently or in the future, either because such customer is financially unable to fulfill such contractual obligation or otherwise refuses to do so. o Successful and timely completion of (i) the respective construction for each of the Company's electric generating projects now under construction and those projects yet-to-begin construction or (ii) capital improvements to its existing facilities. o Changes in inflation, fuel, electricity and other commodity prices in U.S. and non-U.S. markets; conditions in financial markets, including fluctuations in interest rates and the availability of capital; and changes in the economic and electricity consumption growth rates in U.S. and non-U.S. countries. o Unusual weather conditions and the specific needs of each plant to perform unanticipated facility maintenance or outages (including annual or multi-year). o The costs and other effects of legal and administrative cases and proceedings, settlements and investigations, claims, and changes in those items, developments or assertions by or against AES; the effect of new, or changes in, accounting policies and practices and the application of such policies and practices. o Changes or increases in taxes on property, plant, equipment, emissions, gross receipts, income or other aspects of the Company's business or operations. (b) Financial information about industry segments. The Company operates in only one industry segment: electric power supply. (c) Narrative description of business. The Company attempts to participate in competitive power markets as they develop either by greenfield development or by acquiring and operating existing facilities or systems in these markets. The Company generally operates electric generating facilities that utilize natural gas, coal, oil, hydro power, or combinations thereof. In addition, the Company participates in electricity distribution and retail supply businesses in certain limited instances, and will continue to review opportunities in such markets in the future. Other elements of the Company's strategy include: o Supplying energy to customers at the lowest cost possible, taking into account factors such as reliability and environmental performance; o Constructing or acquiring projects of a relatively large size (generally larger than 100 megawatts); o When available, entering into power sales contracts with electric utilities or other customers with significant credit strength; and o Where possible, participating in distribution and retail supply markets that grant concessions with long-term pricing arrangements. The Company also strives for operating excellence as a key element of its strategy, which it believes it accomplishes by minimizing organizational layers and maximizing company-wide participation in decision-making. AES has attempted to create an operating environment that results in safe, clean and reliable electricity generation and distribution. Because of this emphasis, the Company prefers to operate all facilities which it develops or acquires; however, there can be no assurance that the Company will have operating control of all of its facilities. The Company's historical and significant focus has been and continues to be the wholesale generation and supply of electricity. More recently AES has acquired four electricity distribution businesses and has invested in two integrated utilities in Central and South America. Asset composition, operating margins and a variety of other business characteristics differ significantly from one type of business to another. References to power sales agreements, fuel supply agreements and plants generally mean those related to the generation business. Concession (or service) contracts, supply contracts, and networks are generally associated with the distribution businesses. Integrated utilities have characteristics of both businesses. In addition, integrated utilities may generate more or less of their own electricity. For example, Light generates a comparatively low percentage of its own electricity (approximately 16 percent) while CEMIG generates almost all of its own electricity needs. Most of AES's electric generation plants sell electricity under long-term power sales contracts. The Company attempts, whenever possible, to structure the revenue provisions of its plants' power sales contracts such that changes in the revenue components of these contracts correspond, as closely as possible, to fluctuations in the cost components of the plant (primarily fuel costs). A plant's revenues from a power sales contract usually consists of two components, energy payments and capacity payments. Energy payments are based on a plant's net electrical output, with payment rates usually indexed to the fuel costs of the contracting utility or to general inflation indices. Capacity payments are based on either a plant's net electrical output (the amount of electricity delivered on a kilowatt-hour basis) or its available capacity (the ratio of kilowatt hours the plant delivers to the total kilowatt hours requested by the customer). Capacity payment rates vary over the term of a power sales contract according to various schedules. To the extent possible, the Company attempts to structure an electric generation plant's fuel supply contract so that fuel costs are indexed in a manner similar to the energy payments a project receives under the power sales contract. In this way, project revenues are partially hedged against fluctuations in fuel costs. As with fuel prices, AES has hedged a substantial portion of its projects against the risk of fluctuations in interest rates. In each project with fixed capacity payments, AES has attempted to hedge all or a significant portion of its risk of interest rate fluctuations by arranging for fixed-rate financing or variable-rate financing with interest rate swaps or other hedging mechanisms. Those projects with fluctuating capacity payments are hedged by arranging for floating rate financing. The Company attempts to finance each domestic and foreign project primarily under loan agreements and related documents which, except as noted below, require the loans to be repaid solely from the project's revenues and provide that the repayment of the loans (and interest thereon) is secured solely by the capital stock, physical assets, contracts and cash flow of that project subsidiary or affiliate. This type of financing is usually referred to as "project financing." The lenders under these project financing structures generally cannot look to AES or its other projects for repayment, unless such entity explicitly agrees to undertake liability. AES has explicitly agreed to undertake certain limited obligations and contingent liabilities, most of which by their terms will only be effective or will be terminated upon the occurrence of future events. These obligations and liabilities take the form of guarantees, letter of credit reimbursement agreements, and agreements to pay, in certain circumstances, to project lenders or other parties amounts up to the amounts of distributions previously made by the applicable subsidiary or affiliate to AES. To the extent AES becomes liable under guarantees and letter of credit reimbursement agreements, distributions received by AES from other projects are subject to the possibility of being utilized by AES to satisfy these obligations. To the extent of these obligations, the lenders to a project effectively have recourse to AES and to the distributions to AES from other projects. The aggregate contractual liability of AES is, in each case, usually a small portion of the aggregate project debt, and thus the project financing structures are generally described herein as being "substantially non-recourse" to AES and its other projects. Year 2000. The Company is reviewing and assessing the anticipated costs, problems and uncertainties associated with the so-called Year 2000 issues in accordance with Securities and Exchange Commission Staff Legal Bulletin No. 5, dated October 8, 1997. In connection therewith, and with its ongoing evaluation of technological developments and information systems' needs, the Company's facilities have begun implementation of a Year 2000 review whereby each facility is in the process of identifying systems requiring modification or conversion. Within the context of risks identified in the SEC Bulletin noted above and the ongoing review the Company is conducting, the Registrant believes that Year 2000 issues will not materially affect its facilities, services, or competitive conditions, and that the costs of addressing the Year 2000 issues will not materially impact future consolidated operating results, financial condition or cash flows. PRINCIPLES AND PRACTICES A core part of AES's corporate culture is a commitment to "shared principles." These principles describe how AES people endeavor to behave, recognizing that they don't always live up to these standards. The principles are: Integrity - AES strives to act with integrity, or "wholeness." The Company seeks to honor its commitments. The goal is that the things AES people say and do in all parts of the Company should fit together with truth and consistency. Fairness - AES wants to treat fairly its people, its customers, its suppliers, its stockholders, governments and the communities in which it operates. Defining what is fair is often difficult, but the Company believes it is helpful to routinely question the relative fairness of alternative courses of action. Fun - AES desires that people employed by the Company and those people with whom the Company interacts have fun in their work. AES's goal has been to create and maintain an environment in which each person can flourish in the use of his or her gifts and skills and thereby enjoy the time spent at AES. Social Responsibility - The Company believes that it has a responsibility to be involved in projects that provide social benefits, such as lower costs to customers, a high degree of safety and reliability, increased employment and a cleaner environment. AES recognizes that most companies have standards and ethics by which they operate and that business decisions are based, at least in part, on such principles. The Company believes that an explicit commitment to a particular set of standards is a useful way to encourage ownership of those values among its people. While the people at AES acknowledge that they won't always live up to these standards, they believe that being held accountable to these shared values will help them behave more consistently with such principles. AES makes an effort to support these principles in ways that acknowledge a strong corporate commitment and encourage people to act accordingly. For example, AES conducts annual surveys, both company-wide and at each location, designed to measure how well its people are doing in supporting these principles -- through interactions within the Company and with people outside the Company. These surveys are perhaps most useful in revealing failures, and helping to deal with those failures. AES's principles are relevant because they help explain how AES people approach the Company's business. The Company seeks to adhere to these principles, not as a means to achieve economic success but because adherence is a worthwhile goal in and of itself. In order to create a fun working environment for its people and implement its strategy of operational excellence, AES has adopted decentralized organizational principles and practices. For example, AES works to minimize the number of supervisory layers in its organization. Most of the Company's plants operate without shift supervisors. The project subsidiaries are responsible for all major facility-specific business functions, including financing and capital expenditures. Criteria for hiring new AES people include a person's willingness to accept responsibility and AES's principles as well as a person's experience and expertise. The Company has generally organized itself into multi-skilled teams to develop projects, rather than forming "staff" groups (such as a human resources department or an engineering staff) to carry out specialized functions. FACILITIES The following tables set forth relevant information regarding the Company's generation facilities that are currently in operation by geographic region or currently under construction and the distribution companies in which AES has an ownership interest. For a description of risk factors and additional factors that may apply to the Company's businesses, see also the information contained under the caption "Cautionary Statements and Risk Factors" in Item 1 above, and Item 7, "Discussion and Analysis of Financial Condition and Results of Operations" herein.
- -------------------------------------------------------------------------------------------------------------------- YEAR OF ACQUISITION OR APPROXIMATE COMMENCEMENT CAPACITY IN AES EQUITY GENERATION OF COMMERCIAL MEGAWATTS GEOGRAPHIC INTEREST FACILITIES IN OPERATION FUEL OPERATIONS (MWS) LOCATION (PERCENT) - -------------------------------------------------------------------------------------------------------------------- North America - ------------- Deepwater Pet coke 1986(1) 143 Texas 100 Beaver Valley Coal 1987 125 Pennsylvania 80 Placerita Gas 1989 120 California 100 Thames Coal 1990 181 Connecticut 100 Shady Point Coal 1991 320 Oklahoma 100 Hawaii (Barbers Point) Coal 1992 180 Hawaii 100 Kingston Gas 1997 110 Canada 50 Latin America - ------------- San Nicolas Multiple 1993 650 Argentina 69 Rio Juramento (2 plants) Hydro 1995 112 Argentina 98 San Juan (2 plants) Hydro/Gas 1996 78 Argentina 98 Light (4 plants) Hydro 1996 788 Brazil 14 CEMIG (35 plants) Hydro(3) 1997 5,068 Brazil 9 Los Mina Oil 1997 210 Dominican Republic 100 Asia and the Pacific - -------------------- Cili Misty Mountain Hydro 1994 26 China 51 Yangchun Sun Spring Oil 1995 15 China 25 Wuxi Tin Hill Oil 1996 63 China 55 Wuhu Grassy Lake Coal 1996 250 China 25 Ekibastuz Coal 1996 4,000(2) Kazakhstan 70 Chengdu Lotus City Gas 1997 48 China 35 Tau Power (6 plants) Coal/Hydro 1997 1,384 Kazakhstan 85 Hefei Prosperity Lake Oil 1997 76(4) China 70 Jiaozuo Aluminum Power Coal 1997 125(4) China 70 Lal Pir Oil 1997 344 Pakistan 90 Pak Gen Oil 1998 351 Pakistan 90 Europe - ------ Kilroot (NIGEN) Coal/Oil 1992 520 United Kingdom 47 Belfast West (NIGEN) Coal 1992 240 United Kingdom 47 Medway Gas 1995 688 United Kingdom 25 Borsod (Tiszai) Coal 1996 171 Hungary 63 Tisza II (Tiszai) Oil/Gas 1996 860 Hungary 96 Tiszapalkonya (Tiszai) Coal 1996 250 Hungary 96 Indian Queens Gas 1997 140 United Kingdom 100 - ------------- --- TOTAL IN OPERATION 17,636
(1) Plant operations commenced in 1986, but control was acquired in 1995. (2) Due to poor historical maintenance over the ten years prior to the Company's purchase, the facility's capacity factor is approximately 20%. (3) Total capacity of CEMIG includes 125 MW of thermal generation. Six hydro plants represent approximately 90% of CEMIG's total generation capacity. (4) Seventy-six and 125 MW of Hefei Prosperity Lake and Jiaozuo Aluminum Power, respectively, are currently in operation. The remaining portions are under construction.
- -------------------------------------------------------------------------------------------------------------------- YEAR OF ACQUISITION OR APPROXIMATE COMMENCEMENT CAPACITY IN AES EQUITY GENERATION OF COMMERCIAL MEGAWATTS GEOGRAPHIC INTEREST FACILITIES UNDER CONSTRUCTION FUEL OPERATIONS(1) (MWS) LOCATION (PERCENT) - -------------------------------------------------------------------------------------------------------------------- Elsta Gas 1998 405 Netherlands 50 Jiaozuo Aluminum Power Coal 1998 125(3) China 70 Aixi Heart River Coal 1998 50 China 70 Hefei Prosperity Lake Oil 1998 39(3) China 70 Barry Gas 1998 230 United Kingdom 100 Warrior Run Coal 1999 180 Maryland 100 Mt. Stuart Oil 1999 288 Australia 100 Parana Gas 2000 830 Argentina 67 Yangcheng Sun City Coal 2000(2) 2,100 China 25 Uruguaiana Gas 2000 600 Brazil 100 Merida III Gas 2000 484 Mexico 55 - ---------- --- TOTAL UNDER CONSTRUCTION 5,331 TOTAL IN OPERATION AND UNDER CONSTRUCTION 22,967
(1) Dates for commencement of commercial operation of facilities under construction are projections only and may be subject to change. (2) Yangcheng Sun City is being constructed over a sixty-month period that began in 1997. The first of the six 350 MW units is estimated to be completed in 2000. (3) Seventy-six and 125 MW of Hefei Prosperity Lake and Jiaozuo Aluminum Power, respectively, are currently in operation. The remaining portions are under construction. The table below sets forth information regarding the Company's distribution facilities.
- ----------------------------------------------------------------------------------------------------- APPROXIMATE NUMBER AES EQUITY DISTRIBUTION OF CUSTOMERS APPROXIMATE GEOGRAPHIC INTEREST FACILITIES SERVED GIGAWATT HOURS LOCATION (PERCENT) - ----------------------------------------------------------------------------------------------------- Light 2,700,000 19,981 Rio de Janeiro, Brazil 14 EDEN 270,000 3,572 Buenos Aires, Argentina 60 EDES 129,000 1,182 Buenos Aires, Argentina 60 CEMIG 4,143,000 32,179 Minas Gerais, Brazil 9 Sul 804,000 5,772 Rio Grande do Sul, Brazil 91 CLESA 188,000 561 Santa Ana, El Salvador 64 - ----- ------- --- TOTALS FOR DISTRIBUTION FACILITIES 8,234,000 63,247 - ---------------------------------- --------- ------
NORTH AMERICA AES currently owns and operates, through subsidiaries and affiliates, seven generation facilities in the United States and Canada representing approximately 1,179 MW. Deepwater is a 143 MW petroleum coke-fired cogeneration facility located near Houston, Texas. The facility sells electricity to Houston Lighting and Power Company under a power sales contract which expires in 1998. Deepwater, under a contract which also expires in 1998, produces and delivers process steam to an ARCO Petroleum Products Company refinery adjacent to the cogeneration facility. Deepwater currently is in negotiations with various parties to provide for the continued sale of its electricity and steam generation upon the expiration of the two mentioned contracts. Beaver Valley is a 125 MW pulverized coal-fired cogeneration facility located in Monaca, Pennsylvania. AES is the managing partner and operator of Beaver Valley. West Penn Power Company purchases electricity produced by the plant under a power sales contract with a remaining term of approximately 19 years. The facility sells steam to NOVA Chemicals Inc. for use in its chemical processing activities under a requirements contract with a remaining term of approximately four years. Placerita is a 120 MW natural gas-fired, combined-cycle cogeneration facility near Los Angeles, California. The plant sells electricity to Southern California Edison Company under a contract with a remaining term of approximately 16 years. Placerita sells steam to Hillside Oil Partners, which is engaged in oil recovery operations, and ARCO Oil and Gas Company. Thames is a 181 MW coal-fired, circulating fluidized bed ("CFB") cogeneration plant located in Montville, Connecticut. Power generated by Thames is sold to Connecticut Light and Power Company ("CL&P") under a contract with a remaining term of approximately 17 years. Thames also sells steam to Stone Container Paperboard Corporation for use in its recycled paperboard plant located adjacent to the plant. Moody's Investor Service Inc. ("Moody's") and Standard & Poor's Corporation ("S&P") have recently downgraded CL&P's senior secured long-term debt from Baa3/BBB- to Ba2/BB, and S&P has placed CL&P on watch for possible downgrade. As a result of regulatory action by the Public Service Commission of New Hampshire, Moody's and S&P recently downgraded the senior unsecured debt of Northeast Utilities, the parent of CL&P, from Ba2/BB to B1/B+ and S&P has placed Northeast Utilities on watch for possible downgrade. Shady Point is a 320 MW coal-fired, CFB cogeneration plant in LeFlore County, Oklahoma. The Shady Point facility includes a 240-ton per day food grade, liquid CO2 plant, which utilizes in its CO2 production processes approximately 65,000 pounds per hour of process steam produced by the plant. Shady Point sells electricity to Oklahoma Gas and Electric Company under a contract with a remaining term of approximately 10 years. Hawaii is a 180 MW coal-fired, CFB cogeneration plant located in Kapolei, Oahu, Hawaii. Hawaii sells electricity to Hawaiian Electric Company, Inc. under a contract with a remaining term of 25 years. Steam generated by the plant is sold to Chevron USA Inc. for use in its oil refining operations under a steam sales agreement with a remaining term of 15 years. Kingston is a 110 MW gas-fired, combined-cycle cogeneration facility located in Ernestown Township, Ontario. Kingston is owned by a partnership comprised of AES and two partners, each owning 25 percent. AES acquired its interest in Kingston in June 1997 upon completion of its acquisition of the international assets of Destec Energy, Inc. The plant began commercial operations in February 1997 and is expected to operate as a baseload facility. The Company operates the business through an operation and maintenance agreement entered at the time of its acquisition of its interest in the facility. LATIN AMERICA AES currently owns and operates, through subsidiaries and affiliates, forty-five operating plants in Latin America representing approximately 6,906 MW. In addition, AES has majority ownership in two distribution companies in Argentina, one in Brazil and one in El Salvador (purchased in 1998), and less than majority ownership in two additional integrated distribution companies in Brazil. These six facilities serve a total of approximately 8 million customers with gigawatt hour sales exceeding 63,000. San Nicolas is a 650 MW power plant in San Nicolas, Argentina. San Nicolas sells a total of 345 MW of electricity (approximately 53 percent of the plant's output capability) under two power sales contracts, each with a remaining term of three years. Under one of the contracts that runs through 2001, the three recently privatized distribution companies of Empresa Social de Energia de Buenos Aires S.A. ("ESEBA"), two of which are controlled by AES through its ownership interest in Empresa Distribuidora de Energia Norte S.A. ("EDEN") and Empresa Distribuidora de Energia Sur S.A. ("EDES") (described below), purchase 285 MW (except during the month of April of each year, when the amount purchased is 57 MW). Under the other contract, EDELAP, S.A., a privatized Argentine distribution company, purchases 60 MW of electricity. The plant sells additional electricity, when it is profitable to do so, into the Argentine spot market. Rio Juramento is a 112 MW hydroelectric station in the province of Salta, Argentina. The station consists of a 102 MW facility with a large storage reservoir capable of inter-year storage, and a 10 MW facility capable of inter-seasonal storage. Rio Juramento has exclusive rights to operate the facility under a 30-year concession agreement, and sells electricity in the Argentine spot market. Hidrotermica San Juan, S.A. ("San Juan") is the owner and operator of two power generating facilities totaling 78 MW in the province of San Juan, Argentina. The facility includes a 45 MW hydroelectric power plant and a 33 MW gas combustion power plant. Los Mina is an oil-fired, simple-cycle power plant located in Santo Domingo, Dominican Republic that AES acquired through its purchase of the international assets of Destec in June 1997. The 210 MW plant operates two simple-cycle combustion turbine generators on land adjacent to a government owned electricity substation. Los Mina is the second largest generator on the island and supplies power to the capital city of Santo Domingo. The facility burns fuel oil that is piped to the plant from a nearby barge dock. The facility began operations in May 1996. Due to recurring turbine blade failure, Los Mina has been out of service and unable to provide electricity in several instances during the period prior to and after the date of AES's acquisition of the facility. Los Mina is reviewing steps with the facility's equipment supplier to increase the reliability of the plant's output and has begun processing claims to recover costs of the repairs and outages against the contractor and with its insurer. Although no assurance can be given that Los Mina will be able to collect on any of these claims, the Company believes that the outcome of this matter will not have a material adverse effect on its consolidated financial position, results of operation or cash flows. DISTRIBUTION FACILITIES IN LATIN AMERICA Light Servicos de Electricidade, S.A. ("Light") is a Brazilian electric power generation, transmission and distribution system serving 28 municipalities in the state of Rio de Janeiro, Brazil that is controlled by a consortium comprised of AES, Electricite de France, Houston Industries, Companhia Siderurgica Nacional and Banco Nacional de Desenvolvimento Economico E Social (the "Light Consortium"). In connection with the purchase of the controlling interest by the Light Consortium in 1996, the Ministry of Mines and Energy of Brazil granted a 30-year concession to Light pursuant to the terms of a concession agreement which obligates Light to provide electric services to all customers within its concession. Light generates about 16 percent of the total electricity it distributes through four hydroelectric complexes having an aggregate installed generating capacity of approximately 788 MW. Of the remaining electricity distributed by Light (approximately 84 percent of the total), 53 percent is purchased from Furnas Centrais Electricas S.A., a power generation and transmission company owned by Eletrobras, and the remaining 31 percent is purchased from Itaipu Binacional, a power generation company owned by the Republic of Brazil and the Republic of Paraguay ("Itaipu"). AES has principal responsibility for all matters relating to generation and purchasing of electricity by Light through its participation in the Light Consortium. Companhia Energetica de Minas Gerais ("CEMIG") is an integrated electric utility serving the State of Minas Gerais in Brazil. Through a consortium consisting of AES and two partners (the "CEMIG Consortium"), AES has significant operating influence over CEMIG, including the right to appoint its chief operating officer, and otherwise shares control of CEMIG with the State of Minas Gerais. As it did with Light, the Ministry of Mines and Energy of Brazil granted concessions to CEMIG pursuant to the terms of six concession agreements which obligate CEMIG to provide electric services to all customers within its concession, and authorizes CEMIG to charge its customers a tariff for electric services. CEMIG transmits and distributes electricity, generated or purchased by it, to substantially all areas in Minas Gerais. In addition to the approximately 5,068 MW of electricity it generates, CEMIG purchases approximately 33 percent of its electricity sales from Itaipu. EDEN and EDES are two of the three privatized former distribution companies of ESEBA and are controlled by AES through the purchase of its ownership interest in 1997. EDEN and EDES have 95-year territorial exclusive franchise concessions and serve approximately 400,000 customers in the northern and southern portions of the Argentine Province of Buenos Aires. EDEN and EDES source their electric power requirements using both spot market purchases in the wholesale electricity market and contract purchases from San Nicolas, which is also controlled by AES. The contract, which was signed in May 1993 for a term of 8 years, provides for purchases of approximately 2,332 gigawatt hours of electricity per year. Companhia Centro-Oeste de Distibuicao de Energia Eletrica ("Sul") is a distribution company recently privatized by Companhia Estadual de Energia Eletrica ("CEEE"). AES purchased Sul in October 1997. Prior to privatization CEEE was a vertically-integrated electric utility that provided approximately 98 percent of the electricity in the Brazilian State of Rio Grande do Sul. Sul serves the central and western portion of the state. Sul has a 30 year exclusive concession to distribute electricity in the territory it currently serves. Sul's location in the State of Rio Grande do Sul borders Argentina which may allow AES to integrate its Brazilian and Argentine operations. Sul, along with the other two distribution companies formerly part of CEEE, will be AES Uruguaiana's customers (described below in "Projects under Construction"). Compania de Luz Electrica de Santa Ana ("CLESA") is an electricity distribution company serving the city and surrounding areas of Santa Ana, El Salvador. AES acquired control of CLESA in February 1998, through its payment of $109 million for 79.78% of the outstanding shares of CLESA. Comision Ejecutiva Hidroelectrica del Rio Lempa ("CEL"), the El Salvador government-owned utility, sold CLESA, along with three other Salvadoran distribution companies, in an auction held in January 1998. Energia Global International, Ltd., a Bermuda company with activities in Central America, has the right to purchase up to 20% of AES's interest in CLESA. CLESA's service area borders Guatemala and Honduras to the north, with access to the Pacific Ocean. CLESA purchases its electricity in the local spot market and from CEL under an annual contract. For a further description of the tariff rate structures, the tariff rate adjustment escalators and the currency exchange rate adjustments that may affect the tariff structures in future years for AES's distribution facilities, please see the information contained in Item 7, "Discussion and Analysis of Financial Condition and Results of Operations" herein. ASIA AND THE PACIFIC In Asia and the Pacific, AES currently operates and owns (entirely or in part), through subsidiaries and affiliates, interests in nineteen generation facilities representing approximately 6,682 MW of generating capacity. The Company founded AES China Generating Co. Ltd. ("AES Chigen") in December 1993 to develop, acquire, finance, construct, own and operate electric power generation facilities in the People's Republic of China (the "PRC"). Initially a public company in its own right, AES now owns all of the outstanding shares of AES Chigen through the completion of its amalgamation with AES Chigen in May 1997 wherein AES issued approximately 2.4 million shares of AES Common Stock, par value $.01 per share, in exchange for all of the issued and outstanding shares of the publicly held, Class A Common Stock of AES Chigen. The total purchase price was valued at approximately $157 million. AES Chigen has developed nine power projects which are currently in operation or under construction in the PRC. Cili Misty Mountain, located in Cili County, Hunan Province, PRC, consists of three hydroelectric generating units amounting to 26 MW, the third unit of which commenced commercial operation in 1997. Cili Misty Mountain is owned by Xiangci-AES, a 25-year joint venture formed by Hunan Cili Electric Power Company and AES Chigen. Power is purchased by Hunan Cili Electric Power Company. Yangchun Sun Spring, located in Yangchun, Guangdong Province, consists of one existing 8.6 MW diesel engine generating facility which was constructed prior to the Company's involvement, and another 6.5 MW diesel engine generating facility which commenced commercial operation in April 1996. The facility is owned by Yangchun Fuyang, a 12.5-year cooperative joint venture formed by Yangchun Municipal Power Supply, Shenzhen Futian Gas Turbine Power Co., Ltd. and a wholly-owned subsidiary of AES Chigen. Yangchun Municipal Power Supply Bureau purchases the plant's electricity and Yangchun Municipal Power Supply provides fuel, both in accordance with 12.5-year agreements. Wuxi Tin Hill is an oil-fired, combined cycle power plant which consists of a 48 MW gas turbine generating facility and a 15 MW heat recovery steam turbine generating facility located in Xishan (previously known as Wuxi County), Jiangsu Province, PRC. The gas turbine generating plant commenced commercial operation in March 1996. The heat recovery steam turbine generating plant commenced commercial operation in the first quarter of 1997. Wuxi Tin Hill is owned by Wuxi-AES-CAREC and Wuxi-AES-Zhonghang, two 16-year cooperative joint ventures formed among AES Chigen and China National Aero-Engine Corporation ("CAREC") and Wuxi Power Industry Company ("Wuxi Power"). Xishan Electricity Management Office purchases the power and steam generated by the plant in accordance with a 16-year purchase contract. Fuel to the plant is supplied via two local State-owned oil companies under 16-year contracts. Wuhu Grassy Lake is a 250 MW coal-fired power plant located near Wuhu, Anhui Province, PRC. It is the phase IV expansion of an existing 325 MW coal-fired power station. Both units of the power plant have now commenced commercial operations. Wuhu Grassy Lake is owned by Wuhu Shaoda, a 20-year equity joint venture owned by an AES Chigen subsidiary, China Power International Holdings Limited, Anhui Liyuan Electric Power Development Company Limited, and Wuhu Energy Development Company Limited. Power is purchased pursuant to a 20-year operation and off-take contract with Anhui Provincial Electric Power Corporation. Chengdu Lotus City is a 48 MW natural gas-fired power plant located in Chengdu, Sichuan Province, PRC. Construction of the power plant commenced in September 1996 and commenced commercial operation during 1997. Chengdu Lotus City is owned by Chengdu AES-Kaihua, a 16-year cooperative joint venture formed by AES Chigen, Huaxi Electric Power Shareholding Company Ltd. ("Huaxi"), Huachuan Petroleum & Natural Gas Exploration ("Huachuan") and Development Company and CAREC. Huaxi purchases the facility's generated power and Huachuan provides fuel, both pursuant to separate 15-year agreements. Hefei Prosperity Lake is an oil-fired combined cycle power plant consisting of two 38 MW gas turbines generating units ("gas turbine unit") and one 39 MW heat recovery steam turbine generating unit ("steam turbine unit"). It is located within the boundaries of an existing 325 MW coal fired power plant in Hefei, Anhui Province, PRC. Construction of the power plant commenced in November 1996. The gas turbine unit commenced commercial operation in the third quarter of 1997 and the steam turbine unit is scheduled to commence commercial operation in the third quarter of 1998. Hefei Prosperity Lake is owned by Liyuan-AES and Zhongli Energy, two 16-year cooperative joint ventures formed among a subsidiary of AES Chigen, Hefei Municipal Construction and Investment Company and by Anhui Liyuan Electric Power Development Company Limited. Anhui Provincial Electric Power Corporation purchases power from the plant pursuant to a 16-year operation and off-take contract. Jiaozuo Aluminum Power is a 250 MW coal-fired power plant located adjacent to the Jiaozuo Aluminum Mill ("Jiaozuo Mill") in Jiaozuo, Henan Province, PRC. Construction of the power plant commenced in the first quarter of 1995. The first unit of the power plant commenced commercial operation in the third quarter of 1997. The second unit is expected to commence commercial operation in the second quarter of 1998. Jiaozuo Aluminum Power is owned by Jiaozuo Wan Fang, a 23-year cooperative joint venture owned 70 percent by an AES Chigen wholly-owned subsidiary and 30 percent by Jiaozuo Mill. Power is purchased under 23-year contracts by Jiaozuo Mill and by the Henan Electric Power Corporation. Jiaozuo Aluminum Power purchases fuel under one-year negotiated contracts from the local area. Ekibastuz is a 4,000 MW (design capacity) mine-mouth, coal-fired power facility in eastern Kazakhstan. Due to economic difficulties over the ten years prior to the Company's purchase, the facility has experienced a reduction in performance and has operated at a capacity factor of up to approximately 20 percent. In its 1996 acquisition of the facility, AES agreed to increase the capacity to 63 percent over a five-year period (contingent on the purchaser's performance of its obligations under the power sales contract). For a further description of Ekibastuz, see the information contained in the section entitled "Results of Operations" contained in Item 7, "Discussion and Analysis of Financial Condition and Results of Operations" hereof. Lal Pir and Pak Gen are adjacent 344 and 351 MW, respectively, oil-fired facilities in Punjab Province, Pakistan. Lal Pir commenced commercial operation during the fourth quarter of 1997 and Pak Gen commenced commercial operation in the first quarter of 1998. The Pakistan Water and Power Development Authority ("WAPDA") purchases the electrical capacity and electrical output of the facilities through two separate 30-year power sales agreements. The Pakistan State Oil Company Limited ("PSO"), the state-owned petroleum company, supplies fuel under 30-year agreements. Certain of the obligations of WAPDA under the power sales agreements and of PSO under the fuel supply agreements are guaranteed by the Government of Pakistan. Tau Power, also known as Altai, is a joint venture that is owned by AES and Israel-based Suntree Power. In October 1997, Tau Power completed its acquisition and takeover of two hydro-electric stations and four combined heat and power stations in the province of East Kazakhstan. The total electric capacity of the stations included in the agreement is 1,384 MW, with additional thermal capacity of over 1,000 MW electric equivalent. The power stations included in the agreement signed are: the 332 MW Ust-Kamenogorsk GES, the 702 MW Shulbinsk GES, the 240 MW Ust-Kamenogorsk TETS, the 50 MW Leninogorsk TETS, the 50 MW Sogrinsk TETS and the 10 MW Semipalatinsk TETS. Included in the transaction, AES obtained ownership and control of the retail sales department of the former utility and will assume the existing power supply contracts with the 50 largest customers in East Kazakhstan, including the distribution companies. EUROPE AES currently owns and operates, through subsidiaries and affiliates, seven plants in Europe representing approximately 2,869 MW. NIGEN is a joint venture between AES and a Belgian utility that consists of two power plants in Northern Ireland: Kilroot, a 520 MW dual-fired (coal and oil) power plant, and Belfast West, a 240 MW coal-fired power plant. The Kilroot and Belfast West plants have entered into power sales contracts, subject to cancellation in 13 years and three years, respectively, with Northern Ireland Electricity, plc, a transmission and distribution company. Medway Power Limited is a 688 MW combined cycle gas-fired power plant in Southeast England on the Isle of Grain. Medway is owned by a joint venture among an AES subsidiary and subsidiaries of Southern Electric plc ("Southern") and SEEBOARD plc ("SEEBOARD"). The plant began operations in November 1995. AES, through a subsidiary, operates and maintains the plant. Medway Power sells its entire output through national electricity pool trading arrangements (the "Pool") at prices based on the supply of, and demand for, electricity available in the Pool. In addition, Medway Power has entered into a contract with each of Southern and SEEBOARD, under which Southern and SEEBOARD will pay Medway Power capacity payments based on the plant's available capacity, and energy cost payments, based on the plant's actual sales of electricity to the Pool, that reflect fuel costs and variable transmission charges incurred (each a "Contract for Differences"). The basis of the contracts is 660 MW. Sales of electrical output in excess of 660 MW are sold into the Pool, and are not subject to the Contract for Differences. Tiszai Eromu Rt. owns and operates three power plants totaling 1,281 MW of gross capacity and a coal mine in Hungary. The plants consist of (i) the Tisza II facility, an 860 MW oil and natural gas-fired facility that sells electricity under a contract ending in 2010, (ii) the Tiszapalkonya facility, a 250 MW coal-fired facility that sells electricity under a contract ending in 2001, and (iii) the Borsod facility, a 171 MW coal-fired facility that sells electricity under a contract ending in 2001. Each plant sells electricity to Magyar Villamos Muvek Rt., a Hungarian, state-owned integrated utility. Indian Queens is a 140 MW oil-fired, simple cycle plant located in Cornwall County, England. AES acquired Indian Queens through its purchase of the international assets of Destec Energy, Inc. in June, 1997. The plant began commercial operation in October, 1996. Power generated by Indian Queens is sold into the national electricity pool in the UK. Indian Queens, because of its design, also sells ancillary services to the National Grid Company, the operator of the UK's high voltage transmission system. PROJECTS UNDER CONSTRUCTION Aixi Heart River is a 50 MW coal-fired CFB power plant located in Nanchuan, Sichuan Province, PRC. Construction of the power plant commenced in February 1996, and is expected to be completed in 1998. Aixi Heart River is owned by Fuling Aixi, a 25-year cooperative joint venture formed by Sichuan Fuling Banxi Colliery and a wholly owned subsidiary of AES Chigen. The minority partner will provide fuel to the plant and Sichuan Fuling Power Company will purchase the power generated by the facility, both pursuant to separate 25-year agreements. The steam turbine unit of Hefei Prosperity Lake is currently under construction and scheduled to commence commercial operation in the third quarter of 1998. Likewise, the second unit of the 250 MW coal-fired Jiaozou Aluminum Power facility remains under construction and is expected to commence commercial operation in the second quarter of 1998. For a further description of these facilities see the caption entitled "Asia and the Pacific" above. Elsta is a 405 MW gas-fired, combined-cycle cogeneration plant currently under construction at the chemical manufacturing facilities of Dow Benelux N.V. in the Zeeland Province of the Netherlands. AES acquired its interest in Elsta through the Company's acquisition of the international assets of Destec Energy, Inc. in June, 1997. The remaining interest in Elsta is held equally by two Dutch utilities: N.V. Delta Nutsbedrijven ("Deltan") and N.V. Provinciale Noordbrabantse Energie-Maatschappij ("PNEM"). Elsta is the first major private power project in the Netherlands. Pursuant to a 20-year power sales agreement, Dow Benelux will purchase between 85 and 125 MW of electrical capacity. Dow Benelux also expects to purchase an average of 500 MT/hr of multi-pressure process steam energy and will have dispatch rights on steam energy subject to minimum and maximum purchase obligations. The project's minority partners, Deltan and PNEM, have agreed to purchase electrical capacity from the plant not purchased by Dow (280-320 MW) for an initial contract period of 20 years following the commercial operation date. As part of the Company's acquisition of its interest in Elsta, AES assumed responsibility under a guaranteed lump-sum turn-key contract for the engineering, procurement and construction of the plant. Due to deficient engineering and construction performance prior to AES's acquisition, the plant was unable to meet its originally scheduled commercial operation date of September 30, 1997. AES now expects that Elsta will achieve commercial operation in June 1998. No assurance can be given, however, that Elsta will attain commercial operation by that date. Substantial risks to the successful completion of the plant continue to exist, including those relating to undetected design flaws, government permitting difficulties and unknown construction defects. In September 1995, AES successfully completed the financing and began construction of Warrior Run, a 180 MW coal-fired thermal cogeneration facility near the city of Cumberland in Allegheny County, Maryland. Engineering, procurement and construction of the project under a turn-key contract with Raytheon Engineers & Contractors, Inc. and ABB/Combustion Engineering is expected to be completed in 1999. Potomac Edison, a subsidiary of Allegheny Power System, Inc. will purchase electricity under a 30 year agreement, which has been approved by the Maryland Public Service Commission. Barry is a 230 MW gas-fired combined cycle facility currently under construction in Barry, South Wales, United Kingdom. Construction began in October, 1996 and the facility is expected to commence operations by the second quarter of 1998. Construction services are being supplied by TBV Power Limited under a lump sum, turnkey construction contract. The Barry facility will sell electricity into the national electricity spot market in the United Kingdom. In February 1997, Barry raised (pound)112 million of non-recourse project financing, underwritten solely by The Industrial Bank of Japan, Limited. Mt. Stuart is a 288 MW power station located at Townsville, North Queensland, Australia that is currently under construction. The facility will consist of two 144 MW open-cycle gas turbines. AES has entered into various agreements to develop, own, and operate the facility. The plant will burn liquefied petroleum gas and will sell electricity to the Queensland Transmission and Supply Corporation under a 10-year power purchase agreement. The facility will operate as a peaking station and, therefore, it is estimated that the facility will operate for only 3 percent to 5 percent of the year. In September 1997, AES raised A$103.5 million to finance the plant's construction. The Company began construction on its Parana project in September 1997. Parana is an 830 MW gas-fired, combined cycle power plant. Parana will be located in San Nicolas, Argentina, adjacent to San Nicolas, in which AES owns a controlling interest. Parana is in the process of arranging for project financing for the facility. Parana has entered into a lump sum, turnkey construction contract with Nichimen Corporation and Mitsubishi Heavy Industries for the plant. Project output will be sold into the Argentine electric market. Total capital cost is estimated at $440 million, and the project is expected to commence commercial operation in 2000. Yangcheng Sun City, currently under construction, is a 2,100 MW coal-fired mine-mouth power plant located in Yangcheng, Shanxi Province, PRC. Construction of the power plant commenced in the second quarter of 1997 and AES made its initial equity investment in the third quarter of 1997. AES Chigen, through a wholly-owned subsidiary, will be responsible for overseeing the management of construction and operations of the plant. AES Chigen is committed to invest $98 million of equity in the project and will own twenty-five percent of the 20-year joint venture with five other partners owning the remaining 75 percent. The project will be funded with $1.21 billion of debt provided by the China Construction Bank, China State Development Bank, U.S. Export-Import Bank, and Kreditanstalt fur Wiederaufbau (KfW) and $393 million of equity. Yangcheng Sun City is one of the first "coal-by-wire" power projects in China. The power will be produced in Shanxi Province and shipped via a 755 kilometer transmission line to Jiangsu Province, a coastal province. The project is being constructed over a 60-month period by the Shanxi Provincial Power Company under a fixed-price, fixed-schedule turnkey contract. The first unit is scheduled to come on line within 35 months. Low sulfur coal will be supplied by the Shanxi Provincial Coal Transportation and Sales Company. In January 1997, the Comision de Electricidad, a decentralized public agency of the Federal Government of the United Mexican States selected a consortium led by AES to develop, design, engineer, construct, equip, commission, start-up, operate and maintain a 484 MW combined-cycle, gas fired power generation facility ("Merida III"). The Project will be located in the city of Merida, Yucatan, Mexico. The Project will consist of two gas-fired turbines, two heat recovery steam generators, a single steam turbine, and certain other common facilities. Engineering, procurement and construction of the project is under a turn-key contract with Westinghouse and construction is expected to be completed in 2000. In April 1997, CEEE, the electric distribution company for the state of Rio Grande do Sul, Brazil, selected AES to build, own, and operate a 600 MW gas-fired combined cycle power plant to be built at the border city of Uruguaiana, in the State of Rio Grande do Sul, Brazil ("AES Uruguaiana"). CEEE will purchase the electricity of AES Uruguaiana under a 20 year power purchase agreement. The Project will consist of two gas-fired turbines, two heat recovery steam generators and a single steam turbine, and certain other common facilities. Engineering, procurement and construction of the project is under a turn-key contract with Westinghouse and construction is expected to be completed in 2000. PROJECTS IN ADVANCED STAGES OF DEVELOPMENT The Company currently is pursuing over 100 new business opportunities in various stages of development. Each of these projects are subject to numerous risks as discussed elsewhere in this Annual Report on Form 10-K, and no assurance can be given that any of the projects or businesses will be completed or acquired. Listed below are development projects that have achieved certain milestone objectives the Company deems significant. In January 1998, the Company was selected by the Government of Bangladesh Ministry of Energy and Mineral Resources as the winning bidder to build, own and operate a 360 MW (net) gas-fired, combined cycle power plant at a site near Dhaka, Bangladesh ("Haripur"). Haripur is expected to commence commercial operations in 2000, and electricity will be sold to the Bangladesh Power Development Board. In November 1997, AES won a bid to acquire three natural gas-fired, electric generating stations from Southern California Edison ("Edison") for approximately $781 million. The three plants, all located on the southern California coast, are Alamitos (2083 MW), Redondo Beach (1310 MW) and Huntington Beach (563 MW). Each of the plants has been designated a "must-run facility" and initially will operate in part under agreements with California's Independent System Operator being established through electricity restructuring. Pursuant to California's electricity restructuring law, Edison will remain under contract to operate and maintain the facilities for two years. Completion of the acquisition is subject to a number of conditions, including the receipt of California Public Utilities Commission approval, federal regulatory and anti-trust approvals and successful implementation of the new California electric spot market, called the Power Exchange. The AES Ironwood project is in the advanced stages of development and will be a natural gas-fired combined cycle facility currently in southeastern Pennsylvania. Total plant capacity is anticipated to be approximately 720 MW. The plant is anticipated to achieve commercial operation by the end of 2000. Power generated by Ironwood will be purchased by General Public Utility under the terms of a power purchase agreement finalized in February 1997. An affiliate of the Company, San Francisco Energy Company, LP ("SFEC"), which is a joint venture between AES Pacific, an indirectly wholly owned subsidiary of AES and a general partner in SFEC, and Sonat Inc., is developing a 240 MW natural gas-fired facility in San Francisco, California. SFEC signed a Standard Offer contract in 1994 with Pacific Gas & Electric ("PG&E") as the winner of the San Francisco portion of the California Public Utilities Commission's Biennial Resource Plan Update. The contract calls for the full capacity of the plant to be purchased by Pacific Gas & Electric for 30 years, with an option to terminate after 17 years. However, a ruling by the Federal Energy Regulatory Commission ("FERC") has questioned the validity of the California Biennial Resource Plan update ("BRPU"), pursuant to which SFEC was awarded its contract. The Company believes that its contract with PG&E is valid, but the Company is currently involved in litigation with PG&E over the validity of the contract. The Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the Company. Substantial risks to the successful completion of this project exist, including those relating to the contract litigation, FERC decision, siting, financing, construction and permitting. AES has been developing AES Puerto Rico which is to be a 454 MW coal-fired cogeneration facility in Guayama, Puerto Rico. The Puerto Rico Electricity Power Authority has agreed to purchase the electrical output of the facility pursuant to a 25-year power sales agreement. The project received approval of its environmental impact statement from the Puerto Rico Environmental Quality Board, but such approval has been challenged. This issue is currently on appeal to the Supreme Court of Puerto Rico, which has not yet rendered a decision. Development of the project is stayed during determination of the appeal. AES has also been developing a 420 MW coal-fired facility in the State of Orissa, India ("AES Ib Valley"). Under the terms of an executed power sales agreement, the Orissa State Electricity Board ("OSEB") agreed to purchase at least 85 percent of the electrical capacity of the facility pursuant to a 30-year contract. Certain of OSEB's obligations are guaranteed by the Government of Orissa ("GOO"). In addition, the Government of India ("GOI") agreed to guarantee a portion of GOO's obligations. In July 1995, a newly elected state government initiated a review of the terms and conditions of AES Ib Valley's agreements with OSEB and GOO. This review has led OSEB and GOO to seek significant modifications to the terms of the power sales agreement. In light of this review AES has been unable to reach financial closing on this project and has been forced to terminate certain financing and contractual commitments relating to the project. AES Ib Valley is currently in negotiation with GOO and OSEB and may agree to changes, including those relating to the plant's technical configuration, capital cost, size and the price paid for electricity. Notwithstanding the Company's willingness to discuss modifications to the project, the Company believes that its current agreements with GOO, OSEB and GOI are valid, and if agreements cannot be restructured on terms acceptable to AES, the Company intends to pursue its rights with respect to enforcement of the existing contracts. No assurance can be given that either (i) the terms of a new contract will be agreed to or (ii) if AES pursues its legal claims, that it will be able to compel specific performance or recover significant damages. REGULATORY MATTERS Despite the recent movement toward electricity restructuring, electricity markets in the United States are still heavily regulated. United States laws and regulations still govern to some extent wholesale electricity transactions, the type of fuel utilized, the type of energy produced, and power plant ownership. State regulatory commissions have jurisdiction over retail electricity transactions. United States power projects also are subject to laws and regulations controlling emissions and other substances produced by a plant and the siting of plants. These laws and regulations generally require that a wide variety of permits and other approvals be obtained before the construction or operation of a power plant commences, and that the facility operate in compliance with these permits thereafter. FERC must also approve rates charged by certain power marketers such as those of the Company's subsidiary, AES Power. In the United States, so-called Qualifying Facilities ("QFs") are relieved of compliance with extensive federal, state and local regulations by the provisions of the Public Utility Regulatory Policies Act, as amended ("PURPA"). Each of AES's current domestic plants is a QF. Loss of QF status, if not prevented, would subject these plants to more extensive regulations. The Company believes, however, that it will usually be able to react in a manner that would avoid the loss of QF status. State public utility commissions ("PUCs") regulate both the retail rates and financial performance of electric utilities. Since a wholesale power sales contract is generally reflected in a utility's retail rates, power sales contracts from QFs are indirectly under the regulatory purview of PUCs. PUCs often will pre-approve contracts with prices that do not exceed so-called "avoided costs" because such contracts often have been acquired through a competitive or market-based process. Recognizing the competitive nature of most acquisition processes, most PUCs will permit utilities to "pass through" expenses associated with an independent power contract to the utility's retail customers, although no assurance can be given that a PUC will not attempt to deny the "pass through" of these expenses in the future. The Company believes that any such attempt by a PUC would, among other things, be pre-empted by federal law. AES must obtain exemptions from, or become subject to regulation by, the Securities and Exchange Commission under the Public Utility Holding Company Act ("PUHCA") in regard to both its domestic and foreign utility company holdings. There are a number of exemptions from PUHCA that are available for both domestic and foreign utility company owners, including those for QFs, Exempt Wholesale Generators and Foreign Utility Companies. AES has obtained, and believes that it will be able to obtain and maintain in the future, appropriate PUHCA exemptions for its utility acquisitions. In addition, as one of the Company's major non-U.S. markets, changes in Brazilian regulatory structures will have an impact on the Company. The electricity industry in Brazil is regulated by the Brazilian federal government, acting through the Ministry of Mines and Energy, which has exclusive authority over the electricity sector through regulatory powers assigned to it. This sector is currently in a state of rapid change in Brazil. For example, pursuant to a federal law enacted in 1996, regulatory policy for the sector, which was implemented by the Departmento Nacional de Aguas e Energia Eletrica ("DNAEE"), is now implemented by a new autonomous national electric energy agency (Agencia Nacional de Energia Eletrica or "ANEEL"). ANEEL is expected to be an independent regulatory agency and to delegate certain functions to agencies based in certain states of Brazil. However, ANEEL cannot delegate any authority regarding tariffs to state agencies. There is uncertainty regarding the status of current regulations and the possibility of new regulations which may apply to the electricity sector in Brazil. ANEEL is responsible for (i) granting and supervising concessions for electricity generation, transmission and distribution, including approval of applications for the setting of electricity tariffs; (ii) supervising and performing financial examinations of the concessionary companies; (iii) issuing regulations for the electricity sector; and (iv) planning, coordinating and executing water resource studies and granting and supervising concessions for the use of water resources. Due to electricity tariffs' significant weight in the measurement of national inflation, tariff increases have been controlled by the Ministry of Finance, although it is not its official responsibility. In addition to the powers currently granted to DNAEE, ANEEL has the following responsibilities: (i) to implement and regulate the exploitation of electric energy and the use of hydroelectric power pursuant to the Power Sector Law; (ii) to promote the bidding process for the granting of new concessions; (iii) to solve administrative disputes among utilities, IPP companies, self-producers and customers; and (iv) to determine the criteria for the establishment of the cost of the transmission of energy pursuant to the Power Sector Law. Nevertheless, until regulations regarding the implementation of ANEEL are promulgated, DNAEE will continue to monitor and regulate the Brazilian electricity sector. UNITED STATES ENVIRONMENTAL REGULATIONS The construction and operation of power projects are subject to extensive environmental and land use regulation. In the United States those regulations applicable to AES primarily involve the discharge of effluents into the water, emissions into the air and the use of water, but can also include wetlands preservation, endangered species, waste disposal and noise regulation. These laws and regulations often require a lengthy and complex process of obtaining licenses, permits and approvals from federal, state and local agencies. If such laws and regulations are changed and AES's facilities are not "grandfathered" (that is, made exempt by the fact that the facility pre-existed the law) or otherwise are not excluded, extensive modifications to a project's technologies and facilities could be required. If environmental laws or regulations were to change in the future, there can be no assurance that AES would be able to recover all or any increased costs from its customers or that its business and financial condition would not be materially and adversely affected. In addition, the Company may be required to make significant capital or other expenditures in connection with such changes in environmental laws or regulations. While AES expects that environmental and land use regulations in the United States will continue to become more stringent over time, the Company is not aware of any currently planned changes in law that would result in a material adverse effect on its consolidated financial position. Clean Air Act. The original Clean Air Act of 1970 set guidelines for emissions standards for major pollutants (e.g., SO2 and NOx) from newly-built sources. In late 1990, Congress passed a set of amendments to the Clean Air Act (the "1990 Amendments"). All of AES's domestic operating plants perform at levels better than federal emission standards mandated for such plants under the Clean Air Act (as amended). The 1990 Amendments attempt to reduce acid rain precursor emissions (SO2 and NOX) from existing sources -- particularly large, older power plants that were exempted from certain regulations under the original Clean Air Act. Because AES's facilities are relatively new cogeneration units with low air emissions that qualify as "existing sources" under the 1990 Amendments, they have been "grandfathered" from certain acid rain compliance provisions of the 1990 Amendments. Other provisions of the Clean Air Act related to the reduction of ozone precursor emissions (VOC and NOx) have triggered "reasonably available control technology" ("RACT") requirements by various states to reduce such emissions. The hazardous air pollutant provisions of the 1990 Amendments presently exclude electric steam generating facilities such as AES's domestic plants; however, the 1990 Amendments directed that the Environmental Protection Agency ("EPA" or the "Agency") prepare a study on hazardous air pollutant ("HAP") emissions from power plants. In the fall of 1996, EPA released an interim report on HAP emissions from power plants that tentatively concluded that the risk of contracting cancer from exposure to HAPs (except mercury) from most plants was very low (less than one in 1 million). EPA is developing a separate study on mercury emissions from power plants. The draft mercury study report is currently being reviewed by the federal Scientific Advisory Board and it is not certain when a final report will be released. A final comprehensive HAP report with recommendations is expected to be issued after EPA's review of mercury emissions from power plants is complete. If it is determined that mercury from power plants should be regulated, the use of "maximum available control technology" ("MACT") for mercury (which is now not subject to regulation) could be required. In 1997, EPA published new rules that tighten ambient air quality standards for ozone and small particulate matter (so-called PM 2.5). These new standards increase the number of so-called "nonattainment regions" for ozone and particulates. If new ozone and particulate matter nonattainment areas are created, AES's plants may be faced with further emission reduction requirements that could necessitate the installation of additional control technology. In order to make further improvements in air quality in the eastern United States, EPA in 1997 issued a call for states to revise their "state implementation plans" (SIPs) for ozone precursors--primarily NOX. EPA recommended further reductions of up to 65% for some states, depending on local conditions. As a result, AES will be required to make further reductions in NOX emissions at its Beaver Valley plant in Pennsylvania (AES's other plants have emission levels well below baseline levels). The Company does not believe that any of the potential additional requirements discussed above will have a material adverse effect on its results of operations and consolidated financial position. Hazardous Waste Regulation. Based on a 1988 study, EPA has decided not to regulate most coal combustion ash as a hazardous waste; however, EPA reserved making a decision with respect to coal ash from fluidized bed combustion (the burning of coal in the presence of limestone), which is still being evaluated by the Agency. AES, along with other CFB owners and manufacturers, is currently participating in a study to evaluate whether or not CFB ash should be classified as hazardous. EPA is required to make a determination on whether to regulate CFB ash in 1998. If EPA decides to regulate fluidized bed coal ash as a hazardous or special waste, AES could incur additional ash disposal costs to dispose of ash from its plants that utilize fluidized bed boilers. FOREIGN ENVIRONMENTAL REGULATIONS AES now has ownership interests in operating power plants in many countries outside the United States. Each of these countries and the localities therein have separate laws and regulations governing the siting, permitting, ownership and power sales from AES's plants. These laws and regulations are often quite different than those in effect in the United States--and AES's non-U.S. businesses have been in substantial compliance with these different laws and regulations. In addition, projects funded by the World Bank are subject to World Bank environmental standards, which may be more stringent than local country standards but are typically not as strict as U.S. standards. Whenever feasible, AES attempts to use advanced environmental technologies (such as CFB coal technology or advanced gas turbines) in order to minimize environmental impacts. Based on current trends, AES expects that environmental and land use regulations affecting its plants located outside the United States will likely become more stringent over time. This appears to be due in part to a greater participation by local citizenry in the monitoring and enforcement of environmental laws, better enforcement of applicable environmental laws by the regulatory agencies, and the adoption of more sophisticated environmental requirements. If foreign environmental and land use regulations were to change in the future, the Company may be required to make significant capital or other expenditures in order to comply. There can be no assurance that AES would be able to recover all or any increased costs from its customers or that its business, financial condition or results of operations would not be materially and adversely affected by future changes in foreign environmental and land use regulations. NEW UNITED STATES LEGISLATION In the United States, some states (for example, California, Illinois, Michigan, Massachusetts and Pennsylvania) have passed or are considering new legislation that permits utility customers to choose their electricity supplier in a competitive electricity market (so-called "retail access" or "customer choice" laws). While such "customer choice" plans differ in details, they usually share some important elements: (1) they allow customers to choose their electricity suppliers by a certain date (the dates in the existing or proposed legislation vary between 1998 and 2003); (2) they allow utilities to recover so-called "stranded assets"--the remaining costs of uneconomic generating or regulatory assets; and (3) they reaffirm the validity of existing QF contracts, and make provisions to assure payment over the contract life. In order to guarantee payment of utilities' costs and the costs of QF contracts, some states have used or are proposing to use financial methods to "securitize" these payments. The "securitization" process might involve the following steps: first, the financial obligations to be "securitized" would be legally affirmed through legislation. This legal obligation then is used to borrow money in public debt markets to pay off the obligation. The legal obligation allows the borrower to obtain a good credit rating and therefore a lower interest rate. In some cases, the benefits of the lower interest rate are passed on to retail electric customers (perhaps in the form of a rate decrease). "Securitization" of QF contract obligations, if applied to AES contracts in the future, would significantly reduce the risk to AES that its power sales contracts would not be honored due to potential financial difficulties of the utility purchaser. In addition to state restructuring legislation, members of Congress have proposed new federal legislation to encourage customer choice and recovery of stranded assets. Some argue that federal legislation is needed to avoid the "patchwork" effect of each state acting separately to pass restructuring legislation; others argue that each state should decide whether to allow retail choice. In 1997 several bills were (and others are expected to be) submitted to Congress on electricity restructuring. While it is uncertain whether or when federal legislation dealing with electricity restructuring might be passed, it is the opinion of the Company that such legislation would not have a materially adverse effect on the Company's U.S. business. In addition to the federal restructuring legislation proposals, a number of bills have been proposed by members of Congress to repeal all or portions of PURPA and/or PUHCA--as separate legislation if a comprehensive restructuring bill fails to pass. The Company believes that the repeal of PURPA and/or PUHCA is unlikely (and inappropriate) unless it is a part of a comprehensive restructuring bill. In anticipation of restructuring legislation, many U.S. utilities are seeking ways to lower their costs in order to become more competitive. These include the costs that utilities are required to pay under QF contracts, which the utilities may view as excessive when compared to current market prices. Many utilities are therefore seeking ways to lower these contract prices by renegotiating the contracts, or in some cases by litigation. While the Company is generally open to renegotiation of existing contracts, it believes that the aforementioned electricity market restructuring legislation will likely reduce both the pressure to renegotiate and the need for such contract renegotiations. EMPLOYEES At December 31, 1997, AES and its subsidiaries employed approximately 10,000 people. The total number of people employed in facilities which AES operates or has an equity interest in is approximately 30,000. EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT The following is certain information concerning the present executive officers and significant employees of the Registrant set out in alphabetical order. Dennis W. Bakke, 52 years old, co-founded the Registrant with Roger Sant in 1981 and has been a director of the Registrant since 1986. He has been President of the Registrant since 1987 and Chief Executive Officer since January 1994. From 1987 to 1993, he served as Chief Operating Officer of the Registrant; from 1982 to 1986, he served as Executive Vice President of the Registrant; and from 1985 to 1986 he also served as Treasurer of the Registrant. He served with Mr. Sant as Deputy Assistant Administrator of the Federal Energy Agency ("FEA") from 1974 to 1976 and as Deputy Director of the Energy Productivity Center, an energy research organization affiliated with The Mellon Institute at Carnegie-Mellon University, from 1978 to 1981. He is a trustee of Rivendell School and a member of the Board of Directors of MacroSonix Corporation in Richmond, Virginia. Mark S. Fitzpatrick, 47 years old, has served as a Senior Vice President of the Registrant since January 1998, and was appointed Vice President of the Registrant in 1987. Mr. Fitzpatrick became Managing Director of Applied Energy Services Electric Limited for the United Kingdom and Western Europe operations in 1990. From 1984 to 1987, he served as a project director of the AES Beaver Valley and AES Thames projects. Paul T. Hanrahan, 40 years old, was appointed Vice President of the Registrant effective January 1994. He currently is President of AES Chigen, where he served as Executive Vice President, Chief Operating Officer and Secretary from December 1993 until February 1995. He was General Manager of AES Transpower, Inc., a subsidiary of the Registrant, from 1990 to 1993. William R. Luraschi, 34 years old, has been Vice President of the Registrant since January 1998, Secretary since February 1996 and General Counsel of the Registrant since January 1994. Prior to that, Mr. Luraschi was an attorney with the law firm of Chadbourne & Parke L.L.P. David G. McMillen, 59 years old, was named Vice President of the Company in December 1991. He was appointed President of AES Shady Point in 1995 and is currently plant manager of the AES Shady Point facility. He was President of AES Thames from 1989 to 1995. From 1985 to 1988, he served as plant manager of the AES Beaver Valley plant and from 1986 to 1988 he served as President of AES Beaver Valley. Dr. Roger F. Naill, 50 years old, has been Vice President for Planning at AES since 1981. Prior to joining the Registrant, Dr. Naill was Director of the Office of Analytical Services at the U.S. Department of Energy. Oscar Prieto, 45 years old, was appointed Vice President of the Registrant effective January 1998 and has been General Executive Director of Light Servicos de Electricidade, S.A. since June 1996. Mr. Prieto served as General Manager of San Nicolas from 1994, when he joined AES, until he was appointed to the position at Light in 1996. Before coming to AES, Mr. Prieto worked in various positions with the Dow Chemical Company from 1980 to 1994. John Ruggirello, 47 years old, was appointed Vice President of the Registrant effective January 1997, and heads an AES group responsible for project development, construction and plant operations in much of the United States and Canada. He served as President of AES Beaver Valley from 1990 to 1996. J. Stuart Ryan, 39 years old, was appointed Senior Vice President of the Registrant effective January 1998, and heads the AES Transpower group which is responsible for the Company's business in Asia (excluding China). From 1994 through 1997, he served as Vice President of the Registrant. Prior to 1994, Mr. Ryan served as general manager of a group within AES. Roger W. Sant, 66 years old, co-founded the Company with Dennis Bakke in 1981. He has been Chairman of the Board and a director of the Registrant since its inception, and he held the office of Chief Executive Officer through December 31, 1993. He currently is Chairman of the Boards of Directors of The Summit Foundation and The World Wildlife Fund U.S., and serves on the Boards of Directors of The World Resources Institute, the World Wide Fund for Nature and Marriott International, Inc. He was Assistant Administrator for Energy Conservation and the Environment of the Federal Energy Agency ("FEA") from 1974 to 1976 and the Director of the Energy Productivity Center, an energy research organization affiliated with The Mellon Institute at Carnegie-Mellon University, from 1977 to 1981. Barry J. Sharp, 38 years old, was appointed Senior Vice President and Chief Financial Officer effective January 1998 and had been Vice President and Chief Financial Officer since 1987. He also served as Secretary of the Registrant until February 1996. From 1986 to 1987, he served as the Company's Director of Finance and Administration. Mr. Sharp is a certified public accountant. Sarah Slusser, 35 years old, was appointed President of AES Aurora, Inc., effective April 1997. AES Aurora is a wholly owned subsidiary of the Company responsible for business development, construction and operations of facilities and projects in Mexico, Central America, the Caribbean and Texas. Prior to that, Ms. Slusser served as Project Director for various AES projects in the same region from 1993 to 1997. Paul D. Stinson, 41 years old, was appointed Vice President of the Registrant effective January 1998. Since April 1997 Mr. Stinson has been Managing Director of AES Silk Road, Ltd., a wholly owned subsidiary of the Company responsible for business development, construction and operations of facilities and projects in Russia, Kazakhstan, Pakistan and other parts of Asia. Mr. Stinson served as Managing Director of Medway Power Ltd. from 1994 until 1997 and was Plant Manager of the Medway Power Station owned by Medway Power Ltd. from 1992 to 1997. Thomas A. Tribone, 45 years old, has been Senior Vice President of the Registrant since 1990, and leads an AES group responsible for power marketing, project development, construction and plant operations in South America. From 1987 to 1990 he served as Vice President for project development and from 1985 to 1987 he served as project director of the AES Shady Point plant. Kenneth R. Woodcock, 54 years old, has been Senior Vice President of the Registrant since 1987 and now handles AES relationships with the investment community as well as support for AES business development activities worldwide. From 1984 to 1987, he served as a Vice President for Business Development. Prior to the founding of AES he served in the United States federal government in energy and environment departments. (d) Financial Information about Foreign and Domestic Operations and Export Sales. See the information contained under the caption "Geographic Segments" in Note 13 to the Consolidated Financial Statements contained in Item 8 hereof. ITEM 2. PROPERTIES Offices are maintained by the Registrant in many places around the world which are generally occupied pursuant to the provisions of long- and short-term leases, none of which is material to the Company. With a few exceptions, the Registrant's facilities which are described in Item 1 hereof are subject to mortgages or other liens or encumbrances as part of the project's related finance facility. The land interest held by the majority of the facilities is that of a lessor or, in the case of the facilities located in the People's Republic of China, a land use right that is leased or owned by the related joint venture that owns the project. However, in a few instances there exists no accompanying project financing for the facility and in a few of these cases the land interest may not be subject to any encumbrance and is owned by the subsidiary or affiliate owning the facility outright. ITEM 3. LITIGATION. The Company is involved in certain legal proceedings in the normal course of business. It is the opinion of the Company that none of the pending litigation is expected to have a material adverse effect on its results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders during the fourth quarter of 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) Market Information. The common stock of the Company is currently traded on the NYSE stock market under the symbol "AES." All stock prices from January 1, 1996 to and including October 15, 1996 were quoted on the NASDAQ stock market under the symbol "AESC." The following table sets forth the high and low sale prices for the common stock as reported by NASDAQ or the NYSE for the periods indicated. -------------------------------- -------------------- ----------- 1996 HIGH LOW -------------------------------- -------------------- ----------- First Quarter $ 12-5/8 $ 10-1/2 Second Quarter 14-13/16 11-1/8 Third Quarter 20-1/4 13-5/16 Fourth Quarter 25-1/16 19-5/8 -------------------------------- -------------------- ----------- 1997 HIGH LOW -------------------------------- -------------------- ----------- First Quarter $ 34-1/8 $ 22-3/8 Second Quarter 37-3/4 27-1/2 Third Quarter 45-1/4 34-5/8 Fourth Quarter 49-5/8 35 (b) Holders. As of February 2, 1998, there were 955 record holders of the Registrant's Common Stock, par value $0.01 per share. (c) Dividends. Under the terms of a corporate revolving loan and letters of credit facility of $600 million entered into with a commercial bank syndicate, the Company is currently prohibited from paying cash dividends. In addition, the Registrant is precluded from paying cash dividends on its Common Stock under the terms of a guaranty to the utility customer in connection with the AES Thames project in the event certain net worth and liquidity tests of the Registrant are not met. The Registrant has met these tests at all times since making the guaranty. The ability of the Registrant's project subsidiaries to declare and pay cash dividends to the Registrant is subject to certain limitations in the project loans and other agreements entered into by such project subsidiaries. Such limitations permit the payment of cash dividends out of current cash flow for quarterly, semiannual or annual periods only at the end of such periods and only after payment of principal and interest on project loans due at the end of such periods, and in certain cases after providing for debt service reserves. ITEM 6. SELECTED FINANCIAL DATA.
(IN MILLIONS, EXCEPT PER SHARE DATA) - ---------------------------------------------- ----------- ------------ ----------- ----------- ----------- FOR THE YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993 - ---------------------------------------------- ----------- ------------ ----------- ----------- ----------- Statement of Operations Data Revenues $1,411 $ 835 $ 679 $ 533 $ 519 Operating costs and expenses 1,043 557 426 297 323 Operating income 368 278 253 236 196 Income before income taxes, minority interest and extraordinary item 263 193 167 145 89 Extraordinary item (3) -- -- 2 -- Net income 185 125 107 100 71 Basic earnings per share: Before extraordinary item $ 1.13 $ 0.83 $ 0.71 $ 0.67 $ 0.50 Extraordinary item (0.02) -- -- 0.01 -- Basic earnings per share $ 1.11 $ 0.83 $ 0.71 $ 0.68 $ 0.50 Diluted earnings per share: Before extraordinary item $ 1.11 $ 0.80 $ 0.70 $ 0.66 $ 0.49 Extraordinary item (0.02) -- -- 0.01 -- Diluted earnings per share $ 1.09 $ 0.80 $ 0.70 $ 0.67 $ 0.49 Dividends per share - common stock -- -- -- -- $ 0.29 - ---------------------------------------------- ----------- ------------ ----------- ----------- ----------- AS OF DECEMBER 31 1997 1996 1995 1994 1993 - ---------------------------------------------- ----------- ------------ ----------- ----------- ----------- Total assets $8,909 $3,622 $2,341 $1,915 $1,687 Revolving bank loan (current) -- 88 50 -- -- Project financing debt (long-term) 3,489 1,558 1,098 1,019 1,075 Other notes payable (long-term) 1,096 450 125 125 125 Stockholders' equity 1,481 721 549 401 309
ITEM 7. DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INTRODUCTION The AES Corporation and its subsidiaries and affiliates (collectively "AES" or the "Company") are helping to meet the world's needs by providing electricity to customers in many countries. Electricity sales accounted for 95% of total revenues during 1997 and 97% during 1996. Other sales arise from the sale of steam and other commodities related to the Company's cogeneration operations. Service revenues represent fees earned in connection with wholesale power services, and operating and construction services provided by AES to its affiliates. Until recently, the Company's sales of electricity were almost exclusively made to customers (generally electric utilities or regional electric companies) on a wholesale basis for further resale to end users. This is often referred to as the electricity "generating" business. Sales by these generating companies are usually made under long-term contracts from power plants owned by the Company's subsidiaries and affiliates. The Company's ownership portfolio of power facilities includes new plants constructed for such purposes ("greenfield" plants) as well as existing power plants acquired through competitively bid privatization initiatives and negotiated acquisitions. AES now operates and owns (entirely, or in part) a diverse portfolio of electric power plants (including those within the integrated distribution companies discussed below) with a total capacity of 17,636 megawatts (MW). Of that total, 43% are fueled by coal or petroleum coke, 6% are fueled by natural gas, 34% are hydroelectric facilities, 6% are fueled by oil, and the remaining 11% are capable of using multiple fossil fuels. Of the total MW, 1,069 (six plants) are located in the U.S., 1,588 (four plants) are in the UK, 840 (five plants) are in Argentina, 603 (seven plants) are in China, 1,281 (three plants) are in Hungary, 5,856 (thirty nine) are in Brazil, 5,384 (seven plants) are in Kazakhstan, 210 (one plant) is in the Dominican Republic, 110 (one plant) is in Canada, and 695 (two plants) are in Pakistan. AES is also currently in the process of adding approximately 5,331 MW to its operating portfolio by constructing several new plants. These include a 180 MW coal-fired plant in the U.S., four coal-fired plants in China totaling 2,314 MW, a 230 MW natural gas-fired plant in the UK, a 405 MW natural gas-fired plant in the Netherlands, a 288 MW kerosene-fired plant in Australia, an 830 MW natural gas-fired plant in Argentina, a 484 MW natural gas-fired plant in Mexico and a 600 MW natural gas-fired plant in Brazil. As a result, AES's total MW of 84 power plants in operation and under construction is approximately 22,967 and net equity ownership (total MW adjusted for the Company's ownership percentage) represents approximately 12,247 MW. Because of the significant magnitude and complexity of building new electric generating plants, construction periods often range from two to five years, depending on the technology and location. AES currently expects that projects now under construction will reach commercial operation and begin to sell electricity at various dates through the year 2002. The completion of each plant in a timely manner is generally supported by a guarantee from the plant's construction contractor, although in certain cases, AES has assumed the risk of satisfactory construction completion. However, it remains possible, due to changes in the economic, political, technological, regulatory or logistical circumstances involving each individual plant, that commercial operations may be delayed in certain cases. Beginning in 1996 and continuing through 1997, AES has also purchased interests (both majority and minority) in companies that sell electricity directly to commercial, industrial, governmental and residential customers. This is often referred to as the electricity "distribution" business. Electricity sales by AES's distribution businesses are generally made pursuant to the provisions of long-term electricity sale concessions granted by the appropriate governmental authority as part of the original privatization of each distribution company. In certain cases, these distribution companies are "integrated", in that they also own electric power plants for the purpose of generating a portion of the electricity they sell. Each distribution company also purchases, in varying proportions, electricity from third party wholesale suppliers, including in certain cases, other subsidiaries of the Company. AES has majority ownership in two distribution companies in Argentina, one in Brazil and one in El Salvador (purchased in 1998), and less than majority ownership in two additional distribution companies in Brazil. These six companies serve a total of approximately 8 million customers with gigawatt hour sales exceeding 63,000. On a net equity basis, AES's ownership represents approximately 2 million customers and gigawatt hour sales exceeding 15,000. AES continues to believe that there is significant demand for more efficiently operated electricity generation and distribution businesses. Guided by its commitment to serve the world's needs for electricity, AES is pursuing additional greenfield developments and acquisitions in many countries. Several of these, if consummated, would require the Company to obtain substantial additional financing, including both debt and equity financing. Certain subsidiaries and affiliates of the Company (domestic and non-U.S.) have signed long-term contracts or similar arrangements for the sale of electricity and are in various stages of developing the related greenfield power plants. There exist sub- stantial risks to their successful completion, including, but not limited to, those relating to failures of siting, financing, construction, permitting, governmental approvals or termination of the power sales contract as a result of a failure to meet milestones. As of December 31, 1997, capitalized costs for projects under development were approximately $87 million. The Company believes that these costs are recoverable; however, no assurance can be given that changes in circumstances related to individual development projects will not occur or that any of these projects will be completed and reach commercial operation. AES has been successful in growing its business and serving additional customers by participating in competitive bidding under privatization initiatives and has been particularly interested in acquiring existing businesses or assets in electricity markets that are promoting competition and eliminating rate of return regulation. In such privatizations, sellers generally seek to complete competitive solicitations in less than one year, much quicker than the time periods associated with greenfield development, and require payment in full on transfer. AES believes that its experience in competitive markets and its worldwide integrated group structure, with its significant geographic coverage and presence, enable it to react quickly and creatively in such situations. Because of this relatively quick process or other considerations, it may not always be possible to arrange "project financing" (the Company's historically preferred financing method, which is discussed further under "Capital Resources, Liquidity and Market Risk") for specific potential acquisitions. Additionally, as in the past, certain acquisitions or the commencement of construction on several greenfield developments would potentially require the Company to obtain substantial additional financing including both debt and equity. As a result, during 1997, the Company enhanced its financial capabilities to respond to these more accelerated opportunities by expanding its revolving line and letter of credit facility (the "Revolver") to $600 million from $425 million. AES also currently maintains a $1.5 billion "universal shelf" registration statement that allows for the issuance of various additional debt and preferred or common equity securities either individually or in combination. RESULTS OF OPERATIONS REVENUES. Total revenues increased $576 million (69%) to $1,411 million from 1996 to 1997 after increasing $156 million (23%) to $835 million from 1995 to 1996. The increase in 1997 primarily reflects the acquisitions of controlling interests in the distribution companies Eden, Edes and Sul and electricity generating plants at Los Mina and Altai, a full year of operations at Tisza and Ekibastuz, service revenue associated with construction at Elsta, and the start of commercial operations at Lal Pir. The increase in 1996 primarily reflects the acquisition of controlling interests in Tisza and Ekibastuz during the year. The nature of most of the Company's generating businesses is such that each power plant generally relies on one power sales contract with a single electric customer for the majority, if not all, of its revenues. During 1997, the Company's three largest customers accounted for 36% of total revenues. As a result, the prolonged failure of any one of those customers to fulfill its contractual payment obligations in the future could have a substantial negative impact on AES's results of operations. Where possible, the Company has sought to reduce this risk, in part, by entering into power sales contracts with customers that have their debt or preferred stock rated "investment grade" by nationally recognized rating agencies and by locating its plants in different geographic areas in order to mitigate the effects of regional economic downturns. However, AES does not limit its business solely to the most developed countries or economies, or only to those countries with investment grade sovereign credit ratings. In certain locations, particularly developing countries or countries that are in a transition from centrally planned to market oriented economies, the electricity purchasers, both wholesale and retail, may experience difficulty in meeting contractual payment obligations. Beginning in August 1996 and continuing through 1997, AES has recorded a provision of $28 million associated with aggregate outstanding receivables (excluding VAT) of $54 million at December 31, 1997 related to the operations of the Ekibastuz power plant in Kazakhstan. Approximately $35 million of the aggregate balance (excluding VAT), before considering the provision, is due from a government-owned distribution company. There can be no assurance of the ultimate collectibility of these amounts owed to Ekibastuz, or as a result, the recoverability of the related net assets (totaling $57 million at December 31, 1997) or additional amounts the Company may invest. A portion of the electricity sales from certain plants is not subject to a contract and is available for sale, when economically advantageous, in the relevant spot electricity market. The prices paid for electricity in the spot markets may be volatile and are dependent on the behavior of the relevant economies, including the demand for and retail price of electricity and the competitive price and availability of power from other suppliers. Electricity sales by AES's distribution businesses are made pursuant to provisions of long-term electricity sales concession agreements ranging in remaining length from 19 to 94 years. Each business is generally authorized to charge its customers a tariff for electric services which consists of two components: an energy expense pass-through component and an inflation or similarly adjusted operating cost component. Both components are established as part of the original grant of the concession for certain initial periods (ranging from six to ten years remaining). Beginning subsequent to the initial periods and at regular intervals (such as every five years thereafter) the concession grantor has the authority to review the costs of the relevant business to determine the inflation or similar adjustment factor, if any, to the operation cost component (the "Adjustment Escalator") for the subsequent regular interval. This review can result in an Adjustment Escalator that has a positive, zero or negative value. To date, the Company has not reached the end of the initial tariff periods in any of its distribution businesses. As a result, there can be no assurance as to the effects, if any, on its future results of operations of potential changes to the Adjustment Escalator. Additionally, the electricity sales concessions generally include either a direct (via the specific pricing provisions of the concession) or indirect (via the Adjustment Escalator) adjustment to a portion of the tariff that reflects changes, either entirely or in part, in the exchange rates between the local currency and the U.S. dollar. Such adjustments are made in arrears at various regular intervals and in certain cases, requests for interim adjustments are permitted. As such, the results of operations of AES's non-U.S. distribution businesses should be partially or entirely protected against fluctuations in such currency exchange rates, such as the Argentine peso and the Brazilian real. However, if either or both of these currencies were to experience a sudden or severe devaluation relative to the U.S. dollar, because of the in arrears nature of the respective adjustment in the tariff or because of the significant resulting local currency inflation of the tariff, the future results of operations of AES's distribution companies in that country or countries could be adversely affected. Depending on the duration or severity of such devaluation, the future results of operations of AES may also be adversely affected. COSTS OF SALES AND SERVICES. Total costs of sales and services increased $479 million (95%) to $981 million in 1997 after increasing $108 million (27%) to $502 million in 1996. The increase in 1997 was caused primarily by the costs of electricity sales associated with the acquisition of controlling interests in Eden, Edes, Sul, Los Mina and Altai, a full year of operations at Tisza and Ekibastuz, construction costs at Elsta, and the start of commercial operations at Lal Pir, offset in part, by lower costs at San Nicolas due to lower fuel prices. The increase in 1996 was caused primarily by the costs of electricity sales associated with the acquisition of controlling interests in Tisza and Ekibastuz in that year. GROSS MARGIN. Gross margin (revenues less costs of sales and services) increased $97 million (29%) to $430 million from 1996 to 1997 after increasing $48 million (17%) to $333 million from 1995 to 1996. The improvement in 1997 primarily reflects the additional gross margin contributed by the operations of Eden, Edes, Sul, Los Mina, Altai, Tisza and Lal Pir, and improved operations at San Nicolas and Thames. The improvement in 1996 primarily reflects the additional gross margin contributed by the operations of Tisza and Ekibastuz, improved operations at San Nicolas and Thames and higher electricity prices under the Deepwater sales contract due to higher natural gas prices. Gross margin as a percentage of total revenues (net of the provision to reduce contract receivables) decreased from 37% in 1996 to 29% in 1997, primarily due to lower relative gross margin percentages of recently acquired businesses including Tisza, Ekibastuz, Eden, Edes, Los Mina, Sul and Altai, offset in part, by an improved gross margin percentage at San Nicolas. Gross margin as a percentage of total revenues (net of the provision to reduce contract receivables) decreased from 42% in 1995 to 37% in 1996, primarily due to lower relative gross margin percentages at Tisza and Ekibastuz, offset in part, by an improved gross margin percentage at Deepwater. The Company's operations are located in several different geographical areas. Seasonal variations or unusual weather conditions in certain regions, including in particular, Argentina and Brazil, or the specific needs of individual power plants to perform routine or unanticipated maintenance that may require an outage, could significantly affect comparable quarterly financial results. In addition, some power sales contracts permit the customer to dispatch the related plant (i.e., direct the plant to deliver a reduced amount of electrical output) within certain specified parameters. Such dispatching, however, does not have a material impact on the results of operations of the related subsidiary because, even when dispatched, the plant's capacity payments generally are not reduced. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $10 million (29%) to $45 million from 1996 to 1997 after increasing less than $3 million (9%) to $35 million from 1995 to 1996. The 1997 increase is attributable to increases in administrative costs. The 1996 increase is attributable to increases in administrative costs and expenses associated with the development of new business opportunities. As a percentage of total revenue, selling, general and administrative expenses decreased to 3% in 1997, down from 4% in 1996 and 5% in 1995. The Company's general and administrative costs do not necessarily vary with changes in revenue. OPERATING INCOME. Operating income improved $90 million (32%) to $368 million from 1996 to 1997 after increasing $25 million (10%) to $278 million from 1995 to 1996. The increases result from the factors discussed in the preceding paragraphs. OTHER INCOME AND EXPENSE. Other income and expense, on a net basis, increased $20 million (24%) to $105 million from 1996 to 1997 after decreasing $1 million (1%) to $85 million from 1995 to 1996. Interest expense increased 69% in 1997 and increased 13% in 1996. The increase in 1997 reflects a full year of interest expense associated with the senior subordinated notes issued in 1996, project financing debt relating to the 1996 acquisitions, interest expense associated with the senior subordinated notes and Tecons issued in 1997 and project financing debt relating to the acquisitions in 1997, offset in part, by lower interest expense resulting from declining balances related to other project financing debt. The increase in 1996 reflects additional interest associated with increased borrowings under the Revolver, the 10.25% Notes and project financing debt associated with the acquisition of the Company's equity investment in Light and additional project financing debt associated with the acquisition of Tisza, offset, in part, by declining balances related to other project financing debt. Interest income increased 71% in 1997 and decreased 11% in 1996. The 1997 increase results primarily from higher cash balances as a result of the debt, common stock and Tecons issued during the year, higher cash balances at Chigen due to the issuance of the $180 million notes in December 1996, interest income at Eden and Edes associated with the late payments on customer accounts and interest on debt service reserves at Indian Queens and Coral Reef (Light). The 1996 decrease results primarily from lower invested funds at Chigen, offset, in part, by interest income earned on receivables at Tisza. Equity in earnings of affiliates (after income taxes) increased 200% in 1997 and 150% in 1996. The increase in 1997 results primarily from the acquisition of a 13.06% equity interest in Cemig (of which approximately 3.6% was sold to a partner in January 1998), and a full year of equity in earnings from a 2.4% increase in the Company's ownership percentage (to an aggregate of 13.75%) of Light. The increase in 1996 results almost entirely from the Company's acquisition of its original 11.35% interest in Light in June 1996, offset slightly by a decrease in equity in earnings from NIGEN due to a planned outage. INCOME TAXES. The Company's effective tax rate was 40% for both 1997 and 1996 as compared to 38% in 1995. The increase from 1995 to 1996 was due primarily to non-U.S. withholding and income taxes. EXTRAORDINARY ITEM. During 1997, the Company redeemed its $75 million 9.75% Senior Subordinated Notes due 2000 resulting in an extraordinary loss of $3 million, net of taxes. OUTLOOK All over the world, electricity markets continue to be restructured and there is a trend away from government-owned and government-regulated electricity systems toward deregulated, competive market structures. Many countries have rewritten their laws and regulations to allow foreign investment and private ownership of electricity generation, transmission or distribution companies. Some countries (for example the UK, Brazil and some of those of the former Soviet Union, among others) have or are in the process of "privatizing" their electricity systems by selling all or part of such to private investors. This global trend of electricity market restructuring provides significant new business opportunities for companies like AES. Several states in the U.S. are also beginning to follow this trend. In particular, some regulated public utilities have begun to sell or auction their generation capacity. Substantially all of the transmission and distribution services in the U.S. continue however to be regulated under a state and Federal regulatory framework. In addition, many states have passed or are considering new legislation that would permit utility customers to choose their electricity supplier in a competitive electricity market (so-called "retail access" or "customer choice" laws). While each state's plan differs in details, there are certain consistent elements, including allowing customers to choose their electricity suppliers by a certain date (the dates in the existing or proposed legislation vary between 1998 and 2003), allowing utilities to recover "stranded assets" (the remaining costs of uneconomic generating or regulatory assets) and a reaffirmation of the validity of contracts like the Company's U.S. contracts. In addition to the potential for state restructuring legislation, the U.S. Congress has proposed new Federal legislation to encourage customer choice and recovery of stranded assets. Federal legislation might be needed to avoid the patchwork quilt effect of each state acting separately to pass restructuring legislation (with the likely result of uneven market structures in neighboring states). While it is uncertain whether or when Federal legislation dealing with electricity restructuring might be passed, the Company believes that such legislation would not likely have a negative effect on the Company's U.S. business and may create opportunities. There is also legislation currently before the U.S. Congress to repeal part or all of the current provisions of the Public Utility Regulatory Policies Act of 1978 ("PURPA") and of the Public Utility Holding Company Act of 1935 ("PUHCA"). The Company believes that if such legislation is adopted, competition in the U.S. for new generation capacity from vertically integrated utilities would increase. However, independents like AES would also be free to acquire retail utilities. As consumers, regulators and suppliers continue the debate about how to further decrease the regulatory aspects of providing electricity services, the Company believes in and is encouraging the continued orderly transition to a more competitive electricity market. Inherent in any significant transition to competitive markets are risks associated with the competitiveness of existing regulated enterprises, and as a result, their ability to perform under long-term contracts such as the Company's electricity sale contracts. Although AES strongly believes that its contracts will be honored, there can be no assurance that each of its customers, in a restructured and competitive environment, will be capable in all circumstances of fulfilling their financial and legal obligations. AES's investments and involvement in the development of new projects and the acquisition of existing power plants and distribution companies in locations outside the U.S. is increasing. The financing, development and operation of such businesses may entail significant political and financial uncertainties and other structuring issues (including uncertainties associated with the legal environments, with first-time privatization efforts in the countries involved, currency exchange rate fluctuations, currency repatriation restrictions, currency inconvertibility, political instability, civil unrest, and in severe cases possible expropriation). Although AES attempts to minimize these risks, these issues have the potential to cause substantial delays or material impairment to the value of the project being developed or business being operated. It is also possible that as more of the world's markets for electricity move toward competition, an increasing proportion of the Company's revenues may be dependent on prices determined in spot markets. In order to capture a portion of the market share in competitive generation markets, AES is considering and may elect to invest in and construct low-cost "merchant" plants (plants without long-term electricity sale contracts) in those markets. Such an investment may require the Company (as well as its competitors) to make larger equity contributions (as a percentage of the total capital cost) than the more "traditional" contract-based investments. Because of the nature of AES's operations, its activities are subject to stringent environmental regulation by relevant authorities at each location. If environmental laws or regulations were to change in the future, there can be no assurance that AES would be able to recover all or any increased costs from its customers or that its business and financial condition would not be materially and adversely affected. In addition, the Company or its subsidiaries and affiliates may be required to make significant capital expenditures in connection with environmental matters. AES is committed to operating its businesses cleanly, safely and reliably and strives to comply with all environmental laws, regulations, permits and licenses but, despite such efforts, at times has been in non-compliance, although no such instance has resulted in revocation of any permit or license. FINANCIAL POSITION AND CASH FLOWS At December 31, 1997, AES had net negative consolidated working capital of $14 million as compared to $120 million at the end of 1996. The decrease in working capital is primarily due to an increase in the current portion of project financing debt, accrued interest on debt issued in 1997, and accounts payable of newly acquired companies, offset in part, by increases in cash and cash equivalents, short-term investments, accounts receivable associated with newly acquired companies and the Hazelwood asset classified as held for sale. Property, plant and equipment, net of accumulated depreciation, was $4,149 million at December 31, 1997, up from $2,220 million at the end of 1996. The net increase of $1,929 million (87%) is primarily attributable to the acquisitions during 1997 of Eden, Edes, Los Mina, Indian Queens, Sul and Altai, the continuation of construction activities at Lal Pir, Pak Gen, Warrior Run, Jiaozou and Barry, and the commencement of construction at Mt. Stuart and Uruguaiana. Other assets increased $2,670 million (297%) to $3,570 million primarily due to the Company's purchase of, and undistributed earnings from a 13.06% interest in Cemig, the purchase of a 50% interest in Kingston and a 50% interest in Elsta, deposits to debt service reserves, payments for deferred financing costs associated with debt issued during the year, payments associated with projects in development, and the acquisition of electricity sales concessions and contracts acquired through the purchase of Eden, Edes, Indian Queens, and Sul. Project financing debt, net of repayments, increased as a result of additional borrowings associated with the acquisitions of Eden, Edes, Indian Queens and Sul, and additional construction borrowings associated with Lal Pir, Pak Gen, Warrior Run, Jiaozou, Barry, Mt. Stuart and Uruguaiana. A significant portion of the Lal Pir and Pak Gen loans, associated with equipment purchases, will be repaid in Japanese yen. The anticipated electricity prices under the related power sales contracts (to be received beginning with commercial operation of those plants) also includes a yen component designed to correlate with the yen-based financing. Other notes payable (non-current) increased $646 million (144%) to $1,096 million as a result of the issuances of senior subordinated debt, offset in part by the redemption of the Company's $75 million 9.75% Notes. OPERATING ACTIVITIES. Cash flows provided by operating activities totaled $193 million during 1997 as compared to $195 million during 1996 and $200 million during 1995. The decrease in 1997 was primarily due to a larger portion of net income being derived from undistributed earnings from affiliates and increased net working capital (excluding project financing debt) necessary to support retail electricity sales. The moderate change in 1996 was primarily due to undistributed earnings from affiliates and larger cash payments for income taxes. These factors offset a significant increase in net income before depreciation as compared with 1995. The increase in 1995 was primarily due to increased pre-tax income. Unrestricted net cash flow to the parent company after cash paid for general and administrative costs, and project development expenses but before investments and debt service amounted to approximately $259 million, $165 million and $116 million for the years ended December 31, 1997, 1996 and 1995, respectively. INVESTING ACTIVITIES. Net cash used in investing activities totaled $3,799 million during 1997 as compared to $1,135 million during 1996 and $343 million during 1995. The 1997 amount primarily reflects construction activity at Barry, Lal Pir, Pak Gen, Warrior Run, and Mt. Stuart; an additional purchase of Light shares (2.4%); acquisition of a 60% interest in each of Eden and Edes; the acquisition of a 13.06% interest in Cemig; acquiring Destec's international assets; the acquisition of 90% of Sul; acquisition of an 85% interest in Altai; and the funding of debt service reserves related to Chigen. The 1996 amount primarily reflects the acquisitions of San Juan, Tisza and Ekibastuz, the Light investment; construction progress at Lal Pir, Pak Gen, Warrior Run and Barry; Chigen's investments in various projects; reimbursable payments for contracts related to a project in development; and the funding of debt service reserves for the project financing of the Light investment. The 1995 amount primarily reflects the Company's investments in the outstanding debt of Deepwater, additional ownership in San Nicolas, the acquisition of Rio Juramento, and construction efforts at Lal Pir, Pak Gen and Warrior Run, and Chigen's investments in the Wuxi and Yangchun Fuyang projects. FINANCING ACTIVITIES. Net cash provided by financing activities aggregated $3,723 million during 1997 as compared to $886 million during 1996 and $127 million during 1995. The 1997 increase was primarily due to the issuance of project financing debt drawn under construction financing commitments or associated with acquisition financings; the issuance of senior subordinated notes; the issuance of Tecons and common stock; and contributions from minority partners. These financing inflows were offset by project financing debt amortization payments and refinancing and repayments under the Company's revolving line of credit. The significant cash financing inflows in 1996 were caused by construction loan draws for Lal Pir, Pak Gen and Warrior Run; project acquisition financing of the Light investment; issuance of $250 million of 10.25% Notes; initial project financing at San Nicolas; and net borrowings under the Company's revolving line of credit. Significant cash financing outflows were due to scheduled debt amortization of the project financings. During 1995 the Company drew on its project financing loan commitments associated with the construction of Lal Pir and Warrior Run and borrowed under its revolving credit facility. Repayments of project finance loans during the year were made in accordance with amortization schedules. CAPITAL RESOURCES AND LIQUIDITY AES's business is capital intensive and requires significant investments to develop or acquire new operations. Occasionally, AES will also seek to refinance certain outstanding project financing loans or other notes payable. Continued access to capital on competitive and acceptable terms is therefore a significant factor in the Company's ability to further expand. AES has primarily utilized project financing loans to fund the capital expenditures associated with investment in constructing and acquiring its electric power plants, distribution companies and related assets. Project financing borrowings are substantially non-recourse to other subsidiaries and affiliates and to AES as the parent company and are generally secured by the capital stock, physical assets, contracts and cash flow of the related subsidiary or affiliate. The Company intends to continue to seek, where possible, such non-recourse project financing in connection with the assets which the Company or its affiliates may develop, construct or acquire. However, depending on market conditions and the unique characteristics of individual businesses, the Company's traditional providers of project financing, particularly multinational commercial banks, may seek higher borrowing spreads and increased equity contributions. Furthermore, because of the reluctance of commercial lending institutions to provide non-recourse project financing (including financial guarantees) for businesses in certain less developed economies, the Company, in such locations, has and will continue to seek direct or indirect (through credit support or guarantees) project financing from a limited number of government sponsored, multilateral or bilateral international financial institutions or agencies. As a precondition to making such project financing available, these institutions may also require governmental guarantees of certain project and sovereign related risks. Depending on the policies of specific governments, such guarantees may not be offered and as a result, AES may determine that sufficient financing will ultimately not be available to fund the related business, and may cease development or acquisition of such business. In addition to the project financing loans, if available, AES as the parent company provides a portion, or in certain instances all, of the remaining long-term financing required to fund development, construction or acquisition. These investments have generally taken the form of equity investments or loans, which are subordinated to the project financing loans. The funds for these investments have been provided by cash flows from operations and by the proceeds from issuances of debt, common stock and other securities issued by the Company. Interim needs for shorter-term and working capital financing at the parent company have been met with borrowings under AES's Revolver. Over the past several years, the Company has continued to increase the amount of available financing under the Revolver. In the fourth quarter of 1997, AES increased the amount committed under the Revolver to $600 million. Under the terms of the Revolver, the Company will be required to reduce its direct borrowings to $225 million for 30 consecutive days during each twelve month period. The Revolver also includes financial covenants related to net worth, cash flow, investments, financial leverage and certain other obligations and limitations on cash dividends. At December 31, 1997, cash borrowings and letters of credit outstanding under the Revolver amounted to $27 million and $180 million, respectively, compared with $213 million and $123 million in 1996. The Company may also from time to time seek to meet some of its short-term and interim funding needs with additional commitments from banks and other financial institutions at the parent or subsidiary level. The ability of AES's subsidiaries and affiliates to declare and to pay dividends to AES is restricted under the terms of existing project financing debt agreements. See Note 5 to the consolidated financial statements for additional information. In connection with its project financings and related contracts, AES has expressly undertaken certain limited obligations and contingent liabilities, most of which will only be effective or will be terminated upon the occurrence of future events. AES's obligations and contingent liabilities in certain cases take the form of, or are supported by, letters of credit. These obligations and contingent liabilities, excluding future commitments to invest and those collateralized with letter of credit obligations under the Revolver, were limited by their terms as of December 31, 1997 to an aggregate of approximately $149 million. The Company is obligated under other contingent liabilities which are limited to amounts, or percentages of amounts, received by AES as distributions from its project subsidiaries. These contingent liabilities aggregated $33 million as of December 31, 1997. In addition, AES has expressly undertaken certain other contingent obligations which the Company does not expect to have a material adverse effect on its results of operations or financial position, but which by their terms are not capped at a dollar amount. Because each of the Company's businesses are distinct entities and geographically diverse and because the obligations related to a single business are based on contingencies of varying types, the Company believes it is unlikely that it will be called upon to perform under several of such obligations at any one time. At December 31, 1997, the Company had future commitments to fund investments in its projects under construction and in development of $114 million. Of this amount, letters of credit in the amount of $42 million under the Revolver have been issued to support a portion of these obligations. In addition, certain of the Company's subsidiaries have obligations to fund equity and loans in their projects. At December 31, 1997 such commitments to invest amount to approximately $129 million. These future capital commitments are expected to be funded by internally-generated cash flows and by external financings as may be necessary. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company attempts, whenever possible, to hedge certain aspects of its projects against the effects of fluctuations in inflation, interest rates, exchange rates and energy prices. Because of the complexity of hedging strategies and the diverse nature of AES's operations, its portfolio's results, although significantly hedged, will likely be somewhat affected by fluctuations in these variables and such fluctuations may result in improvement or deterioration of operating results. Results of operations would generally improve with higher oil and natural gas prices and with lower interest rates. Operating results are also sensitive to the difference between inflation and interest rates, and would generally improve when increases in inflation are higher than increases in interest rates. AES has generally structured the energy payments in its power sales contracts to adjust with similar price indices as do its contracts with the fuel suppliers for the corresponding power plants. In some cases a portion of revenues is associated with operations and maintenance costs, and as such is usually indexed to adjust with inflation. AES primarily consists of businesses with long-term contracts or retail sales concessions. While this contract-based portfolio is expected to be an effective hedge against future energy and electricity market price risks, it is worth noting that a portion of AES's current and expected future revenues (particularly those related to certain portions of businesses in Kazakhstan, the UK, Argentina, Hungary and beginning in 1998, Texas) are derived from businesses without significant long-term revenue contracts. In some of these businesses, AES has taken additional steps to improve their predictability, in the Company's opinion, by using other contractual hedging provisions such as entering into fuel supply contracts that absorb a significant portion of the variability in electricity sales prices. Despite these mitigating factors, increasing reliance on non-contract ("merchant") businesses in AES's portfolio does subject the Company to potentially increasing electricity market price risk. The hedging approaches and methodologies utilized by the Company are implemented through contractual provisions with fuel suppliers, international financial institutions and several of the Company's customers. As a result, their effectiveness is dependent, in part, on each counterparty's ability to perform in accordance with the provisions of the relevant contract. The Company has sought to reduce this credit risk in part by entering into contracts, where possible, with creditworthy organizations. In certain instances, where the Company determines that additional credit support is necessary, AES will seek to execute (either concurrently or subsequently) standby, guarantee or option agreements with creditworthy third parties. In particular, AES has executed and is the beneficiary of fuel purchase option agreements, corporate and governmental guarantees to support the obligations of local fuel suppliers in several locations and sovereign governmental guarantees supporting the electricity purchase obligation of government-owned power authorities, such as in the Dominican Republic and Pakistan. AES has also used a hedging strategy in an attempt to insulate each plant's financial performance, where appropriate, against the risk of fluctuations in interest rates. Depending on whether capacity payments are fixed or vary with inflation, the Company generally attempts to hedge against interest rate fluctuations by arranging fixed-rate or variable rate financing, respectively. In certain cases, the Company executes interest rate swap and interest rate cap agreements to effectively fix or limit the interest rate on the underlying variable rate financing. At December 31, 1997 the Company and its subsidiaries had approximately $2.1 billion of fixed rate debt obligations. In addition the Company had entered into interest rate swap agreements and forward interest rate swap agreements aggregating approximately $1 billion at December 31, 1997 which the Company used to hedge its interest rate exposure on variable rate debt. Through its equity investments in foreign subsidiaries and affiliates, AES operates in jurisdictions dealing in currencies other than the Company's consolidated reporting currency, the U.S. dollar. Such investments and advances were made to fund capital investment or acquisition requirements, to provide working capital, or to provide collateral for contingent obligations. Due primarily to the long-term nature of certain investments and advances, the Company accounts for any adjustments resulting from translation as a charge or credit directly to a separate component of stockholders' equity until such time as the Company realizes such charge or credit. At that time differences may be recognized in the statement of operations as gains or losses. See the discussion under the heading Results of Operations. In addition, certain of the Company's foreign subsidiaries have entered into obligations in currencies other than their own functional currencies or the U.S. dollar. Whenever possible, these subsidiaries have attempted to limit potential foreign exchange exposure by entering into revenue contracts which adjust to changes in the foreign exchange rates. Certain foreign affiliates and subsidiaries operate in countries where the local inflation rates are greater than U.S. inflation rates. In such cases the foreign currency tends to devalue relative to the U.S. dollar over time. The Company's subsidiaries and affiliates have entered into revenue contracts which attempt to adjust for these differences; however, there can be no assurance that such adjustments will compensate for the full effect of currency devaluation, if any. At December 31, 1997 the Company and its subsidiaries had approximately $450 million in outstanding debt that was denominated in currencies other than the U.S. dollar. The table below provides information about the Company's financial instruments and derivative financial instruments that are sensitive to changes in interest rates, in particular debt obligations, Tecons, and interest rate swaps. AES does not trade in these financial instruments and derivatives and therefore has classified them as other than trading. For debt obligations and Tecons the table presents principal cash flows and related weighted average interest rates by expected maturity dates over the next five years and thereafter. For interest rate swaps, the table presents aggregate contractual notional amounts and weighted average interest rates over the next five years. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at December 31, 1997. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The instruments' actual cash flows are denominated in U.S. dollars (USD), Japanese yen (JPY), Australian dollars (AUD), Chinese renminbi yuan (CHY) and UK pounds sterling (GBP) as indicated in parentheses as of December 31, 1997.
December 31, 1997 - ----------------------------------------------------------------------------------------------------------------- FINANCIAL INSTRUMENTS THERE- FAIR By expected maturity date 1998 1999 2000 2001 2002 AFTER TOTAL VALUE - ----------------------------------------------------------------------------------------------------------------- Liabilities (USD Equivalents in millions) Long-term Debt: Fixed rate (USD) 42 31 41 51 24 1,888 2,077 2,111 Average interest rate 10.72% 11.17% 10.83% 10.45% 10.94% 9.29% Variable rate (USD) 540 986 200 158 163 469 2,516 2,516 Average interest rate 8.39% 7.73% 7.85% 7.93% 7.92% 7.46% Fixed rate (JPY) 3 6 6 6 6 27 54 51 Average interest rate 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Variable rate (JPY) 3 25 25 25 25 110 213 213 Average interest rate 3.51% 3.93% 4.08% 4.31% 4.50% 5.22% Variable rate (GBP) 0 4 8 8 12 144 176 176 Average interest rate -- 8.75% 8.64% 8.58% 8.47% 8.25% Fixed rate (AUD) 0 0 0 0 0 5 5 2 Average interest rate -- -- -- -- -- 7.65% -- Fixed rate (CHY) 2 0 0 0 0 0 2 2 Average interest rate 11.09% -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------- TOTAL 590 1,052 280 248 230 2,643 5,043 5,071 TECONS Fixed rate (USD) 0 0 0 0 0 550 550 661 Average interest rate -- -- -- -- -- 5.44% - ----------------------------------------------------------------------------------------------------------------- DERIVATIVE FINANCIAL INSTRUMENTS FAIR By aggregate notional amounts outstanding 1997 1998 1999 2000 2001 2002 VALUE - ----------------------------------------------------------------------------------------------------------------- INTEREST RATE SWAPS (USD Equivalents in millions) Variable to fixed (USD) 645 746 487 459 415 368 79 Average pay rate 8.81% 8.38% 8.30% 8.31% 8.30% 8.32% Average receive rate 5.84% 5.84% 6.00% 6.02% 6.04% 6.06% Variable to fixed (GPB) 142 0 0 0 0 0 0 Average pay rate 6.90% -- -- -- -- -- Average receive rate 7.69% -- -- -- -- -- Variable to fixed (AUD) 0 58 55 51 38 34 2 Average pay rate -- 7.38% 7.38% 7.38% 7.38% 7.38% Average receive rate -- 5.38% 5.79% 6.10% 6.22% 6.31% - ----------------------------------------------------------------------------------------------------------------- Total 787 804 542 510 453 402 81
The table below also provides information about the Company's financial instruments by functional currency and presents such information in U.S. dollar equivalents. The table summarizes information on instruments that are sensitive to foreign currency exchange rates. These instruments are debt obligations of the Company's subsidiaries which are denominated in currencies other than that subsidiary's functional currency. AES does not trade in these financial instruments and therefore has classified them as other than trading. Such functional currencies include the Argentine peso (ARS), the Pakistan rupee (PKR), the Japanese yen (JPY), the Chinese renminbi yuan (CHY) and the U.S. dollar (USD). For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates for the next five years and thereafter.
December 31, 1997 - ----------------------------------------------------------------------------------------------------------------- FINANCIAL INSTRUMENTS THERE- By expected maturity date 1998 1999 2000 2001 2002 AFTER TOTAL - ----------------------------------------------------------------------------------------------------------------- Liabilities (USD Equivalents in millions) Long-term Debt: ARS Functional Currency: Fixed Rate (USD) 29 17 17 4 0 0 67 Average interest rate 9.65% 10.88% 10.72% 10.88% -- -- Variable Rate (USD) 2 2 3 2 0 0 9 Average interest rate 10.64% 10.80% 10.82% 10.84% -- -- PKR Functional Currency: Fixed rate (USD) 2 8 8 8 8 44 78 Average interest rate 9.03% 9.03% 9.03% 9.03% 9.03% 9.31% Variable rate (USD) 3 7 7 7 7 25 56 Average interest rate 8.70% 8.86% 8.89% 8.92% 8.95% 9.17% Fixed rate (JPY) 3 6 6 6 6 27 54 Average interest rate 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% Variable rate (JPY) 3 25 25 25 25 110 213 Average interest rate 3.51% 3.93% 4.08% 4.31% 4.50% 5.22% USD Functional Currency: Fixed rate (CHY) 2 0 0 0 0 0 2 Average interest rate 11.09% -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------- Total 44 65 66 52 46 206 479
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEPENDENT AUDITORS' REPORT To the Stockholders of The AES Corporation: We have audited the accompanying consolidated balance sheets of The AES Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedules listed in the index on page S-1. These consolidated financial statements and financial statement schedules are the responsibility of The AES Corporation's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, such consolidated financial statements present fairly, in all material respects, the financial position of The AES Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Washington, DC January 28, 1998, except for Note 16, as to which date is February 10, 1998 CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) - ------------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31 1997 1996 1995 - -------------------------------------------------------------------------------------------------------- REVENUES: Sales $1,361 $ 824 $ 672 Services 50 11 7 - -------------------------------------------------------------------------------------------------------- Total revenues 1,411 835 679 OPERATING COSTS AND EXPENSES: Cost of sales 940 495 388 Cost of services 41 7 6 Selling, general and administrative expenses 45 35 32 Provision to reduce contract receivables 17 20 -- - -------------------------------------------------------------------------------------------------------- Total operating costs and expenses 1,043 557 426 - -------------------------------------------------------------------------------------------------------- OPERATING INCOME 368 278 253 OTHER INCOME AND (EXPENSE): Interest expense (244) (144) (127) Interest income 41 24 27 Foreign currency exchange loss (7) -- -- Equity in earnings of affiliates (net of income taxes) 105 35 14 - -------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES, MINORITY INTEREST, AND EXTRAORDINARY ITEM 263 193 167 INCOME TAXES 56 60 57 MINORITY INTEREST 19 8 3 - -------------------------------------------------------------------------------------------------------- INCOME BEFORE EXTRAORDINARY ITEM 188 125 107 Extraordinary item-net loss on extinguishment of debt (less applicable income taxes of $2) (3) -- -- - -------------------------------------------------------------------------------------------------------- NET INCOME $ 185 $ 125 $ 107 - -------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE: BEFORE EXTRAORDINARY ITEM $ 1.13 $ 0.83 $ 0.71 EXTRAORDINARY ITEM (0.02) -- -- - -------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE $ 1.11 $ 0.83 $ 0.71 - -------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE: BEFORE EXTRAORDINARY ITEM $ 1.11 $ 0.80 $ 0.70 EXTRAORDINARY ITEM (0.02) -- -- - -------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE $ 1.09 $ 0.80 $ 0.70 - --------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS
(in millions) - -------------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 302 $ 185 Short-term investments 127 20 Accounts receivable, net 323 95 Inventory 95 81 Asset held for sale 139 -- Receivable from affiliates 23 9 Deferred income taxes 47 65 Prepaid expenses and other current assets 134 47 - -------------------------------------------------------------------------------------- Total current assets 1,190 502 PROPERTY, PLANT AND EQUIPMENT: Land 29 30 Electric generation and distribution assets 3,809 1,898 Accumulated depreciation and amortization (373) (282) Construction in progress 684 574 - -------------------------------------------------------------------------------------- Property, plant and equipment, net 4,149 2,220 OTHER ASSETS: Deferred financing costs, net 122 47 Project development costs 87 53 Investments in and advances to affiliates 1,863 491 Debt service reserves and other deposits 236 175 Electricity sales concessions and contracts 1,179 30 Goodwill 23 22 Other assets 60 82 - -------------------------------------------------------------------------------------- Total other assets 3,570 900 - -------------------------------------------------------------------------------------- TOTAL $ 8,909 $ 3,622 - --------------------------------------------------------------------------------------
See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS
(in millions, except par values) - -------------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 205 $ 64 Accrued interest 68 25 Accrued and other liabilities 335 95 Other notes payable - current portion -- 88 Project financing debt - current portion 596 110 - -------------------------------------------------------------------------------------- Total current liabilities 1,204 382 LONG-TERM LIABILITIES: Project financing debt 3,489 1,558 Other notes payable 1,096 450 Deferred income taxes 273 243 Other long-term liabilities 291 55 - -------------------------------------------------------------------------------------- Total long-term liabilities 5,149 2,306 MINORITY INTEREST 525 213 COMMITMENTS AND CONTINGENCIES -- -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF AES 550 -- STOCKHOLDERS' EQUITY: Preferred stock (no par value; 2 million shares authorized; none issued) -- -- Common stock ($.01 par value; 500 million shares authorized; shares issued and outstanding: 1997 - 175.0 million; 1996 - 154.8 million) 2 2 Additional paid-in capital 1,030 359 Retained earnings 581 396 Cumulative foreign currency translation adjustment (131) (33) Less treasury stock at cost (1997 - .2 million shares; 1996 - .6 million shares) (1) (3) - -------------------------------------------------------------------------------------- Total stockholders' equity 1,481 721 - -------------------------------------------------------------------------------------- TOTAL $ 8,909 $ 3,622 ======================================================================================
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) For the Years Ended December 31 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $185 $125 $107 Adjustments to net income: Depreciation and amortization 114 65 55 Deferred taxes 20 26 48 Undistributed earnings of affiliates (57) (20) 3 Other 22 6 4 Changes in consolidated working capital (91) (7) (17) - ----------------------------------------------------------------------------------------------------- Net cash provided by operating activities 193 195 200 INVESTING ACTIVITIES: Property additions (511) (506) (171) Acquisitions, net of cash acquired (2,454) (148) (121) Sale of short-term investments 77 103 254 Purchase of short-term investments (184) (66) (218) Affiliate advances and equity investments (649) (430) (10) Project development costs (34) (16) (22) Debt service reserves and other assets (44) (72) (55) - ----------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,799) (1,135) (343) FINANCING ACTIVITIES: Borrowings (repayments) under the revolver (186) 163 50 Issuance of project financing debt and other coupon bearing securities 3,926 802 133 Repayments of project financing debt and other coupon bearing securities (749) (75) (63) Payments for deferred financing costs (34) (13) (3) Other liabilities (6) (3) 8 Contributions by minority interests 269 10 7 Sale (repurchase) of common stock 503 2 (5) - ----------------------------------------------------------------------------------------------------- Net cash provided by financing activities 3,723 886 127 INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 117 (54) (16) CASH AND CASH EQUIVALENTS, BEGINNING 185 239 255 - ----------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, ENDING $302 $185 $239 - ----------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES: Cash payments for interest $201 $134 $120 Cash payments for income taxes, net of refunds 31 32 6 SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Deferred purchase price of Cemig shares $528 $ -- $ -- Common stock issued for amalgamation of AES Chigen 157 -- -- Conversion of subordinated debentures to common stock -- 50 --
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The AES Corporation and its subsidiaries and affiliates, (collectively "AES" or the "Company") is a global power company primarily engaged in owning and operating electric power generation and distribution businesses in many countries around the world. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements of the Company include the accounts of AES, its subsidiaries and controlled affiliates. Investments in 50% or less owned affiliates over which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method. The accounts of AES China Generating Co. Ltd. ("Chigen") are consolidated based on its fiscal year ended November 30. Intercompany transactions and balances have been eliminated. CASH AND CASH EQUIVALENTS -- The Company considers cash on hand, deposits in banks, certificates of deposit and short-term marketable securities with an original maturity of three months or less as cash and cash equivalents. INVESTMENTS -- Securities that the Company has both the positive intent and ability to hold to maturity are classified as held- to-maturity and are carried at historical cost. Other investments that the Company does not intend to hold to maturity are classified as available-for-sale, and any significant unrealized gains or losses are recorded as a separate component of stockholders' equity. Interest and dividends on investments are reported in interest income. Gains and losses on sales of investments are recorded using the specific identification method. Short-term investments consist of investments with original maturities in excess of three months but less than one year. Debt service reserves and other deposits, which might otherwise be considered cash and cash equivalents, are treated as noncurrent assets (see Note 3). INVENTORY -- Inventory, valued at the lower of cost or market (first in, first out method), consists of coal, raw materials, spare parts, and supplies. Inventory consists of the following (in millions): - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- Coal and other raw materials $58 $57 Spare parts, materials and supplies 37 24 - -------------------------------------------------------------------------------- TOTAL $95 $81 ================================================================================ PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment, including improvements, is stated at cost. Depreciation, after consideration of salvage value, is computed using the straight-line method over the estimated composite lives of the assets, which range from 3 to 40 years. Maintenance and repairs are charged to expense as incurred. Emergency and rotable spare parts inventories are included in electric generation and distribution assets and are depreciated over the useful life of the related components. INTANGIBLE ASSETS -- Goodwill and electricity sales concessions and contracts are amortized on a straight-line basis over their estimated periods of benefit, which range from 16 to 40 years. Intangible assets at December 31, 1997 and 1996 are shown net of accumulated amortization of $13 million and $3 million, respectively. The Company reviews its goodwill and electricity sales concessions and contracts for impairment whenever events or changes in circumstances indicate that the carrying amount of such asset may not be recoverable. CONSTRUCTION IN PROGRESS -- Construction progress payments, engineering costs, insurance costs, wages, interest and other costs relating to construction in progress are capitalized. Construction in progress balances are transferred to electric generation and distribution assets when the assets are ready for their intended use. Interest capitalized during development and construction totaled $67 million, $27 million and $8 million in 1997, 1996 and 1995, respectively. DEFERRED FINANCING COSTS -- Financing costs are deferred and amortized using the straight-line method over the related financing period, which does not differ materially from the effective interest method of amortization. Deferred financing costs are shown net of accumulated amortization of $52 million and $36 million as of December 31, 1997 and 1996, respectively. PROJECT DEVELOPMENT COSTS -- The Company capitalizes the costs of developing new projects. These costs represent amounts incurred for professional services, salaries, permits, options, capitalized interest and other related direct costs. These costs are included in investments in affiliates or property when financing is obtained, or expensed at the time the Company determines that a particular project will no longer be developed. The continued capitalization is subject to on-going risks related to successful completion, including those related to political, siting, financing, construction, permitting and contract compliance. Certain reimbursable costs related to one of the projects have been classified as other assets. FOREIGN CURRENCY TRANSLATION -- Foreign subsidiaries and affiliates translate their assets and liabilities into U.S. dollars at the current exchange rates in effect at the end of the fiscal period. The gains or losses that result from this process, and gains and losses on intercompany transactions which are long-term in nature, and which the Company does not intend to repatriate, are shown in the cumulative foreign currency translation adjustment balance in the stockholders' equity section of the balance sheet. For subsidiaries operating in highly inflationary countries, the U.S. dollar is considered to be the functional currency, and transaction gains and losses are included in determining net income. Gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except those that are hedged, are included in determining net income. The revenue and expense accounts of foreign subsidiaries and affiliates are translated into U.S. dollars at the average exchange rates that prevailed during the period. REVENUE RECOGNITION AND CONCENTRATION -- Revenues from the sale of electricity and steam are recorded based upon output delivered and capacity provided at rates as specified under contract terms. Electricity distribution revenues are recognized when billed. Most of the Company's power plants rely primarily on one power sales contract with a single customer for the majority of revenues. Three customers accounted for 14%, 12%, and 10% of revenues in 1997, five customers accounted for 20%, 16%, 16%, 11% and 10% of revenues in 1996, and four customers accounted for 24%, 18%, 18% and 13% of revenues in 1995. The prolonged failure of any of these customers to fulfill contractual obligations could have a substantial negative impact on AES's revenues and profits. However, the Company does not anticipate non-performance by the customers under these contracts. HEDGING ARRANGEMENTS -- The Company enters into various derivative transactions in order to hedge its exposure to certain market risks. The Company currently has outstanding interest rate swap and cap agreements which hedge against interest rate exposure on floating rate project financing debt. The transactions, which are classified as other than trading are accounted for as a hedge, and interest is expensed or capitalized, as appropriate, using effective interest rates. Any fees or swap payments are amortized as yield adjustments. NET INCOME PER SHARE -- During 1997, the company adopted Statement of Financial Accounting Standard (SFAS) No. 128, Earnings Per Share and computed basic and diluted net income per share based on the weighted average number of shares of common stock and potential common stock outstanding during the period, after giving effect to stock splits (see Note 9). Potential common stock, for purposes of determining diluted earnings per share, includes the effects of dilutive stock options, warrants, deferred compensation arrangements and convertible securities. The effect of such potential common stock is computed using the treasury stock method or the if-converted method, as applicable. Comparative earnings per share data have been restated for prior periods. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS -- Certain reclassifications have been made to prior period amounts to conform with the 1997 presentation. 2. ACQUISITIONS In January 1997, the Company acquired an additional 2.4% interest in Light-Servicos de Electricidade S.A. ("Light"), a publicly-held Brazilian corporation that operates as the concessionaire of an integrated electric power generation, transmission and distribution system which serves Rio de Janeiro, Brazil. In June 1996, AES and three other partners participated in a consortium which acquired a 50.44% controlling interest. The additional investment in 1997 of approximately $82 million, increased AES's holdings in Light to 13.75%. The Company has the ability to exercise significant influence over the operation of Light and records the investment using the equity method. In May 1997, AES completed its amalgamation with Chigen. As a result of the amalgamation, the Company issued approximately 5 million shares of AES Common Stock in exchange for all of the outstanding Chigen Class A Common Stock. A portion of the transaction cost of approximately $29 million represents values assigned to power purchase contracts which are being amortized over the life of the related power purchase contracts, which range from 16 to 25 years. Also in May 1997, a subsidiary of the Company acquired 60% of two electric distribution companies sold as part of the Argentine government privatization program. The companies purchased were Empresa Distribudora Electrica Norte (Eden), which serves the northern part of the Buenos Aires province, and Empresa Distribudora Electrica Sur (Edes), which serves the southern part of the province. The Company, together with its partner, invested approximately $565 million to acquire a 90% ownership in each company. A portion of the acquisition costs, approximately $204 million, represents the value of the 95 year electricity sales concessions granted to Eden and Edes, and is being amortized over 40 years. In June 1997, AES, through a consortium, acquired, for approximately $1 billion, a 14.41% interest (of which AES's direct ownership during 1997 was 13.06%) in Companhia Energetica de Minas Gerais ("Cemig"), an integrated electric utility serving the State of Minas Gerais in Brazil. Cemig owns approximately 5,000 MW of generating capacity and serves approximately 4 million customers. This investment also represents approximately 33% of the voting interest in Cemig. The Company has the ability to exercise significant influence over the operation of Cemig and records the investment using the equity method. In June 1997, AES acquired the international assets of Destec Energy, Inc. for approximately $439 million. The purchase included five electric generating plants in construction or operation and a number of power projects in development. The plants acquired by AES (with ownership percentages in parenthesis) include a 110 MW gas-fired combined cycle plant in Kingston, Canada ("Kingston") (50%); a 405 MW gas-fired combined cycle plant under construction in Terneuzen, Netherlands ("Elsta") (50%); a 140 MW gas-fired simple cycle plant in Cornwall, England ("Indian Queens") (100%); a 235 MW oil-fired simple cycle plant in Santo Domingo, Dominican Republic ("Los Mina") (100%); and a 1600 MW coal-fired plant in Victoria, Australia ("Hazelwood") (20%). A portion of the acquisition cost, approximately $172 million, represents the value of various contracts which are being amortized over the respective lives of 20 years, and a $67 million liability related to the completion of construction at Elsta. The Hazelwood investment was classified as held for sale at December 31, 1997, and subsequently sold in February 1998. The Company recognized a foreign currency transaction loss of $5 million in 1997. In October 1997, a subsidiary of the Company acquired an 85% interest in two hydro-electric stations (GES) and four combined heat and power stations (TETS) in East Kazakhstan ("Altai"). Altai has a total electric capacity of 1,384 MW with an additional equivalent thermal capacity of approximately 1,000 MW. The purchase price was approximately $24 million for the 20 year GES concession and the TETS shares. Also in October 1997, AES acquired 90% of Companhia Centro-Oeste de Distribuicao de Energia Electrica, ("Sul") an electric distribution company in the state of Rio Grande do Sul, Brazil. The purchase price for this acquisition was approximately $1.4 billion. A portion of the acquisition cost, approximately $884 million, represents the value of the electricity sales concession granted to Sul, which is being amortized over the 30 year period of the concession. Sul is in the process of finalizing its severance plan, and has recorded a $34 million liability for severance costs at December 31, 1997. In March 1996, a subsidiary of the Company acquired a 98% interest in Hidrotermica San Juan, S.A., ("San Juan"), which is the owner and operator of a 78 MW power generation facility in the province of San Juan, Argentina. The facility, which sells electricity into the Argentine spot market, includes a 45 MW hydroelectric power plant and a 33 MW gas combustion plant. As a result of this acquisition, the Company acquired a hydroelectric concession valued at $17 million which is being amortized over the life of the concession of 30 years. During 1996, the Company, through a subsidiary, acquired a controlling interest in three power plants totaling 1,281 MW and a coal mine through the purchase of a 94% share of Tisza Eromu Rt. ("Tisza"), an electricity generation company in Hungary, for a total purchase price of $127 million. In August 1996, a subsidiary of the Company acquired a majority controlling interest in a 4,000 MW coal-fired facility in Kazakhstan ("Ekibastuz"), for approximately $3 million. Beginning in August 1996 and continuing through 1997, AES has recorded a provision of $28 million associated with aggregate outstanding receivables (excluding VAT) of $54 million at December 31, 1997 related to the operations of Ekibastuz. Approximately $35 million of the aggregate balance (excluding VAT), before considering the provision, is due from a government-owned distribution company. There can be no assurance of the ultimate collectibility of these amounts owed to Ekibastuz, or as a result, the recoverability of the related net assets (totaling $57 million at December 31, 1997) or additional amounts the Company may invest. These acquisitions were accounted for as purchases. The purchase price allocations for Eden, Edes, Cemig, Los Mina, Indian Queens, Elsta, Kingston, Altai and Sul have been completed on a preliminary basis, subject to adjustments resulting from new or additional facts that may come to light when the engineering, environmental, and legal analyses are completed during the respective allocation periods. The accompanying financial statements include the operating results of Eden and Edes from May 1997, equity in earnings of Cemig from June 1997, the operating results of Los Mina and Indian Queens from June 1997, equity in earnings of Kingston from June 1997, the operating results of Sul and Altai from October 1997, the operating results of Tisza and Ekibastuz from August 1996, and equity in earnings of Light from June 1996. The following table presents supplemental unaudited proforma operating results as if all of the acquisitions had occurred at the beginning of 1996 (in millions, except per share amounts): - -------------------------------------------------------------------------------- For the Years Ended December 31 1997 1996 - -------------------------------------------------------------------------------- Revenues $ 1,918 $2,195 Net income before extraordinary item 136 50 Net income after extraordinary item 133 50 Basic earnings per share $ 0.76 $ 0.29 Diluted earnings per share $ 0.75 $ 0.28 - -------------------------------------------------------------------------------- The proforma results are based upon assumptions and estimates which the Company believes are reasonable. The proforma results do not purport to be indicative of the results that actually would have been obtained had the acquisitions occurred on January 1, 1996, nor are they intended to be a projection of future results. 3. INVESTMENTS At December 31, 1997 and 1996, the Company's investments were classified as either held-to-maturity or available-for-sale. The amortized cost and estimated fair value of the investments at December 31, 1997 and 1996 classified as held-to-maturity and available-for-sale were approximately the same. The short-term investments and debt service reserves and other deposits were invested as follows (in millions): - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- RESTRICTED CASH AND CASH EQUIVALENTS(1) $ 130 $ 104 - -------------------------------------------------------------------------------- HELD-TO-MATURITY U.S. treasury and government agency securities 37 1 Foreign certificates of deposit 95 -- Commercial paper 66 39 - -------------------------------------------------------------------------------- Subtotal 198 40 - -------------------------------------------------------------------------------- AVAILABLE-FOR-SALE U.S. treasury and government agency securities 15 43 Certificates of deposit 2 3 Commercial paper 15 5 Floating rate notes 3 -- - -------------------------------------------------------------------------------- Subtotal 35 51 - -------------------------------------------------------------------------------- TOTAL $ 363 $ 195 ================================================================================ (1) amounts required to be maintained in cash in accordance with certain covenants of various project financing agreements. Short-term investments classified as held-to-maturity and available-for-sale were $111 and $16 million, respectively, at December 31, 1997 and $9 million and $11 million, respectively at December 31, 1996. 4. INVESTMENTS IN AND ADVANCES TO AFFILIATES The following table presents summarized financial information (in millions) for equity method affiliates on a combined 100% basis. Amounts presented for 1997 include the accounts of NIGEN, Ltd. ("NIGEN") (47% owned UK affiliate), Medway Power Ltd. ("Medway") (25% owned UK affiliate), Light (13.75% owned Brazilian affiliate), Chigen's affiliates, Kingston (50% owned Canadian affiliate), Elsta (50% owned Netherlands affiliate), and Cemig (13.06% owned Brazilian affiliate). Amounts presented for 1996 include the accounts of NIGEN, Medway, Light, and Chigen's affiliates, and amounts presented for 1995 include the accounts of NIGEN and Medway. - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Sales $ 3,991 $ 1,959 $ 276 Operating income 984 497 86 Net income 670 383 49 Current assets 1,698 889 171 Noncurrent assets 14,800 4,914 949 Current liabilities 1,809 863 70 Noncurrent liabilities 4,752 2,108 973 Stockholders' equity 9,937 2,832 77 - -------------------------------------------------------------------------------- The Company's share of undistributed earnings of affiliates included in consolidated retained earnings was $89 million and $33 million at December 31, 1997 and 1996, respectively. The Company charged and recognized construction revenues, management fees and interest on advances to its affiliates which aggregated $42 million, $9 million and $8 million for each of the years ended December 31, 1997, 1996 and 1995, respectively. 5. DEBT PROJECT FINANCING DEBT -- Project financing debt at December 31, 1997 and 1996 consisted of the following (in millions):
- --------------------------------------------------------------------------------------- Interest Final Rate(1) Maturity 1997 1996 - --------------------------------------------------------------------------------------- SENIOR DEBT - VARIABLE RATE Notes payable to banks 7.9% 2013 1,830 $ 230 Commercial paper (see below) 7.2% 2007 598 631 Debt to (or guaranteed by) multilateral or export credit agencies 6.4% 2010 429 368 SENIOR DEBT - FIXED RATE Notes payable to banks 10.0% 2009 623 84 Capital leases 8.1% 2016 143 105 Tax-exempt bonds 7.4% 2019 74 74 Chigen bonds 10.1% 2006 180 -- Debt to (or guaranteed by) multilateral & export credit agencies 6.5% 2008 133 110 SUBORDINATED DEBT - VARIABLE AND FIXED RATE 13.0% 2010 75 66 - --------------------------------------------------------------------------------------- SUBTOTAL 4,085 1,668 Less current maturities (596) (110) - --------------------------------------------------------------------------------------- TOTAL $3,489 $ 1,558 =======================================================================================
(1) weighted average interest rate at December 31, 1997 Project financing debt borrowings are primarily collateralized by the capital stock of the relevant subsidiary and in certain cases, the physical assets of and all significant agreements associated with such business. The Company has interest rate swap and forward interest rate swap agreements in an aggregate notional principal amount of $1,031 million at December 31, 1997. The swap agreements effectively change the interest rate on the portion of the debt covered by the notional amounts to a weighted average fixed rate ranging from approximately 7.4% to 12.1%. The agreements expire at various dates from 1999 through 2014. In the event of nonperformance by the counterparties, the subsidiaries may be exposed to increased interest rates; however, the Company does not anticipate nonperformance by the counterparties, which are multinational financial institutions. At December 31, 1997, subsidiaries of the Company have interest rate cap and forward interest rate cap agreements at various rates with remaining terms ranging from two to six years in an aggregate notional amount of $418 million. Shady Point and Hawaii have issued commercial paper supported by irrevocable letters of credit issued by multinational financial institutions. In the event of nonperformance or credit deterioration of these institutions, the Company may be exposed to the risk of higher effective interest rates. The Company does not believe that such nonperformance or credit deterioration is likely. OTHER NOTES PAYABLE -- Other notes payable at December 31, 1997 and 1996 consisted of the following (in millions):
- --------------------------------------------------------------------------------------------------- INTEREST FINAL FIRST CALL RATE(1) MATURITY DATE 1997 1996 - --------------------------------------------------------------------------------------------------- Corporate revolving bank loan(2) 7.50% 2000 -- $ 27 $ 213 Senior subordinated notes 9.75% 2000 1997 -- 75 Senior subordinated notes 10.25% 2006 2001 250 250 Senior subordinated notes 8.38% 2007 2002 325 -- Senior subordinated notes 8.50% 2007 2002 375 -- Senior subordinated notes 8.88% 2027 2004 125 -- Unamortized discounts (6) -- - --------------------------------------------------------------------------------------------------- SUBTOTAL 1,096 538 Less current maturities -- (88) - --------------------------------------------------------------------------------------------------- TOTAL $1,096 $ 450 ===================================================================================================
(1) weighted average interest rate at December 31, 1997. (2) floating rate loan Under the terms of the $600 million corporate revolving bank loan and letter of credit facility ("Revolver"), the Company must reduce its direct borrowings to $225 million for 30 consecutive days annually to obtain additional loans. Commitment fees on the unused portion at December 31, 1997 are .38% per annum, and as of that date $393 million was available. The Company's senior subordinated notes are general unsecured obligations of the Company. The Company's 9.75% senior subordinated notes due 2000 were refinanced in August 1997. As a result, the Company recorded an extraordinary loss of $3 million, net of tax. FUTURE MATURITIES OF DEBT -- Scheduled maturities of total debt at December 31, 1997 are (in millions): 1998 $ 596 1999 1,058 2000 286 2001 255 2002 237 Thereafter 2,749 - -------------------------------------------------------------------------------- Total $ 5,181 ================================================================================ COVENANTS--The terms of the Company's Revolver, senior subordinated notes and project financing debt agreements contain certain covenants. The covenants provide for, among other items, maintenance of certain reserves, and require that minimum levels of working capital, net worth and certain financial ratio tests are met. The most restrictive of these covenants include limitations on incurring additional debt and on the payment of dividends to shareholders. The project financing debt limitations of AES's subsidiaries permit the payment of dividends to the parent company out of current cash flow for quarterly, semi-annual or annual periods only at the end of such periods and only after payment of principal and interest on project loans due at the end of such periods. As of December 31, 1997, approximately $68 million was available under project loan documents for distribution by U.S. subsidiaries. 6. COMMITMENTS AND CONTINGENCIES As of December 31, 1997, the Company and its consolidated subsidiaries were obligated under long-term non-cancelable operating leases, primarily for office rental and site leases. Rental expense for operating leases was $9 million, $4 million and $3 million in the years ended 1997, 1996 and 1995, respectively. The future minimum lease commitments under these leases are $10 million for 1998, $7 million for 1999, $3 million for each year 2000 through 2001, $2 million for 2002, and a total of $64 million for the years thereafter. A subsidiary of the Company has entered into a "take-or-pay" contract for the purchase of electricity with a term of five years. Purchases in 1997 were approximately $1 million. The future commitment under this contract is $7 million for each year 1998 through 2002. Operating subsidiaries of the Company enter into various long-term contracts for the purchase of fuel subject to termination only in certain limited circumstances. These contracts have remaining terms of 1 to 29 years. On November 24, 1997 the Company announced that it had won a bid to acquire three natural gas-fired electric generating stations from Southern California Edison for approximately $781 million. The Company anticipates completion of the acquisition in 1998. It is expected that a significant portion of the acquisition price will be raised from proceeds through a project financing debt arrangement. However, both the acquisition and the financing are contingent upon certain conditions precedent. GUARANTEES -- In connection with certain of its project financing, acquisition and power purchase agreements, AES has expressly undertaken limited obligations and commitments, most of which will only be effective or will be terminated upon the occurrence of future events. In addition, the Company has undertaken commitments to fund its equity in projects currently under development and construction. These obligations and commitments, excluding those collateralized by letter of credit obligations discussed below, were limited as of December 31, 1997, by the terms of the agreements, to an aggregate of approximately $221 million. The Company is also obligated under other commitments which are limited to amounts, or percentages of amounts, received by AES as distributions from its project subsidiaries. These amounts aggregated $33 million as of December 31, 1997. Certain of the Company's subsidiaries have obligations to fund equity and loans in their projects. At December 31, 1997 such commitments to invest amounted to approximately $129 million. LETTERS OF CREDIT -- At December 31, 1997 and 1996, the Company had $180 million and $123 million, respectively, of letters of credit outstanding under its credit facility which operate to guarantee performance relating to certain project development activities and subsidiary operations. The Company pays a letter of credit fee of 1.50% on the outstanding amounts. LITIGATION -- The Company is involved in certain legal proceedings in the normal course of business. It is the opinion of the Company that none of the pending litigation will have a material adverse effect on its results of operations, financial position, or cash flows. 7. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS During 1997, two wholly-owned special purpose business trusts (individually, "AES Trust I" and "AES Trust II" and collectively, the "Trusts") issued Term Convertible Securities ("Tecons"). On March 31, AES Trust I issued 5 million of $2.6875 Tecons (liquidation value $50) for total proceeds of $250 million and concurrently purchased $250 million of 5.375% junior subordinated convertible debentures due 2027 of AES (individually the "5.375% Debentures"). On October 29, AES Trust II issued 6 million of $2.75 Tecons (liquidation value $50) for total proceeds of $300 million and concurrently purchased $300 million of 5.5% junior subordinated convertible due 2012 of AES (individually the "5.5% Debentures" and collectively with the 5.375% Debentures the "Junior Debentures"). The sole assets of AES Trust I are the 5.375% Debentures and the sole assets of AES Trust II are the 5.5% Debentures. The obligations of the Trusts, as provided under the terms of the Tecons, are fully and unconditionally guaranteed by AES. Dividends on the Tecons are payable quarterly at an annual rate of 5.375% by AES Trust I and 5.5% for AES Trust II. The Trusts are each permitted to defer payment of dividends for up to 20 consecutive quarters, provided that AES has exercised its right to defer interest payments under the corresponding Junior Debentures. During such deferral periods, dividends on the Tecons will accumulate quarterly and accrue interest and AES may not declare or pay dividends on its common stock. The Tecons are convertible into the common stock of AES at each holder's option prior to March 31, 2027 for AES Trust I and September 30, 2012 for AES Trust II at the rate of 1.3812 and .8914 shares, respectively, representing a conversion price equivalent to $36.20 and $56.09 per share respectively. AES, at its option, can redeem the 5.375% Debentures after March 31, 2000 which would result in the required redemption of the Tecons issued by AES Trust I, for $51.68 per Tecon, reduced annually by $0.336 to a minimum of $50 per Tecon and can redeem the 5.5% Debentures after September 30, 2000 which would result in the required redemption of the Tecons issued by AES Trust II, for $51.72 per Tecon, reduced annually by $0.344 to a minimum of $50 per Tecon. Interest expense for the year ended December 31, 1997 includes $10 million and $3 million related to the dividends accrued on the Tecons of AES Trust I and AES Trust II, respectively. 8. STOCKHOLDERS' EQUITY
(in millions) - --------------------------------------------------------------------------------------------------------- 1997 1996 1995 - --------------------------------------------------------------------------------------------------------- COMMON STOCK Balance at January 1 and December 31 $ 2 $ 2 $ 2 ======================================================================================================= ADDITIONAL PAID-IN CAPITAL Balance at January 1 $ 359 $ 292 $ 239 Issuance of common stock 494 -- -- Issuance of common stock pursuant to Chigen amalgamation 157 -- -- Issuance of common stock under benefit plans and exercise of stock options 12 3 2 Tax benefit associated with the exercise of options 8 15 -- Issuance of common stock on conversion of 6.5% subordinated debentures, net ($13.08 per share) -- 49 -- Chigen Class A redeemable common stock -- -- 51 - ------------------------------------------------------------------------------------------------------- Balance at December 31 $ 1,030 $ 359 $ 292 ======================================================================================================= RETAINED EARNINGS Balance at January 1 $ 396 $ 271 $ 164 Net income for the year 185 125 107 - ------------------------------------------------------------------------------------------------------- Balance at December 31 $ 581 $ 396 $ 271 ======================================================================================================= CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT Balance at December 31 $ (131) $ (33) $ (10) ======================================================================================================= TREASURY STOCK Balance at December 31 $ (1) $ (3) $ (6) - -------------------------------------------------------------------------------------------------------
STOCK SPLIT AND STOCK DIVIDEND -- On July 15, 1997 the Board of Directors authorized a two-for-one split, effected in the form of a stock dividend, payable to stockholders of record on August 28, 1997. Accordingly, all outstanding share, per share and stock option data in all periods presented have been restated to reflect the split. STOCK CONVERSION -- On July 30, 1996, the Company exercised its right to redeem the 6.5% debentures at a redemption price equal to approximately 104% of the principal amount of the debentures, together with accrued interest through the date of redemption. As a result, $49 million of the debentures, net of conversion costs, were converted into 3.8 million shares of common stock of the Company at a conversion price of $13.08 per share. STOCK OPTIONS AND WARRANTS -- The Company has granted options to purchase shares of common stock under its stock option plans. Under the terms of the plans, the Company may issue options to purchase shares of the Company's common stock at a price equal to 100% of the market price at the date the option is granted. The options become eligible for exercise under various schedules. At December 31, 1997, there were approximately 4.5 million shares reserved for future grants under the plans. A summary of the option activity follows (in thousands of shares):
- ------------------------------------------------------------------------------------------------------------------- December 31 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE - ------------------------------------------------------------------------------------------------------------------- Outstanding - beginning of year 8,020 $ 9.30 8,126 $ 7.28 7,080 $ 6.04 Exercised during the year (941) 7.78 (960) 5.35 (710) 1.76 Forfeitures during the year (58) 11.23 (432) 10.28 (114) 9.18 Granted during the year 949 35.62 1,286 19.39 1,870 10.02 Conversion of Chigen options 876 19.67 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------- Outstanding - end of year 8,846 $13.20 8,020 $ 9.30 8,126 $ 7.28 ================================================================================================================== Eligible for exercise - end of year 6,163 $ 9.37 4,264 $ 6.43 2,418 $ 4.52 ==================================================================================================================
The following table summarizes information about stock options outstanding at December 31, 1997 (in thousands of shares) :
- ---------------------------------------------------------------------------------------------------- OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE WEIGHTED- WEIGHTED- RANGE OF TOTAL REMAINING LIFE AVERAGE TOTAL AVERAGE EXERCISE PRICES OUTSTANDING (IN YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ---------------------------------------------------------------------------------------------------- $ .78 to $3.24 1,718 2.6 $ 2.75 1,718 $ 2.75 $ 5.83 to $9.88 2,159 6.0 8.84 1,503 8.61 $ 10.00 to $14.44 2,369 7.3 10.50 2,060 10.43 $ 14.66 to $22.85 1,611 8.3 20.25 795 20.39 $ 23.00 to $42.00 989 9.3 35.91 87 27.59 - ---------------------------------------------------------------------------------------------------- Total 8,846 $13.20 6,163 $ 9.37 - ----------------------------------------------------------------------------------------------------
The Company accounts for its stock-based compensation plans under APB No. 25, and adopted SFAS No. 123 for disclosure purposes in 1996. No compensation expense has been recognized in connection with the options, as all options have been granted only to AES people, including Directors, with an exercise price equal to the market price of the Company's common stock on the date of grant. For SFAS No. 123 disclosure purposes, the weighted average fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 5.9%, 6.5% and 5.5% and expected volatility of 37%, 28% and 24% for the years ended December 31, 1997, 1996 and 1995, respectively, a dividend payout rate of zero for each year and an expected option life of 7 years. Using these assumptions, the weighted average fair value of each stock option granted was $17.86, $8.81 and $4.09, for the years ended December 31, 1997, 1996 and 1995, respectively. In calculating the fair value, there were no adjustments made to account for vesting provisions or for non-transferability or risk of forfeiture. Had compensation expense been determined under the provisions of SFAS No. 123, utilizing the assumptions detailed above, the Company's net income and earnings per share for the years ended December 31, 1997, 1996 and 1995 would have been reduced to the following pro forma amounts (in millions): - -------------------------------------------------------------------------------- For the Years Ended December 31 1997 1996 1995 - -------------------------------------------------------------------------------- NET INCOME: As reported $ 185 $ 125 $ 107 Pro forma 168 121 106 BASIC EARNINGS PER SHARE: As reported $1.11 $0.83 $0.71 Pro forma 1.01 0.80 0.71 DILUTED EARNINGS PER SHARE: As reported $1.09 $0.80 $0.70 Pro forma 1.00 0.78 0.69 ================================================================================ The disclosures of such amounts and assumptions are not intended to forecast any possible future appreciation of the Company's stock price or change in dividend policy. In addition to the options described above, the Company has outstanding warrants to purchase up to 1.3 million shares of its common stock at $14.72 per share through July 2000, which were issued as partial settlement of a shareholder class action suit and were expensed in 1995. Warrants exercised under this settlement were not significant during December 1997 or 1996. AES CHINA GENERATING CO. LTD. -- In May 1997, the Company acquired all of the outstanding Class A shares of Chigen by amalgamating Chigen with a wholly-owned subsidiary of the Company. As a result of this transaction, the Company issued approximately 5 million shares of its common stock. As part of the amalgamation, the Company also converted the outstanding options of the Chigen stock option plan to AES stock options at the ratio of .29 to 1. 9. EARNINGS PER SHARE The following table presents a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income before extraordinary item. In the table below Income represents the numerator (in millions) and Shares represent the denominator (in thousands):
- ---------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- $ PER $ PER $ PER INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE - ---------------------------------------------------------------------------------------------------------------- BASIC EPS Income before extraordinary item available to common stockholders $188 166.6 $1.13 $125 151.5 $0.83 $107 149.9 $0.71 EFFECT OF DILUTIVE SECURITIES Stock Options and Warrants -- 4.4 -- 2.7 -- 1.5 Stock units allocated to deferred compensation plans -- 0.5 -- 0.5 -- 0.5 Tecons and other convertible debt, net of tax 10 6.3 1 2.5 2 3.8 - ---------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE Income before extraordinary item available to common stockholders assuming conversion $198 177.8 $1.11 $126 157.2 $0.80 $109 155.7 $0.70 ================================================================================================================
10. INCOME TAXES INCOME TAX PROVISION -- The provision for income taxes consists of the following (in millions): - -------------------------------------------------------------------------------- For the Years Ended December 31 1997 1996 1995 - -------------------------------------------------------------------------------- Federal Current $ 7 $ 19 $ 4 Deferred 22 27 47 State Current 19 12 5 Deferred (6) (2) 1 Foreign Current 10 3 -- Deferred 4 1 -- - -------------------------------------------------------------------------------- Total $ 56 $ 60 $ 57 ================================================================================ EFFECTIVE AND STATUTORY RATE RECONCILIATION -- A reconciliation of the U.S. statutory Federal income tax rate to the Company's effective tax rate as a percentage of income before taxes (excluding earnings and taxes from affiliates accounted for on the equity method, and minority interests) is as follows: - -------------------------------------------------------------------------------- For the Years Ended December 31 1997 1996 1995 - -------------------------------------------------------------------------------- Statutory Federal tax rate 35% 35% 35% Change in valuation allowance (2) (2) (6) State taxes, net of Federal tax benefit 5 6 6 Taxes on foreign earnings 3 2 -- Other - net (1) (1) 3 - -------------------------------------------------------------------------------- Effective tax rate 40% 40% 38% ================================================================================ DEFERRED INCOME TAXES -- Deferred income taxes relate principally to accelerated depreciation methods used for tax purposes and certain other expenses which are deducted for income tax purposes, but not for financial reporting purposes. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered. Deferred tax assets and deferred tax liabilities are as follows (in millions): - -------------------------------------------------------------------------------- For the Years Ended December 31 1997 1996 - -------------------------------------------------------------------------------- Differences between book and tax basis of property and total deferred tax liability $ 476 $ 379 - -------------------------------------------------------------------------------- Operating loss carryforwards (75) (124) Bad debt and other book provisions (47) -- Retirement costs (31) -- Tax credit carryforwards (104) (97) Other deductible temporary differences (24) (13) - -------------------------------------------------------------------------------- Total gross deferred tax asset (281) (234) Less: valuation allowance 31 33 - -------------------------------------------------------------------------------- Total net deferred tax asset (250) (201) - -------------------------------------------------------------------------------- Net deferred tax liability $ 226 $ 178 ================================================================================ As of December 31, 1997, the Company had Federal net operating loss carryforwards for tax purposes of approximately $159 million expiring from 2007 through 2009, Federal investment tax credit carryforwards for tax purposes of approximately $51 million expiring in years 2001 through 2006, and Federal alternative minimum tax credits of approximately $42 million which carry forward without expiration. The valuation allowance decreased during the current year by approximately $2 million to $31 million at December 31, 1997. This decrease resulted primarily from the utilization of foreign net operating loss carryforwards, offset in part by a partial valuation allowance for the provision to reduce contract receivables. The $31 million valuation allowance at December 31, 1997 relates primarily to U.S. state and foreign operating losses, and foreign deferred tax assets, the ultimate realization of which is uncertain. The Company believes that it is more likely than not that the remaining deferred tax assets will be realized. The valuation allowance increased during 1996 by approximately $24 million to $33 million at December 31, 1996. This increase resulted primarily from the acquisition of foreign entities with certain pre-existing deferred tax assets, the ultimate realization of which is uncertain. The valuation allowance for these pre-existing deferred tax assets was recorded as acquisition adjustments and had no effect on the current year income tax expense. The $33 million valuation allowance at December 31, 1996 relates primarily to U.S. state and foreign tax credits, U.S. state operating losses, and foreign deferred tax assets, the ultimate realization of which is uncertain. Undistributed earnings of certain foreign affiliates aggregated $129 million on December 31, 1997. The Company considers these earnings to be indefinitely reinvested outside of the U.S. and, accordingly, no U.S. deferred taxes have been recorded with respect to the earnings. Should the earnings be remitted as dividends, the Company may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings. A deferred tax asset of $14 million has been recorded as of December 31, 1997 for the cumulative effects of certain foreign currency translations. 11. PROFIT SHARING AND DEFERRED COMPENSATION PLANS PROFIT SHARING AND STOCK OWNERSHIP PLAN -- The Company sponsors two profit sharing and stock ownership plans, qualified under section 401 of the Internal Revenue Code, which are available to eligible AES people. The plans provide for Company matching contributions, other Company contributions at the discretion of the Compensation Committee of the Board of Directors, and discretionary tax deferred contributions from the participants. Participants are fully vested in their own contributions and the Company's matching contributions. Participants vest in other Company contributions over a five-year period. Company contributions to the plan were approximately $5 million for the year ended December 31, 1997 and $4 million for both of the years ended December 31, 1996 and 1995. DEFERRED COMPENSATION PLANS -- The Company sponsors a deferred compensation plan under which directors of the Company may elect to have a portion or all of their compensation deferred. The amounts allocated to each participant's deferred compensation account may be converted into common stock units. Upon termination or death of a participant, the Company is required to distribute, under various methods, cash or the number of shares of common stock accumulated within the participant's deferred compensation account. Distribution of stock is to be made from common stock held in treasury or from authorized but previously unissued shares. The plan terminates and full distribution is required to be made to all participants upon any change of control of the Company (as defined). In addition, the Company sponsors an executive officers' deferred compensation plan. At the election of an executive officer, the Company will establish an unfunded, non-qualified compensation arrangement for each officer who chooses to terminate participation in the Company's profit sharing and employee stock ownership plan. The participant may elect to forego payment of any portion of his or her compensation and have an equal amount allocated to a contribution account. In addition, the Company will credit the participant's account with an amount equal to the Company's contributions (both matching and profit sharing) that would have been made on such officer's behalf if he or she had been a participant in the profit sharing plan. The participant may elect to have all or a portion of the Company's contribution converted into stock units. Dividends paid on common stock are allocated to the participant's account in the form of stock units. The participant's account balances are distributable upon termination of employment or death. During 1995, the Company adopted a supplemental retirement plan covering certain highly-compensated AES people. The plan provides incremental profit sharing and matching contributions to participants that would have been paid to their accounts in the Company's profit sharing plan if it were not for limitations imposed by income tax regulations. All contributions to the plan are vested in the manner provided in the Company's profit sharing plan, and once vested are nonforfeitable. The participant's account balances are distributable upon termination of employment or death. DEFINED BENEFIT PLAN -- The Company's subsidiary, Sul, has a contributory defined benefit pension plan covering substantially all of its employees. Pension benefits are based on years of credited service, age of the participant and average earnings. Plan assets are comprised of Brazilian government securities and bonds, stocks of publicly-traded Brazilian companies and real estate holdings. Net pension expense for the two months ended December 31, 1997 (subsequent to the date of acquisition) includes the following components (in millions): - -------------------------------------------------------------------------------- 1997 - -------------------------------------------------------------------------------- Benefit cost for service $ .3 Interest cost on projected benefit obligation .1 Actual return on plan assets .3 Net amortization and deferral .1 - -------------------------------------------------------------------------------- Net pension expense $ .8 ================================================================================ The amounts included in the consolidated balance sheet were based on the funded status of the plan at December 31, 1997 and are as follows (in millions): - -------------------------------------------------------------------------------- December 31 1997 - -------------------------------------------------------------------------------- ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS Vested benefit obligation $ (31) Nonvested benefit obligation (26) - -------------------------------------------------------------------------------- Accumulated benefit obligation (57) Additional amounts related to assumed pay increases (15) - -------------------------------------------------------------------------------- Projected benefit obligation (72) Plan assets at fair value 31 - -------------------------------------------------------------------------------- Benefit obligations in excess of plan assets (41) Unamortized net obligations at date of adoption (3) - -------------------------------------------------------------------------------- Pension liability recognized in the consolidated balance sheet $ (44) ================================================================================ Significant assumptions used in the calculation of pension expense and obligation are as follows: - -------------------------------------------------------------------------------- 1997 - -------------------------------------------------------------------------------- Discount rate 6% Rate of compensation increase 2% Long-term rate of return on plan 6% - -------------------------------------------------------------------------------- The Company is not obligated under any post-retirement benefit plans other than the profit sharing, deferred compensation plans, and defined benefit plan described in this Note. 12. QUARTERLY DATA (UNAUDITED)
The following table summarizes the unaudited quarterly statements of operations (in millions, except per share amounts): - ------------------------------------------------------------------------------------------------------- Quarters ended 1997 MAR 31 JUN 30 SEP 30 DEC 31 - ------------------------------------------------------------------------------------------------------- Sales and services $ 261 $261 $358 $531 Gross margin 94 98 112 126 Net income before extraordinary item 40 42 50 56 Extraordinary item -- -- (3) -- Net income 40 42 47 56 Basic earnings per share: Before extraordinary item $0.26 $0.26 $0.29 $0.32 Extraordinary item -- -- (0.02) -- Basic earnings per share $0.26 $0.26 $0.27 $0.32 Diluted earnings per share: Before extraordinary item $0.25 $0.25 $0.28 $0.32 Extraordinary item -- -- (0.02) -- Diluted earnings per share $0.25 $0.25 $0.26 $0.32 - ------------------------------------------------------------------------------------------------------- Quarters ended 1996 MAR 31 JUN 30 SEP 30 DEC 31 - ------------------------------------------------------------------------------------------------------- Sales and services $ 172 $174 $205 $284 Gross margin 74 76 85 98 Net income 29 28 32 36 Basic earnings per share $0.19 $0.19 $0.21 $0.23 Diluted earnings per share 0.19 0.18 0.21 0.23 - -------------------------------------------------------------------------------------------------------
13. GEOGRAPHIC SEGMENTS Information about the Company's operations in different geographic areas is as follows (in millions): - -------------------------------------------------------------------------------- For the Years Ended December 31 1997 1996 1995 - -------------------------------------------------------------------------------- REVENUES North America $ 577 $ 554 $ 542 South America/Central America 423 146 131 Asia 148 45 1 Europe 263 90 5 - -------------------------------------------------------------------------------- Total $ 1,411 $ 835 $ 679 ================================================================================ For the Years Ended December 31 1997 1996 1995 - -------------------------------------------------------------------------------- OPERATING INCOME North America $ 261 $ 258 $ 251 South America/Central America 64 21 14 Asia 15 (9) (8) Europe 28 8 (4) - -------------------------------------------------------------------------------- Total $ 368 $ 278 $ 253 ================================================================================ For the Years Ended December 31 1997 1996 1995 - -------------------------------------------------------------------------------- EQUITY IN EARNINGS (NET OF INCOME TAXES) North America $ -- $ -- $ -- South America/Central America 88 21 -- Asia 2 1 -- Europe 15 13 14 - -------------------------------------------------------------------------------- Total $ 105 $ 35 $ 14 ================================================================================ December 31 1997 1996 1995 - -------------------------------------------------------------------------------- IDENTIFIABLE ASSETS North America $ 1,914 $ 1,831 $1,693 South America/Central America 4,712 683 230 Asia 1,571 744 328 Europe 712 364 90 - -------------------------------------------------------------------------------- Total $ 8,909 $ 3,622 $2,341 ================================================================================ 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's assets and liabilities have been determined using available market information. The estimates are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The fair value of current financial assets, current liabilities, debt service reserves and other deposits, and other assets are estimated to be equal to their reported carrying amounts. The fair value of project financing debt is estimated differently based upon the type of loan. For variable rate loans, carrying value approximates fair value. For fixed rate loans, the fair value is estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates, or by the estimated discount rate a prospective seller would pay to a credit-worthy third party to assume the obligations. The carrying value and fair value of the Placerita and Indian Queens capital leases have been excluded from this disclosure. The fair value of swap agreements is the estimated net amount that the Company would pay to terminate the agreements at the balance sheet date. The estimated fair values of the senior subordinated notes and Tecons are based on quoted market prices. The estimated fair values of the Company's financial instruments at December 31, 1997 and 1996 are as follows (in millions): - -------------------------------------------------------------------------------- December 31 1997 1996 - -------------------------------------------------------------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE - -------------------------------------------------------------------------------- Project financing debt $3,942 $3,953 $1,562 $1,562 Other notes payable 1,096 1,116 538 560 Tecons 550 661 -- -- Interest rate swaps -- 81 -- 68 - -------------------------------------------------------------------------------- The fair value estimates presented herein are based on pertinent information available as of December 31, 1997 and 1996. The Company is not aware of any factors that would significantly affect the estimated fair value amounts since that date. 15. NEW ACCOUNTING PRONOUNCEMENTS In 1998, the Company will be required to adopt the provisions of SFAS No. 130, Reporting Comprehensive Income and No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company will report comprehensive income in a separate statement which will show the effects of the foreign currency translation loss as a component of comprehensive income. The Company believes its segment disclosures under SFAS 131 will be materially consistent with those currently presented. 16. SUBSEQUENT EVENTS In January 1998 the Company, pursuant to an option agreement with one of its partners in Cemig, sold approximately 28% of its 13.06% ownership interest in Cemig for $115 million, approximating its carrying value. As a result of the sale, the Company's ownership percentage decreased to approximately 10%. The Company continues to exert significant influence, as its voting interests remain unchanged. On February 10, 1998, the Company sold its investment in Hazelwood for approximately $139 million, which approximated its carrying value as an asset held for sale at December 31, 1997. The Company used the proceeds of these sales to repay a portion of the project financing debt classified as a current liability at December 31, 1997. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. See the information with respect to the ages of the Registrant's directors in the table on page 4 and the information contained under the caption "Election of Directors" on pages 1 through 3 inclusive, of the Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held on April 21, 1998, which information is incorporated herein by reference. See also the information with respect to executive officers of the Registrant under the caption entitled "Executive Officers and Significant Employees of the Registrant" in Item 1 of Part I hereof, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. See the information contained under the captions "Compensation of Executive Officers" on pages 10 through 12 inclusive and "Compensation of Directors" on page 5, of the Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held on April 21, 1998, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS. (a) Security Ownership of Certain Beneficial Owners. See the information contained under the caption "Security Ownership of Certain Beneficial Owners, Directors, and Executive Officers" on page 4 of the Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held on April 21, 1998, which information is incorporated herein by reference. (b) Security Ownership of Directors and Executive Officers. See the information contained under the caption "Security Ownership of Certain Beneficial Owners, Directors, and Executive Officers" on page 4 of the Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held on April 21, 1998, which information is incorporated herein by reference. (c) Changes in Control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. See the information for Mr. Thomas I. Unterberg, a director of the Registrant, contained under the caption "Election of Directors" on page 2 of the Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be held on April 21, 1998, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements, Financial Statement Schedules and Exhibits. (1) Financial Statements (all financial statements listed below are of the Company and its consolidated subsidiaries). - Independent Auditors' Report is contained in the section entitled "Financial Statements and Supplementary Data" at Item 8 hereof. - Consolidated Balance Sheets at December 31, 1996 and 1997 are contained in the section entitled "Financial Statements and Supplementary Data" at Item 8 hereof. - Consolidated Statements of Operations -- For the Years Ended December 31, 1995, 1996 and 1997 are contained in the section entitled "Financial Statements and Supplementary Data" at Item 8 hereof. - Consolidated Statements of Cash Flows -- For the Years Ended December 31, 1995, 1996 and 1997 are contained in the section entitled "Financial Statements and Supplementary Data" at Item 8 hereof. - Notes to Consolidated Financial Statements -- For the Years Ended December 31, 1995, 1996 and 1997 are contained in the section entitled "Financial Statements and Supplementary Data" at Item 8 hereof. (2) Financial Statement Schedules - See Index to Financial Statement Schedules of the Registrant and subsidiaries at page S-1 hereof, which Index is incorporated herein by reference. (3) Exhibits 3.1 Amended and Restated Certificate of Incorporation of The AES Corporation is incorporated by herein reference to Exhibits 3.1 and 3.2 to the Registration Statement on Form S-8 (Registration No. 333-26225). 3.2 By-Laws of The AES Corporation, as amended, are incorporated herein by reference to Exhibit 3.2 of the Registration Statement on Form S-4 (Registration No. 333-22513). 4.1 Amended and Restated Declaration of Trust of AES Trust I, among The AES Corporation, The First National Bank of Chicago and First Chicago Delaware, Inc., to provide for the issuance of the $2.6875 Term Convertible Securities, Series A. 4.2 Junior Subordinated Indenture, between The AES Corporation and The First National Bank of Chicago, to provide for the issuance of the $2.6875 Term Convertible Securities, Series A. 4.3 First Supplemental Indenture to Junior Subordinated Indenture, between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance of the $2.6875 Term Convertible Securities, Series A. 4.4 Guarantee Agreement, between The AES Corporation and The First National Bank of Chicago, as initial guarantee trustee, to provide for the issuance of the $2.6875 Term Convertible Securities, Series A. 4.5 Second Supplemental Indenture dated as of October 13, 1997 between the Company and the First National Bank of Chicago, as trustee, to provide for the issuance from time to time of the 10.25% Senior Subordinated Notes Due 2006, is incorporated herein by reference to Exhibit 4.2.1 of the Registration Statement on Form S-3/A (Registration No. 333-39857) filed November 19, 1997. 4.6 Indenture dated as of October 29, 1997 between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance from time to time of the 8.50% Senior Subordinated Notes due 2007 of the Company and the 8.875% Senior Subordinated Debentures due 2027, is incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (Registration No. 333-44845) filed January 23, 1998. 4.7 First Supplemental Indenture dated as of November 21, 1997 between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance from time to time of the 8.50% Senior Subordinated Notes due 2007 of the Company and the 8.875% Senior Subordinated Debentures due 2027, is incorporated herein by reference to Exhibit 4.1.2 to the Registration Statement on Form S-4 (Registration No. 333-44845) filed January 23, 1998. 4.8 Junior Subordinated Debt Trust Securities Indenture dated as of March 1, 1997 between the Company and The First National Bank of Chicago, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.9 Second Supplemental Indenture dated as of October 29, 1997 between the Company and The First National Bank of Chicago, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.1.1 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.10 Amended and Restated Declaration of Trust of AES Trust II, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.11 Restated Certificate of Trust of AES Trust II, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.4 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.12 Form of Preferred Security, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.13 Form of Junior Subordinated Debt Trust Security, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.6 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.14 Preferred Securities Guarantee with respect to Preferred Securities, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.7 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.15 Other instruments defining the rights of holders of long-term indebtedness of the Registrant and its consolidated subsidiaries. 10.1 Amended Power Sales Agreement, dated as of December 10, 1985, between Oklahoma Gas and Electric Company and AES Shady Point, Inc. is incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.2 First Amendment to the Amended Power Sales Agreement, dated as of December 19, 1985, between Oklahoma Gas and Electric Company and AES Shady Point, Inc. is incorporated herein by reference to Exhibit 10.45 to the Registration Statement on Form S-1 (Registration No. 33-46011). 10.3 Electricity Purchase Agreement, dated as of December 6, 1985, between The Connecticut Light and Power Company and AES Thames, Inc. is incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.4 Power Purchase Agreement, dated March 25, 1988, between AES Barbers Point, Inc. and Hawaiian Electric Company, Inc., as amended, is incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.5 The AES Corporation Profit Sharing and Stock Ownership Plan is incorporated herein by reference to Exhibit 4(c)(1) to the Registration Statement on Form S-8 (Registration No. 33-49262). 10.6 The AES Corporation Incentive Stock Option Plan of 1991, as amended, is incorporated herein by reference to Exhibit 10.30 to the Annual Report on Form 10-K of the Registrant for the fiscal year ended December 31, 1995. 10.7 Applied Energy Services, Inc. Incentive Stock Option Plan of 1982 is incorporated herein by reference to Exhibit 10.31 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.8 Deferred Compensation Plan for Executive Officers, as amended, is incorporated herein by reference to Exhibit 10.32 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.9 Deferred Compensation Plan for Directors, as amended, is incorporated herein by reference to Exhibit 10.33 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.10 The AES Corporation Stock Option Plan for Outside Directors is incorporated herein by reference to Exhibit 10.43 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1991. 10.11 The AES Corporation Supplemental Retirement Plan is incorporated herein by reference to Exhibit 10.64 to the Annual Report on Form 10-K of the Registrant for the year ended December 31, 1994. 11 Statement of computation of earnings per share. 12 Statement of computation of ratio of earnings to fixed charges. 21 Significant subsidiaries of The AES Corporation. 23 Consent of independent auditors, Deloitte & Touche LLP. 24 Powers of attorney. 27 Financial Data Schedule (Article 5). (b) Reports on Form 8-K. - Registrant filed a Current Report on Form 8-K dated November 10, 1997 in respect of the acquisition by a subsidiary of the Registrant of 90% of the common shares of CCODEE (AES Sul as used in this Annual Report on Form 10-K) and disclosing the sale of equity securities pursuant to Regulation S to finance the acquisition. - Registrant filed a Current Report on Form 8-K dated November 6, 1997 including the Registrant's 1996 consolidated financial statements updated for certain subsequent events. - Registrant filed a Current Report on Form 8-K dated October 21, 1997 in respect of (i) a press release issued on October 21, 1997, announcing the Company's third quarter earnings, (ii) a press release issued on October 21, 1997, announcing that the Company commenced private offerings of senior subordinated notes and convertible securities, and (iii) a press release issued on October 24, 1997, announcing pricing of privately placed offerings. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 30, 1998 THE AES CORPORATION (Company) By: /s/ Dennis W. Bakke ---------------------- Name: Dennis W. Bakke Title: President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- * /s/ Roger W. Sant Chairman of the Board March 30, 1998 - ----------------------------- (Roger W. Sant) /s/ Dennis W. Bakke President, Chief Executive Officer (principal March 30, 1998 - ----------------------------- executive officer) and Director (Dennis W. Bakke) * /s/ Hazel R. O'Leary Director March 30, 1998 - ----------------------------- (Hazel R. O'Leary) * /s/ Vicki-Ann Assevero Director March 30, 1998 - ----------------------------- (Vicki-Ann Assevero) * /s/ Dr. Alice F. Emerson Director March 30, 1998 - ------------------------------ (Dr. Alice F. Emerson) * /s/ Robert F. Hemphill, Jr. Director March 30, 1998 - ------------------------------ (Robert F. Hemphill, Jr.) * /s/ Frank Jungers Director March 30, 1998 - ------------------------------- (Frank Jungers) * /s/ Dr. Henry R. Linden Director March 30, 1998 - ------------------------------- Dr. Henry R. Linden) * /s/ John H. McArthur Director March 30, 1998 - ------------------------------- (John H. McArthur) * /s/ Thomas I. Unterberg Director March 30, 1998 - ------------------------------- (Thomas I. Unterberg) * /s/ Robert H. Waterman, Jr. Director March 30, 1998 - ------------------------------- (Robert H. Waterman, Jr.) /s/ Barry J. Sharp Senior Vice President and Chief Financial Officer March 30, 1998 - --------------------------------- (principal financial and accounting officer) (Barry J. Sharp) By: * /s/ William R. Luraschi March 30, 1998 --------------------------- Attorney-in-Fact
THE AES CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES Schedule I - Condensed Financial Information of Registrant S-2 Schedule II - Valuation and Qualifying Accounts S-6 Schedules other than those listed above are omitted as the information is either not applicable, not required, or has been furnished in the financial statements or notes thereto included in Item 8 hereof. S-1 THE AES CORPORATION SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF UNCONSOLIDATED BALANCE SHEETS (IN MILLIONS)
December 31, ------------ 1996 1997 ---- ---- ASSETS Current Assets Cash and cash equivalents $ 5 $ 5 Accounts receivable 2 -- Accounts and notes receivable from subsidiaries 53 130 Prepaid expenses and other current assets 2 25 ---------- ----------- Total current assets 62 160 Investment in subsidiaries (on the equity method) 893 2,340 Office Equipment Cost 5 5 Accumulated depreciation (4) (4) ---------- ----------- Office equipment, net 1 1 Other Assets Deferred financing costs (less accumulated amortization: 1996, $6, 1997, $11) 16 57 Project development costs 53 55 Deferred income taxes 20 -- Notes receivable from subsidiaries 192 565 Escrow deposits and other assets 56 55 ---------- ----------- Total other assets 337 732 ---------- ----------- TOTAL $ 1,293 $ 3,233 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2 $ 6 Accrued and other liabilities 29 53 Notes payable 88 -- ---------- ----------- Total current liabilities 119 59 Long-term Liabilities Notes payable 450 1,096 Deferred income taxes -- 44 Other long-term liabilities 3 3 ---------- ----------- Total long-term liabilities 453 1,142 Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures of AES -- 550 Stockholders' Equity: Preferred stock -- -- Common stock 2 2 Additional paid-in capital 359 1,030 Retained earnings 396 581 Cumulative foreign currency translation adjustment (3) (1) Treasury stock (33) (131) ---------- ----------- Total stockholders' equity 721 1,481 ---------- ----------- TOTAL $ 1,293 $ 3,233 ========== ===========
See notes to Schedule I S-2 THE AES CORPORATION SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF UNCONSOLIDATED OPERATIONS (IN MILLIONS)
For the Years Ended December 31, ---------------------------------- 1995 1996 1997 ---- ---- ---- Revenues Service revenues $ 58 $ 59 $ 22 Equity in earnings of subsidiaries 108 142 256 --------- -------- -------- Total revenues 166 201 278 Operating costs and expenses: Cost of services 47 46 5 Selling, general and administrative expenses 19 30 36 --------- -------- -------- Total operating costs and expenses 66 76 41 Operating income 100 125 237 Interest income/(expense) 7 (15) (26) --------- -------- -------- Income before income taxes and extraordinary item 107 110 211 Income tax expense (benefit) -- (15) 23 --------- -------- -------- Net income before extraordinary item 107 125 188 Extraordinary item - net loss on extinguishment of debt (less applicable income taxes of $2) -- -- 3 --------- -------- -------- Net income $ 107 $ 125 $ 185 ========= ======== ========
See notes to Schedule I S-3 THE AES CORPORATION SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF UNCONSOLIDATED CASH FLOWS (IN MILLIONS)
For the Years Ended December 31, ------------------------ ------------ 1995 1996 1997 -------- --------- ---------- Net cash provided by/(used in) operating activities $ 3 $ 23 $ (30) INVESTING ACTIVITIES Issuance of notes receivable 2 (19) (372) Acquisitions, net of cash acquired (130) (148) (1,274) Dividends from subsidiaries 88 130 152 Project development costs, net (34) (16) (3) Investment in subsidiaries (32) (322) (38) Escrow deposits and other (4) (47) 1 -------- --------- ---------- Net cash provided by (used in) investing activities (110) (422) (1,534) FINANCING ACTIVITIES Borrowings (repayments) under the revolver 50 163 (186) Issuance of notes payable and coupon bearing securities -- 243 1,535 Principal payments on notes payable -- -- (275) Proceeds from issuance of common stock 1 2 503 Purchased treasury stock (6) -- -- Payments for deferred financing costs (2) (6) (13) -------- --------- ---------- Net cash provided by financing activities 43 402 1,564 Increase/(decrease) in cash and cash equivalents (64) 3 0 Cash and cash equivalents, beginning 66 2 5 -------- --------- ---------- Cash and cash equivalents, ending $ 2 $ 5 $ 5 ======== ========= ==========
See notes to Schedule I S-4 THE AES CORPORATION SCHEDULE I NOTES TO SCHEDULE I 1. APPLICATION OF SIGNIFICANT ACCOUNTING PRINCIPLES Accounting for Subsidiaries -- The AES Corporation has accounted for the earnings of its subsidiaries on the equity method in the unconsolidated condensed financial information. Income Taxes -- The unconsolidated income tax expense or benefit computed for the Company in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, reflects the tax assets and liabilities of the Company on a stand alone basis and the effect of filing a consolidated U.S. income tax return with certain other affiliated companies. Accounts and Notes Receivable from Subsidiaries -- Such amounts have been shown in current or long-term assets based on terms in agreements with subsidiaries, but payment is dependent upon meeting conditions precedent in the subsidiary loan agreements. 2. NOTES PAYABLE Notes payable at December 31, 1996 and 1997 consisted of the following (in millions):
First Interest Final Call Rate(1) Maturity Date 1996 1997 --------- ---------- ----------- ---------- -------- Corporate revolving bank loan(2) 7.50% 2000 -- $ 213 $ 27 Senior subordinated notes 9.75% 2000 1997 75 -- Senior subordinated notes 10.25% 2006 2001 250 250 Senior subordinated notes 8.38% 2007 2002 -- 325 Senior subordinated notes 8.50% 2007 2002 -- 375 Senior subordinated notes 8.88% 2027 2004 -- 125 Unamortized discounts -- (6) --------- ---------- Subtotal 538 1,096 Less current maturities (88) -- ========= ========== TOTAL $450 $ 1,096 ========= ==========
(1) Weighted average interest rate at December 31, 1997. (2) Floating rate loan. S-5 THE AES CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS) Balance at Charged to Balance at Beginning Costs and End of of Period Expenses Period --------- -------- ------ Description Allowance for contract receivables Year ended December 31, 1996 -- 20 20 Year ended December 31, 1997 $ 20 $ 17 $ 37 Amortization of deferred costs Year ended December 31, 1995 26 5 31 Year ended December 31, 1996 31 5 36 Year ended December 31, 1997 $ 36 $ 16 $ 52 S-6 EXHIBIT INDEX
Sequentially Exhibit Description of Exhibit Numbered Page - ------- ---------------------- ------------- 3.1 Amended and Restated Certificate of Incorporation of The AES Corporation is incorporated by herein reference to Exhibits 3.1 and 3.2 to the Registration Statement on Form S-8 (Registration No. 333) filed April 30, 1997. 3.2 By-Laws of The AES Corporation, as amended, are incorporated herein by reference to Exhibit 3.2 of the Registration Statement on Form S-4 (Registration No. 333-22513). 4.1 Amended and Restated Declaration of Trust of AES Trust I, among The AES Corporation, The First National Bank of Chicago and First Chicago Delaware, Inc., to provide for the issuance of the $2.6875 Term Convertible Securities, Series A. 4.2 Junior Subordinated Indenture, between The AES Corporation and The First National Bank of Chicago, to provide for the issuance of the $2.6875 Term Convertible Securities, Series A. 4.3 First Supplemental Indenture to Junior Subordinated Indenture, between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance of the $2.6875 Term Convertible Securities, Series A. 4.4 Guarantee Agreement, between The AES Corporation and The First National Bank of Chicago, as initial guarantee trustee, to provide for the issuance of the $2.6875 Term Convertible Securities, Series A. 4.5 Second Supplemental Indenture dated as of October 13, 1997 between the Company and the First National Bank of Chicago, as trustee, to provide for the issuance from time to time of the 10.25% Senior Subordinated Notes Due 2006, is incorporated herein by reference to Exhibit 4.2.1 of the Registration Statement on Form S-3/A (Registration No. 333-39857) filed November 19, 1997. 4.6 Indenture dated as of October 29, 1997 between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance from time to time of the 8.50% Senior Subordinated Notes due 2007 of the Company and the 8.875% Senior Subordinated Debentures due 2027, is incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (Registration No. 333-44845) filed January 23, 1998. 4.7 First Supplemental Indenture dated as of November 21, 1997 between The AES Corporation and The First National Bank of Chicago, as trustee, to provide for the issuance from time to time of the 8.50% Senior Subordinated Notes due 2007 of the Company and the 8.875% Senior Subordinated Debentures due 2027, is incorporated herein by reference to Exhibit 4.1.2 to the Registration Statement on Form S-4 (Registration No. 333-44845) filed January 23, 1998. 4.8 Junior Subordinated Debt Trust Securities Indenture dated as of March 1, 1997 between the Company and The First National Bank of Chicago, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.9 Second Supplemental Indenture dated as of October 29, 1997 between the Company and The First National Bank of Chicago, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.1.1 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998.
4.10 Amended and Restated Declaration of Trust of AES Trust II, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.11 Restated Certificate of Trust of AES Trust II, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.4 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.12 Form of Preferred Security, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.5 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.13 Form of Junior Subordinated Debt Trust Security, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.6 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.14 Preferred Securities Guarantee with respect to Preferred Securities, to provide for the issuance of the $2.75 Term Convertible Securities, Series B, is incorporated herein by reference to Exhibit 4.7 to the Registration Statement on Form S-3 (Registration No. 333-46189) filed February 12, 1998. 4.15 Other instruments defining the rights of holders of unregistered long-term indebtedness of the Registrant and its consolidated subsidiaries. 10.1 Amended Power Sales Agreement, dated as of December 10, 1985, between Oklahoma Gas and Electric Company and AES Shady Point, Inc. is incorporated herein by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.2 First Amendment to the Amended Power Sales Agreement, dated as of December 19, 1985, between Oklahoma Gas and Electric Company and AES Shady Point, Inc. is incorporated herein by reference to Exhibit 10.45 to the Registration Statement on Form S-1 (Registration No. 33-46011). 10.3 Electricity Purchase Agreement, dated as of December 6, 1985, between The Connecticut Light and Power Company and AES Thames, Inc. is incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.4 Power Purchase Agreement, dated March 25, 1988, between AES Barbers Point, Inc. and Hawaiian Electric Company, Inc., as amended, is incorporated herein by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.5 The AES Corporation Profit Sharing and Stock Ownership Plan is incorporated herein by reference to Exhibit 4(c)(1) to the Registration Statement on Form S-8 (Registration No. 33-49262). 10.6 The AES Corporation Incentive Stock Option Plan of 1991, as amended, is incorporated herein by reference to Exhibit 10.30 to the Annual Report on Form 10-K of the Registrant for the fiscal year ended December 31, 1995. 10.7 Applied Energy Services, Inc. Incentive Stock Option Plan of 1982 is incorporated herein by reference to Exhibit 10.31 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.8 Deferred Compensation Plan for Executive Officers, as amended, is incorporated herein by reference to Exhibit 10.32 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.9 Deferred Compensation Plan for Directors, as amended, is incorporated herein by reference to Exhibit 10.33 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 33-40483). 10.10 The AES Corporation Stock Option Plan for Outside Directors is incorporated herein by reference to Exhibit 10.43 to the Annual Report on Form 10-K of Registrant for the Fiscal Year ended December 31, 1991. 10.11 The AES Corporation Supplemental Retirement Plan is incorporated herein by reference to Exhibit 10.64 to the Annual Report on Form 10-K of the Registrant for the year ended December 31, 1994. 11 Statement of computation of earnings per share. 12 Statement of computation of ratio of earnings to fixed charges. 21 Significant subsidiaries of The AES Corporation. 23 Consent of Independent Auditors, Deloitte & Touche LLP. 24 Powers of Attorney. 27 Financial Data Schedule (Article 5). EX-4.1 2 EXHIBIT 4.1 CONFORMED COPY ================================================================================ AMENDED AND RESTATED DECLARATION OF TRUST OF AES TRUST I --------------------------------------- DATED AS OF MARCH 31, 1997 --------------------------------------- ================================================================================ TABLE OF CONTENTS 1 ---------------------- PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions......................................................2 ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. Trust Indenture Act; Application.................................8 SECTION 2.02. Lists of Holders of Preferred Securities.........................9 SECTION 2.03. Reports by the Property Trustee..................................9 SECTION 2.04. Periodic Reports to Property Trustee.............................9 SECTION 2.05. Evidence of Compliance with Conditions Precedent.................9 SECTION 2.06. Events of Default; Waiver........................................9 SECTION 2.07. Disclosure of Information.......................................11 ARTICLE 3 ORGANIZATION SECTION 3.01. Name............................................................12 SECTION 3.02. Office..........................................................12 SECTION 3.03. Issuance of the Trust Securities................................12 SECTION 3.04. Purchase of Debentures..........................................13 SECTION 3.05. Purpose.........................................................13 SECTION 3.06. Authority.......................................................14 SECTION 3.07. Title to Property of the Trust..................................14 SECTION 3.08. Powers and Duties of the Regular Trustees.......................14 SECTION 3.09. Prohibition of Actions by Trust and Trustees....................17 SECTION 3.10. Powers and Duties of the Property Trustee.......................18 SECTION 3.11. Delaware Trustee................................................21 SECTION 3.12. Certain Rights and Duties of the Property Trustee...............21 SECTION 3.13. Registration Statement and Related Matters......................24 SECTION 3.14. Filing of Amendments to Certificate of Trust....................25 SECTION 3.15. Execution of Documents by Regular Trustees......................25 - ---------- 1This Table of Contents does not constitute part of the Amended and Restated Declaration of Trust and should not have any bearing upon the interpretation of any of its terms or provisions. i PAGE SECTION 3.16. Trustees Not Responsible for Recitals or Issuance of Securities...............................................................25 SECTION 3.17. Duration of Trust...............................................26 ARTICLE 4 SPONSOR SECTION 4.01. Purchase of Common Securities by Sponsor........................26 SECTION 4.02. Expenses........................................................26 ARTICLE 5 TRUSTEES SECTION 5.01. Number of Trustees; Qualifications..............................27 SECTION 5.02. Appointment, Removal and Resignation of Trustees................29 SECTION 5.03. Vacancies among Trustees........................................31 SECTION 5.04. Effect of Vacancies.............................................31 SECTION 5.05. Meetings........................................................31 SECTION 5.06. Delegation of Power.............................................32 ARTICLE 6 DISTRIBUTIONS SECTION 6.01. Distributions...................................................32 ARTICLE 7 ISSUANCE OF SECURITIES SECTION 7.01. General Provisions Regarding Securities.........................32 SECTION 7.02. Conversion Agent................................................34 ARTICLE 8 TERMINATION OF TRUST SECTION 8.01. Termination of Trust............................................35 ARTICLE 9 TRANSFER OF INTERESTS SECTION 9.01. Transfer of Securities..........................................35 SECTION 9.02. Transfer of Certificates........................................36 ii SECTION 9.03. Deemed Security Holders.........................................36 SECTION 9.04. Book Entry Interests............................................37 SECTION 9.05. Notices to Holders of Certificates..............................38 SECTION 9.06. Appointment of Successor Clearing Agency........................38 SECTION 9.07. Definitive Preferred Securities Certificates....................38 SECTION 9.08. Mutilated, Destroyed, Lost or Stolen Certificates...............38 ARTICLE 10 LIMITATION OF LIABILITY; INDEMNIFICATION SECTION 10.01. Exculpation....................................................39 SECTION 10.02. Indemnification................................................39 SECTION 10.03. Outside Business...............................................40 ARTICLE 11 ACCOUNTING SECTION 11.01. Fiscal Year....................................................41 SECTION 11.02. Certain Accounting Matters.....................................41 SECTION 11.03. Banking........................................................42 SECTION 11.04. Withholding....................................................42 ARTICLE 12 AMENDMENTS AND MEETINGS SECTION 12.01. Amendments.....................................................42 SECTION 12.02. Meetings of the Holders of Securities; Action by Written Consent..................................................................43 ARTICLE 13 REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.01. Representations and Warranties of Property Trustee.............45 ARTICLE 14 MISCELLANEOUS SECTION 14.01. Notices........................................................46 SECTION 14.02. Undertaking for Costs..........................................47 SECTION 14.03. Governing Law..................................................48 SECTION 14.04. Headings.......................................................48 iii SECTION 14.05. Partial Enforceability.........................................48 SECTION 14.06. Counterparts...................................................48 SECTION 14.07. Intention of the Parties.......................................48 SECTION 14.08. Successors and Assigns.........................................48 SIGNATURES AND SEALS EXHIBIT A: CERTIFICATE OF TRUST EXHIBIT B: TERMS OF THE PREFERRED SECURITIES EXHIBIT C: TERMS OF THE COMMON SECURITIES iv AMENDED AND RESTATED DECLARATION OF TRUST OF AES TRUST I MARCH 31, 1997 AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and effective as of March 31, 1997 by the undersigned trustees (together with all other Persons from time to time duly appointed and serving as trustees in accordance with the provisions of this Declaration, the "Trustees"), The AES Corporation, a Delaware corporation, as trust sponsor ("AES" or the "Sponsor"), and by the holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to this Declaration. WHEREAS, the Sponsor and the Trustees entered into a Declaration of Trust dated as of November 1, 1996 (the "Original Declaration") in order to establish a statutory business trust (the "Trust") under the Business Trust Act (as hereinafter defined); WHEREAS, the Certificate of Trust (the "Certificate of Trust") of the Trust was filed with the office of the Secretary of State of the State of Delaware on November 5, 1996 and was restated on March 27, 1997; WHEREAS, the Trustees and the Sponsor desire to continue the Trust pursuant to the Business Trust Act for the purpose of, as described more fully in Sections 3.03 and 3.04 hereof, (i) issuing and selling Preferred Securities (as defined herein) representing preferred undivided beneficial interests in the assets of the Trust for cash and investing the proceeds thereof in Debentures (as hereinafter defined) of AES issued under the Indenture (as hereinafter defined) to be held as assets of the Trust and (ii) issuing and selling Common Securities (as defined herein) representing common undivided beneficial interests in the assets of the Trust to AES in exchange for cash and investing the proceeds thereof in additional Debentures issued under the Indenture to be held as assets of the Trust; and NOW, THEREFORE, it being the intention of the parties hereto that the Trust constitute a business trust under the Business Trust Act, that the Original Declaration be amended and restated in its entirety as provided herein and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets referred to in clauses (i) and (ii) of the previous Whereas clause purchased by the Trust will be held in trust for the benefit of the Holders (as defined herein) from time to time, of the Certificates (as defined herein) representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. (a) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Amended and Restated Declaration of Trust (including Exhibits A, B and C hereto (the "Exhibits")) as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Exhibits are to Articles and Sections of and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "Book Entry Interest" means a beneficial interest in a Global Certificate registered in the name of a Clearing Agency or a nominee thereof, ownership and transfers of which shall be maintained and made through book entries by such Clearing Agency as described in Section 9.04. 2 "Business Day" means any day other than a Saturday, Sunday or any other day on which banking institutions in the City of New York, in the State of New York are authorized or required by applicable law to close. "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code ss. 3801 et seq., as it may be amended from time to time. "Certificate" means a Common Security Certificate or a Preferred Security Certificate. "Certificate of Trust" has the meaning set forth in the second Whereas clause above. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depository for the Preferred Securities and in whose name or in the name of a nominee of that organization, shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Preferred Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means the Closing Date as specified in the Underwriting Agreement, which date is also the date of execution and delivery of this Declaration. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. A reference to a specific section ((Sec.)) of the Code refers not only to such specific section but also to any corresponding provision of any federal tax statute enacted after the date of this Declaration, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Declaration containing such reference. "Commission" means the Securities and Exchange Commission. "Common Security" has the meaning specified in Section 7.01(b). 3 "Common Security Certificate" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Annex I to Exhibit C. "Common Stock" means the common stock of AES, par value $.01 per share. "Conversion Agent" has the meaning specified in Section 7.02. "Covered Person" means (i) any officer, director, shareholder, partner, member, representative, employee or agent of the Trust or its Affiliates, (ii) any officer, director, shareholder, employees, representatives or agents of AES or its Affiliates and (iii) the Holders from time to time of the Securities. "Debenture Trustee" means The First National Bank of Chicago, as trustee under the Indenture until a successor is appointed thereunder and thereafter means such successor trustee. "Debentures" means the series of Junior Subordinated Convertible Debentures issued by AES under the Indenture to the Property Trustee and entitled the "5.375% Junior Subordinated Debentures due 2027". "Definitive Preferred Security Certificates" has the meaning set forth in Section 9.04. "Delaware Trustee" has the meaning set forth in Section 5.01(a)(3). "Depositary Agreement" means the agreement among the Trust, the Property Trustee and DTC dated as of the Closing Date, as the same may be amended or supplemented from time to time. "Distribution" means a distribution payable to Holders of Securities in accordance with Section 6.01. "DTC" means The Depository Trust Company, the initial Clearing Agency. "Event of Default" in respect of the Securities means an Indenture Event of Default has occurred and is continuing in respect of the Debentures. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time or any successor legislation. 4 "Fiscal Year" has the meaning specified in Section 11.01. "Global Certificate" has the meaning set forth in Section 9.04. "Holder" means a Person in whose name a Certificate representing a Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "Indemnified Person" means any Trustee, any Affiliate of any Trustee, any Conversion Agent, any Paying Agent, any officers, directors, shareholders, members, partners, employees, representatives or agents of any Trustee, Conversion Agent or Paying Agent, or any employee or agent of the Trust or its Affiliates. "Indenture" means the Junior Subordinated Indenture dated as of March 1, 1997 between AES and the Debenture Trustee as supplemented by the First Supplemental Indenture thereto dated as of March 31, 1997, pursuant to which the Debentures are to be issued. "Indenture Event of Default" means an event or condition defined as an "Event of Default" with respect to the Debentures under Section 6.01(a) of the Indenture has occurred and is continuing. "Investment Company" means an investment company as defined in the Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as amended from time to time or any successor legislation. "Legal Action" has the meaning specified in Section 3.08(g). "Liquidation Distribution" has the meaning set forth in Exhibits B and C hereto establishing the terms of the Securities. "Majority in liquidation amount of the Securities" means, except as otherwise required by the Trust Indenture Act and except as provided in the penultimate paragraph of paragraph 6 of Exhibit B hereto, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holder(s) of outstanding Preferred Securities or Common Securities voting separately as a class, who are the record owners of a relevant class of Securities whose liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) 5 represents more than 50% of the liquidation amount of all outstanding Securities of such class. "Ministerial Action" has the meaning set forth in the terms of the Securities as set forth in Exhibits B and C hereto. "Option Closing Date" means the Option Closing Date as specified in the Underwriting Agreement. "Original Declaration" has the meaning set forth in the first WHEREAS clause above. "Paying Agent" has the meaning specified in Section 3.10(i). "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Guarantee" means the Guarantee Agreement dated as of March 31, 1997 of AES in respect of the Preferred Securities. "Preferred Security" has the meaning specified in Section 7.01(b). "Preferred Security Beneficial Owner" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Preferred Security Certificate" means a definitive certificate in fully registered form representing a Preferred Security substantially in the form of Annex I to Exhibit B. "Property Trustee" means the Trustee meeting the eligibility requirements set forth in Section 5.01(c) and having the duties set forth for the Property Trustee herein. "Property Account" has the meaning specified in Section 3.10(c)(i). "Quorum" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both such Regular Trustees. 6 "Regular Trustee" means any Trustee other than the Property Trustee and the Delaware Trustee. "Related Party" means any direct or indirect wholly owned subsidiary of AES or any other Person which owns, directly or indirectly, 100% of the outstanding voting securities of AES. "Resignation Request" has the meaning specified in Section 5.02(d). "Responsible Officer" means, with respect to the Property Trustee, the chairman of the board of directors, the president, any vice-president, any assistant vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer or any other officer of the Property Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Rule 3a-7" means Rule 3a-7 under the Investment Company Act or any successor rule thereunder. "Securities" means the Common Securities and the Preferred Securities. "Securities Act" means the Securities Act of 1933, as amended from time to time or any successor legislation. "Special Event" has the meaning set forth in the terms of the Securities as set forth in Exhibits B and C hereto. "Sponsor" or "AES" means The AES Corporation, a Delaware corporation, or any successor entity in a merger, in its capacity as sponsor of the Trust. "Successor Delaware Trustee" has the meaning specified in Section 5.02(b)(ii). "Successor Property Trustee" means a successor Trustee possessing the qualifications to act as Property Trustee under Section 5.01(c). "10% in liquidation amount of the Securities" means, except as otherwise required by the Trust Indenture Act and except as provided in the penultimate paragraph of paragraph 6 of Exhibit B hereto, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holder(s) of 7 outstanding Preferred Securities or Common Securities, voting separately as a class, who are the record owners of a relevant class of Securities whose liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) represents 10% or more of the liquidation amount of all outstanding Securities of such class. "Treasury Regulations" means the income tax regulations including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Trustee" or "Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "Underwriting Agreement" means the Underwriting Agreement dated as of March 31, 1997 among the Trust, the Sponsor, J.P. Morgan Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Brothers Inc and Unterberg Harris. ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. Trust Indenture Act; Application. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions; (b) if and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by ss.ss.310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control; 8 (c) the Property Trustee, to the extent permitted by applicable law and/or the rules and regulations of the Commission, shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act; and (d) the application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. SECTION 2.02. Lists of Holders of Preferred Securities. (a) Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Property Trustee with such information as is required under ss. 312(a) of the Trust Indenture Act at the times and in the manner provided in ss. 312(a); and (b) the Property Trustee shall comply with its obligations under ss.ss. 310(b), 311 and 312(b) of the Trust Indenture Act. SECTION 2.03. Reports by the Property Trustee. Within 60 days after May 15 of each year, commencing May 1998, the Property Trustee shall provide to the Holders of the Securities such reports as are required by ss. 313 of the Trust Indenture Act, if any, in the form, in the manner and at the times provided by ss. 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of ss. 313(d) of the Trust Indenture Act. SECTION 2.04. Periodic Reports to Property Trustee. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee, the Commission and the Holders of the Securities, as applicable, such documents, reports and information as required by ss. 314(a)(1)-(3) (if any) of the Trust Indenture Act and the compliance certificates required by ss. 314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be provided in the form, in the manner and at the times required by ss. 314(a)(4) and (c) of the Trust Indenture Act (provided that any certificate to be provided pursuant to ss. 314(a)(4) of the Trust Indenture Act shall be provided within 120 days of the end of each Fiscal Year). SECTION 2.05. Evidence of Compliance with Conditions Precedent. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration which relate to any of the matters set forth in ss. 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given pursuant to ss. 314(c) shall comply with ss. 314(e) of the Trust Indenture Act. 9 SECTION 2.06. Events of Default; Waiver. (a) Subject to Section 2.06(c), Holders of Preferred Securities may, by vote of at least a Majority in liquidation amount of the Preferred Securities (A) in accordance with the terms of the Preferred Securities, direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee, or (B) on behalf of the Holders of all Preferred Securities, waive any past Event of Default in respect of the Preferred Securities and its consequences; provided that if the Event of Default arises out of an Indenture Event of Default: (i) which is not waivable under the Indenture, the Event of Default under this Declaration shall also be not waivable; or (ii) which requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures, or (2) each holder of Debentures, the Event of Default under this Declaration may only be waived by, in the case of clause (1) above, the vote of Holders of Preferred Securities representing such specified percentage of the aggregate liquidation amount of the Preferred Securities or, in the case of clause (2) above, each Holder of Preferred Securities. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Preferred Securities or impair any right consequent thereon. (b) Subject to Section 2.06(c), Holders of Common Securities may by vote of at least a Majority in liquidation amount of the Common Securities, (A) in accordance with the terms of the Common Securities, direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee or exercising any trust or power conferred upon the Property Trustee or (B) on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the Event of Default arises out of an Indenture Event of Default: (i) which is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below, the Event of Default under this Declaration shall also not be waivable; or 10 (ii) which requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures or (2) each holder of Debentures, except where the holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below, the Event of Default under this Declaration may only be waived by, in the case of clause (1) above, the vote of Holders of Common Securities representing such specified percentage of the aggregate liquidation amount of the Common Securities or, in the case of clause (2) above, each holder of Common Securities; and provided, further, that each Holder of Common Securities will be deemed to have waived any Event of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived by the Holders of Preferred Securities as provided in this Declaration or otherwise eliminated and until all Events of Default with respect to the Preferred Securities have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of this Declaration or the Securities. In the event that any Event of Default with respect to the Preferred Securities is waived by the Holders of Preferred Securities as provided in this Declaration, the Holders of Common Securities agree that such waiver shall also constitute the waiver of such Event of Default with respect to the Common Securities for all purposes under this Declaration without any further act, vote or consent of the Holders of the Common Securities. Subject to the foregoing provisions of this Section 2.06(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) The right of any Holder of Securities to receive payment of Distributions on the Securities in accordance with this Declaration and the terms of the Securities set forth in Exhibits B and C on or after the respective payment dates therefor, or to institute suit for the enforcement of any such payment on or after such payment dates, shall not be impaired without the consent of such Holder. (d) As provided in the terms of the Securities set forth in Exhibits B and C hereto, a waiver of an Indenture Event of Default by the Property Trustee at the written direction of the Holders of the Preferred Securities constitutes a waiver of 11 the corresponding Event of Default under this Declaration in respect of the Securities. SECTION 2.07. Disclosure of Information. The disclosure of information as to the names and addresses of the Holders of the Securities in accordance with ss. 312 of the Trust Indenture Act, regardless of the source from which such information was derived, shall not be deemed to be a violation of any existing law, or any law hereafter enacted which does not specifically refer to ss. 312 of the Trust Indenture Act, nor shall the Property Trustee be held accountable by reason of mailing any material pursuant to a request made under ss. 312(b) of the Trust Indenture Act. ARTICLE 3 ORGANIZATION SECTION 3.01. Name. The Trust continued by this Declaration is named "AES Trust I" as such name may be modified from time to time by the Regular Trustees following written notice to the Holders of Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. SECTION 3.02. Office. The address of the principal office of the Trust is c/o The AES Corporation, 1001 North 19th Street, Arlington, Virginia 22209. Upon ten days' written notice to the Holders, the Regular Trustees may change the location of the Trust's principal office. The name of the registered agent and office of the Trust in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. At any time, the Regular Trustees may designate another registered agent and/or registered office. SECTION 3.03. Issuance of the Trust Securities. On March 31, 1997 the Sponsor, on behalf of the Trust and pursuant to the Original Declaration, executed and delivered the Underwriting Agreement. On the Closing Date and contemporaneously with the execution and delivery of this Declaration, the Regular Trustees, on behalf of the Trust, shall execute and deliver to (i) the underwriters named in the Underwriting Agreement, a Global Certificate, registered in the name of the nominee of the initial Clearing Agency as specified in Section 9.04, in an aggregate amount of 5,000,000 Preferred Securities having an aggregate liquidation amount of $250,000,000, against receipt of the aggregate purchase price of such Preferred Securities of $250,000,000, and (ii) the Sponsor, Common Securities Certificates, registered in the name of the Sponsor, in an 12 aggregate amount of 154,640 Common Securities having an aggregate liquidation amount of $7,732,000, against receipt of the aggregate purchase price of such Common Securities of $7,732,000. In the event and to the extent the overallotment option granted by the Trust pursuant to the Underwriting Agreement is exercised by such underwriters, on the Option Closing Date the Regular Trustees, on behalf of the Trust, shall execute and deliver to (i) such underwriters a Global Certificate, registered in the name of the nominee of the initial Clearing Agency as specified in Section 9.04, in an aggregate amount of up to 500,000 Preferred Securities having an aggregate liquidation amount of up to $2,500,000 against receipt of the aggregate purchase price of such Preferred Securities of up to $2,500,000, and (ii) the Sponsor, Common Security Certificates, registered in the name of the Sponsor, in an aggregate amount of 15,464 Common Security having an aggregate liquidation of $773,200, against receipt of the aggregate purchase price of such Common Securities of up to $773,200. SECTION 3.04. Purchase of Debentures. On the Closing Date and contemporaneously with the execution and delivery of this Declaration, the Regular Trustees, on behalf of the Trust, shall purchase from the Sponsor with the proceeds received by the Trust from the sale of the Securities on such date pursuant to Section 3.03, at a purchase price of 100% of the principal amount thereof, Debentures, registered in the name of the Property Trustee and having an aggregate principal amount equal to $257,732,000, and, in satisfaction of the purchase price for such Debentures, the Regular Trustee, on behalf of the Trust, shall deliver or cause to be delivered to the Sponsor the sum of $257,732,000. In the event the overallotment option granted by the Trust with respect to the Preferred Securities pursuant to the Underwriting Agreement is exercised by the underwriters named therein, on the Option Closing Date the Regular Trustees, on behalf of the Trust, shall purchase from the Sponsor with the proceeds received by the Trust from the sale of the Preferred Securities on such date pursuant to Section 3.03, at a purchase price of 100% of the principal amount thereof, additional Debentures, registered in the name of the Property Trustee and having an aggregate principal amount of up to $25,773,200, and, in satisfaction of the purchase price for such Debentures, the Regular Trustees, on behalf of the Trust, shall deliver or cause to be delivered to the Sponsor an amount equal to the aggregate principal amount of the Debentures being purchased. SECTION 3.05. Purpose. The exclusive purposes and functions of the Trust are: (a)(i) to issue and sell Preferred Securities for cash and use the proceeds of such sales to acquire from AES Debentures issued under the Indenture having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities so issued and sold; (ii) to enter into such agreements and arrangements as may be necessary in connection with the sale of 13 Preferred Securities to the initial purchasers thereof (including the Underwriting Agreement) and to take all action, and exercise such discretion, as may be necessary or desirable in connection therewith and to file such registration statements or make such other filings under the Securities Act, the Exchange Act or state securities or "Blue Sky" laws as may be necessary or desirable in connection therewith and the issuance of the Preferred Securities; and (iii) to issue and sell Common Securities to AES for cash and use the proceeds of such sale to purchase as trust assets an equal aggregate principal amount of Debentures issued under the Indenture; and (b) except as otherwise limited herein, to engage in only those other activities necessary, convenient or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets or at any time while the Securities are outstanding, otherwise undertake (or permit to be undertaken) any activity that would result in or cause the Trust to be treated as anything other than a grantor trust for United States federal income tax purposes. SECTION 3.06. Authority. Subject to the limitations provided in this Declaration and to the specific duties of the Property Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. SECTION 3.07. Title to Property of the Trust. Except as provided in Section 3.10 with respect to the Debentures and the Property Account or unless otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an individual undivided beneficial interest in the assets of the Trust. SECTION 3.08. Powers and Duties of the Regular Trustees. The Regular Trustees shall have the exclusive power, authority and duty to cause the Trust, and shall cause the Trust, to engage in the following activities: (a) to issue Preferred Securities and Common Securities, in each case in accordance with this Declaration; provided, however, that the Trust may issue no more than one series of Preferred Securities and no more than one series of Common Securities, and, provided further, that there shall be no interests in the Trust other than the Securities and the issuance of Securities shall be limited to (x) 14 a one-time, simultaneous issuance of both Preferred Securities and Common Securities on the Closing Date and (y) any subsequent issuance of Preferred Securities on the Option Closing Date pursuant to an exercise of the over-allotment option granted to underwriters in the Underwriting Agreement; (b) in connection with the issuance of the Preferred Securities, at the direction of the Sponsor, to effect or cause to be effected the filings, and to execute or cause to be executed, the documents, set forth in Section 3.13 and to execute, deliver and perform on behalf of the Trust the Depositary Agreement; (c) to acquire as trust assets Debentures with the proceeds of the sale of the Preferred Securities and Common Securities; provided, however, that the Regular Trustees shall cause legal title to all of the Debentures to be vested in, and the Debentures to be held of record in the name of, the Property Trustee for the benefit of the Holders of the Preferred Securities and the Common Securities; (d) to cause the Trust to enter into the Underwriting Agreement and such other agreements and arrangements as may be necessary or desirable in connection with the sale of Preferred Securities to the initial purchasers thereof and the consummation thereof, and to take all action, and exercise all discretion, as may be necessary or desirable in connection with the consummation thereof; (e) to give the Sponsor and the Property Trustee prompt written notice of the occurrence of a Special Event; provided, that the Regular Trustees shall consult with the Sponsor and the Property Trustee before taking or refraining to take any Ministerial Action in relation to a Special Event; (f) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including for the purposes of Section 316(c) of the Trust Indenture Act and with respect to Distributions, voting rights, redemptions, and exchanges, and to issue relevant notices to Holders of the Preferred Securities and Common Securities as to such actions and applicable record dates; (g) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.10(e), the Property Trustee has the exclusive power to bring such Legal Action; (h) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors and consultants and pay reasonable compensation for such services; 15 (i) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (j) to give the certificate to the Property Trustee required by ss. 314(a)(4) of the Trust Indenture Act, which certificate may be executed by any Regular Trustee; (k) to incur expenses which are necessary or incidental to carrying out any of the purposes of the Trust; (l) to act as, or appoint another Person to act as, registrar and transfer agent for the Securities, the Regular Trustees hereby initially appointing the Property Trustee for such purposes; (m) to take all actions and perform such duties as may be required of the Regular Trustee pursuant to the terms of the Securities set forth in Exhibits B and C hereto; (n) to execute all documents or instruments, perform all duties and powers and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing; (o) to take all action which may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Securities or to enable the Trust to effect the purposes for which the Trust has been created; (p) to take all action, not inconsistent with this Declaration or with applicable law, which the Regular Trustees determine in their discretion to be reasonable and necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.08, in order that: (i) the Trust will not be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) the Trust will not be classified for United States federal income tax purposes as an association taxable as a corporation or a partnership and will be treated as a grantor trust for United States federal income tax purposes; and 16 (iii) the Trust will comply with any requirements imposed by any taxing authority on holders of instruments treated as indebtedness for United States federal income tax purposes; provided that such action does not adversely affect the interests of Holders; (q) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust; and (r) subject to the requirements of Rule 3a-7 and ss. 317(b) of the Trust Indenture Act, to appoint one or more Paying Agents in addition to the Property Trustee. The Regular Trustees must exercise the powers set forth in this Section 3.08 in a manner which is consistent with the purposes and functions of the Trust set out in Section 3.05 and the Regular Trustees shall not take any action which is inconsistent with the purposes and functions of the Trust set forth in Section 3.05. Subject to this Section 3.08, the Regular Trustees shall have none of the powers nor any of the authority of the Property Trustee set forth in Section 3.10. SECTION 3.09. Prohibition of Actions by Trust and Trustees. The Trust shall not, and the Trustees (including the Property Trustee) shall cause the Trust not to, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees (including the Property Trustee) shall not cause the Trust to: (a) invest any proceeds received by the Trust from holding the Debentures but shall promptly distribute all such proceeds to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (b) acquire any assets other than as expressly provided herein; (c) possess Trust property for other than a Trust purpose; (d) make any loans, other than loans represented by the Debentures; (e) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever; (f) issue any securities or other evidences of beneficial ownership of, or beneficial interests in, the Trust other than the Securities; 17 (g) incur any indebtedness for borrowed money; or (h) (i) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 6.06 of the Indenture, (iii) exercise any right to rescind or annul any declaration that the principal of all of the Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, unless in the case of this clause (h) the Property Trustee shall have received an unqualified opinion of nationally recognized independent tax counsel recognized as expert in such matters to the effect that such action will not cause the Trust to be classified for United States federal income tax purposes as an association taxable as a corporation or partnership and that the Trust will continue to be classified as a grantor trust for United States federal income tax purposes. SECTION 3.10. Powers and Duties of the Property Trustee. (a) The legal title to the Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Holders of the Securities. The right, title and interest of the Property Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Article 5. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Debentures to the Regular Trustees or, if the Property Trustee does not also act as the Delaware Trustee, the Delaware Trustee. (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing bank account (the "Property Account") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders of the Securities and on the receipt of payments of funds made in respect of the Debentures held by the Property Trustee, deposit such funds into the Property Account and, without any further acts of the Property Trustee or the Regular Trustees, promptly make payments to the Holders of the Preferred Securities and Common Securities from the Property Account in accordance with Section 6.01. Funds in the Property Account shall be held uninvested, and without liability for interest thereon, until disbursed in accordance with this Declaration. The Property Account shall be an account which is maintained with a banking institution whose long term 18 unsecured indebtedness is rated by a "nationally recognized statistical rating organization", as such term is defined for purposes of Rule 436(g)(2) under the Securities Act, at least equal to (but in no event less than "A" or the equivalent) the rating assigned to the Preferred Securities by a nationally recognized statistical rating organization; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect promptly the redemption of the Preferred Securities and the Common Securities to the extent the Debentures are redeemed or mature; (iii) upon notice of distribution issued by the Regular Trustees in accordance with the terms of the Preferred Securities and the Common Securities, engage in such ministerial activities as shall be necessary or appropriate to effect promptly the distribution pursuant to terms of the Securities of Debentures to Holders of Securities upon the occurrence of a Special Event; and (iv) have the legal power to exercise all of the rights, powers and privileges of a holder of the Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Property Trustee, subject to Section 2.06(b), shall for the benefit of the Holders of the Securities, enforce its rights as holder of the Debentures under the Indenture, subject to the rights of the Holders of the Preferred Securities pursuant to the terms of this Declaration, the Business Trust Act and the Trust Indenture Act. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Securities set forth in Exhibits B and C hereto. (e) The Property Trustee shall take any Legal Action which arises out of or in connection with an Event of Default or the Property Trustee's duties and obligations under this Declaration, the Business Trust Act or the Trust Indenture Act; provided however, that the holders of a Majority in liquidation amount of the Preferred Securities will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee to exercise the remedies available to it as a holder of the Debentures. If the Property Trustee fails to enforce its rights under the Debentures, a Holder of Preferred Securities, to the extent permitted by law, may institute a legal proceeding directly against AES to enforce the Property Trustee's rights under the Debentures without first 19 instituting any legal proceeding against the Property Trustee or any other Person; provided further, that, if an Event of Default has occurred and is continuing and such event is attributed to the failure of the Sponsor to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such Holder (a "Holder Direct Action") on or after the respective due date specified in the Debentures. In connection with such Holder Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Sponsor to such Holders of Preferred Securities in such Holder Direct Action. Except as provided in the preceding sentences, the Holders of Preferred Securities will not be able to exercise directly any remedy available to the Holders of the Debentures. (f) All moneys deposited in the Property Account, and all Debentures held by the Property Trustee for the benefit of the Holders of the Securities will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of the Property Trustee or its agents or their creditors. (g) The Property Trustee shall, within 90 days after the occurrence of a default with respect to the Securities known to the Property Trustee, transmit by mail, first class postage prepaid, to the holders of the Securities, as their names and addresses appear upon the register, notice of all such defaults with respect to the Securities, unless such defaults shall have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 3.10(g) being hereby defined to be an Indenture Event of Default, not including any periods of grace provided for in the Indenture and irrespective of the giving of any notice provided therein); provided, that, except in the case of default in the payment of the principal of (or premium, if any) or interest on any of the Debentures, the Property Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers, of the Property Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. The Property Trustee shall not be deemed to have knowledge of any default, except (i) a default in the payment of principal, premium or interest on the Debentures or (ii) any default as to which the Property Trustee shall have received written notice or a Responsible Officer charged with the administration of this Declaration shall have obtained written notice. (h) The Property Trustee shall continue to serve as a Trustee until either: 20 (i) the Trust has been completely liquidated and the proceeds thereof distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Property Trustee has been appointed and accepted that appointment in accordance with Article 5. (i) The Property Trustee shall act as paying agent in respect of the Common Securities and the Preferred Securities and, subject to Section 3.08(r), may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to the Preferred Securities. Any such Paying Agent shall comply with ss. 317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the Property Trustee, after consultation with the Regular Trustees, at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Property Trustee, subject to Section 3.08(r). (j) The Property Trustee shall give prompt written notice to the Holders of the Securities of any notice received by it from AES of its election to defer payments of interest on the Debentures by extending the interest payment period with respect thereto. (k) Subject to this Section 3.10, the Property Trustee shall have none of the powers or the authority of the Regular Trustees set forth in Section 3.08. (l) The Property Trustee shall exercise the powers, duties and rights set forth in this Section 3.10 and Section 3.12 in a manner which is consistent with the purposes and functions of the Trust set out in Section 3.05, and the Property Trustee shall not take any action which is inconsistent with the purposes and functions of the Trust set forth in Section 3.05. SECTION 3.11. Delaware Trustee. Notwithstanding any other provision of this Declaration other than Section 5.01(a)(3), the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees and the Property Trustee (except as required under the Business Trust Act) described in this Declaration. Except as set forth in Section 5.01(a)(3), the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of ss. 3807 of the Business Trust Act. No implied covenants or obligations shall be read into this Declaration against the Delaware Trustee. SECTION 3.12. Certain Rights and Duties of the Property Trustee. (a) The Property Trustee, before the occurrence of an Event of Default and after the curing 21 of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration, and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06), the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders as provided herein relating to the time, method 22 and place of conducting any proceeding for any remedy available to the Property Trustee hereunder or under the Indenture, or exercising any trust or power conferred upon the Property Trustee under this Declaration; and (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or adequate indemnity against such risk or liability is not reasonably assured to it. (c) Subject to the provisions of Section 3.12(a) and (b): (i) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part and, if the Trust is excluded from the definition of Investment Company solely by means of Rule 3a-7, subject to the requirements of Rule 3a-7, request and rely upon a certificate, which shall comply with the provisions of ss. 314(e) of the Trust Indenture Act, signed by any two of the Regular Trustees or by an authorized officer of the Sponsor, as the case may be; (ii) The Property Trustee (A) may consult with counsel (which may be counsel to the Sponsor or any of its Affiliates and may include any of its employees) selected by it in good faith and with due care and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (iii) The Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care; 23 (iv) The Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holders, unless such Holders shall have offered to the Property Trustee reasonable security and indemnity against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided that nothing contained in this clause (iv) shall relieve the Property Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Declaration, and to use the same degree of care and skill in this exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and (v) Any action taken by the Property Trustee or its agents hereunder shall bind the Holders of the Securities and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Property Trustee to so act, or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action. SECTION 3.13. Registration Statement and Related Matters. In accordance with the Original Declaration, AES and the Trustees have authorized and directed, and hereby confirm the authorization of, AES, as the sponsor of the Trust, (i) to file with the Commission and execute, in each case on behalf of the Trust, (a) the Registration Statement on Form S-3 (File No. 333-15487) (the "1933 Act Registration Statement") including any amendments thereto and any further pre-effective or post-effective amendments to such Registration Statement, relating to the registration under the Securities Act of the Preferred Securities of the Trust and (b) a Registration Statement on Form 8-A or other appropriate form (the "1934 Act Registration Statement") (including all pre-effective and post-effective amendments thereto) relating to the registration of the Preferred Securities of the Trust under Section 12(b) of the Exchange Act; (ii) to file with the New York Stock Exchange and execute on behalf of the Trust a listing application and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on the New York Stock Exchange; (iii) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Preferred Securities under the securities or "Blue Sky" laws of such jurisdictions as AES on behalf of the Trust, may deem necessary or desirable and (iv) to execute on behalf of the 24 Trust the Underwriting Agreement. In the event that any filing referred to in clauses (i)-(iii) above is required by the rules and regulations of the Commission, the New York Stock Exchange or state securities or blue sky laws, to be executed on behalf of the Trust by the Trustees, the Regular Trustees, in their capacities as Trustees of the Trust, are hereby authorized and directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing, it being understood that the Property Trustee and the Delaware Trustee, in their capacities as Trustees of the Trust, shall not be required to join in any such filing or execute on behalf of the Trust any such document unless required by the rules and regulations of the Commission, the New York Stock Exchange or state securities or blue sky laws. In connection with all of the foregoing, AES and each Trustee, solely in its capacity as Trustee of the Trust, have constituted and appointed, and hereby confirm the appointment of, Barry J. Sharp, William R. Luraschi and Willard Hoagland and each of them, as his, her or its, as the case may be, true and lawful attorneys-in-fact, and agents, with full power of substitution and resubstitution, for AES or such Trustee or in AES's or such Trustee's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as AES or such Trustee might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, shall do or cause to be done by virtue hereof. SECTION 3.14. Filing of Amendments to Certificate of Trust. The Restated Certificate of Trust as filed with the Secretary of State of the State of Delaware on November 1, 1996 and restated on March 27, 1997 is attached hereto as Exhibit A. On or after the date of execution of this Declaration, the Trustees shall cause the filing with the Secretary of State of the State of Delaware of such amendments to the Certificate of Trust as the Trustees shall deem necessary or desirable. 25 SECTION 3.15. Execution of Documents by Regular Trustees. Unless otherwise determined by the Regular Trustees and except as otherwise required by the Business Trust Act with respect to the Certificate of Trust or otherwise, a majority of, or if there are only two, both of, the Regular Trustees are authorized to execute and deliver on behalf of the Trust any documents which the Regular Trustees have the power and authority to execute or deliver pursuant to this Declaration. SECTION 3.16. Trustees Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. SECTION 3.17. Duration of Trust. The Trust, absent termination pursuant to the provisions of Article 8 hereof, shall have existence until November 1, 2031. ARTICLE 4 SPONSOR SECTION 4.01. Purchase of Common Securities by Sponsor. On the Closing Date the Sponsor will purchase all of the Common Securities issued by the Trust at the same time as the Preferred Securities to be issued on such date are issued, such purchase to be in an amount equal to 3% of the total capital of the Trust (including for this purpose the maximum amount of Preferred Securities, if any, which may be issued on the Option Closing Date pursuant to the exercise of the overallotment option set forth in the Underwriting Agreement). SECTION 4.02. Expenses. (a) In connection with the purchase of the Debentures by the Trust, the Sponsor, in its capacity as Sponsor and not as a Holder, shall be responsible for and shall pay for all debts and obligations (other than with respect to the Securities) and all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the issuance of the Preferred Securities to initial purchasers thereof, the fees and expenses (including reasonable counsel fees and expenses) of the Trustees (including any amounts payable under Article 10), the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses 26 for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the disposition of Trust assets). (b) In connection with the purchase of the Debentures by the Trust, the Sponsor, in its capacity as Sponsor and not as a Holder, will pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. (c) The Sponsor's obligations under this Section 4.02 shall be for the benefit of, and shall be enforceable by, any Person to whom any such debts, obligations, costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor has received notice hereof. Any such Creditor may enforce the Sponsor's obligations under this Section 4.02 directly against the Sponsor and the Sponsor irrevocably waives any right or remedy to require that any such Creditor take any action against the Trust or any other Person before proceeding against the Sponsor. The Sponsor agrees to execute such additional agreements as may be necessary or desirable in order to give full effect to the provisions of this Section 4.02. ARTICLE 5 TRUSTEES SECTION 5.01. Number of Trustees; Qualifications. (a) The number of Trustees initially shall be five (5). At any time (i) before the issuance of the Securities, the Sponsor may, by written instrument, increase or decrease the number of, and appoint, remove and replace the, Trustees, and (ii) after the issuance of the Securities the number of Trustees may be increased or decreased solely by, and Trustees may be appointed, removed or replaced solely by, vote of Holders of Common Securities representing a Majority in liquidation amount of the Common Securities voting as a class; provided that in any case: (i) the number of Trustees shall be at least five (5) unless the Trustee that acts as the Property Trustee also acts as the Delaware Trustee, in which cases the number of Trustees shall be at least four (4); (ii) at least a majority of the Trustees shall at all times be officers, directors or employees of AES; 27 (iii) if required by the Business Trust Act, one Trustee (the "Delaware Trustee") shall be either a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise is permitted to act as a Trustee hereunder under the laws of the State of Delaware, except that if the Property Trustee has its principal place of business in the State of Delaware and otherwise is permitted to act as a Trustee hereunder under the laws of the State of Delaware, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application; and (iv) there shall at all times be a Property Trustee hereunder which shall satisfy the requirements of Section 5.01(c). Each Trustee shall be either a natural person at least 21 years of age or a legal entity which shall act through one or more duly appointed representatives. (b) The initial Regular Trustees shall be: William R. Luraschi Willard Hoagland Barry J. Sharp c/o THE AES CORPORATION 1001 North 19th Street Arlington, Virginia 22209 (c) There shall at all times be one Trustee which shall act as Property Trustee. In order to act as Property Trustee hereunder, such Trustee shall: (i) not be an Affiliate of the Sponsor; (ii) be a corporation or national banking association organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation, national banking association or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.01(c)(ii), the combined capital and 28 surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published; and (iii) if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7 and to the extent Rule 3a-7 requires a trustee having certain qualifications to hold title to the "eligible assets" (as defined in Rule 3a-7) of the Trust, the Property Trustee shall possess those qualifications. If at any time the Property Trustee shall cease to satisfy the requirements of clauses (i)-(iii) above, the Property Trustee shall immediately resign in the manner and with the effect set out in Section 5.02(d). If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of ss. 310(b) of the Trust Indenture Act, the Property Trustee and the Holders of the Common Securities (as if such Holders were the obligor referred to in ss. 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of ss. 310(b) of the Trust Indenture Act. The Preferred Guarantee shall be deemed to be specifically described in this Declaration for the purposes of clause (i) of the first proviso contained in ss. 310(b) of the Trust Indenture Act. The initial Trustee which shall serve as the Property Trustee is The First National Bank of Chicago, a national banking association, whose address is as set forth in Section 14.01(b). (d) The initial Trustee which shall serve as the Delaware Trustee is First Chicago Delaware Inc., a Delaware corporation, whose address is as set forth in Section 14.01(c). (e) Any action taken by Holders of Common Securities pursuant to this Article 5 shall be taken at a meeting of Holders of Common Securities convened for such purpose or by written consent as provided in Section 12.02. (f) No amendment may be made to this Section 5.01 which would change any rights with respect to the number, existence or appointment and removal of Trustees, except with the consent of each Holder of Common Securities. SECTION 5.02. Appointment, Removal and Resignation of Trustees. (a) Subject to Section 5.02(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of the Securities, by written instrument executed by the Sponsor; and 29 (ii) after the issuance of the Securities by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class. (b) (i) The Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.02(a) until a Successor Property Trustee possessing the qualifications to act as Property Trustee under Section 5.01(c) has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Regular Trustees, the Sponsor and the Property Trustee being removed; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.02(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Section 5.1(a)(3) (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees, the Sponsor and the Delaware Trustee being removed. (c) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. (d) Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument (a "Resignation Request") in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) no such resignation of the Trustee that acts as the Property Trustee shall be effective until: (A) a Successor Property Trustee possessing the qualifications to act as Property Trustee under Section 5.01(c) has been appointed and has accepted such appointment by instrument executed by such Successor Property Trustee and delivered to the Trust, the Sponsor and the resigning Property Trustee; or (B) if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7, until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Securities; and 30 (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (e) If no Successor Property Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.02 within 60 days after delivery to the Sponsor and the Trust of a Resignation Request, the resigning Property Trustee or Delaware Trustee may petition any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. SECTION 5.03. Vacancies among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.01 or if the number of Trustees is increased pursuant to Section 5.01, a vacancy shall occur. A resolution certifying the existence of such vacancy by a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with the requirements of this Article 5. SECTION 5.04. Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee, or any one of them, shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur until such vacancy is filled as provided in this Article 5, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. SECTION 5.05. Meetings. Meetings of the Regular Trustees shall be held from time to time upon the call of any Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in-person meeting of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meeting of the Regular Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before such meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular 31 Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter; provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. SECTION 5.06. Delegation of Power. (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any registration statement or amendment thereto or other document or schedule filed with the Commission or making any other governmental filing (including, without limitation to filings referred to in Section 3.13). (b) The Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. ARTICLE 6 DISTRIBUTIONS SECTION 6.01. Distributions. Holders shall receive periodic distributions, redemption payments and liquidation distributions in accordance with the applicable terms of the relevant Holder's Securities ("Distributions"). Distributions shall be made to the Holders of Preferred Securities and Common Securities in accordance with the terms of the Securities as set forth in Exhibits B and C hereto. If and to the extent that AES makes a payment of interest (including Compounded Interest (as defined in the Indenture)), premium and principal on the Debentures held by the Property Trustee (the amount of any such payment being a "Payment Amount"), the Property Trustee shall and is directed to promptly make a Distribution of the Payment Amount to Holders in accordance with the terms of the Securities as set forth in Exhibits B and C hereto. 32 ARTICLE 7 ISSUANCE OF SECURITIES SECTION 7.01. General Provisions Regarding Securities. (a) The Regular Trustees shall issue on behalf of the Trust securities in fully registered form representing undivided beneficial interests in the assets of the Trust in accordance with Section 7.01(b) and for the consideration specified in Section 3.03. (b) The Regular Trustees shall issue on behalf of the Trust one class of preferred securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit B (the "Preferred Securities") which terms are incorporated by reference in, and made a part of, this Declaration as if specifically set forth herein, and one class of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit C (the "Common Securities") which terms are incorporated by reference in, and made a part of, this Declaration as if specifically set forth herein. The Trust shall have no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. (c) The Certificates shall be signed on behalf of the Trust by the Regular Trustees (or if there are more than two Regular Trustees by any two of the Regular Trustees). Such signatures may be the manual or facsimile signatures of the present or any future Regular Trustee. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity of any Certificate. In case any Regular Trustee of the Trust who shall have signed any of the Certificates shall cease to be such Regular Trustee before the Certificate so signed shall be delivered by the Trust, such Certificate nevertheless may be delivered as though the person who signed such Certificate had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons as, at the actual date of the execution of such Certificate, shall be the Regular Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such a Regular Trustee. Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Securities may be listed, or to conform to usage. Pending the preparation of definitive Certificates, the Regular Trustees on behalf 33 of the Trust may execute temporary Certificates (printed, lithographed or typewritten), in substantially the form of the definitive Certificates in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Certificates, all as may be determined by the Regular Trustees. Each temporary Certificate shall be executed by the Regular Trustees on behalf of the Trust upon the same conditions and in substantially the same manner, and with like effect, as definitive Certificates. Without unnecessary delay, the Regular Trustees on behalf of the Trust will execute and furnish definitive Certificates and thereupon any or all temporary Certificates may be surrendered to the transfer agent and registrar in exchange therefor (without charge to the Holders). Each Certificate whether in temporary or definitive form shall be countersigned by the manual or facsimile signature of an authorized signatory of the Person acting as registrar and transfer agent for the Securities, which shall initially be the Property Trustee. (d) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (e) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable. (f) Every Person, by virtue of having become a Holder or a Preferred Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by this Declaration. (g) Upon issuance of the Securities as provided in this Declaration, the Regular Trustees on behalf of the Trust shall return to AES the $10 constituting initial trust assets as set forth in the Original Declaration. SECTION 7.02. Conversion Agent. The Trust shall maintain an office or agency where Preferred Securities may be presented for conversion ("Conversion Agent"). The Trust may appoint the Conversion Agent and may appoint one or more additional Conversion Agents in such other locations as it may determine. The term "Conversion Agent" includes any additional Conversion Agent. The Trust may change any Conversion Agent without prior notice to any Holders. If the Trust fails to appoint or maintain another entity as Conversion Agent, the Property Trustee will act as such. The Trust or any of its Affiliates may act as Conversion Agent. The Trust shall act as Conversion Agent for the Common Securities. The Conversion Agent shall be entitled to the rights and protections extended to the Property Trustee when acting in such capacity. 34 The Property Trustee is hereby initially appointed as Conversion Agent for the Preferred Securities. ARTICLE 8 TERMINATION OF TRUST SECTION 8.01. Termination of Trust. This Declaration and the Trust shall terminate and be of no further force or effect when: (a) all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders of Securities in accordance with the terms of the Securities; or (b) all of the Debentures shall have been distributed to the Holders of Securities in exchange for all of the Securities in accordance with the terms of the Securities; or (c) upon the expiration of the term of the Trust as set forth in Section 3.17; or, (d) upon the distribution of the Sponsor's common stock to all Securities Holders upon conversion of all outstanding Preferred Securities. and a certificate of cancellation is filed by the Trustees with the Secretary of State of the State of Delaware. The Trustees shall so file such a certificate as soon as practicable after the occurrence of an event referred to in this Section 8.01. The provisions of Sections 3.12 and 4.02 and Article 10 shall survive the termination of the Trust. ARTICLE 9 TRANSFER OF INTERESTS SECTION 9.01. Transfer of Securities. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration. Any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. 35 (b) Subject to this Article 9, Preferred Securities shall be freely transferable. (c) Subject to this Article 9, AES and any Related Party may only transfer Common Securities to AES or a Related Party; provided that any such transfer shall be subject to the condition that the transferor shall have obtained (1) either a ruling from the Internal Revenue Service or an unqualified written opinion addressed to the Trust and delivered to the Trustees of nationally recognized independent tax counsel experienced in such matters to the effect that such transfer will not (i) cause the Trust to be treated as issuing a class of interests in the Trust differing from the class of interests represented by the Common Securities originally issued to AES, (ii) result in the Trust acquiring or disposing of, or being deemed to have acquired or disposed of, an asset, or (iii) result in or cause the Trust to be treated as anything other than a grantor trust for United States federal income tax purposes and (2) an unqualified written opinion addressed to the Trust and delivered to the Trustees of a nationally recognized independent counsel experienced in such matters that such transfer will not cause the Trust to be an Investment Company or controlled by an Investment Company. SECTION 9.02. Transfer of Certificates. The Regular Trustees shall provide for the registration of Certificates and of transfers of Certificates, which will be effected without charge but only upon payment (with such indemnity as the Regular Trustees may require) in respect of any tax or other government charges which may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration. SECTION 9.03. Deemed Security Holders. The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trustees shall have actual or other notice thereof. 36 SECTION 9.04. Book Entry Interests. Unless otherwise specified in the terms of the Preferred Securities, the Preferred Securities Certificates, on original issuance (including Preferred Securities, if any, issued on the Option Closing Date pursuant to the exercise of the overallotment option set forth in the Underwriting Agreement), will be issued in the form of one or more, fully registered, global Preferred Security Certificates (each a "Global Certificate"), to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of DTC, and no Preferred Security Beneficial Owner will receive a definitive Preferred Security Certificate representing such Preferred Security Beneficial Owner's interests in such Global Certificates, except as provided in Section 9.07. Unless and until definitive, fully registered Preferred Security Certificates (the "Definitive Preferred Security Certificates") have been issued to the Preferred Security Beneficial Owners pursuant to Section 9.07: (a) the provisions of this Section 9.04 shall be in full force and effect; (b) (i) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Certificates and receiving approvals, votes or consents hereunder) as the Holder of the Preferred Securities and the sole holder of the Global Certificates and, except as set forth herein or in Rule 3a-7 with respect to the Property Trustee, shall have no obligation to the Preferred Security Beneficial Owners; provided, that solely for the purposes of determining whether the Holders of the requisite amount of Preferred Securities have voted on any matter provided for in this Declaration, so long as definitive Preferred Security Certificates have not been issued (pursuant to Section 9.07 hereof), the Trustees may conclusively rely on, and shall be protected in relying on, any written instrument (including a proxy) delivered to the Trustees by the Clearing Agency setting forth the Preferred Security Beneficial Owners' votes or assigning the right to vote on any matter to any other Persons either in whole or in part; (c) to the extent that the provisions of this Section 9.04 conflict with any other provisions of this Declaration, the provisions of this Section 9.04 shall control; and (d) the rights of the Preferred Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Preferred Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants. DTC will make book entry transfers among the Clearing Agency Participants and 37 receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants. SECTION 9.05. Notices to Holders of Certificates. Whenever a notice or other communication to the Holders is required to be given under this Declaration, unless and until Definitive Preferred Security Certificates shall have been issued pursuant to Section 9.07, the relevant Trustees shall give all such notices and communications, specified herein to be given to Preferred Securities Holders, to the Clearing Agency and, with respect to any Preferred Security Certificate registered in the name of a Clearing Agency or the nominee of a Clearing Agency, the Trustees shall, except as set forth herein or in Rule 3a-7 with respect to the Property Trustee, have no notice obligations to the Preferred Security Beneficial Owners. SECTION 9.06. Appointment of Successor Clearing Agency. If any Clearing Agency elects to discontinue its services as securities depository with respect to the Preferred Securities, the Regular Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to the Preferred Securities. SECTION 9.07. Definitive Preferred Securities Certificates. If (i) a Clearing Agency elects to discontinue its services as securities depository with respect to the Preferred Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 9.06 or (ii) the Regular Trustees elect after consultation with the Sponsor to terminate the book entry system through the Clearing Agency with respect to the Preferred Securities, then (x) Definitive Preferred Security Certificates shall be prepared by the Regular Trustees on behalf of the Trust with respect to such Preferred Securities and (y) upon surrender of the Global Certificates by the Clearing Agency, accompanied by registration instructions, the Regular Trustees shall cause definitive Preferred Security Certificates to be delivered to Preferred Security Beneficial Owners in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on and shall be protected in relying on, such instructions. SECTION 9.08. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, any two Regular Trustees on behalf of the 38 Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.08, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE 10 LIMITATION OF LIABILITY; INDEMNIFICATION SECTION 10.01. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (but, in the case of the Property Trustee, subject to the Trust Indenture Act) or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. (c) Pursuant to ss. 3803(a) of the Business Trust Act, the Holders of Securities, in their capacities as Holders, shall be entitled to the same limitation of liability that is extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.02. Indemnification. (a) To the fullest extent permitted by applicable law, the Sponsor shall indemnify and hold harmless each Indemnified 39 Person from and against any loss, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (but, in the case of the Property Trustee, subject to the Trust Indenture Act) or willful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Sponsor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 10.02(a). (c) The provisions of this Section 10.02 shall survive the termination of this Declaration or the resignation or removal of any Trustee. SECTION 10.03. Outside Business. The Sponsor and any Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. Neither the Sponsor nor any Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Sponsor or any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. 40 ARTICLE 11 ACCOUNTING SECTION 11.01. Fiscal Year. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 11.02. Certain Accounting Matters. (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. The books and records of the Trust, together with a copy of this Declaration and a certified copy of the Certificate of Trust, or any amendment thereto, shall at all times be maintained at the principal office of the Trust and shall be open for inspection for any examination by any Holder or its duly authorized representative for any purpose reasonably related to its interest in the Trust during normal business hours. (b) The Regular Trustees shall cause to be prepared and mailed to each Holder of Securities, an annual United States federal income tax information statement, on such form as is required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (c) The Regular Trustees shall cause to be prepared and filed with the appropriate taxing authority, an annual United States federal income tax return, on such form as is required by the Code, and any other annual income tax returns required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority, such returns to be filed as soon as practicable after the end of each Fiscal Year of the Trust. 41 SECTION 11.03. Banking. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by the Property Trustee shall be made directly to the Property Account and no other funds from the Trust shall be deposited in the Property Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Property Trustee shall designate the sole signatories for the Property Account. SECTION 11.04. Withholding. The Trust and the Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Trust shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount to be withheld was not withheld from a Distribution, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE 12 AMENDMENTS AND MEETINGS SECTION 12.01. Amendments. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may be amended by, and only by, a written instrument executed by a majority of the Regular Trustees; provided, however, that (i) no amendment to this Declaration shall be made unless the Regular Trustees shall have obtained (A) either a ruling from the Internal Revenue Service or a written unqualified opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such amendment will not cause the Trust to be classified for United States federal income tax purposes as an association taxable as a corporation or a partnership and to the effect that the Trust will continue to be treated as a grantor trust for purposes of United States federal income taxation and (B) a written unqualified opinion of nationally recognized independent counsel experienced in such matters 42 to the effect that such amendment will not cause the Trust to be an Investment Company which is required to be registered under the Investment Company Act, (ii) at such time after the Trust has issued any Securities which remain outstanding, any amendment which would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities, (iii) Section 4.02, Section 9.01(c) and this Section 12.01 shall not be amended without the consent of all of the Holders of the Securities, (iv) no amendment which adversely affects the rights, powers and privileges of the Property Trustee shall be made without the consent of the Property Trustee, (v) Article 4 shall not be amended without the consent of the Sponsor, and (vi) the rights of Holders of Common Securities under Article 5 to increase or decrease the number of, and to appoint, replace or remove, Trustees shall not be amended without the consent of each Holder of Common Securities. (b) Notwithstanding Section 12.02(a)(ii), this Declaration may be amended without the consent of the Holders of the Securities to (i) cure any ambiguity, (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration, (iii) to add to the covenants, restrictions or obligations of the Sponsor, and (iv) to conform to any changes in Rule 3a-7 or any change in interpretation or application of Rule 3a-7 by the Commission, which amendment does not adversely affect the rights, preferences or privileges of the Holders. SECTION 12.02. Meetings of the Holders of Securities; Action by Written Consent. (a) Meetings of the Holders of Preferred Securities and/or Common Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Preferred Securities are listed or admitted for trading. The Regular Trustees shall call a meeting of Holders of Preferred Securities or Common Securities, if directed to do so by Holders of at least 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Regular Trustees one or more calls in a writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Certificates held by the Holders of Securities exercising the right to call a meeting and only those specified Certificates shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. 43 (b) Except to the extent otherwise provided in the terms of the Securities, the following provision shall apply to meetings of Holders of Securities: (i) Notice of any such meeting shall be given by mail to all the Holders of Securities having a right to vote thereat not less than 7 days nor more than 60 days prior to the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration or the rules of any stock exchange on which the Preferred Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by Holders of Securities owning not less than the minimum aggregate liquidation amount of Securities that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to the Holders of Securities for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees. (ii) Each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of a Security is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of the Security executing it. Except as otherwise provided herein or in the terms of the Securities, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation. (iii) Each meeting of the Holders of the Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate. (iv) Unless otherwise provided in the Business Trust Act, this Declaration or the rules of any stock exchange on which the Preferred 44 Securities are then listed or admitted for trading, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE 13 REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.01. Representations and Warranties of Property Trustee. (a) The Trustee which acts as initial Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as Property Trustee that: (i) The Property Trustee is a national banking association or a banking corporation with trust powers, duly organized, validly existing and in good standing under the laws of the United States or the laws of the state of its incorporation, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration. (ii) The execution, delivery and performance by the Property Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Property Trustee. The Declaration has been duly executed and delivered by the Property Trustee, and constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law). (iii) The execution, delivery and performance of this Declaration by the Property Trustee does not conflict with or constitute a breach of the Charter or By-laws of the Property Trustee. 45 (iv) No consent, approval or authorization of, or registration with or notice to, any banking authority which supervises or regulates the Property Trustee is required for the execution, delivery or performance by the Property Trustee, of this Declaration. (v) The Property Trustee satisfies the qualifications set forth in Section 5.01(c). (b) The Trustee which acts as initial Delaware Trustee represents and warrants to the Trust and the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee, that it satisfies the qualifications set forth in Section 5.01(a)(3). ARTICLE 14 MISCELLANEOUS SECTION 14.01. Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Regular Trustees on behalf of the Trust may give notice of to the Holders of the Securities): AES Trust I c/o The AES Corporation 1001 North 19th Street Arlington, Virginia 22209 Attention: General Counsel Facsimile No: (703) 528-4510 (b) if given to the Property Trustee, at the mailing address of the Property Trustee set forth below (or such other address as the Property Trustee may give notice of to the Holders of the Securities): The First National Bank of Chicago One First National Plaza, Suite 0126 Chicago, IL 60670-0126 46 Attention: Corporate Trust Administrator Telecopy: (312) 407-1708 (c) if given to the Delaware Trustee, at the mailing address of the Delaware Trustee set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Securities): First Chicago Delaware Inc. 300 King Street Wilmington, Delaware 19801 Telecopy: (312) 407-1708 (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): The AES Corporation 1001 North 19th Street Arlington, Virginia 22209 Attention: Corporate Secretary Facsimile No: (703) 528-4510 (e) if given to any other Holder, at the address set forth on the books and records of the Trust. A copy of any notice to the Property Trustee or the Delaware Trustee shall also be sent to the Trust. All notices shall be deemed to have been given, when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 14.02. Undertaking for Costs. All parties to this Declaration agree, and each Holder of any Securities by his or her acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Declaration, or in any suit against the Property Trustee for any action taken or omitted by it as Property Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 14.02 shall not apply to any suit 47 instituted by the Property Trustee, to any suit instituted by any Holder of Preferred Securities, or group of Holders of Preferred Securities, holding more than 10% in aggregate liquidation amount of the outstanding Preferred Securities, or to any suit instituted by any Holder of Preferred Securities for the enforcement of the payment of the principal of (or premium, if any) or interest on the Debentures, on or after the respective due dates expressed in such Debentures. SECTION 14.03. Governing Law. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. SECTION 14.04. Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 14.05. Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 14.06. Counterparts. This Declaration may contain more than one counterpart of the signature pages and this Declaration may be executed by the affixing of the signature of the Sponsor and each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. SECTION 14.07. Intention of the Parties. It is the intention of the parties hereto that the Trust not be classified for United States federal income tax purposes as an association taxable as a corporation or partnership but that the Trust be treated as a grantor trust for United States federal income tax purposes. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 14.08. Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. 48 IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. THE AES Corporation as Sponsor By: /s/ BARRY J. SHARP ------------------------------------------------- Name: Barry J. Sharp Title: Vice PREsident and Chief Financial Officer /s/ WILLIAM R. LURASCHI ------------------------------------------------- William R. Luraschi as Trustee /s/ WILLARD J. HOAGLAND ------------------------------------------------- Willard Hoagland as Trustee /s/ BARRY J. SHARP ------------------------------------------------- Barry J. Sharp as Trustee The First National Bank of Chicago as Property Trustee By: /s/ MARY R. FONTI ------------------------------------------------- Name: Mary R. Fonti Title: Assistant Vice President First Chicago Delaware Inc. as Delaware Trustee By: /s/ MELISSA S. WEISMAN ------------------------------------------------- Name:Melissa S. Weisman Title: Vice President 49 EXHIBIT A RESTATED CERTIFICATE OF TRUST OF AES TRUST I THIS Restated Certificate of Trust of AES Capital Trust I (the "Trust"), dated March 26, 1996, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. Code ss. 3801 et seq.). WHEREAS, the Trustees entered into a Certificate of Trust dated as of November 1, 1996 (the "Original Certificate") in order to form a business trust under the Delaware Business Trust Act (12 Del. Code ss. 3801 et seq.). NOW, THERETOFORE, it is the intention of the parties hereto that the Original Certificate of Trust be amended and restated in its entirety as provided herein. 1. Name. The name of the business trust being formed hereby is AES Trust I. 2. Delaware Trustee. The name and business address of the trustee of the Trust with a principal place of business in the State of Delaware is First Chicago Delaware Inc., 300 King Street, Wilmington, Delaware 19801. 3. Effective Date. This Certificate of Trust shall be effective as of its filing. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, have executed this Certificate of Trust as of the date first above written. First Chicago Delaware Inc. as Delaware Trustee /s/ Steven M. Wagner ------------------------ Name: Steven M. Wagner Title: Vice President The First National Bank of Chicago as Property Trustee /s/ Richard D. Manella -------------------------- Name: Richard D. Manella Title: Vice President /s/ William R. Luraschi -------------------------- William R. Luraschi as Trustee /s/ Willard Hoagland -------------------------- Willard Hoagland as Trustee /s/ Barry J. Sharp -------------------------- Barry J. Sharp as Trustee EXHIBIT B TERMS OF PREFERRED SECURITIES Pursuant to Section 7.01 of the Amended and Restated Declaration of Trust of AES Trust I dated as of March 31, 1997 (as amended from time to time, the "Declaration"), the designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth below (each capitalized term used but not defined herein having the meaning set forth in the Declaration): 1. DESIGNATION AND NUMBER. Preferred Securities of the Trust with an aggregate liquidation amount in the assets of the Trust of Two Hundred and Fifty Million Dollars ($250,000,000) (plus up to an additional Twenty Five Million Dollars ($25,000,000) issuable upon exercise of the overallotment option set forth in the Underwriting Agreement) and a liquidation amount in the assets of the Trust of $50 per Preferred Security, are hereby designated as "$2.6875 Term Convertible Securities, Series A". The Preferred Security Certificates evidencing the Preferred Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange on which the Preferred Securities are listed. In connection with the issuance and sale of the Preferred Securities and the Common Securities, the Trust will purchase as trust assets Debentures of AES having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and Common Securities so issued and bearing interest at an annual rate equal to the annual Distribution rate on the Preferred Securities and Common Securities and having payment and redemption provisions which correspond to the payment and redemption provisions of the Preferred Securities and Common Securities. 2. DISTRIBUTIONS. (a) Distributions payable on each Preferred Security will be fixed at a rate per annum of 5.375% (the "Coupon Rate") of the stated liquidation amount of $50 per Preferred Security. Distributions in arrears for more than one calendar quarter will bear interest at the rate per annum of 5.375% thereof (to the extent permitted by law), compounded quarterly. The term "Distributions" as used herein means such periodic cash distributions and any such interest payable unless otherwise stated. A Distribution will be made by the Property Trustee only to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. The amount of Distributions payable for any period will be computed for any quarterly Distribution period on the basis of a 360-day year of twelve 30-day months. (b) Distributions on the Preferred Securities will be cumulative, will accrue from March 31, 1997 and will be payable quarterly in arrears, on the last day of each quarter commencing on June 30, 1997, except as otherwise described below, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as AES shall not be in default in the payment of interest on the Debentures, AES has the right under the Indenture for the Debentures to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarterly interest periods (each, an "Extension Period") and, as a consequence, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the rate of 5.375% per annum, compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, AES may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods; and provided that no Extension Period shall last beyond the date of maturity or any redemption date of the Debentures.. Upon the termination of any Extension Period and the payment of all amounts then due, AES may commence a new Extension Period, subject to the above requirements. Payments of accrued Distributions will be payable to Holders of Preferred Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. (c) Distributions on the Preferred Securities will be payable promptly by the Property Trustee (or other Paying Agent) upon receipt of immediately available funds to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. While the Preferred Securities remain in book-entry only form, the relevant record dates shall be one business day prior to the relevant Distribution date, and if the Preferred Securities are no longer in book-entry only form, the Regular Trustees shall have the right to select relevant record dates which shall be more than one business day prior to the relevant payment dates. Distributions payable on any Preferred Securities that are not punctually paid on any Distribution payment date as a result of AES having failed to make the corresponding interest payment on the Debentures will forthwith cease to be payable to the person in whose name such Preferred Security is registered on the relevant record date, and such defaulted Distribution will instead be payable to the person in whose name such Preferred Security is registered on the special record date established by the Regular Trustees, which record date shall correspond to the special record date or other specified date determined in accordance with the Indenture; provided, however, that Distributions shall not be considered payable on any Distribution payment date falling within an Extension Period unless AES has elected to make a full or partial payment of interest 2 accrued on the Debentures on such Distribution payment date. Subject to any applicable laws and regulations and the provisions of the Declaration, each payment in respect of the Preferred Securities will be made as described in paragraph 10 hereof. If any date on which Distributions are payable on the Preferred Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (d) All Distributions paid with respect to the Preferred Securities and the Common Securities will be paid Pro Rata to the Holders thereof entitled thereto. If an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to Distributions. (e) In the event of an election by the Holder to convert its Securities through the Conversion Agent into Common Stock pursuant to the terms of the Securities as set forth in this Exhibit B to the Declaration, no payment, allowance or adjustment shall be made with respect to accumulated and unpaid Distributions on such Securities, or be required to be made; provided, however, that if a Security is surrendered for conversion after the close of business on any regular record date for payment of a Distribution and before the opening of business on the corresponding Distribution date, then, notwithstanding such conversion, the Distribution payable on such Distribution date will be paid in cash to the person in whose name the Security is registered at the close of business on such record date, and (other than a Security or a portion of a Security called for redemption on a redemption date occurring after such record date and on or prior to such Distribution date) when so surrendered for conversion, the Security must be accompanied by payment of an amount equal to the Distribution payable on such Distribution date. (f) In the event that there is any money or other property held by or for the Trust that is not accounted for under the Declaration, such money or property shall be distributed Pro Rata among the Holders of the Preferred Securities and Common Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any voluntary or involuntary dissolution, winding-up or termination of the Trust, the Holders of the Preferred Securities and Common Securities at the date of the dissolution, winding-up or termination, as the case may be, will be entitled to receive Pro Rata solely out of the assets of the Trust available for distribution to Holders of Preferred Securities and Common Securities after satisfaction of liabilities to creditors, an amount equal to the aggregate of the stated liquidation amount of $50 per 3 Preferred Security and Common Security plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless, in connection with such dissolution, winding-up or termination, and after satisfaction of liabilities to creditors, Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Preferred Securities and Common Securities and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, such Preferred Securities and Common Securities, shall be distributed Pro Rata to the Holders of the Preferred Securities and Common Securities in exchange for such Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Preferred Securities and Common Securities shall be paid, subject to the next paragraph, on a Pro Rata basis. Holders of Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution Pro Rata with Holders of Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to such Liquidation Distribution. 4. REDEMPTION AND DISTRIBUTION OF DEBENTURES. The Preferred Securities and Common Securities may only be redeemed if Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and Common Securities are repaid, redeemed or distributed as set forth below: (a) Upon the repayment of the Debentures, in whole or in part, whether at maturity, upon redemption at any time or from time to time on or after March 31, 2000, or at any time in certain circumstances upon the occurrence of a Tax Event, the proceeds of such repayment will be promptly applied to redeem Pro Rata Preferred Securities and Common Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed, upon not less than 30 nor more than 60 days' notice, at a redemption price per Preferred and Common Security equal to the redemption price of the Debentures, together with accrued and unpaid Distributions thereon through the date of redemption, payable in cash (the "Redemption Price"). The date of any such repayment or redemption of Preferred Securities and Common Securities shall be established to coincide with the repayment or redemption date of the Debentures. (b) If fewer than all the outstanding Preferred Securities and Common Securities are to be so redeemed, the Preferred Securities and the Common Securities will be redeemed Pro Rata and the Preferred Securities to be redeemed will be 4 redeemed as described in paragraph 4(f)(ii) below. If a partial redemption would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed, AES pursuant to the Indenture will only redeem Debentures in whole and, as a result, the Trust may only redeem the Preferred Securities in whole. (c) If, at any time, a Tax Event or an Investment Company Event (each as hereinafter defined, and each a "Special Event") shall occur and be continuing, the Regular Trustees shall, unless the Debentures are redeemed in the limited circumstances described below, dissolve the Trust and, after satisfaction of creditors, cause Debentures held by the Property Trustee having an aggregate principal amount equal to the aggregate stated liquidation amount of and accrued and unpaid interest equal to accrued and unpaid Distributions on, and having the same record date for payment as the Preferred Securities and Common Securities, to be distributed to the Holders of the Preferred Securities and Common Securities on a Pro Rata basis in liquidation of such Holders' interests in the Trust, within 90 days following the occurrence of such Special Event (the "90 Day Period"), provided, however, that in the case of the occurrence of a Tax Event, as a condition of such dissolution and distribution, the Regular Trustees shall have received an opinion of a nationally recognized independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on any then applicable published revenue ruling of the Internal Revenue Service, to the effect that the Holders of the Preferred Securities will not recognize any gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and distribution of Debentures; and provided, further, that, if and as long as at the time there is available to the Trust the opportunity to eliminate, within the 90 Day Period, the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that has no adverse effect on the Trust, AES or the Holders of the Preferred Securities ("Ministerial Action"), the Trust will pursue such measure in lieu of dissolution. If in the case of the occurrence of a Tax Event, (i) the Regular Trustees have received an opinion (a "Redemption Tax Opinion") of nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that AES would be precluded from deducting the interest on the Debentures for United States federal income tax purposes even if the Debentures were distributed to the Holders of Preferred Securities and Common Securities in liquidation of such Holder's interest in the Trust as described in this paragraph 4(c) or (ii) the Regular Trustees shall have been informed by such tax counsel that a No Recognition Opinion cannot be delivered to the Trust, AES shall have the right at any time, upon not less than 30 nor more than 60 days' notice, to redeem the Debentures in whole or in part for cash at the Redemption Price within 90 days following the occurrence of such Tax Event, and promptly following such 5 redemption Preferred Securities and Common Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed will be redeemed by the Trust at the Redemption Price on a Pro Rata basis; provided, however, that, if at the time there is available to AES or the Regular Trustees on behalf of the Trust the opportunity to eliminate, within such 90 day period, the Tax Event by taking some Ministerial Action, AES or the Regular Trustees on behalf of the Trust will pursue such measure in lieu of redemption and; provided, further, that AES shall have no right to redeem the Debentures while the Regular Trustees on behalf of the Trust are pursuing such Ministerial Action. The Common Securities will be redeemed Pro Rata with the Preferred Securities, except that if an Event of Default under the Indenture has occurred and is continuing, the Preferred Securities will have a priority over the Common Securities with respect to payment of the Redemption Price. "Tax Event" means that the Regular Trustees shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after March 24, 1997 as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after March 24, 1997, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date thereof, subject to United States federal income tax with respect to income accrued or received on the Debentures, (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of other taxes, duties or other governmental charges or (iii) interest payable by AES to the Trust on the Debentures is not, or within 90 days of the date thereof will not be, deductible by AES for United States federal income tax purposes. "Investment Company Event" means that the Regular Trustees shall have received an opinion of nationally recognized independent counsel experienced in practice under the Investment Company Act that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust 6 is or will be considered an Investment Company which is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after March 24, 1997. On the date fixed for any distribution of Debentures, upon dissolution of the Trust, (i) the Preferred Securities will no longer be deemed to be outstanding and (ii) certificates representing Preferred Securities will be deemed to represent beneficial interests in the Debentures having an aggregate principal amount equal to the stated liquidation amount of, and bearing accrued and unpaid interest equal to accrued and unpaid Distributions on, such Preferred Securities until such certificates are presented to AES or its agent for transfer or reissuance. (d) The Trust may not redeem any outstanding Preferred Securities unless all accrued and unpaid Distributions have been paid on all Preferred Securities for all quarterly Distribution periods terminating on or prior to the date of redemption. (e) If Debentures are distributed to Holders of the Preferred Securities, AES, pursuant to the terms of the Indenture, will use its best efforts to have the Debentures listed on the New York Stock Exchange or on such other exchange as the Preferred Securities were listed immediately prior to the distribution of the Debentures. (f) (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Preferred Securities and Common Securities (a "Redemption/ Distribution Notice") will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Preferred Securities and Common Securities to be redeemed or exchanged not less than 30 nor more than 60 days prior to the date fixed for redemption or exchange thereof. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this paragraph (f)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Preferred Securities and Common Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Preferred Securities and Common Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Preferred Securities are to be redeemed, the Preferred Securities to be redeemed will be redeemed Pro Rata from each Holder of Preferred Securities, it being understood that, in respect of Preferred Securities registered in the name of and held of record by DTC (or successor Clearing Agency) or any other nominee, the Preferred Securities will be redeemed from, and the distribution of the proceeds of such redemption will be made to, each Clearing 7 Agency Participant (or person on whose behalf such nominee holds such securities) in accordance with the procedures applied by such agency or nominee. (iii) Subject to paragraph 10 hereof, if the Trust gives a Redemption/ Distribution Notice in respect of a redemption of Preferred Securities as provided in this paragraph 4 (which notice will be irrevocable) then (A) while the Preferred Securities are in book-entry only form, with respect to the Preferred Securities, by 12:00 noon, New York City time, on the redemption date, provided that AES has paid the Property Trustee, in immediately available funds, a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Property Trustee will deposit irrevocably with DTC (or successor Clearing Agency) funds sufficient to pay the applicable Redemption Price with respect to the Preferred Securities and will give DTC (or successor Clearing Agency) irrevocable instructions and authority to pay the Redemption Price to the Holders of the Preferred Securities and (B) if the Preferred Securities are issued in definitive form, with respect to the Preferred Securities and provided that AES has paid the Property Trustee, in immediately available funds, a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Property Trustee will pay the relevant Redemption Price to the Holders of such Preferred Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given and funds deposited as required, if applicable, then immediately prior to the close of business on the date of such deposit, Distributions will cease to accrue on the Preferred Securities called for redemption, such Preferred Securities will no longer be deemed to be outstanding and all rights of Holders of such Preferred Securities so called for redemption will cease, except the right of the Holders of such Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Preferred Securities which have been so called for redemption. If any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If AES fails to repay Debentures on maturity or on the date fixed for this redemption or if payment of the Redemption Price in respect of Preferred Securities is improperly withheld or refused and not paid either by the Property Trustee or by AES pursuant to the Preferred Securities Guarantee, Distributions on such Preferred Securities will continue to accrue, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. 8 (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to DTC or its nominee (or any successor Clearing Agency or its nominee) if the Global Certificates have been issued or, if Definitive Preferred Security Certificates have been issued, to the Holders of the Preferred Securities. (v) Upon the date of dissolution of the Trust and distribution of Debentures as a result of the occurrence of a Special Event, Preferred Security Certificates shall be deemed to represent beneficial interests in the Debentures so distributed, and the Preferred Securities will no longer be deemed outstanding and may be canceled by the Regular Trustees. The Debentures so distributed shall have an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities so distributed. (vi) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), AES or any of its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. 5. CONVERSION RIGHTS. The Holders of Securities shall have the right at any time prior to the close of business on March 31, 2027 (or, in the case of Securities called for redemption, prior to the close of business on the Business Day prior to the redemption date), at their option, to cause the Conversion Agent to convert Securities, on behalf of the converting Holders, into shares of Common Stock in the manner described herein on and subject to the following terms and conditions: The Securities will be convertible at the office of the Conversion Agent into fully paid and nonassessable shares of Common Stock pursuant to the Holder's direction to the Conversion Agent to exchange such Securities for a portion of the Debentures theretofore held by the Trust on the basis of one Security per $50 principal amount of Debentures, and immediately convert such amount of Debentures into fully paid and nonassessable shares of Common Stock at an initial rate of 0.6906 shares of Common Stock per $50 principal amount of Debentures (which is equivalent to a conversion price of $72.40 per share of Common Stock, subject to certain adjustments set forth in Sections 5.03 and 5.04 of the Supplemental Indenture (as so adjusted, the "Conversion Price")). (a) In order to convert Securities into Common Stock the Holder shall submit to the Conversion Agent at the office referred to above an irrevocable request to convert Securities on behalf of such Holder (the "Conversion Request"), together, if the Securities are in certificated form, with such certificates. The Conversion Request shall (i) set forth the number of Securities to be converted and the name or names, if other than the Holder, in which the shares of Common Stock should be issued and (ii) direct the Conversion Agent (a) to exchange such Securities for a 9 portion of the Debentures held by the Trust (at the rate of exchange specified in the preceding paragraph) and (b) to immediately convert such Debentures on behalf of such Holder, into Common Stock (at the conversion rate specified in the preceding paragraph). The Conversion Agent shall notify the Property Trustee of the Holder's election to exchange Securities for a portion of the Debentures held by the Trust and the Property Trustee shall, upon receipt of such notice, deliver to the Conversion Agent the appropriate principal amount of Debentures for exchange in accordance with this Section. The Conversion Agent shall thereupon notify the Property Trustee of the Holder's election to convert such Debentures into shares of Common Stock. If a Security is surrendered for conversion after the close of business on any regular record date for payment of a Distribution and before the opening of business on the corresponding Distribution payment date, then, notwithstanding such conversion, the Distribution payable on such Distribution payment date will be paid in cash to the person in whose name the Security is registered at the close of business on such record date, and (other than a Security or a portion of a Security called for redemption on a redemption date occurring after such record date and on or prior to such Distribution payment date) when so surrendered for conversion, the Security must be accompanied by payment of an amount equal to the Distribution payable on such Distribution payment date. Except as provided above, neither the Trust nor the Sponsor will make, or be required to make, any payment, allowance or adjustment upon any conversion on account of any accumulated and unpaid Distributions accumulated on the Securities surrendered for conversion, or on account of any accumulated and unpaid dividends on the shares of Common Stock issued upon such conversion. Securities shall be deemed to have been converted immediately prior to the close of business on the day on which the Conversion Request relating to such Securities is received by the Trust in accordance with the foregoing provision (the "Conversion Date"). The Person or Persons entitled to receive Common Stock issuable upon conversion of the Debentures shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the Conversion Date, the Sponsor shall issue and deliver at the office of the Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same, unless otherwise directed by the Holder in the Conversion Request and the Conversion Agent shall distribute such certificate or certificates, together with the applicable cash payment, if any, to such Person or Persons. (b) Each Holder of a Security by his acceptance thereof appoints The First National Bank of Chicago "Conversion Agent" for the purpose of effecting the conversion of Securities in accordance with this Section. In effecting the conversion and transactions described in this Section, the Conversion Agent shall be acting as agent of the Holders of Securities directing it to effect such conversion transactions. The Conversion Agent is hereby authorized (i) to exchange Securities from time to 10 time for Debentures held by the Trust in connection with the conversion of such Securities in accordance with this section and (ii) to convert all or a portion of the Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this section and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount. (c) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, such fractional interest will be paid in cash by the Sponsor to the Conversion Agent, which in turn will make such payment to the Holder or Holders of Securities so converted. (d) The Sponsor shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of the Debentures, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the Debentures then outstanding. Notwithstanding the foregoing, the Sponsor shall be entitled to deliver upon conversion of Debentures, shares of Common Stock reacquired and held in the treasury of the Sponsor (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such treasury shares are free and clear of all liens, charges, security interests or encumbrances. Any shares of Common Stock issued upon conversion of the Debentures shall be duly authorized, validly issued and fully paid and nonassessable. The Trust shall deliver the shares of Common Stock received upon conversion of the Debentures to the converting Holder free and clear of all liens, charges, security interests and encumbrances, except for United States withholding taxes. Each of the Sponsor and the Trust shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of Common Stock (and all requirements to list Common Stock issuable upon conversion of Debentures that are at the time applicable), in order to enable the Sponsor to lawfully issue Common Stock to the Trust upon conversion of the Debentures and the Trust to lawfully deliver Common Stock to each Holder upon conversion of the Securities. (e) The Sponsor will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Debentures and the delivery of the shares of Common Stock by the Trust upon conversion of the Securities. The Sponsor shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Trust the amount of any such tax, or has established to the satisfaction of the Trust that such tax has been paid. 11 (f) Nothing in the preceding Paragraph (e) shall limit the requirement of the Trust to withhold taxes pursuant to the terms of the Securities as set forth in this Exhibit B to the Declaration or to the Declaration itself or otherwise require the Property Trustee or the Trust to pay any amounts on account of such withholdings. 6. VOTING RIGHTS. (a) Except as provided under paragraph 6(b) below and as otherwise required by law and the Declaration, the Holders of the Preferred Securities will have no voting rights. (b) If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than in connection with the distribution of Debentures held by the Property Trustee, upon the occurrence of a Special Event or in connection with the redemption of Preferred Securities as a consequence of a redemption of Debentures, then the Holders of outstanding Securities will be entitled to vote on such amendment or proposal as a class and such amendment or proposal shall not be effective except with the approval of the Holders of Securities representing a Majority in liquidation amount of such Securities; provided, however, that (A) if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in liquidation amount of such class of Securities and (B) amendments to the Declaration shall be subject to such further requirements as are set forth in Sections 12.01 and 12.02 of the Declaration. In the event the consent of the Property Trustee, as the holder of the Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Property Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination. The Property Trustee shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided that where such amendment, modification or termination of the Indenture requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures or (2) each holder of Debentures, the Property Trustee may only vote with respect to that amendment, modification or termination as directed by, in the case of clause (1) above, the vote of Holders of Securities representing such specified percentage of the aggregate liquidation amount of the Securities, or, in the case of clause (2) above, each Holder of Securities; and provided, further, that the Property Trustee shall be under no obligation to take any action in accordance with the directions of the Holders of 12 Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an opinion of nationally recognized independent tax counsel recognized as expert in such matters to the effect that the Trust will not be classified for United States federal income tax purposes as an association taxable as a corporation or a partnership on account of such action and will be treated as a grantor trust for United States federal income tax purposes following such action. Subject to Section 2.06 of the Declaration, and the provisions of this and the next succeeding paragraph, the Holders of a Majority in liquidation amount of the Preferred Securities, voting separately as a class shall have the right to (A) on behalf of all Holders of Preferred Securities, waive any past default that is waivable under the Declaration (subject to, and in accordance with the Declaration) and (B) direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee, as the holder of the Debentures, to (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 6.06 of the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable; provided that where the taking of any action under the Indenture requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures or (2) each holder of Debentures, the Property Trustee may only take such action if directed by, in the case of clause (1) above, the vote of Holders of Preferred Securities representing such specified percentage of the aggregate liquidation amount of the Preferred Securities, or, in the case of clause (2) above, each Holder of Preferred Securities. The Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities. Other than with respect to directing the time, method and place of conducting any proceeding for any remedy available to the Property Trustee or the Debenture Trustee as set forth above, the Property Trustee shall be under no obligation to take any of the foregoing actions at the direction of the Holders of Preferred Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an opinion of nationally recognized independent tax counsel recognized as expert in such matters to the effect that the Trust will not be classified for United States federal income tax purposes as an association taxable as a corporation or a partnership on account of such action and will be treated as a grantor trust for United States federal income tax purposes following such action. If the Property Trustee fails to enforce its rights under the Declaration (including, without limitation, its rights, powers and privileges as a holder of the Debentures under the Indenture), any Holder of Preferred Securities may, to the extent permitted by law, after a period of 30 days has elapsed from such Holder's written request to the Property Trustee to enforce such rights, institute a 13 legal proceeding directly against AES to enforce the Property Trustee's rights under the Declaration, without first instituting a legal proceeding against the Property Trustee or any other Person. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Sponsor to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then the registered holder of the Preferred Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such Holder (a "Holder Direct Action") on or after the respective due date specified in the Debentures. In connection with such Holder Direct Action, the Sponsor will be subrogated to the rights of such Holder of Preferred Securities under the Declaration to the extent of any payment made by the Sponsor to such Holder of Preferred Securities in such Holder Direct Action. Except as provided in the preceding sentences, the holders of Preferred Securities will not be able to exercise any other remedy available to the holders of the Debentures. A waiver of an Indenture Event of Default by the Property Trustee at the direction of the Holders of the Preferred Securities will constitute a waiver of the corresponding Event of Default under the Declaration in respect of the Securities. Any required approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all of the Holders of Securities of the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or distribute Debentures in accordance with the Declaration. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities at such time that are owned by AES or by any entity directly or indirectly controlling or controlled by or under direct or indirect common control with AES shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. 14 Except as provided in this paragraph 6, Holders of the Preferred Securities will have no rights to increase or decrease the number of Trustees or to appoint, remove or replace a Trustee, which voting rights are vested solely in the Holders of the Common Securities. 7. PRO RATA TREATMENT. A reference in these terms of the Preferred Securities to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 8. RANKING. The Preferred Securities rank pari passu and payment thereon will be made Pro Rata with the Common Securities except that where an Event of Default occurs and is continuing, the rights of Holders of Preferred Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise rank in priority to the rights of Holders of the Common Securities. 9. MERGERS, CONSOLIDATIONS OR AMALGAMATIONS. The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets to, any corporation or other entity. 10. TRANSFER, EXCHANGE, METHOD OF PAYMENTS. Payment of Distributions and payments on redemption of the Preferred Securities will be payable, the transfer of the Preferred Securities will be registrable, and Preferred Securities will be exchangeable for Preferred Securities of other denominations of a like aggregate liquidation amount, at the principal corporate trust office of the Property Trustee in The City of New York; provided that payment of Distributions may be made at the option of the Regular Trustees on behalf of the Trust by check mailed to the address of the persons entitled thereto and that the payment on redemption of any Preferred Security will be made only upon surrender of such Preferred Security to the Property Trustee. 11. ACCEPTANCE OF INDENTURE AND PREFERRED GUARANTEE. Each Holder of Preferred Securities, by the acceptance thereof, agrees to the provisions of (i) the Preferred Guarantee, including the subordination provisions therein and (ii) the 15 Indenture and the Debentures, including the subordination provisions of the Indenture. 12. NO PREEMPTIVE RIGHTS. The Holders of Preferred Securities shall have no preemptive rights to subscribe to any additional Preferred Securities or Common Securities. 13. MISCELLANEOUS. These terms shall constitute a part of the Declaration. The Trust will provide a copy of the Declaration and the Indenture to a Holder without charge on written request to the Trust at its principal place of business. 16 Annex I FORM OF PREFERRED SECURITY CERTIFICATE [IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - This Preferred Security is a Global Certificate within the meaning of the Declaration hereinafter referred to and is registered in the name of The Depository Trust Company ("DTC") or a nominee of DTC. This Preferred Security is exchangeable for Preferred Securities registered in the name of a person other than DTC or its nominee only in the limited circumstances described in the Declaration and no transfer of this Preferred Security (other than a transfer of this Preferred Security as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC) may be registered except in limited circumstances. Unless this Preferred Security is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York) to the Trust or its agent for registration of transfer, exchange or payment, and any Preferred Security issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] Number ___________ Preferred Securities ----------- CUSIP NO. ____________ Certificate Evidencing Preferred Securities of AES Trust I $2.6875 Term Convertible Securities, Series A (liquidation amount $50 per security) AES Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that _________ (the "Holder") is the registered owner of ___________ (______) preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the $2.6875 Term Convertible Securities, Series A (liquidation amount $50 per security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust of the Trust dated as of March 31, 1997, as the same may be amended from time to time (the "Declaration") including the designation of the terms of Preferred Securities as set forth in Exhibit B thereto. The Preferred Securities and the Common Securities issued by the Trust pursuant to the Declaration represent undivided beneficial interests in the assets of the Trust, including the Debentures (as defined in the Declaration) issued by The AES Corporation, a Delaware corporation ("AES"), to the Trust pursuant to the Indenture referred to in the Declaration. The Holder is entitled to the benefits of the Guarantee Agreement of AES dated as of March 31, 1997 (the "Guarantee") to the extent provided therein. The Trust will furnish a copy of the Declaration, the Guarantee and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business or registered office. The Holder of this Certificate, by accepting this Certificate, is deemed to have (i) agreed to the terms of the Indenture and the Debentures, including that the Debentures are subordinate and junior in right of payment to all Senior and Subordinated Debt (as defined in the Indenture) as and to the extent provided in the Indenture and (ii) agreed to the terms of the Guarantee, including that the Guarantee is subordinate and junior in right of payment to all other liabilities of AES, including the Debentures, and ranks pari passu in right payment with the most senior preferred stock issued, from time to time, by AES. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. 2 IN WITNESS WHEREOF, the Trustees of the Trust have executed this certificate this thirty-first day of March 1997. AES TRUST I By:_________________________, as Trustee Name: Title: Trustee By:_________________________, as Trustee Name: Title: Trustee Dated: Countersigned and Registered: Transfer Agent and Registrar By:___________________________ Authorized Signature 3 [FORM OF REVERSE OF SECURITY] Distributions payable on each Preferred Security will be fixed at a rate per annum of 5.375 % of the stated liquidation amount of $50 per Preferred Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarter will bear interest thereon at the rate per annum of 5.375% thereof (to the extent permitted by law) compounded quarterly. The term "Distributions" as used herein means such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee. The amount of Distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as otherwise described below, distributions on the Preferred Securities will be cumulative, will accrue from March 31, 1997 and will be payable quarterly in arrears, on the last day of each quarter, commencing on June 30, 1997, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as AES shall not be in default in the payment of interest on the Debentures, AES has the right under the Indenture for the Debentures to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarters (each an "Extension Period") and, as a consequence, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the rate of 5.375% per annum, compounded quarterly during such Extension period; provided that no Extension Period shall last beyond the date of maturity or any redemption date of the Debentures. Prior to the termination of any such Extension Period, AES may commence a new Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Payments of accrued Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, AES may commence a new Extension Period, subject to the above requirements. The Preferred Securities shall be redeemable as provided in the Declaration. The Preferred Securities shall be convertible into shares of Common Stock, through (i) the exchange of Preferred Securities for a portion of the Debentures and (ii) the immediate conversion of such Debentures into Common Stock, in the manner and according to the terms set forth in the Declaration. 4 CONVERSION REQUEST To: The First National Bank of Chicago as Property Trustee of AES Trust I The undersigned owner of these Preferred Securities hereby irrevocably exercises the option to convert these Preferred Securities, or the portion below designated, into common stock of The AES Corporation (the "Common Stock") in accordance with the terms of the Amended and Restated Declaration of Trust, dated as of March 31, 1997 (as amended from time to time, the "Declaration"), by William R. Luraschi, Barry J. Sharp and Willard Hoagland as Regular Trustees, First Chicago Delaware Inc., as Delaware Trustee, The First National Bank of Chicago, as Property Trustee, The AES Corporation, as Sponsor, and by the Holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to the Declaration. Pursuant to the aforementioned exercise of the option to convert these Preferred Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) to (i) exchange such Preferred Securities for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the Preferred Securities set forth as Exhibit B to the Declaration) and (ii) immediately convert such Debentures on behalf of the undersigned, into Common Stock (at the conversion rate specified in the terms of the Trust Preferred Securities set forth as Exhibit B to the Declaration). The undersigned does also hereby direct the Conversion Agent that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. 5 Date: _______________, _____ in whole ___ in part ___ Number of Preferred Securities to be converted: ----------------------- If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number ---------------------------------- ---------------------------------- ---------------------------------- Signature Guarantee:** _________ - -------- 2(Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the 6 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: _________________________ Signature: ____________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. - ---------- requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) 7 EXHIBIT C TERMS OF COMMON SECURITIES Pursuant to Section 7.01 of the Amended and Restated Declaration of Trust of AES Capital Trust I dated as of March 31, 1997 (as amended from time to time, the "Declaration"), the designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth below (each capitalized term used but not defined herein having the meaning set forth in the Declaration): 1. DESIGNATION AND NUMBER. Common Securities of the Trust with an aggregate liquidation amount in the assets of the Trust of Seven Million, Seven Hundred and Thirty Two Thousand Dollars ($7,732,000) and a liquidation amount in the assets of the Trust of $50 per Common Security, are hereby designated as "5.375% Common Trust Securities". The Common Security Certificates evidencing the Common Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. The Common Securities are to be issued and sold to The AES Corporation ("AES") in consideration of $7,732,000 in cash. In connection with the issuance and sale of the Preferred Securities and the Common Securities, the Trust will purchase as trust assets Debentures of AES having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and Common Securities so issued, and bearing interest at an annual rate equal to the annual Distribution rate on the Preferred Securities and Common Securities and having payment and redemption provisions which correspond to the payment and redemption provisions of the Preferred Securities and Common Securities. 2. DISTRIBUTIONS. (a) Distributions payable on each Common Security will be fixed at a rate per annum of 5.375% (the "Coupon Rate") of the stated liquidation amount of $50 per Common Security. Distributions in arrears for more than one calendar quarter will bear interest at the rate per annum of 5.375% thereof (to the extent permitted by applicable law), compounded quarterly. The term "Distributions" as used in these terms means such periodic cash distributions and any such interest payable unless otherwise stated. A Distribution will be made by the Property Trustee only to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. The amount of Distributions payable for any period will be computed for any monthly Distribution period on the basis of a 360-day year of twelve 30 day months. (b) Distributions on the Common Securities will be cumulative, will accrue from March 31, 1997 and will be payable quarterly in arrears, on the last day of each month commencing on June 30, 1997, except as otherwise described below, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as AES shall not be in default in the payment of interest on the Debentures, AES has the right under the Indenture for the Debentures to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarterly interest periods (each, an "Extension Period") and, as a consequence, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the rate of 5.375% per annum, compounded quarterly during any such Extension Period; provided that no Extension Period shall last beyond the date of maturity or any redemption date of the Debentures. Prior to the termination of any such Extension Period, AES may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extension Period and the payment of all amounts then due, AES may commence a new Extension Period, subject to the above requirements. Payments of accrued Distributions will be payable to Holders of Common Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. (c) Distributions on the Common Securities will be payable promptly by the Property Trustee (or other Paying Agent) upon receipt of immediately available funds to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates which will be one business day prior to the relevant Distribution date unless the Preferred Securities are no longer in book-entry only form in which event the Regular Trustees shall have the right to select relevant record dates which shall be more than one business day prior to the relevant payment dates. Distributions payable on any Common Securities that are not punctually paid on any Distribution date as a result of AES having failed to make the corresponding interest payment on the Debentures will forthwith cease to be payable to the person in whose name such Common Security is registered on the relevant record date, and such defaulted Distribution will instead be payable to the person in whose name such Common Security is registered on the special record date established by the Regular Trustees, which record date shall correspond to the special record date or other specified date determined in accordance with the Indenture; provided, however, that Distributions shall not be considered payable on any Distribution payment date falling within an Extension Period unless AES has elected to make a full or partial payment of interest accrued on the Debentures on such Distribution payment date. Subject to any applicable laws and regulations and the provisions of the Declaration, each payment in respect of the Common Securities will be made as described in paragraph 10 hereof. If any date on which Distributions are payable on the Common Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (d) All Distributions paid with respect to the Common Securities and the Preferred Securities will be paid Pro Rata to the Holders thereof entitled thereto. If an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to Distributions. (e) In the event of an election by the Holder to convert its Securities through the Conversion Agent into Common Stock pursuant to the terms of the Securities as set forth in this Exhibit C to the Declaration, no payment, allowance or adjustment shall be made with respect to accumulated and unpaid Distributions on such Securities, or be required to be made; provided, however, that if a Security is surrendered for conversion after the close of business on any regular record date for payment of a Distribution date will be paid in cash to the person in whose name the Security is registered at the close of business on such record date, and (other than a Security or a portion of a Security called for redemption on a redemption date occurring after such record date and on or prior to such Distribution date) when so surrendered for conversion, the Security must be accompanied by payment of an amount equal to the Distribution payable on such Distribution date. (f) In the event that there is any money or other property held by or for the Trust that is not accounted for under the Declaration, such money or property shall be distributed Pro Rata among the Holders of the Preferred Securities and Common Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any voluntary or involuntary dissolution, winding-up or termination of the Trust, the Holders of the Preferred Securities and Common Securities at the date of the dissolution, winding-up or termination, as the case may be, will be entitled to receive Pro Rata solely out of the assets of the Trust available for distribution to Holders of Preferred Securities and Common Securities, after satisfaction of liabilities to creditors, an amount equal to the aggregate of the stated liquidation amount of $50 per Preferred Security and Common Security plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless, in connection with such dissolution, winding-up or termination, and after satisfaction of liabilities to creditors, Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Preferred Securities and Common Securities bearing accrued and unpaid interest in an amount equal to the 3 accrued and unpaid Distributions on, such Preferred Securities and Common Securities, shall be distributed Pro Rata to the Holders of the Preferred Securities and Common Securities in exchange for such Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Preferred Securities and Common Securities shall be paid, subject to the next paragraph, on a Pro Rata basis. Holders of Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution Pro Rata with Holders of Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to such Liquidation Distribution. 4. REDEMPTION AND DISTRIBUTION OF DEBENTURES. The Preferred Securities and Common Securities may only be redeemed if Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and Common Securities are repaid, redeemed or distributed as set forth below: (a) Upon the repayment of the Debentures, in whole or in part, whether at maturity, upon redemption at any time or from time to time on or after March 31, 2000, or at any time in certain circustances upon the occurrence of a Tax Event, the proceeds of such repayment will be promptly applied to redeem Pro Rata Preferred Securities and Common Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed, upon not less than 30 nor more than 60 days' notice, at a redemption price per Preferred and Common Security equal to the redemption price of the Debentures, together with accrued and unpaid Distributions thereon through the date of redemption, payable in cash (the "Redemption Price"). The date of any such repayment or redemption of Preferred Securities and Common Securities shall be established to coincide with the repayment or redemption date of the Debentures. (b) If fewer than all the outstanding Preferred Securities and Common Securities are to be so redeemed, the Preferred Securities and the Common Securities will be redeemed Pro Rata and the Common Securities to be redeemed will be redeemed as described in paragraph 4(e)(ii) below. If a partial redemption would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed, AES pursuant to the Indenture will only redeem Debentures in whole and, as a result, the Trust may only redeem the Common Securities in whole. 4 (c) If, at any time, a Tax Event or an Investment Company Event (each as hereinafter defined, and each a "Special Event") shall occur and be continuing, the Regular Trustees shall, unless the Debentures are redeemed in the limited circumstances described below, dissolve the Trust and, after satisfaction of creditors, cause Debentures held by the Property Trustee having an aggregate principal amount equal to the aggregate stated liquidation amount of and accrued and unpaid interest equal to accrued and unpaid Distributions on, and having the same record date for payment as the Preferred Securities and Common Securities, to be distributed to the Holders of the Preferred Securities and Common Securities on a Pro Rata basis in liquidation of such Holders' interests in the Trust, within 90 days following the occurrence of such Special Event (the "90 Day Period"); provided, however, that in the case of the occurrence of a Tax Event, as a condition of such dissolution and distribution, the Regular Trustees shall have received an opinion of a nationally recognized independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on any then applicable published revenue rulings of the Internal Revenue Service, to the effect that the Holders of the Preferred Securities will not recognize any gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and distribution of Debentures; and provided, further, that, if and as long as at the time there is available to the Trust the opportunity to eliminate, within such 90 Day Period, the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure that has no adverse effect on the Trust, AES or the Holders of the Preferred Securities ("Ministerial Action") the Trust will pursue such measure in lieu of dissolution. If in the case of the occurrence of a Tax Event, (i) the Regular Trustees have received an opinion (a "Redemption Tax Opinion") of nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that AES would be precluded from deducting the interest on the Debentures for United States federal income tax purposes even if the Debentures were distributed to the Holders of Preferred Securities and Common Securities in liquidation of such Holder's interest in the Trust as described in this paragraph 4(c) or (ii) the Regular Trustees shall have been informed by such tax counsel that a No Recognition Opinion cannot be delivered to the Trust, AES shall have the right at any time, upon not less than 30 nor more than 60 days' notice, to redeem the Debentures in whole or in part for cash at the Redemption Price within 90 days following the occurrence of such Tax Event, and promptly following such redemption Preferred Securities and Common Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed will be redeemed by the Trust at the Redemption Price on a Pro Rata basis: provided, however, that, if at the time there is available to AES or the Regular Trustees on behalf of the Trust the opportunity to eliminate, within such 90 day period, the Tax Event by taking some Ministerial Action, AES or the Holders of the Preferred 5 Securities, AES or the Regular Trustees on behalf of the Trust will pursue such measure in lieu of redemption; and provided, further, that AES shall have no right to redeem the Debentures while the Regular Trustees on behalf of the Trust are pursuing such Ministerial Action. The Common Securities will be redeemed Pro Rata with the Preferred Securities, except that if an Event of Default under the Indenture has occurred and is continuing, the Preferred Securities will have a priority over the Common Securities with respect to payment of the Redemption Price. "Tax Event" means that the Regular Trustees shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after March 31, 1997 as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after March 31, 1997, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date thereof, subject to United States federal income tax with respect to income accrued or received on the Debentures, (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges or (iii) interest payable by AES to the Trust on the Debentures is not, or within 90 days of the date thereof will not be, deductible by AES for United States federal income tax purposes. "Investment Company Event" means that the Regular Trustees shall have received an opinion of nationally recognized independent counsel experienced in practice under the Investment Company Act that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust is or will be considered an Investment Company which is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after March 31, 1997. On the date fixed for any distribution of Debentures, upon dissolution of the Trust, (i) the Common Securities will no longer be deemed to be outstanding and (ii) 6 any certificates representing Common Securities will be deemed to represent beneficial interests in the Debentures having an aggregate principal amount equal to the stated liquidation amount of, and bearing accrued and unpaid interest equal to accrued and unpaid Distributions on, such Common Securities until such certificates are presented to AES or its agent for transfer or reissuance. (d) The Trust may not redeem any outstanding Common Securities unless all accrued and unpaid Distributions have been paid on all Common Securities for all quarterly Distribution periods terminating on or prior to the date of redemption. (e)(i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Preferred Securities and Common Securities (a "Redemption/ Distribution Notice") will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Preferred Securities and Common Securities to be redeemed or exchanged not less than 30 nor more than 60 days prior to the date fixed for redemption or exchange thereof. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this paragraph (e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Preferred Securities and Common Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Preferred Securities and Common Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Common Securities are to be redeemed, the Common Securities to be redeemed will be redeemed Pro Rata from each Holder of Common Securities (subject to adjustment to eliminate fractional Common Securities). (iii) If the Trust gives a Redemption/Distribution Notice in respect of a redemption of Common Securities as provided in this paragraph 4 (which notice will be irrevocable) then immediately prior to the close of business on the redemption date, provided that AES has paid to the Property Trustee in immediately available funds a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, Distributions will cease to accrue on the Common Securities called for redemption, such Common Securities will no longer be deemed to be outstanding and all rights of Holders of such Common Securities so called for redemption will cease, except the right of the Holders of such Common Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Common Securities which have been so called for 7 redemption. If any date fixed for redemption of Common Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of Common Securities is improperly withheld or refused and not paid by the Property Trustee, Distributions on such Common Securities will continue to accrue, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to the Holders of the Common Securities. (v) Upon the date of dissolution of the Trust and distribution of Debentures as a result of the occurrence of a Special Event, Common Security Certificates shall be deemed to represent beneficial interests in the Debentures so distributed, and the Common Securities will no longer be deemed outstanding and may be canceled by the Regular Trustees. The Debentures so distributed shall have an aggregate principal amount equal to the aggregate liquidation amount of the Common Securities so distributed. 5. CONVERSION RIGHTS. The Holders of Securities shall have the right at any time prior to the close of business on March 31, 2027 (or, in the case of Securities called for redemption, prior to the close of business on the Business Day prior to the redemption date), at their option, to cause the Conversion Agent to convert Securities, on behalf of the converting Holders, into shares of Common Stock in the manner described herein on and subject to the following terms and conditions: The Securities will be convertible at the office of the Conversion Agent into fully paid and nonassessable shares of Common Stock pursuant to the Holder's direction to the Conversion Agent to exchange such Securities for a portion of the Debentures theretofore held by the Trust on the basis of one Security per $50 principal amount of Debentures, and immediately convert such amount of Debentures into fully paid and nonassessable shares of Common Stock at an initial rate of 0.6906 shares of Common Stock per $50 principal amount of Debentures (which is equivalent to a conversion price of $72.40 per share of Common Stock, subject to certain adjustments set forth in Sections 5.03 and 5.04 of the Supplemental Indenture (as so adjusted, "Conversion Price")). (a) In order to convert Securities into Common Stock the Holder shall submit to the Conversion Agent at the office referred to above an irrevocable request to 8 convert Securities on behalf of such Holder (the "Conversion Request"), together, if the Securities are in certificated form, with such certificates. The Conversion Request shall (i) set forth the number of Securities to be converted and the name or names, if other than the Holder, in which the shares of Common Stock should be issued and (ii) direct the Conversion Agent (a) to exchange such Securities for a portion of the Debentures held by the Trust (at the rate of exchange specified in the preceding paragraph) and (b) to immediately convert such Debentures on behalf of such Holder, into Common Stock (at the conversion rate specified in the preceding paragraph). The Conversion Agent shall notify the Property Trustee of the Holder's election to exchange Securities for a portion of the Debentures held by the Trust and the Property Trustee shall, upon receipt of such notice, deliver to the Conversion Agent the appropriate principal amount of Debentures for exchange in accordance with this Section. The Conversion Agent shall thereupon notify the Property Trustee of the Holder's election to convert such Debentures into shares of Common Stock. If a Security is surrendered for conversion after the close of business on any regular record date for payment of a Distribution and before the opening of business on the corresponding Distribution payment date, then, notwithstanding such conversion, the Distribution payable on such Distribution payment date will be paid in cash to the person in whose name the Security is registered at the close of business on such record date, and (other than a Security or a portion of a Security called for redemption on a redemption date occurring after such record date and on or prior to such Distribution payment date) when so surrendered for conversion, the Security must be accompanied by payment of an amount equal to the Distribution payable on such Distribution payment date. Except as provided above, neither the Trust nor the Sponsor will make, or be required to make, any payment, allowance or adjustment upon any conversion on account of any accumulated and unpaid Distributions accumulated on the Securities surrendered for conversion, or on account of any accumulated and unpaid dividends on the shares of Common Stock issued upon such conversion. Securities shall be deemed to have been converted immediately prior to the close of business on the day on which a Conversion Request relating to such Securities is received by the Trust in accordance with the foregoing provision (the "Conversion Date"). The Person or Persons entitled to receive Common Stock issuable upon conversion of the Debentures shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the Conversion Date, the Sponsor shall issue and deliver at the office of the Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same, unless otherwise directed by the Holder in the Conversion Request and the Conversion Agent shall distribute such certificate or certificates, together with the applicable cash payment, if any, to such Person or Persons. 9 (b) Each Holder of a Security by his acceptance thereof appoints The First National Bank of Chicago "Conversion Agent" for the purpose of effecting the conversion of Securities in accordance with this Section. In effecting the conversion and transactions described in this Section, the Conversion Agent shall be acting as agent of the Holders of Securities directing it to effect such conversion transactions. The Conversion Agent is hereby authorized (i) to exchange Securities from time to time for Debentures held by the Trust in connection with the conversion of such Securities in accordance with this section and (ii) to convert all or a portion of the Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this section and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount. (c) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, such fractional interest will be paid in cash by the Company to the Conversion Agent, which in turn will make such payment to the Holder or Holders of Securities so converted. (d) The Sponsor shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of the Debentures, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the Debentures then outstanding. Notwithstanding the foregoing, shall be entitled to deliver upon conversion of Debentures, shares of Common Stock reacquired and held in the treasury of the Sponsor (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such treasury shares are free and clear of all liens, charges, security interests or encumbrances. Any shares of Common Stock issued upon conversion of the Debentures shall be duly authorized, validly issued and fully paid and nonassessable. The Trust shall deliver the shares of Common Stock received upon conversion of the Debentures to the converting Holder free and clear of all liens, charges, security interests and encumbrances, except for United States withholding taxes. Each of the Sponsor and the Trust shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of Common Stock (and all requirements to list Common Stock issuable upon conversion of Debentures that are at the time applicable), in order to enable the company to lawfully issue Common Stock to the Trust upon conversion of the Debentures and the Trust to lawfully deliver Common Stock to each Holder upon conversion of the Securities. (e) The Sponsor will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Debentures and the delivery of the shares of Common Stock by the Trust upon conversion of the Securities. The Sponsor shall not, however, be required to pay any tax which may be 10 payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Trust the amount of any such tax, or has established to the satisfaction of the Trust that such tax has been paid. (f) Nothing in the preceding Paragraph (e) shall limit the requirement of the Trust to withhold taxes pursuant to the terms of the Securities or set forth in this Exhibit C to the Declaration or to the Declaration itself or otherwise require the Property Trustee or the Trust to pay any amounts on account of such withholdings. 6. VOTING RIGHTS. (a) Except as provided under paragraph 5(b) below and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) Holders of Common Securities have the sole right under the Declaration to increase or decrease the number of Trustees, and to appoint, remove or replace a Trustee, any such increase, decrease, appointment, removal or replacement to be approved by Holders of Common Securities representing a Majority in liquidation amount of the Common Securities. If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than in connection with the distribution of Debentures held by the Property Trustee, upon the occurrence of a Special Event or in connection with the redemption of Common Securities as a consequence of a redemption of Debentures, then the Holders of outstanding Securities will be entitled to vote on such amendment or proposal as a class and such amendment or proposal shall not be effective except with the approval of the Holders of Securities representing a Majority in liquidation amount of such Securities; provided, however, that (A) if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in liquidation amount of such class of Securities, (B) the rights of Holders of Common Securities under Article 4.02 of the Declaration to increase or decrease the number of, and to appoint, replace or remove, Trustees shall not be amended without the consent of each Holder of Common Securities, and (C) amendments to the Declaration shall be subject to such further requirements as are set forth in Sections 12.01 and 12.02 of the Declaration. 11 In the event the consent of the Property Trustee as the holder of the Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Property Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination. The Property Trustee shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided that where such amendment, modification or termination of the Indenture requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures or (2) each holder of Debentures, the Property Trustee may only vote with respect to that amendment, modification or termination as directed by, in the case of clause (1) above, the vote of Holders of Securities representing such specified percentage of the aggregate liquidation amount of the Securities, or, in the case of clause (2) above, each Holder of Securities; and provided, further, that the Property Trustee shall be under no obligation to take any action in accordance with the directions of the Holders of the Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an opinion of nationally recognized independent tax counsel recognized as an expert in such matters to the effect that the Trust will not be classified for United States federal income tax purposes as an association taxable as a corporation or a partnership on account of such action and will be treated as a grantor trust for United States federal income tax purposes following such action. Subject to Section 2.06 of the Declaration, and the provisions of this and the next succeeding paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class shall have the right to (A) on behalf of all Holders of Common Securities, waive any past default that is waivable under the Declaration (subject to, and in accordance with the Declaration) and (B) direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee, as holder of the Debentures, to (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under Section 6.06 of the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable; provided that where the taking of any action under the Indenture requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures or (e) each holder of Debentures, the Property Trustee may only take such action if directed by, in the case of clause (1) above, the vote of Holders of Common Securities representing such specified percentage of the aggregate liquidation amount of the Common Securities, or, in the case of clause (2) above, each Holder of Common 12 Securities. Pursuant to this paragraph, the Property Trustee shall not revoke, or take any action inconsistent with, any action previously authorized or approved by a vote of the Holders of the Preferred Securities, and shall not take any action in accordance with the direction of the Holders of the Common Securities under this paragraph if the action is prejudicial to the Holders of Preferred Securities. Other than with respect to directing the time, method and place of conducting any proceeding for any remedy available to the Property Trustee or the Debenture Trustee as set forth above, the Property Trustee shall be under no obligation to take any of the foregoing actions at the direction of the Holders of Common Securities unless the Properties Trustee shall have received, at the expense of the Sponsor, an opinion of nationally recognized independent tax counsel recognized as expert in such matters to the effect that the Trust will not be classified for United States federal income tax purposes as an association taxable as a corporation or a partnership on account of such action and will be treated as a grantor trust for United States income tax purposes following such action. Notwithstanding any other provision of these terms, each Holder of Common Securities will be deemed to have waived any Event of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived by the Holders of Preferred Securities as provided in the Declaration or otherwise eliminated, and until all Events of Default with respect to the Preferred Securities have been so cured, waived by the Holders of Preferred Securities or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Declaration or of the Securities. In the event that any Event of Default with respect to the Preferred Securities is waived by the Holders of Preferred Securities as provided in the Declaration, the Holders of Common Securities agree that such waiver shall also constitute the waiver of such Event of Default with respect to the Common Securities for all purposes under the Declaration without any further act, vote or consent of the Holders of the Common Securities. A waiver of an Indenture Event of Default by the Property Trustee at the direction of the Holders of the Preferred Securities will constitute a waiver of the corresponding Event of Default under the Declaration in respect of the Securities. Any required approval of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities of the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such 13 meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of Common Securities will be required for the Trust to redeem and cancel Common Securities in accordance with the Declaration. 7. PRO RATA TREATMENT. A reference in these terms of the Common Securities to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 8. RANKING. The Common Securities rank pari passu and payment thereon will be made Pro Rata with the Preferred Securities except that where an Event of Default occurs and is continuing, the rights of Holders of Common Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise are subordinate to the rights of Holders of the Preferred Securities. 9. MERGERS, CONSOLIDATIONS OR AMALGAMATIONS. The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets to, any corporation or other body. 10. TRANSFERS, EXCHANGES, METHOD OF PAYMENTS. Payment of Distributions and payments on redemption of the Common Securities will be payable, the transfer of the Common Securities will be registrable, and Common Securities will be exchangeable for Common Securities of other denominations of a like aggregate liquidation amount, at the principal corporate trust office of the Property Trustee in The City of New York; provided that payment of Distributions may be made at the option of the Regular Trustees on behalf of the Trust by check mailed to the address of the persons entitled thereto and that the payment on redemption of any Common Security will be made only upon surrender of such Common Security to the Property Trustee. Notwithstanding the foregoing, transfers of Common Securities are subject to conditions set forth in Section 9.01(c) of the Declaration. 14 11. ACCEPTANCE OF INDENTURE. Each Holder of Common Securities, by the acceptance thereof, agrees to the provisions of the Indenture and the Debentures, including the subordination provisions thereof. 12. NO PREEMPTIVE RIGHTS. The Holders of Common Securities shall have no preemptive rights to subscribe to any additional Common Securities or Preferred Securities. 13. MISCELLANEOUS. These terms shall constitute a part of the Declaration. The Trust will provide a copy of the Declaration and the Indenture to a Holder without charge on written request to the Trust at its principal place of business. 15 Annex I FORM OF COMMON SECURITY CERTIFICATE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN THE DECLARATION REFERRED TO BELOW Certificate Number Number of Common Securities ------ ---------- Certificate Evidencing Common Securities of AES Trust I 5.375% Common Trust Securities (liquidation amount $50 per Common Security) AES Trust I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that The AES Corporation (the "Holder") is the registered owner of ____________________________ (_________) common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the "5.375% Common Trust Securities" (liquidation amount $50 per security) (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer and satisfaction of the other conditions set forth in the Declaration (as defined below) including, without limitation Section 9.01(c) thereof. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust of the Trust dated as of March 31, 1997, as the same may be amended from time to time (the "Declaration") including the designation of the terms of Common Securities as set forth in Exhibit C thereto. The Common Securities and the Preferred Securities issued by the Trust pursuant to the Declaration represent undivided beneficial interests in the assets of the Trust, including the Debentures (as defined in the Declaration) issued by The AES Corporation, a Delaware corporation, to the Trust pursuant to the Indenture referred to in the Declaration. The Trust will furnish a copy of the Declaration and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business or registered office. The Holder of this Certificate, by accepting this Certificate, is deemed to have agreed to the terms of the Indenture and the Debentures, including that the Debentures are subordinate and junior in right of payment to all Senior Debt (as defined in the Indenture) as and to the extent provided in the Indenture. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. 2 IN WITNESS WHEREOF, the Trustees of the Trust have executed this certificate this thirty-first day of March, 1997. AES TRUST I By________________________, as Trustee Name: Title: Trustee By_________________________, as Trustee Name: Title: Trustee Dated: Countersigned and Registered: Transfer Agent and Registrar By:___________________________ Authorized Signature [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum of 5.375% (the "Coupon Rate") of the stated liquidation amount of $50 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarter will bear interest thereon at the rate per annum of 5.375% thereof (to the extent permitted by law) compounded monthly. The term "Distributions" as used herein means such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee. The amount of Distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as otherwise described below, distributions on the Common Securities will be cumulative, will accrue from March 31, 1997 and will be payable quarterly in arrears, on the last day of each quarter, commencing on June 30, 1997, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as AES shall not be in default in the payment of interest on the Debentures, AES has the right under the Indenture for the Debentures to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarters (each an "Extension Period") and, as a consequence, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the rate of 5.375% per annum, compounded quarterly during such Extension period; provided that no Extension Period shall last beyond the date of maturity or any redemption date of the Debentures. Prior to the termination of any such Extension Period, AES may commence a new Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Payments of accrued Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, AES may commence a new Extension Period, subject to the above requirements. The Common Securities shall be redeemable as provided in the Declaration. The Common Securities shall be convertible into shares of Common Stock, through (i) the exchange of Common Securities for a portion of the Debentures and (ii) the immediate conversion of such Debentures into Common Stock, in the manner and according to the terms set forth in the Declaration. 4 CONVERSION REQUEST To: The First National Bank of Chicago as Property Trustee of AES Trust I The undersigned owner of these Common Securities hereby irrevocably exercises the option to convert these Common Securities, or the portion below designated, into Common Stock of The AES Corporation (the "Common Stock") in accordance with the terms of the Amended and Restated Declaration of Trust dated as of March 31, 1997 (as amended from time to time, the "Declaration"), by William R. Luraschi, Barry J. Sharp and Willard Hoagland, as Regular Trustees, First Chicago Delaware Inc., as Delaware Trustee, The First National Bank of Chicago, as Property Trustee, The AES Corporation, as Sponsor, and by the Holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to the Declaration. Pursuant to the aforementioned exercise of the option to convert these Common Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) to (i) exchange such Common Securities for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the Common Securities set forth as Exhibit C to the Declaration) and (ii) immediately convert such Debentures on behalf of the undersigned, into Common Stock (at the conversion rate specified in the terms of the Common Securities set forth as Exhibit C to the Declaration). The undersigned does also hereby direct the Conversion Agent that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. 5 Date: _____________, _____ in whole ___ in part ___ Number of Common Securities to be converted: _______________ If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons --------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- --------------------------------- Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number - ----------------------------------- - ----------------------------------- - ----------------------------------- Signature Guarantee:* _____________ - -------- 1(Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership 6 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints ________________________________________________________________________________ ________________________________________________________________________________ _____________________________________________________ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ________________________ Signature: _________________________________ (Sign exactly as your name appears on the other side of this Common Security Certificate) - ---------- or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) 7 EX-4.2 3 EXHIBIT 4.2 CONFORMED COPY ================================================================================ THE AES CORPORATION AND THE FIRST NATIONAL BANK OF CHICAGO AS TRUSTEE ----------------------------------------------------------------------- JUNIOR SUBORDINATED INDENTURE DATED AS OF MARCH 1, 1997 ----------------------------------------------------------------------- JUNIOR SUBORDINATED DEBENTURES ================================================================================ TABLE OF CONTENTS ---------------------- PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions................................................2 ARTICLE 2 ISSUE, DESCRIPTION, TERMS, EXECUTION REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.01. Designation, Terms, Amount, Authentication and Delivery of Debentures...............................................8 SECTION 2.02. Form of Debenture and Trustee's Certificate...............10 SECTION 2.03. Date and Denominations of Debentures and Provisions for Payment of Principal, Premium and Interest......................10 SECTION 2.04. Execution of Debentures...................................12 SECTION 2.05. Exchange of Debentures....................................13 SECTION 2.06. Temporary Debentures......................................14 SECTION 2.07. Mutilated, Destroyed, Lost or Stolen Debentures...........15 SECTION 2.08. Cancellation of Surrendered Debentures....................16 SECTION 2.09. Provisions of Indenture and Debentures for Sole Benefit of Parties and Debentureholders.............................16 SECTION 2.10. Appointment of Authenticating Agent.......................16 SECTION 2.11. Global Debenture..........................................17 SECTION 2.12. CUSIP Numbers.............................................18 ARTICLE 3 REDEMPTION OF DEBENTURES AND SINKING FUND PROVISIONS SECTION 3.01. Redemption of Debentures..................................18 SECTION 3.02. Notice of Redemption......................................18 SECTION 3.03. Debentures Due and Payable................................19 SECTION 3.04. Sinking Funds for Debentures..............................20 SECTION 3.05. Satisfaction of Sinking Fund Payments With Debentures.....20 SECTION 3.06. Redemption of Debentures for Sinking Fund.................20 ARTICLE 4 PARTICULAR COVENANTS OF THE COMPANY SECTION 4.01. Payment of Principal of (And Premium, if any) and Interest on Debentures..............................................21 SECTION 4.02. Maintenance of Office or Agent for Payment of Debentures, Designation of Office or Agency for Payment, Registration, Transfer and Exchange of Debentures...................21 SECTION 4.03. Duties of Paying Agent; Company as Payment Agent; and Holding Sums of Trust...........................................21 i PAGE ---- SECTION 4.04. Appointment to Fill Vacancy in Office of Trustee..........22 ARTICLE 5 DEBENTUREHOLDER'S LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 5.01. Company to Furnish Trustee Information as to Names and Addresses of Debentures.........................................23 SECTION 5.02. Trustee to Preserve Information as to Names and Addresses of Debentureholders.......................................23 SECTION 5.03. Annual and Other Reports to Be Filed by Company With Trustee........................................................24 SECTION 5.04. Trustee to Transmit Annual Report to Debentureholders....................................................25 ARTICLE 6 REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT SECTION 6.01. Events of Default Defined..................................27 SECTION 6.02. Covenant of Company to Pay to Trustee Whole Amount Due on Debentures on Default in Payment of Interest or Principal (and Premiums, if any)....................................29 SECTION 6.03. Application of Moneys Collected by Trustee.................31 SECTION 6.04. Limitation on Suits by Holders of Debentures...............31 SECTION 6.05. Remedies Cumulative; Delay or Omission in Exercise of Rights Not Waiver of Default.....................................32 SECTION 6.06. Rights of Holders of Majority in Principal Amount of Debentures to Direct Trustee and to Waive Defaults...............32 SECTION 6.07. Trustee to Give Notice of Defaults Known To It, But May Withhold in Certain Circumstances...............................33 SECTION 6.08. Requirements of an Undertaking to Pay Costs in Certain Suits Under Indenture or Against Trustee....................34 ARTICLE 7 CONCERNING THE TRUSTEE SECTION 7.01. Upon Event of Default Occurring and Continuing, Trustee Shall Exercise Powers Vested In It, and Use Same Degree of Care and Skill In Their Exercise, as Prudent Individual Would Use................................................34 SECTION 7.02. Subject to Provisions of Section 7.01......................36 SECTION 7.03. Trustee Not Liable for Recitals In Indenture Or In Debentures..........................................................37 SECTION 7.04. Trustee, Paying Agent or Debenture Registrar May Own Debentures......................................................38 SECTION 7.05. Moneys Received by Trustee to Be Held In Trust Without Interest....................................................38 SECTION 7.06. Trustee Entitled to Compensation, Reimbursement and Indemnity...........................................................38 SECTION 7.07. Right of Trustee to Rely on Certificate of Officers of Company Where No Other Evidence Specifically Prescribed..........38 SECTION 7.08. Trustee Acquiring Conflicting Interest to Eliminate Conflict or Resign..................................................39 SECTION 7.09. Requirements for Eligibility of Trustee....................45 ii PAGE ---- SECTION 7.10. Resignation of Trustee and Appointment of Successor........45 SECTION 7.11. Acceptance by Successor to Trustee.........................47 SECTION 7.12. Successor to Trustee by Merger, Consolidation or Succession to Business..............................................48 SECTION 7.13. Limitations on Rights of Trustee as a Creditor to Obtain Payment of Certain Claims Within Four Months Prior to Default or During Default, or to Realize on Property as such Creditor Thereafter.................................................48 ARTICLE 8 CONCERNING THE DEBENTURES SECTION 8.01. Evidence of Action by Debentureholders.....................52 SECTION 8.02. Proof of Execution of Instruments and of Holding of Debentures..........................................................53 SECTION 8.03. Who May Be Deemed Owners of Debentures.....................53 SECTION 8.04. Debentures Owned by a Company or Controlled or Controlling Companies Disregarded for Certain Purposes..............54 SECTION 8.05. Instruments Executed by Debentureholders Bind Future Holders......................................................54 ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.01. Purposes for Which Supplemental Indenture May Be Entered Into Without Consent of Debentureholders....................55 SECTION 9.02. Modification of Indenture with Consent of Debentureholders....................................................56 SECTION 9.03. Effect of Supplemental Indentures..........................57 SECTION 9.04. Debentures May Bear Notation of Changes By Supplemental Indentures.............................................57 SECTION 9.05. Opinion of Counsel.........................................57 ARTICLE 10 CONSOLIDATION, MERGER, SALE OR CONVEYANCE SECTION 10.01. Satisfaction and Discharge of Indenture..................58 SECTION 10.02. Successor Corporation Substituted........................58 SECTION 10.03. Opinion of Counsel.......................................58 ARTICLE 11 SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 11.01. Satisfaction and Discharge of Indentures..................59 SECTION 11.02. Application of Trustee of Funds Deposited For Payment of Debentures...............................................61 SECTION 11.03. Application by Trustee of Funds Deposited For Payment of Debentures...............................................61 SECTION 11.04. Repayment of Moneys Held by Paying Agent.................61 SECTION 11.05. Repayment of Moneys Paid by Trustee......................62 iii PAGE ---- ARTICLE 12 IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 12.01. Incorporators, Stockholders, Officers and Directors of Company Exempt From Individual Liability...............62 ARTICLE 13 MISCELLANEOUS PROVISIONS SECTION 13.01. Successors and Assigns of Company Bound by Indenture...........................................................63 SECTION 13.02. Acts of Board, Committee or Officer of Successor Company Valid.......................................................63 SECTION 13.03. Surrender of Powers of Company...........................63 SECTION 13.04. Required Notices or Demands May be Served by Mail........63 SECTION 13.05. Indenture and Debentures to Be Construed in Accordance with Laws of the State of New York.......................63 SECTION 13.06. Officer's Certificate and Opinion of Counsel to be Furnished Upon Application or Demands by Company; Statements To Be Included In Each Certificate or Opinion With Respect to Compliance With Condition or Covenant............................63 SECTION 13.07. Payments Due on Sundays or Holidays......................64 SECTION 13.08. Provisions Required by Trust Indenture Act of 1939 to Control...........................................................64 SECTION 13.09. Indenture May Be Executed by its Counterparts............64 SECTION 13.10. Separability of Indenture Provisions.....................64 SECTION 13.11. Assignment by Company to Subsidiary......................65 SECTION 13.12. Holders of Preferred Securities as Third Party Beneficiaries of the Indenture; Holders of Preferred Securities May Institute Legal Proceedings Against the Company in Certain Cases............................................65 ARTICLE 14 SUBORDINATION OF DEBENTURES SECTION 14.01. Agreement to Subordinate.................................66 SECTION 14.02. Payments to Debentureholders.............................66 SECTION 14.03. Subrogation of Debentures................................68 SECTION 14.04. Authorization by Debentureholders........................69 SECTION 14.05. Notice to Trustee........................................69 SECTION 14.06. Trustee's Relation to Senior and Subordinated Debt.......70 SECTION 14.07. No Impairment to Subordination...........................70 iv THIS INDENTURE, is dated as of the first day of March, 1997, between The AES Corporation, a corporation duly organized and existing under the laws of the State of Delaware (hereinafter sometimes referred to as the "Company"), and The First National Bank of Chicago, as Trustee (hereinafter sometimes referred to as the "Trustee"): WHEREAS, for its lawful corporate purposes, the Company has fully authorized the execution and delivery of this Indenture to provide for the issuance of unsecured debentures (hereinafter referred to as the "Debentures"), in an unlimited aggregate principal amount to be issued from time to time in one or more series in accordance with the terms of this Indenture, as registered Debentures without coupons, to be authenticated by the certificate of the Trustee; WHEREAS, to provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; WHEREAS, the Debentures and the certificate of authentication to be borne by the Debentures (the "Certificate of Authentication") are to be substantially in such forms as may be approved by the Board of Directors (as defined below) or set forth in any indenture supplemental to this Indenture; AND WHEREAS, all acts and things necessary to make the Debentures issued pursuant hereto, when executed by the Company and authenticated and delivered by the Trustee in accordance with the terms of this Indenture, the valid, binding and legal obligations of the Company, and to constitute a valid indenture and agreement according to its terms, have been done and performed or will be done and performed prior to the issuance of such Debentures, and the execution of this Indenture has been and the issuance hereunder of the Debentures has been or will be prior to issuance in all respects duly authorized, and the Company, in the exercise of the legal right and power in it vested, executes this Indenture and proposes to make, execute, issue and deliver the Debentures; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Debentures are and are to be authenticated, issued and delivered, and in consideration of the premises and of the acquisition and acceptance of the Debentures by the holders thereof, the Company covenants and agrees with the Trustee, for the equal and proportionate benefit (subject to the provisions of this Indenture) of the respective holders from time to time of the Debentures, without any discrimination, preference or priority of any one Debenture over any other by reason of priority in the time of issue, sale or negotiation thereof, or otherwise, except as provided herein, as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. The terms defined in this Section (except as in this Indenture otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture, any resolution of the Board of Directors of the Company and of any indenture supplemental hereof shall have the respective meanings specified in this Section. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939, as amended, or which are by reference in such Act defined in the Securities Act of 1933, as amended (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of this instrument. "AES Trust" means such statutory business trust created under the laws of the State of Delaware specified in the applicable Board Resolution or supplemental indenture establishing a particular series of Debentures pursuant to Section 2.01 hereof. "Affiliate" of the Company means any company at least a majority of whose outstanding voting stock shall at the time be owned by the Company, or by one or more direct or indirect subsidiaries of the Company or by the Company and one or more direct or indirect subsidiaries of the Company. For the purposes only of this definition of the term "Affiliate", the term "voting stock", as applied to the stock of any company, shall mean stock of any class or classes having ordinary voting power for the election of a majority of the directors of such company, other than stock having such power only by reason of the occurrence of a contingency. "Authenticating Agent" means an authenticating agent with respect to all or any of the series of Debentures, as the case may be, appointed with respect to all or any series of the Debentures, as the case may be, by the Trustee pursuant to Section 2.10. "Bank Credit Agreement" means the Credit Agreement dated as of May 20, 1996 among the Company, the Banks named on the signature pages thereof and Morgan Guaranty Trust Company of New York, as such Agreement has been and may be amended, restated, supplemented or otherwise modified from time to time, and includes any agreement extending the maturity of, or restructuring (including, but not limited to, the inclusion of additional borrowers thereunder that are Subsidiaries of the Company and whose obligations are guaranteed by the Company thereunder) all or any portion of, the Debt under such Agreement or any successor agreements and includes any agreement with one or more banks or other lending institutions refinancing all or any portion of the Debt under such Agreement or any successor agreements. "Board of Directors" means the Board of Directors of the Company, or any committee of such Board duly authorized to act hereunder. 2 "Board Resolution" means a copy of one or more resolutions, certified by the secretary or an assistant secretary of the Company to have been adopted or consented to by the Board of Directors and to be in full force and effect, and delivered to the Trustee. "Business day", with respect to any series of Debentures, means any day other than a day on which banking institutions in the Borough of Manhattan, the City and State of New York, are authorized or obligated by law or executive order to close. "Certificate" means a certificate signed by the principal executive officer, the principal financial officer or the principal accounting officer of the Company. The Certificate need not comply with the provisions of Section 13.06. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any Person or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) of Persons, (ii) a Person or group (as so defined) of Persons (other than management of the Company on the date of this Indenture or their Affiliates) shall have become the beneficial owner of more than 35% of the outstanding voting stock of the Company, or (iii) during any one-year period, individuals who at the beginning of such period constitute the Board of Directors (together with any new director whose election or nomination was approved by a majority of the directors then in office who were either directors at the beginning of such period or who were previously so approved) cease to constitute a majority of the Board of Directors. "Common Securities" means the common undivided beneficial interests in the assets of the applicable AES Trust. "Common Stock" means the common stock of the Company, par value $.01 per share. "Company" means The AES Corporation, a corporation duly organized and existing under the laws of the State of Delaware, and, subject to the provisions of Article Ten, shall also include its successors and assigns. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of the execution of this Indenture is located at One First National Plaza, Suite 0126, Chicago, IL 60670-0126, Attention: Corporate Trust Administration. "Currency Agreement" means, with respect to any Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in currency values to or under which such Person or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary thereafter. 3 "Debt" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness 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 in respect of letters of credit or bankers' acceptance or other similar instruments (or reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred purchase price of property or services, except Trade Payables, (v) all obligations of such Person as lessee under capitalized leases, (vi) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; provided that, for purposes of determining the amount of any Debt of the type described in this clause, if recourse with respect to such Debt is limited to such asset, the amount of such Debt shall be limited to the lesser of the fair market value of such asset or the amount of such Debt, (vii) all Debt of others Guaranteed by such Person to the extent such Debt is Guaranteed by such Person, (viii) all redeemable stock valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends and (ix) to the extent not otherwise included in this definition, all obligations of such Person under Currency Agreements and Interest Rate Agreements. "Declaration of Trust" means the Declaration of Trust of the AES Trust, if any, specified in the applicable Board Resolution or supplemental indenture establishing a particular series of Debentures pursuant to Section 2.01 hereof. "Debenture" or "Debentures" means any Debenture or Debentures, as the case may be, authenticated and delivered under this Indenture. "Debentureholder", "holder of Debentures", "registered holder", or other similar term, means the person or persons in whose name or names a particular Debenture shall be registered on the books of the Company kept for the purpose in accordance with the terms of this Indenture. "Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Depositary" means with respect to Debentures of any series, for which the Company shall determine that such Debentures will be issued as a Global Debenture, The Depository Trust Company, New York, New York, another clearing agency, or any successor registered as a clearing agency under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to either Section 2.01 or 2.11. "Designated Senior and Subordinated Debt" means (i) Debt under the Bank Credit Agreement and (ii) Debt constituting Senior and Subordinated Debt which, at the time of its determination, (A) has an aggregate principal amount of at least $30 million and (B) is specifically designated in the instrument evidencing such Senior and Subordinated Debt as "Designated Senior and Subordinated Debt" by the Company. 4 "Event of Default", with respect to Debentures of a particular series means any event specified in Section 6.01(a), continued for the period of time, if any, therein designated. "Global Debenture" means, with respect to any series of Debentures, a Debenture executed by the Company and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, all in accordance with the Indenture, which shall be registered in the name of the Depositary or its nominee. "Governmental Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a) (2) of the Securities Act of 1933, as amended) as custodian with respect to any such Governmental Obligation or a specific payment of principal of or interest on any such Governmental Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Governmental Obligation or the specific payment of principal of or interest on the Governmental Obligation evidenced by such depository receipt. "Guarantee" means any obligation, contingent or otherwise, of any 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 of such other Person (whether arising by virtue of partnership arrangements, or 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 purposes 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. "Guarantee Agreement" means the guarantee, if any, that the Company may enter into that operates directly or indirectly for the benefit of holders of Preferred Securities issued by a AES Trust. "Indenture" means this instrument as originally executed, or, if amended or supplemented as herein provided, as so amended or supplemented. 5 "Interest Payment Date" when used with respect to any installment of interest on a Debenture of a particular series means the date specified in such Debenture or in a Board Resolution or in an indenture supplemental hereto with respect to such series as the fixed date on which an installment of interest with respect to Debentures of that series is due and payable. "Interest Rate Agreement" means, with respect to any Person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates to or under which such Person or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary thereafter. "Lien" means, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Indenture, the Company shall be deemed to own subject to a Lien any Property 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 Property. "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller or the Secretary or an Assistant Secretary of the Company and who shall be satisfactory to the Trustee. Each such certificate shall include the statements provided for in Section 13.06, if and to the extent required by the provisions thereof. "Opinion of Counsel" means an opinion in writing signed by legal counsel, who may be an employee of or counsel for the Company and who shall be satisfactory to the Trustee. Each such opinion shall include the statements provided for in section 13.06, if and to the extent required by the provisions thereof. "Outstanding", when used with reference to Debentures of any series, subject to the provisions of Section 8.01, means, as of any particular time, all Debentures of that series theretofore authenticated and delivered by the Trustee under this Indenture, except (a) Debentures theretofore canceled by the Trustee or any paying agent, or delivered to the Trustee or any paying agent for cancellation or which have previously been canceled; (b) Debentures or portions thereof for the payment or redemption of which moneys or Governmental Obligations in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust for the holders of such Debentures by the Company (if the Company shall act as its own paying agent); provided, however, that if such Debentures or portions of such Debentures are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article Three provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) 6 Debentures in lieu of or in substitution for which other Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.07. "Person" means any individual, corporation, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Debenture" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 2.07 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture. "Preferred Securities" means the preferred undivided beneficial interests in the assets of the applicable AES Trust. "Property Trustee" means the entity performing the function of the Property Trustee under the applicable Declaration of Trust of an AES Trust. "Responsible Officer" when used with respect to the Trustee means the chairman of the board of directors, the president, any vice president, the secretary, the treasurer, any trust officer, any corporate trust officer or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. "Security Exchange" when used with respect to the Debentures of any series which are held as trust assets of an AES Trust pursuant to the Declaration of Trust of such AES Trust, means the distribution of the Debentures of such series by such AES Trust in exchange for the Preferred Securities and Common Securities of such AES Trust in dissolution of such AES Trust pursuant to the Declaration of Trust of such AES Trust. "Senior and Subordinated Debt" means the principal of (and premium, if any) and interest on all Debt of the Company whether created, incurred or assumed before, on or after the date of this Indenture; provided that such Senior and Subordinated Debt shall not include (i) Debt of the Company that, when incurred and without respect to any election under Section 1111(b) of Title 11, U.S. Code, was without recourse, (ii) any other Debt of the Company which by the terms of the instrument creating or evidencing the same is specifically designated as not being senior in right of payment to the Debentures, and in particular the Debentures shall rank pari passu with all other debt securities and guarantees issued to any trust, partnership or other entity affiliated with the Company which is a financing vehicle of the Company in connection with an issuance of preferred securities by such financing entity and (iii) redeemable stock of the Company. 7 "Subsidiary" means any corporation at least a majority of whose outstanding voting stock shall at the time be owned by the Company or by one or more subsidiaries or by the Company and one or more Subsidiaries. For the purposes only of this definition of the term "Subsidiary", the term "voting stock", as applied to the stock of any corporation, shall mean stock of any class or classes having ordinary voting power for the election of a majority of the directors of such corporation, other than stock having such power only by reason of the occurrence of a contingency. "Trade Payables" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. "Trustee" means The First National Bank of Chicago, and, subject to the provisions of Article Seven, shall also include its successors and assigns, and, if at any time there is more than one person acting in such capacity hereunder, "Trustee" shall mean each such person. The term "Trustee" as used with respect to a particular series of the Debentures shall mean the trustee with respect to that series. "Trust Indenture Act", subject to the provisions of Section 9.01 and 9.02, means the Trust Indenture Act of 1939, as amended and in effect at the date of execution of this Indenture. "Trust Securities" means the Common Securities and the Preferred Securities of the applicable AES Trust. ARTICLE 2 ISSUE, DESCRIPTION, TERMS, EXECUTION REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.01. Designation, Terms, Amount, Authentication and Delivery of Debentures. The aggregate principal amount of Debentures which may be authenticated and delivered under this Indenture is unlimited. The Debentures may be issued in one or more series up to the aggregate principal amount of Debentures of that series from time to time authorized by or pursuant to a Board Resolution or pursuant to one or more indentures supplemental hereto, prior to the initial issuance of Debentures of a particular series. Prior to the initial issuance of Debentures of any series, there shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto: (1) the title of the Debentures of the series (which shall distinguish the Debentures of the series from all other Debentures); 8 (2) any limit upon the aggregate principal amount of the Debentures of that series which may be authenticated and delivered under this Indenture (except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures of that series): (3) the date or dates on which the principal of the Debentures of the series is payable; (4) the rate or rates at which the Debentures of the series shall bear interest or the manner of calculation of such rate or rates, if any; (5) the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest will be payable or the manner of determination of such Interest Payment Dates and the record date for the determination of holders to whom interest is payable on any such Interest Payment Dates; (6) the right, if any, to extend or defer the interest payment periods and the duration of such extension; (7) the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series may be redeemed, in whole or in part, at the option of the Company; (8) the obligation, if any, of the Company to redeem or purchase Debentures of the series pursuant to any sinking fund or analogous provisions (including payments made in cash in anticipation of future sinking fund obligations) or at the option of a holder thereof and the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (9) any exchangeability, conversion or prepayment provisions of the Debentures; (10) the form of the Debentures of the series including the form of the Certificate of Authentication for such series; (11) if other than denominations of $50 or any integral multiple thereof, the denominations in which the Debentures of the series shall be issuable; (12) any and all other terms with respect to such series (which terms shall not be inconsistent with the terms of this Indenture); and 9 (13) whether the Debentures are issuable as a Global Debenture and, in such case, the identity of the Depositary for such series. (14) If the Debentures of such series are to be deposited as trust assets in a AES Trust the name of the applicable AES Trust (which shall distinguish such statutory business trust from all other AES Trusts) into which the Debentures of such series are to be deposited as trust assets and the date of its Declaration of Trust. All Debentures of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to any such Board Resolution or in any indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. SECTION 2.02. Form of Debenture and Trustee's Certificate. The Debentures of any series and the Trustee's certificate of authentication to be borne by such Debentures shall be substantially of the tenor and purport as set forth in one or more indentures supplemental hereto or as provided in a Board Resolution and as set forth in an Officers' Certificate, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Debentures of that series may be listed, or to conform to usage. SECTION 2.03. Date and Denominations of Debentures and Provisions for Payment of Principal, Premium and Interest. The Debentures shall be issuable as registered Debentures and in the denominations of $50 or any integral multiple thereof, subject to Section 2.01(10). The Debentures of a particular series shall bear interest payable on the dates and at the rate specified with respect to that series. The principal of and the interest on the Debentures of any series, as well as any premium thereon in case of redemption thereof prior to maturity, shall be payable in the coin or currency of the United States of America which at the time is legal tender for public and private debt, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City and State of New York. Each Debenture shall be dated the date of its authentication. Interest on the Debentures shall be computed on the basis of a 360-day year composed of twelve 30-day months. The interest installment on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date for Debentures of that series shall be paid to the person in whose name said Debenture (or one or more Predecessor 10 Debentures) is registered at the close of business on the regular record date for such interest installment. In the event that any Debenture of a particular series or portion thereof is called for redemption and the redemption date is subsequent to a regular record date with respect to any Interest Payment Date and prior to such Interest Payment Date, interest on such Debenture will be paid upon presentation and surrender of such Debenture as provided in Section 3.03. Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date for Debentures of the same series (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered holder on the relevant regular record date by virtue of having been such holder; and such Defaulted Interest shall be paid by the Company, at its election, as provided in clause (1) or clause (2) below: (1) The Company may make payment of any Defaulted Interest on Debentures to the persons in whose names such Debentures (or their respective Predecessor Debentures) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Debentureholder at his or her address as it appears in the Debenture Register (as hereinafter defined), not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names such Debentures (or their Predecessor Debentures) are registered on such special record date and shall be no longer payable pursuant to the following clause (2). 11 (2) The Company may make payment of any Defaulted Interest on any Debentures in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Debentures may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Unless otherwise set forth in a Board Resolution or one or more indentures supplemental hereto establishing the terms of any series of Debentures pursuant to Section 2.01 hereof, the term "regular record date" as used in this Section with respect to a series of Debentures with respect to any Interest Payment Date for such series shall mean either the fifteenth day of the month immediately preceding the month in which an Interest Payment Date established for such series pursuant to Section 2.01 hereof shall occur, if such Interest Payment Date is the first day of a month, or the last day of the month immediately preceding the month in which an Interest Payment Date established for such series pursuant to Section 2.01 hereof shall occur, if such Interest Payment Date is the fifteenth day of a month, whether or not such date is business day. Subject to the foregoing provisions of this Section, each Debenture of a series delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Debenture of such series shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. SECTION 2.04. Execution of Debentures. The Debentures shall, subject to the provisions of Section 2.06, be printed on steel engraved borders or fully or partially engraved, or legibly typed, as the proper officers of the Company may determine, and shall be signed on behalf of the Company by the Chairman or Vice Chairman of its Board of Directors or its President or one of its Vice Presidents, under its corporate seal attested by its Secretary or one of its Assistant Secretaries. The signature of the Chairman, Vice Chairman, President or a Vice President and/or the signature of the Secretary or an Assistant Secretary in attestation of the corporate seal, upon the Debentures, may be in the form of a manual or facsimile signature of a present or any future Chairman, Vice Chairman, President or Vice President and of a present or any future Secretary or Assistant Secretary and may be imprinted or otherwise reproduced on the Debentures and for that purpose the Company may use the manual or facsimile signature of any person who shall have been a Chairman, Vice Chairman, President or Vice President, or of any person who shall have been a Secretary or Assistant Secretary, notwithstanding the fact that at the time the Debentures shall be authenticated and delivered or disposed of such person shall have ceased to be the Chairman, Vice Chairman, President or a Vice President, or the Secretary or an Assistant Secretary, of the Company, as the case may be. The seal of the Company may be in the form of a facsimile of the seal of the Company and may be impressed, affixed, imprinted or otherwise reproduced on the Debentures. 12 Only such Debentures as shall bear thereon a Certificate of Authentication substantially in the form established for such Debentures, executed manually by an authorized signatory of the Trustee, or by any Authenticating Agent with respect to such Debentures, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate executed by the Trustee, or by any Authenticating Agent appointed by the Trustee with respect to such Debentures, upon any Debenture executed by the Company shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and made available for delivery hereunder and that the holder is entitled to the benefits of this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures of any series executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Debentures, signed by its President or any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee in accordance with such written order shall authenticate and make available for delivery such Debentures. In authenticating such Debentures and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the form and terms thereof have been established in conformity with the provisions of this Indenture. The Trustee shall not be required to authenticate such Debentures if the issue of such Debentures pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Debentures and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. SECTION 2.05. Exchange of Debentures. (a) Debentures of any series may be exchanged upon presentation thereof at the office or agency of the Company designated for such purpose in the Borough of Manhattan, The City and State of New York, for other Debentures of such series of authorized denominations, and for a like aggregate principal amount, upon payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, all as provided in this Section. In respect of any Debentures so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and such office or agency shall make available for delivery in exchange therefor the Debenture or Debentures of the same series which the Debentureholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. (b) The Company shall keep, or cause to be kept, at its office or agency designated for such purpose in the Borough of Manhattan, The City and State of New York, or such other location designated by the Company a register or registers (herein referred to as the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Debentures and the transfers of 13 Debentures as in this Article provided and which at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Debentures and transfer of Debentures as herein provided shall be appointed as authorized by Board Resolution (the "Debenture Registrar"). Upon surrender for transfer of any Debenture at the office or agency of the Company designated for such purpose in the Borough of Manhattan, The City and State of New York, the Company shall execute, the Trustee shall authenticate and such office or agency shall make available for delivery in the name of the transferee or transferees a new Debenture or Debentures of the same series as the Debenture presented for a like aggregate principal amount. All Debentures presented or surrendered for exchange or registration of transfer, as provided in this Section, shall be accompanied (if so required by the Company or the Debenture Registrar) by a written instrument or instruments of transfer, in form satisfactory to the Company or the Debenture Registrar, duly executed by the registered holder or by his duly authorized attorney in writing. (c) No service charge shall be made for any exchange or registration of transfer of Debentures, or issue of new Debentures in case of partial redemption of any series, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than exchanges pursuant to Section 2.06, the second paragraph of Section 3.03 and Section 9.04 not involving any transfer. (d) The Company shall not be required (i) to issue, exchange or register the transfer of any Debentures during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of less than all the outstanding Debentures of the same series and ending at the close of business on the day of such mailing, nor (ii) to register the transfer of or exchange any Debentures of any series or portions thereof called for redemption. The provisions of this Section 2.05 are, with respect to any Global Debenture, subject to Section 2.11 hereof. SECTION 2.06. Temporary Debentures. Pending the preparation of definitive Debentures of any series, the Company may execute, and the Trustee shall authenticate and make available for delivery, temporary Debentures (printed, lithographed or typewritten) of any authorized denomination, and substantially in the form of the definitive Debentures in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every temporary Debenture of any series shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Debentures of such series. Without unnecessary delay the Company will execute and will furnish definitive Debentures of such series and thereupon any or all temporary Debentures of such series may be surrendered in exchange therefor (without charge to the holders), at the office or agency of the Company designated for the purpose in the Borough of Manhattan, The 14 City and State of New York, and the Trustee shall authenticate and such office or agency shall make available for delivery in exchange for such temporary Debentures an equal aggregate principal amount of definitive Debentures of such series, unless the Company advises the Trustee to the effect that definitive Debentures need not be executed and furnished until further notice from the Company. Until so exchanged, the temporary Debentures of such series shall be entitled to the same benefits under this Indenture as definitive Debentures of such series authenticated and delivered hereunder. SECTION 2.07. Mutilated, Destroyed, Lost or Stolen Debentures. In case any temporary or definitive Debenture shall become mutilated or be destroyed, lost or stolen, the Company (subject to the next succeeding sentence) shall execute, and upon its request the Trustee (subject as aforesaid) shall authenticate and make available for delivery, a new Debenture of the same series bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and to the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft of the applicant's Debenture and of the ownership thereof. The Trustee may authenticate any such substituted Debenture and make available for delivery the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Debenture which has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and to the Trustee such security or indemnity as they may require to save them harmless, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Debenture and of the ownership thereof. Every Debenture issued pursuant to the provisions of this Section in substitution for any Debenture which is mutilated, destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Debenture shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures of the same series duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. 15 SECTION 2.08. Cancellation of Surrendered Debentures. All Debentures surrendered for the purpose of payment, redemption, exchange or registration of transfer shall, if surrendered to the Company or any paying agent, be delivered to the Trustee for cancellation, or, if surrendered to the Trustee, shall be canceled by it, and no Debentures shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On written request of the Company, the Trustee shall deliver to the Company canceled Debentures held by the Trustee. If the Company shall otherwise acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee for cancellation. SECTION 2.09. Provisions of Indenture and Debentures for Sole Benefit of Parties and Debentureholders. Nothing in this Indenture or in the Debentures, express or implied, shall give or be construed to give to any person, firm or corporation, other than the parties hereto and the holders of the Debentures, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and of the holders of the Debentures. SECTION 2.10. Appointment of Authenticating Agent. So long as any of the Debentures of any series remain outstanding there may be an Authenticating Agent for any or all such series of Debentures which the Trustee shall have the right to appoint. Said Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Debentures of such series issued upon exchange, transfer or partial redemption thereof, and Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Debentures by the Trustee shall be deemed to include authentication by an Authenticating Agent for such series except for authentication upon original issuance or pursuant to Section 2.07 hereof. Each Authenticating Agent shall be acceptable to the Company and shall be a corporation which has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of any jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and which is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by Federal or State authorities. If at any time any Authenticating Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time (and upon request by the Company shall) terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon resignation, termination or cessation of eligibility of any Authenticating Agent, the Trustee may appoint an eligible successor Authenticating Agent acceptable to the Company. Any successor Authenticating Agent, upon acceptance of its appointment 16 hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder as if originally named as an Authenticating Agent pursuant hereto. SECTION 2.11. Global Debenture. (a) If the Company shall establish pursuant to Section 2.01 that the Debentures of a particular series are to be issued as one or more Global Debentures, then the Company shall execute and the Trustee shall, in accordance with Section 2.04, authenticate and deliver, one or more Global Debentures which (i) shall represent, and shall be denominated in an aggregate amount equal to the aggregate principal amount of, all of the Outstanding Debentures of such series, (ii) shall be registered in the name of the Depositary or its nominee, (iii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction and (iv) shall bear a legend substantially to the following effect: "Except as otherwise provided in Section 2.11 of the Indenture, this Debenture may be transferred, in whole but not in part, only to another nominee of the Depositary or to a successor Depositary or to a nominee of such successor Depositary." (b) Notwithstanding the provisions of Section 2.05, the Global Debenture of a series may be transferred, in whole but not in part and in the manner provided in Section 2.05, only to another nominee of the Depositary for such series, or to a successor Depositary for such series selected or approved by the Company or to a nominee of such successor Depositary. (c) If at any time the Depositary for a series of Debentures notifies the Company that it is unwilling or unable to continue as Depositary for such series or if at any time the Depositary for such series shall no longer be registered or in good standing under the Exchange Act, or other applicable statute or regulation and a successor Depositary for such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, this Section 2.11 shall no longer be applicable to the Debentures of such series and the Company will execute, and subject to Section 2.05, the Trustee will authenticate and make available for delivery Debentures of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debenture. In addition, the Company may at any time determine that the Debentures of any series shall no longer be represented by one or more Global Debentures and that the provisions of this Section 2.11 shall no longer apply to the Debentures of such series. In such event the Company will execute and subject to Section 2.05, the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and deliver Debentures of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debentures. Upon the exchange of the Global Debentures for such Debentures in definitive registered form without coupons, in authorized denominations, the Global Debentures shall be canceled by the Trustee. Such Debentures in definitive registered form issued in exchange for the Global Debentures pursuant to this Section 2.11(c) shall be registered in 17 such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Debentures to the Depositary for delivery to the persons in whose names such Debentures are so registered. SECTION 2.12. CUSIP Numbers. The Company in issuing the Debentures may use "CUSIP" and "CINS" numbers (if then generally in use), and the Trustee shall use CUSIP numbers or CINS numbers, as the case may be, in notices of redemption or exchange as a convenience to Debentureholders and no representation shall be made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of redemption or exchange. ARTICLE 3 REDEMPTION OF DEBENTURES AND SINKING FUND PROVISIONS SECTION 3.01. Redemption of Debentures. The Company may redeem the Debentures of any series issued hereunder on and after the dates and in accordance with the terms established for such series pursuant to Section 2.01 hereof. SECTION 3.02. Notice of Redemption. (a) In case the Company shall desire to exercise such right to redeem all or, as the case may be, a portion of the Debentures of any series in accordance with the right reserved so to do, it shall give notice of such redemption to holders of the Debentures of such series to be redeemed by mailing, first class postage prepaid, a notice of such redemption not less than 30 days and not more than 60 days before the date fixed for redemption of that series to such holders at their last addresses as they shall appear upon the Debenture Register. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the registered holder receives the notice. In any case, failure duly to give such notice to the holder of any Debenture of any series designated for redemption in whole or in part, or any defect in the notice, shall not affect the validity of the proceedings for the redemption of any other Debentures of such series or any other series. In the case of any redemption of Debentures prior to the expiration of any restriction on such redemption provided in the terms of such Debentures or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with any such restriction. Each such notice of redemption shall specify the date fixed for redemption and the redemption price at which Debentures of that series are to be redeemed, and shall state that payment of the redemption price of such Debentures to be redeemed will be made at the office or agency of the Company in the Borough of Manhattan, the City and State of New York, upon presentation and surrender of such Debentures, that interest accrued to the date fixed for redemption will be paid as specified in said notice, that from and after 18 said date interest will cease to accrue and that the redemption is for a sinking fund, if such is the case. If less than all the Debentures of a series are to be redeemed, the notice to the holders of Debentures of that series to be redeemed in whole or in part shall specify the particular Debentures to be so redeemed. In case any Debenture is to be redeemed in part only, the notice which relates to such Debenture shall state the portion of the principal amount thereof to be redeemed, and shall state that on and after the redemption date, upon surrender of such Debenture, a new Debenture or Debentures of such series in principal amount equal to the unredeemed portion thereof will be issued. (b) If less than all the Debentures of a series are to be redeemed, the Company shall give the Trustee at least 45 days' notice in advance of the date fixed for redemption as to the aggregate principal amount of Debentures of the series to be redeemed, and thereupon the Trustee shall select, by lot or in such other manner as it shall deem appropriate and fair in its discretion and which may provide for the selection of a portion or portions (equal to $50 or any integral multiple thereof) of the principal amount of such Debentures of a denomination larger than $50, the Debentures to be redeemed and shall thereafter promptly notify the Company in writing of the numbers of the Debentures to be redeemed, in whole or in part. The Company may, if and whenever it shall so elect, by delivery of instructions signed on its behalf by its President or any Vice President, instruct the Trustee or any paying agent to call all or any part of the Debentures of a particular series for redemption and to give notice of redemption in the manner set forth in this Section, such notice to be in the name of the Company or its own name as the Trustee or such paying agent may deem advisable. In any case in which notice of redemption is to be given by the Trustee or any such paying agent, the Company shall deliver or cause to be delivered to, or permit to remain with, the Trustee or such paying agent, as the case may be, such Debenture Register, transfer books or other records, or suitable copies or extracts therefrom, sufficient to enable the Trustee or such paying agent to give any notice by mail that may be required under the provisions of this Section. SECTION 3.03. Debentures Due and Payable. (a) If the giving of notice of redemption shall have been completed as above provided, the Debentures or portions of Debentures of the series to be redeemed specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption and interest on such Debentures or portions of Debentures shall cease to accrue on and after the date fixed for redemption, unless the Company shall default in the payment of such redemption price and accrued interest with respect to any such Debenture or portion thereof. On presentation and surrender of such Debentures on or after the date fixed for redemption at the place of payment specified in the notice, said Debentures shall be paid and redeemed at the applicable redemption price for such series, together with interest accrued thereon to the date fixed for redemption (but if the date fixed for redemption is an Interest Payment Date, the interest installment payable on such date shall be payable to the 19 registered holder at the close of business on the applicable record date pursuant to Section 2.03). (b) Upon presentation of any Debenture of such series which is to be redeemed in part only, the Company shall execute and the Trustee shall authenticate and the office or agency where the Debenture is presented shall make available for delivery to the holder thereof, at the expense of the Company, a new Debenture or Debentures of the same series, of authorized denominations in principal amount equal to the unredeemed portion of the Debenture so presented. SECTION 3.04. Sinking Funds for Debentures. The provisions of Sections 3.04, 3.05 and 3.06 shall be applicable to any sinking fund for the retirement of Debentures of a series, except as otherwise specified as contemplated by Section 2.01 for Debentures of such series. The minimum amount of any sinking fund payment provided for by the terms of Debentures of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Debentures of any series is herein referred to as on "optional sinking fund payment". If provided for by the terms of Debentures for any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 3.05. Each sinking fund payment shall be applied to the redemption of Debentures of any series as provided for by the terms of Debentures of such series. SECTION 3.05. Satisfaction of Sinking Fund Payments With Debentures. The Company (i) may deliver outstanding Debentures of a series (other than any previously called for redemption) and (ii) may apply as a credit Debentures of a series which have been redeemed either at the election of the Company pursuant to the terms of such Debentures or through the application of permitted optional sinking fund payments pursuant to the terms of such Debentures, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Debentures of such series required to be made pursuant to the terms of such Debentures as provided for by the terms of such series; provided that such Debentures have not been previously so credited. Such Debentures shall be received and credited for such purpose by the Trustee at the redemption price specified in such Debentures for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 3.06. Redemption of Debentures for Sinking Fund. Not less than 45 days prior to each sinking fund payment date for any series of Debentures, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms for that series, the portion thereof, if any, which is to be satisfied by delivering and crediting Debentures of that series pursuant to Section 3.05 and the basis for such credit and will, together with such Officers' Certificate, deliver to the Trustee any Debentures to be so delivered. Not less than 30 days before each such sinking fund payment date the Trustee shall select the 20 Debentures to be redeemed upon such sinking fund payment date in the manner specified in Section 3.02 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.02. Such notice having been duly given, the redemption of such Debentures shall be made upon the terms and in the manner stated in Section 3.03. ARTICLE 4 PARTICULAR COVENANTS OF THE COMPANY The Company covenants and agrees for each series of the Debentures as follows: SECTION 4.01. Payment of Principal of (And Premium, if any) and Interest on Debentures. The Company will duly and punctually pay or cause to be paid the principal of (and premium, if any) and interest on the Debentures of that series at the time and place and in the manner provided herein and established with respect to such Debentures. SECTION 4.02. Maintenance of Office or Agent for Payment of Debentures, Designation of Office or Agency for Payment, Registration, Transfer and Exchange of Debentures. So long as any series of the Debentures remain outstanding, the Company agrees to maintain an office or agency in the Borough of Manhattan, The City and State of New York, with respect to each such series and at such other location or locations as may be designated as provided in this Section 4.02, where (i) Debentures of that series may be presented for payment, (ii) Debentures of that series may be presented as herein above authorized for registration of transfer and exchange, and (iii) notices and demands to or upon the Company in respect of the Debentures of that series and this Indenture may be given or served, such designation to continue with respect to such office or agency until the Company shall, by written notice signed by its President or a Vice President and delivered to the Trustee, designate some other office or agency for such purposes or any of them. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, notices and demands. SECTION 4.03. Duties of Paying Agent; Company as Payment Agent; and Holding Sums of Trust. (a) If the Company shall appoint one or more paying agents for all or any series of the Debentures, other than the Trustee, the Company will cause each such paying agency to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section: (1) that it will hold all sums held by it as such agent for the payment of the principal of (and premium, if any) or interest on the Debentures of that 21 series (whether such sums have been paid to it by the Company or by any other obligor of such Debentures) in trust for the benefit of the persons entitled thereto: (2) that it will give the Trustee written notice of any failure by the Company (or by any other obligor of such Debentures) to make any payment of the principal of (and premium, if any) or interest on the Debentures of that series when the same shall be due and payable; (3) that it will, at any time during the continuance of any failure referred to in the preceding paragraph (a)(2) above, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such paying agent; and (4) that it will perform all other duties of paying agent as set forth in this Indenture. (b) If the Company shall act as its own paying agent with respect to any series of the Debentures, it will on or before each due date of the principal of (and premium, if any) or interest on Debentures of that series, set aside, segregate and hold in trust for the benefit of the persons entitled thereto a sum sufficient to pay such principal (and premium, if any) or interest so becoming due on Debentures of that series until such sums shall be paid to such persons or otherwise disposed of as herein provided and will promptly notify in writing the Trustee of such action, or any failure (by it or any other obligor on such Debentures) to take such action. Whenever the Company shall have one or more paying agents for any series of Debentures, it will, prior to each due date of the principal of (and premium, if any) or interest on any Debentures of that series, deposit with the paying agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the persons entitled to such principal, premium or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. (c) Anything in this Section to the contrary notwithstanding, (i) the agreement to hold sums in trust as provided in this Section is subject to the provisions of Section 11.04, and (ii) the Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or direct any paying agent to pay, to the Trustee all sums held in trust by the Company or such paying agent, such sums to be held by the Trustee upon the same terms and conditions as those upon which such sums were held by the Company or such paying agent; and, upon such payment by any paying agent to the Trustee, such paying agent shall be released from all further liability with respect to such money. SECTION 4.04. Appointment to Fill Vacancy in Office of Trustee. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the 22 manner provided in Section 7.10, a Trustee, so that there shall at all times be a Trustee hereunder. ARTICLE 5 DEBENTUREHOLDER'S LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 5.01. Company to Furnish Trustee Information as to Names and Addresses of Debentures. The Company will furnish or cause to be furnished to the Trustee (a) on a quarterly basis on each regular record date (as defined in Section 2.03) a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of each series of Debentures as of such regular record date, provided, that the Company shall not be obligated to furnish or cause to furnish such list at any time that the list shall not differ in any respect from the most recent list furnished to the Trustee by the Company and (b) at such other times as the Trustee may request in writing within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, no such list need be furnished for any series for which the Trustee shall be the Debenture Registrar. SECTION 5.02. Trustee to Preserve Information as to Names and Addresses of Debentureholders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debentures contained in the most recent list furnished to it as provided in Section 5.01 and as to the names and addresses of holders of Debentures received by the Trustee in its capacity as Debenture Registrar (if acting in such capacity). (b) The Trustee may destroy any list furnished to it as provided in Section 5.01 upon receipt of a new list so furnished. (c) In case three or more holders of Debentures of a series (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Debenture for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Debentures of such series or holders of all Debentures with respect to their rights under this Indenture or under such Debentures, and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall within five business days after the receipt of such application, at its election, either: (1) afford to such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 5.02; or 23 (2) inform such applicants as to the approximate number of holders of Debentures of such series or of all Debentures, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee, in accordance with the provisions of subsection (a) of this Section 5.02, and as to the approximate cost of mailing to such Debentureholders the form of proxy or other communication, if any, specified in such application. (d) If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each holder of such series or of all Debentures, as the case may be, whose name and address appears in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 5.02, a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Securities and Exchange Commission (the "Commission"), together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of Debentures of such series or of all Debentures, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Debentureholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise, the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (e) Each and every holder of the Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Debentures in accordance with the provisions of subsection (b) of this Section, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b). SECTION 5.03. Annual and Other Reports to Be Filed by Company With Trustee. (a) The Company covenants and agrees to file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations 24 prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15 (d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and the Commission in accordance with the rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). (b) The Company covenants and agrees to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations. (c) The Company covenants and agrees to transmit by mail, first class postage prepaid, or reputable over-night delivery service which provides for evidence of receipt, to the Debentureholders, as their names and addresses appear upon the Debenture Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. (d) The Company covenants and agrees to furnish to the Trustee, on or before May 15 in each calendar year in which any of the Debentures are outstanding, or on or before such other day in each calendar year as the Company and the Trustee may from time to time agree upon, a Certificate as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this subsection (d), such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. SECTION 5.04. Trustee to Transmit Annual Report to Debentureholders. (a) On or before July 15 in each year in which any of the Debentures are outstanding, the Trustee shall transmit by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register, a brief report dated as of the preceding May 15, with respect to any of the following events which may have occurred within the previous twelve months (but if no such event has occurred within such period no report need be transmitted): 25 (1) any change to its eligibility under Section 7.09, and its qualifications under Section 7.08; (2) the creation of or any material change to a relationship specified in paragraphs (1) through (10) of subsection (c) of Section 7.08; (3) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Debentures, on any property or funds held or collected by it as Trustee if such advances so remaining unpaid aggregate more than 1/2 of 1% of the principal amount of the Debentures outstanding on the date of such report; (4) any change to the amount, interest rate, and maturity date of all other indebtedness owing by the Company, or by any other obligor on the Debentures, to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except any indebtedness based upon a creditor relationship arising in any manner described in paragraph (2), (3), (4), or (6) of subsection (b) of Section 7.13; (5) any change to the property and funds, if any, physically in the possession of the Trustee as such on the date of such report; (6) any release, or release and substitution, of property subject to the lien of this Indenture (and the consideration thereof, if any) which it has not previously reported; (7) any additional issue of Debentures which the Trustee has not previously reported; and (8) any action taken by the Trustee in the performance of its duties under this Indenture which it has not previously reported and which in its opinion materially affects the Debentures or the Debentures of any series, except any action in respect of a default, notice of which has been or is to be withheld by it in accordance with the provisions of Section 6.07. (b) The Trustee shall transmit by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee as such since the date of the last report transmitted pursuant to the provisions of subsection (a) of this Section (or if no such report has yet been so transmitted, since the 26 date of execution of this Indenture), for the reimbursement of which it claims or may claim a lien or charge prior to that of the Debentures of any series on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this subsection if such advances remaining unpaid at any time aggregate more than 10% of the principal amount of Debentures of such series outstanding at such time, such report to be transmitted within 90 days after such time. (c) A copy of each such report shall, at the time of such transmission to Debentureholders, be filed by the Trustee with the Company, with each stock exchange upon which any Debentures are listed (if so listed) and also with the Commission. The Company agrees to notify the Trustee when any Debentures become listed on any stock exchange. ARTICLE 6 REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT SECTION 6.01. Events of Default Defined. (a) Whenever used herein with respect to Debentures of a particular series, "Event of Default" means any one or more of the following events which has occurred and is continuing: (1) default in the payment of any installment of interest upon any of the Debentures of that series, as and when the same shall become due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms of any indenture supplemental hereto, shall not constitute a default in the payment of interest for this purpose; (2) default in the payment of the principal of (or premium, if any, on) any of the Debentures of that series as and when the same shall become due and payable whether at maturity, upon redemption, by declaring or otherwise, or in any payment required by any sinking or analogous fund established with respect to that series; (3) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company with respect to that series contained in such Debentures or otherwise established with respect to that series of Debentures pursuant to Section 2.01 hereof or contained in this Indenture (other than a covenant or agreement which has been expressly included in this Indenture solely for the benefit of one or more series of Debentures other than such series) for a period of 90 days after the date on which written notice of such failure, 27 requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder, shall have been given to the Company by the Trustee, by registered or certified mail, or to the Company and the Trustee by the holders of at least 25% in principal amount of the Debentures of that series at the time outstanding; (4) a decree or order by a court having jurisdiction in the premises shall have been entered adjudging the Company as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation or reorganization of the Company under the Federal Bankruptcy Code or any other similar applicable Federal or State law, and such decree or order shall have continued unvacated and unstayed for a period of 90 days; or an involuntary case shall be commenced under such Code in respect of the Company and shall continue undismissed for a period of 90 days or an order for relief in such case shall have been entered; or a decree or order of a court having jurisdiction in the premises shall have been entered for the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of the Company or of its property, or for the winding up or liquidation of its affairs, and such decree or order shall have remained in force unvacated and unstayed for a period of 90 days; or (5) the Company shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking liquidation or reorganization under the Federal Bankruptcy Code or any other similar applicable Federal or State law, or shall consent to the filing of any such petition, or shall consent to the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of it or of its property, or shall make an assignment for the benefit of creditors. (b) In each and every such case, unless the principal of all the Debentures of that series shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debentures of that series then outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by such Debentureholders), may declare the principal of all the Debentures of that series to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything contained in this Indenture or in the Debentures of that series or established with respect to that series pursuant to Section 2.01 hereof to the contrary notwithstanding. (c) Section 6.01(b), however, is subject to the condition that if, at any time after the principal of the Debentures of that series shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have 28 been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures of that series and the principal of (and premium, if any, on) any and all Debentures of that series which shall have become due otherwise than by acceleration (with interest upon such principal and premium, if any, and, to the extent that such payment is enforceable under applicable law, upon overdue installments of interest, at the rate per annum expressed in the Debentures of that series to the date of such payment or deposit) and the amount payable to the Trustee under Section 7.06, and any and all defaults under the Indenture, other than the nonpayment of principal on Debentures of that series which shall not have become due by their terms, shall have been remedied or waived as provided in Section 6.06 then and in every such case the holders of a majority in aggregate principal amount of the Debentures of that series then outstanding (subject to, in the case of any series of Debentures held as trust assets of a AES Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of the holders of the Preferred Securities and the Common Securities of such AES Trust as may be required under the Declaration of Trust of such AES Trust), by written notice to the Company and to the Trustee, may rescind and annul such declaration and its consequences with respect to that series of Debentures; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair any right consequent thereon. (d) In case the Trustee shall have proceeded to enforce any right with respect to Debentures of that series under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. (e) If, prior to a Security Exchange with respect to the Debentures of any series, a Default with respect to the Debentures of such series shall have occurred, the Company expressly acknowledges that under the circumstances set forth in the applicable Declaration of Trust, any holder of Preferred Securities of the applicable AES Trust may enforce directly against the Company the applicable Property Trustee's rights hereunder. In furtherance of the foregoing and for the avoidance of any doubt, the Company acknowledges that, under the circumstances described in the applicable Declaration of Trust, any such holder of Preferred Securities, in its own name, in the name of the applicable AES Trust or in the name of the holders of the Preferred Securities issued by such AES Trust, may institute or cause to be instituted a proceeding, including, without limitation, any suit in equity, an action at law or other judicial or administrative proceeding, to enforce the applicable Property Trustee's rights hereunder directly against the Company as issuer of the applicable series of Debentures, and may prosecute such proceeding to judgment or final decree, and enforce the same against the Company. 29 SECTION 6.02. Covenant of Company to Pay to Trustee Whole Amount Due on Debentures on Default in Payment of Interest or Principal (and Premiums, if any). (a) The Company covenants that (1) in case default shall be made in the payment of any installment of interest on any of the Debentures of a series, or any payment required by any sinking or analogous fund established with respect to that series as and when the same shall have become due and payable, and such default shall have continued for a period of 10 business days, or (2) in case default shall be made in the payment of the principal of (or premium, if any, on) any of the Debentures of a series when the same shall have become due and payable, whether upon maturity of the Debentures of a series or upon redemption or upon declaration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Debentures of that series, the whole amount that then shall have become due and payable on all such Debentures for principal (and premium, if any) or interest, or both, as the case may be, with interest upon the overdue principal (and premium, if any) and (to the extent that payment of such interest is enforceable under applicable law and without duplication of any other amounts paid by the Company or the applicable AES Trust in respect thereof) upon overdue installments of interest at the rate per annum expressed in the Debentures of that series; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, and the amount payable to the Trustee under Section 7.06. (b) In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon the Debentures of that series and collect in the manner provided by law out of the property of the Company or other obligor upon the Debentures of that series wherever situated the moneys adjudged or decreed to be payable. (c) In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, readjustment, arrangement, composition or other judicial proceedings affecting the Company, any other obligor on such Debentures, or the creditors or property of either, the Trustee shall have the power to intervene in such proceedings and take any action therein that may be permitted by the court and shall (except as may be otherwise provided by law) be entitled to file such proofs of claim and other papers and documents as may be necessary or advisable in order to have the claims of the Trustee and of the holders of Debentures of such series allowed for the entire amount due and payable by the Company or such other obligor under the Indenture at the date of institution of such proceedings and for any additional amount which may become due and payable by the Company or such other obligor after such date, and to collect and receive any moneys or other property payable or deliverable on any such claim, and to distribute the same after the deduction of the amount payable to the Trustee under Section 7.06; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the holders of Debentures of such series to make such payments to the Trustee, and, in the 31 event that the Trustee shall consent to the making of such payments directly to such Debentureholders, to pay to the Trustee any amount due it under Section 7.06. (d) All rights of action and of asserting claims under this Indenture, or under any of the terms established with respect to Debentures of that series, may be enforced by the Trustee without the possession of any of such Debentures, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for payment to the Trustee of any amounts due under Section 7.06, be for the ratable benefit of the holders of the Debentures of such series. In case of an Event of Default hereunder, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in the Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Debentureholder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures of that series or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Debentureholder in any such proceeding. SECTION 6.03. Application of Moneys Collected by Trustee. Any moneys collected by the Trustee pursuant to Section 6.02 with respect to a particular series of Debentures shall be applied in the order following, at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal (or premium, if any) or interest, upon presentation of the several Debentures of that series, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses of collection and of all amounts payable to the Trustee under Section 7.06; and SECOND: To the payment of the amounts then due and unpaid upon Debentures of such series for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal (and premium, if any) and interest, respectively. 31 SECTION 6.04. Limitation on Suits by Holders of Debentures. No holder of any Debenture of any series shall have any right by virtue or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof with respect to Debentures of such series specifying such Event of Default, as hereinbefore provided, and unless also the holders of not less than 25% in aggregate principal amount of the Debentures of such series then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity, shall have failed to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by the taker and holder of every Debenture of such series with every other such taker and holder and Trustee, that no one or more holders of Debentures of such series shall have any right in any manner whatsoever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other of such Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures of such series. For the protection and enforcement of the provisions of this Section, each and every Debentureholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provisions of this Indenture, however, the right of any holder of any Debenture to receive payment of the principal of (and premium, if any) and interest on such Debenture, as therein provided, on or after the respective due dates expressed in such Debenture (or in the case of redemption, on the redemption date), or to institute suit for the enforcement of any such payment on or after such respective dates or redemption date, shall not be impaired or affected without the consent of such holder. SECTION 6.05. Remedies Cumulative; Delay or Omission in Exercise of Rights Not Waiver of Default. (a) All powers and remedies given by this Article to the Trustee or to the Debentureholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any others thereof or of any other powers and remedies available to the Trustee or the holders of the debentures, by judicial proceedings or otherwise, to enforce performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to such Debentures. (b) No delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 6.04, every power and remedy given by this Article or by law to the Trustee or 32 to the Debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Debentureholders. SECTION 6.06. Rights of Holders of Majority in Principal Amount of Debentures to Direct Trustee and to Waive Defaults. The holders of a majority in aggregate principal amount of the Debentures of any series at the time outstanding, determined in accordance with Section 8.04 (with, in the case of any series of Debentures held as trust assets of a AES Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such AES Trust as may be required under the Declaration of Trust of such AES Trust), shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to such series; provided, however, that such direction shall not be in conflict with any rule of law or with this Indenture or unduly prejudicial to the rights of holders of Debentures of any other series at the time outstanding determined in accordance with Section 8.04 not parties thereto. Subject to the provisions of Section 7.01, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability. The holders of a majority in aggregate principal amount of the Debentures of any series at the time outstanding affected thereby, determined in accordance with section 8.04 (with, in the case of any series of Debentures held as trust assets of a AES Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such AES Trust as may be required under the Declaration of Trust of such AES Trust), may on behalf of the holders of all of the Debentures of such series waive any past default in the performance of any of the covenants contained herein or established pursuant to section 2.01 with respect to such series and its consequences, except a default in the payment of the principal of, or premium, if any, or interest on, any of the Debentures of that series as and when the same shall become due by the terms of such Debentures otherwise than by acceleration (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal and any premium has been deposited with the Trustee (in accordance with Section 6.01(c)) or a call for redemption of Debentures of that series. Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Debentures of such series shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 6.07. Trustee to Give Notice of Defaults Known To It, But May Withhold in Certain Circumstances. The Trustee shall, within 90 days after the occurrence of a default with respect to a particular series, transmit by mail, first class postage prepaid, to the holders of Debentures of that series, as their names and addresses appear upon the Debenture Register, notice of all defaults with respect to that series known to the Trustee, unless such defaults shall have been cured before the giving of 33 such notice (the term "defaults" for the purposes of this Section being hereby defined to be the events specified in subsections (1), (2), (3), (4) and (5) of Section 6.01(a), not including any periods of grace provided for therein and irrespective of the giving of notice provided for by subsection (3) of Section 6.01(a)); provided, that, except in the case of default in the payment of the principal of (or premium, if any) or interest on any of the Debentures of that series or in the payment of any sinking fund installment established with respect to that series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Trustee in good faith determine that the withholding of such notice is in the interests of the holders of Debentures of that series; provided further, that in the case of any default of the character specified in Section 6.01(a)(3) with respect to Debentures of such series no such notice to the holders of the Debentures of that series shall be given until at least 30 days after the occurrence thereof. The Trustee shall not be deemed to have knowledge of any default, except (i) a default under subsection (a)(1) or (a)(2) of Section 6.01 as long as the Trustee is acting as paying agent for such series of Debentures or (ii) any default as to which the Trustee shall have received written notice or a Responsible Officer charged with the administration of this Indenture shall have obtained written notice. SECTION 6.08. Requirements of an Undertaking to Pay Costs in Certain Suits Under Indenture or Against Trustee. All parties to this Indenture agree, and each holder of any Debentures by his or her acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Debentureholder, or group of Debentureholders, holding more than 10% in aggregate principal amount of the outstanding Debentures of any series, or to any suit instituted by any Debentureholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Debenture of such series, on or after the respective due dates expressed in such Debenture or established pursuant to this Indenture. 34 ARTICLE 7 CONCERNING THE TRUSTEE SECTION 7.01. Upon Event of Default Occurring and Continuing, Trustee Shall Exercise Powers Vested In It, and Use Same Degree of Care and Skill In Their Exercise, as Prudent Individual Would Use. (a) The Trustee, prior to the occurrence of an Event of Default with respect to Debentures of a series and after the curing of all Events of Default with respect to Debentures of that series which may have occurred, shall undertake to perform with respect to Debentures of such series such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants shall be read into this Indenture against the Trustee. In case an Event of Default with respect to Debentures of a series has occurred (which has not been cured or waived), the Trustee shall exercise with respect to Debentures of that series such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) prior to the occurrence of an Event of Default with respect to Debentures of a series and after the curing or waiving of all such Events of Default with respect to that series which may have occurred: (i) the duties and obligations of the Trustee shall with respect to Debentures of such series be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable with respect to Debentures of such series except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may with respect to Debentures of such series conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be 35 furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Debentures of any series at the time outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to the Debentures of that series; and (4) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it. (5) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article 7. SECTION 7.02. Subject to Provisions of Section 7.01. Except as otherwise provided in Section 7.01: (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security or other paper or document believed by it to the genuine and to have been signed or presented by the proper party or parties; (b) Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by a Board Resolution or an instrument signed in the name of the Company by the President or any 36 Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer (unless other evidence in respect thereof is specifically prescribed herein); (c) The Trustee may consult with counsel of its selection and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted hereunder in good faith and in reliance thereon; (d) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Debentureholders, pursuant to the provisions of this Indenture, unless such Debentureholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; nothing herein contained shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default with respect to a series of the Debentures (which has not been cured or waived) to exercise with respect to Debentures of that series such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; (e) The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security, or other papers or documents, unless requested in writing so to do by the holders of not less than a majority in principal amount of the outstanding Debentures of the particular series affected thereby (determined as provided in Section 8.04); provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; and (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through 37 agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 7.03. Trustee Not Liable for Recitals In Indenture Or In Debentures. (a) The recitals contained herein and in the Debentures (other than the Certificate of Authentication on the Debentures) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. (b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. (c) The Trustee shall not be accountable for the use or application by the Company of any of the Debentures or of the proceeds of such Debentures, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Indenture or established pursuant to Section 2.01, or for the use or application of any moneys received by any paying agent other than the Trustee. SECTION 7.04. Trustee, Paying Agent or Debenture Registrar May Own Debentures. The Trustee or any paying agent or Debenture Registrar, in its individual or any other capacity, may become the owner or pledgee of Debentures with the same rights it would have if it were not Trustee, paying agent or Debenture Registrar. SECTION 7.05. Moneys Received by Trustee to Be Held In Trust Without Interest. Subject to the provisions of Section 11.04, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree with the Company to pay thereon. SECTION 7.06. Trustee Entitled to Compensation, Reimbursement and Indemnity. (a) The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such reasonable compensation as the Company and the Trustee shall from time to time agree in writing (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any loss, liability or expense including taxes (other than taxes based upon, measured by or determined by the income of the 38 Trustee) incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. (b) The obligations of the Company under this Section to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debentures. SECTION 7.07. Right of Trustee to Rely on Certificate of Officers of Company Where No Other Evidence Specifically Prescribed. Except as otherwise provided in Section 7.01, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Indenture upon the faith thereof. SECTION 7.08. Trustee Acquiring Conflicting Interest to Eliminate Conflict or Resign. (a) If the Trustee has or shall acquire any conflicting interest, as defined in this Section, with respect to the Debentures of any series and if the Default to which such conflicting interest relates has not been cured, duly waived or otherwise eliminated, within 90 days after ascertaining that it has such conflicting interest, it shall either eliminate such conflicting interest, except as otherwise provided herein, or resign with respect to the Debentures of that series in the manner and with the effect specified in Section 7.10 and the Company shall promptly appoint a successor Trustee in the manner provided herein. (b) In the event that the Trustee shall fail to comply with the provisions of subsection (a) of this Section, with respect to the Debentures of any series the Trustee shall, within ten days after the expiration of such 90-day period, transmit notice of such failure by mail, first class postage prepaid, to the Debentureholders of that series as their names and addresses appear upon the registration books. (c) For the purposes of this Section the Trustee shall be deemed to have a conflicting interest with respect to the Debentures of any series if a Default has occurred and is continuing and: (1) the Trustee is trustee under this Indenture with respect to the outstanding Debentures of any series other than that series, or is trustee 39 under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company are outstanding, unless such other indenture is a collateral trust indenture under which the only collateral consists of Debentures issued under this Indenture; provided that there shall be excluded from the operation of this paragraph the Debentures of any series other than that series and any other indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding if (i) this Indenture and such other indenture or indentures and all series of securities issuable thereunder are wholly unsecured and rank equally and such other indenture or indentures (and such series) are hereafter qualified under the Trust Indenture Act, unless the Commission shall have found and declared by order pursuant to subsection (b) of Section 305 or subsection (c) of Section 307 of the Trust Indenture Act, that differences exist between (A) the provisions of this Indenture with respect to Debentures of that series and with respect to one or more other series or (B) the provisions of this Indenture and the provisions of such other indenture or indentures (or such series), which are so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture with respect to the Debentures of that series and such other series or such other indenture or indentures, or (ii) the Company shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that the trusteeship under this Indenture with respect to Debentures of that series and such other series or such other indenture or indentures is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture with respect to Debentures of that series and such other series or under such other indentures; (2) the Trustee or any of its directors or executive officers is an underwriter for the Company; (3) the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with or an underwriter for the Company; (4) the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee or representative of the Company, or of an underwriter (other than the Trustee itself) for the Company who is currently engaged in the business of underwriting, except that (A) one individual may be a director and/or an executive officer of the Trustee and a director and/or an executive officer of the Company, but may not be at the same time an executive officer of both the Trustee and the Company; 40 (B) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director and/or an executive officer of the Trustee and a director of the Company; and (C) the Trustee may be designated by the Company or by an underwriter for the Company to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent, or depository, or in any other similar capacity, or, subject to the provisions of paragraph (1) of this subsection (c), to act as trustee whether under an indenture or otherwise; (5) 10% or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, partner, or executive officer thereof, or 20% or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or 10% or more of the voting securities of the Trustee is beneficially owned either by an underwriter for the Company or by any director, partner, or executive officer thereof, or is beneficially owned, collectively by any two or more such persons; (6) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this subsection (c) defined), (A) 5% or more of the voting securities, or 10% or more of any other class of security, of the Company, not including the Debentures issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (B) 10% or more of any class of security of an underwriter for the Company; (7) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this subsection (c) defined), 5% or more of the voting securities of any person who, to the knowledge of the Trustee, owns 10% or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, the Company; (8) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this subsection (c) defined), 10% or more of any class of security of any person who, to the knowledge of the Trustee, owns 50% or more of the voting securities of the Company; (9) the Trustee owns, on the date of Default upon the Debentures of any series or any anniversary of such Default while such Default upon the Debentures issued under this Indenture remains outstanding, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25% or more of the voting securities, or of any class of 41 security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflict of interest under paragraph (6), (7), or (8) of this subsection (c). As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which includes them, the provisions of the preceding sentence shall not apply, for a period of two years from the date of such acquisition, to the extent that such securities in such estate do not exceed 25% of such voting securities or 25% of any such class of security. Promptly after the dates of any such Default upon the Debentures issued under this Indenture and annually in each succeeding year that the Debentures issued under this Indenture remain in Default, the Trustee shall make a check of its holding of such securities in any of the above-mentioned capacities as of such dates. If the Company fails to make payment in full of principal of or interest on any of the Debentures when and as the same becomes due and payable, and such failure continues for 30 days thereafter, the Trustee shall make a prompt check of its holding of such securities in any of the above-mentioned capacities as of the date of the expiration of such 30-day period, and after such date, notwithstanding the foregoing provisions of this paragraph (9), all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of paragraphs (6), (7) and (8) of this subsection (c); or (10) except under the circumstances described in paragraph (1), (3), (4), (5) or (6) of subsection (b) of Section 7.13 the Trustee shall be or shall become a creditor of the Company. For purposes of paragraph (1) of this subsection (c), and of Section 6.06, the term "series of securities" or "securities" means a series, class or group of securities issuable under an indenture pursuant to whose terms holders of one such series may vote to direct the indenture trustee, or otherwise take action pursuant to a vote of such holders, separately from holders of another such series; provided, that, "series of securities" or "series" shall not include any series of securities issuable under an indenture if all such series rank equally and are wholly secured. The specification of percentages in paragraphs (5) to (9), inclusive, of this subsection (c) shall not be construed as indicating that the ownership of such percentages of securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (3) or (7) of this subsection (c). For the purposes of paragraphs (6), (7), (8) and (9) of this subsection (c) only, (A) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or 42 more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (B) an obligation shall be deemed to be in "default", when a default in payment of principal shall have continued for 30 days or more and shall not have been cured; and (C) the Trustee shall not be deemed to be the owner or holder of (i) any security which it holds as collateral security (as trustee or otherwise) for any obligation which is not in default as defined in clause (B) above, or (ii) any security which it holds as collateral security under this Indenture, irrespective of any Default hereunder, or (iii) any security which it holds as agent for collection, or as custodian, escrow agent or depositary, or in any similar representative capacity. Except as above provided, the word "security" or securities" as used in this Indenture shall mean any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. (d) For the purposes of this Section: (1) The term "underwriter" when used with reference to the Company shall mean every person, who, within one year prior to the time as of which the determination is made, has purchased from the Company with a view to, or has offered or sold for the Company in connection with, the distribution of any security of the Company, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission. (2) The term "director" shall mean any member of the board of directors of a corporation or any individual performing similar functions with respect to any organization whether incorporated or unincorporated. (3) The term "person" shall mean an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization or a government or political subdivision thereof. As used in this paragraph, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security. 43 (4) The term "voting security" shall mean any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person. (5) The term "Company" shall mean any obligor upon the Debentures. (6) The term "executive officer" shall mean the chairman of the board of directors, president, every vice president, every assistant vice president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated. (e) The percentages of voting securities and other securities specified in this Section shall be calculated in accordance with the following provisions: (1) A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section (each of whom is referred to as a "person" in this paragraph) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person. (2) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding. (3) The term "amount", when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares and the number of units if relating to any other kind of security. (4) The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition: (i) securities of an issuer held in a sinking fund relating to securities of the issuer of the same class; (ii) securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such 44 other class of securities is not in default as to principal or interest or otherwise; (iii) securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and (iv) securities held in escrow if placed in escrow by the issuer thereof, provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof. (5) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes; and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture. (f) Except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Debentures issued under this Indenture, or in the payment of any sinking or analogous fund installment, the Trustee shall not be required to resign as provided by this Section 7.08 if such Trustee shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that (i) the default under the Indenture may be cured or waived during a reasonable period and under the procedures described in such application and (ii) a stay of the Trustee's duty to resign will not be inconsistent with the interests of Debentureholders. The filing of such an application shall automatically stay the performance of the duty to resign until the Commission orders otherwise. Any resignation of the Trustee shall become effective only upon the appointment of a successor trustee and such successor's acceptance of such an appointment. SECTION 7.09. Requirements for Eligibility of Trustee. There shall at all times be a Trustee with respect to the Debentures issued hereunder which shall at all times be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or other person permitted to act as trustee by the Commission, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million dollars, and subject to supervision or examination by Federal, State, Territorial, or District of Columbia authority. If such corporation publishes reports of condition at least 45 annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Company may not, nor may any person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 7.10. SECTION 7.10. Resignation of Trustee and Appointment of Successor. (a) The Trustee or any successor hereafter appointed, may at any time resign with respect to the Debentures of one or more series by giving written notice thereof to the Company and by transmitting notice of resignation by mail, first class postage prepaid, to the Debentureholders of such series, as their names and addresses appear upon the Debenture Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee with respect to Debentures of such series by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee with respect to Debentures of such series, or any Debentureholder of that series who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 6.08, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur: (1) the Trustee shall fail to comply with the provisions of subsection (a) of Section 7.08 after written request therefor by the Company or by any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months; or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 7.09 and shall fail to resign after written request therefor by the Company or by any such Debentureholder; or (3) the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, 46 then, in any such case, the Company may remove the Trustee with respect to all Debentures and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of removal, the Trustee so removed may petition any court of competent jurisdiction for the appointment of a successor trustee with respect to Debentures of such series, or any Debentureholder of that series who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 6.08, on behalf of himself and all others similarly situated, petition any such court for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Debentures of any series at the time outstanding may at any time remove the Trustee with respect to such series and appoint a successor trustee. (d) Any resignation or removal of the Trustee and appointment of a successor trustee with respect to the Debentures of a series pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 7.11. (e) Any successor trustee appointed pursuant to this Section may be appointed with respect to the Debentures of one or more series or all of such series, and at any time there shall be only one Trustee with respect to the Debentures of any particular series. SECTION 7.11. Acceptance by Successor to Trustee. (a) In case of the appointment hereunder of a successor trustee with respect to all Debentures, every such successor trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor trustee all the rights, powers, and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor trustee with respect to the Debentures of one or more (but not all) series, the Company, the retiring Trustee and each successor trustee with respect to the Debentures of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor trustee shall accept such appointment and which shall (1) contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor trustee all the rights, 47 powers, trusts and duties of the retiring Trustee with respect to the Debentures of that or those series to which the appointment of such successor trustee relates, (2) contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust, that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and that no Trustee shall be responsible for any act or failure to act on the part of any other Trustee hereunder; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein, such retiring Trustee shall with respect to the Debentures of that or those series to which the appointment of such successor trustee relates have no further responsibility for the exercise of rights and powers or for the performance of the duties and obligations vested in the Trustee under this Indenture, and each such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of that or those series to which the appointment of such successor trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor trustee, to the extent contemplated by such supplemental indenture, the property and money held by such retiring Trustee hereunder with respect to the Debentures of that or those series to which the appointment of such successor trustee relates. (c) Upon request of any such successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, power and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article. (e) Upon acceptance of appointment by a successor trustee as provided in this Section, the Company shall transmit notice of the succession of such trustee hereunder by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. If the Company fails to transmit such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be transmitted at the expense of the Company. SECTION 7.12. Successor to Trustee by Merger, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion 48 or consolidation to which the Trustee shall be a party, or any corporation succeeding to substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be qualified under the provisions of Section 7.08 and eligible under the provisions of Section 7.09, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case any Debentures shall have been authenticated, but not made available for delivery, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and make available for delivery the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. SECTION 7.13. Limitations on Rights of Trustee as a Creditor to Obtain Payment of Certain Claims Within Four Months Prior to Default or During Default, or to Realize on Property as such Creditor Thereafter. (a) Subject to the provisions of subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within three months prior to a default, as defined in subsection (b) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the holders of the Debentures and the holders of other indenture securities (as defined in subsection (c) of this Section): (1) an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such three months' period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and (2) all property received by the Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such three months' period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds. Nothing herein contained, however, shall affect the right of the Trustee: (A) to retain for its own account (i) payments made on account of any such claim by any person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third person, and (iii) distributions made in cash, securities, or other property in respect of claims filed against the Company in bankruptcy or 49 receivership or in a case for reorganization pursuant to the Federal Bankruptcy Code or applicable State law; (B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such three months' period; (C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such three months' period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default, as defined in subsection (c) of this Section, would occur within three months; or (D) to receive payment on any claim referred to in paragraph (B) or (C), against the release of any property held as security for such claim as provided in such paragraph (B) or (C), as the case may be, to the extent of the fair value of such property. For the purposes of paragraphs (B), (C) and (D), property substituted after the beginning of such three months' period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim. If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between the Trustee, the Debentureholders and the holders of other indenture securities in such manner that the Trustee, the Debentureholders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in a case for reorganization pursuant to the Federal Bankruptcy Code or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee, the Debentureholders and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in a case for reorganization pursuant to the Federal Bankruptcy Code or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall 50 include any distribution with respect to such claim, in bankruptcy or receivership or in a case for reorganization pursuant to the Federal Bankruptcy Code or applicable State law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or a case for reorganization is pending shall have jurisdiction (i) to apportion between the Trustee, the Debentureholders and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and the proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee, the Debentureholders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula. Any Trustee who has resigned or been removed after the beginning of such three months' period shall be subject to the provisions of this subsection (a) as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such three months' period, it shall be subject to the provisions of this subsection (a) if and only if the following conditions exist: (i) the receipt of property or reduction of claim which would have given rise to the obligation to account, if such Trustee had continued as trustee, occurred after the beginning of such three months' period; and (ii) such receipt of property or reduction of claim occurred within three months after such resignation or removal. (b) There shall be excluded from the operation of subsection (a) of this Section a creditor relationship arising from: (1) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee; (2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving any property other than cash which shall at any time be subject to the lien, if any, of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advance and of the circumstances surrounding the making thereof is given to the Debentureholders at the time and in the manner provided in this Indenture; 51 (3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, subscription agent, fiscal agent or depositary, or other similar capacity; (4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in subsection (c) of this Section; (5) the ownership of stock or of other securities of a Company organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or (6) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptance or obligations which fall within the classification of self-liquidating paper as defined in subsection (c) of this Section. (c) As used in this Section: (1) The term "default" shall mean any failure to make payment in full of the principal of (or premium, if any) or interest upon any of the Debenture or upon the other indenture securities when and as such principal (or premium, if any) or interest becomes due and payable. (2) The term "other indenture securities" shall mean securities upon which the Company is an obligor (as defined in the Trust Indenture Act) outstanding under any other indenture (A) under which the Trustee is also trustee, (B) which contains provisions substantially similar to the provisions of subsection (a) of this Section, and (C) under which a default exists at the time of the apportionment of the funds and property held in said special account. (3) The term "cash transaction" shall mean any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand. (4) The term "self-liquidating paper" shall mean any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacture, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon , the goods, wares or 52 merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation. (5) The term "Company" shall mean any obligor upon any of the Debentures. ARTICLE 8 CONCERNING THE DEBENTURES SECTION 8.01. Evidence of Action by Debentureholders. Whenever in this Indenture it is provided that the holders of a majority or specified percentage in aggregate principal amount of the Debentures of a particular series may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action) the fact that at the time of taking any such action the holders of such majority or specified percentage of that series have joined therein may be evidenced by any instrument or any number of instruments of similar tenor executed by such holders of Debentures of that series in person or by agent or proxy appointed in writing. If the Company shall solicit from the Debentureholders of any series any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for such series for the determination of Debentureholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Debentureholders of record at the close of business on the record date shall be deemed to be Debentureholders for the purposes of determining whether Debentureholders of the requisite proportion of outstanding Debentures of that series have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the outstanding Debentures of that series shall be computed as of the record date; provided that no such authorization, agreement or consent by such Debentureholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 8.02. Proof of Execution of Instruments and of Holding of Debentures. Subject to the provisions of Section 7.01, proof of the execution of any instrument by a Debentureholder (such proof will not require notarization) or his agent or proxy and proof 53 of the holding by any person of any of the Debentures shall be sufficient if made in the following manner; (a) The fact and date of the execution by any such person of any instrument may be proved in any reasonable manner acceptable to the Trustee. (b) The ownership of Debentures shall be proved by the Debenture Register of such Debentures or by a certificate of the Debenture Registrar thereof. (c) The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. SECTION 8.03. Who May Be Deemed Owners of Debentures. Prior to the due presentment for registration of transfer of any Debenture, the Company, the Trustee, any paying agent and any Debenture Registrar may deem and treat the person in whose name such Debenture shall be registered upon the books of the Company as the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notice of ownership or writing thereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal of, premium, if any, and (subject to Section 2.03) interest on such Debenture and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be affected by any notice to the contrary. SECTION 8.04. Debentures Owned by a Company or Controlled or Controlling Companies Disregarded for Certain Purposes. In determining whether the holders of the requisite aggregate principal amount of Debentures of a particular series have concurred in any direction, consent or waiver under this Indenture, Debentures of that series which are owned by the Company or any other obligor on the Debentures of that series or by any Subsidiary of the Company or of such other obligor on the Debentures of that series shall be disregarded and deemed not to be outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Debentures of such series which the Trustee actually knows are so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not a person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. SECTION 8.05. Instruments Executed by Debentureholders Bind Future Holders. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 54 8.01, of the taking of any action by the holders of the majority or percentage in aggregate principal amount of the Debentures of a particular series specified in this Indenture in connection with such action, any holder of a Debenture of that series which is shown by the evidence to be included in the Debentures the holders of which have consented to such action may, by filing written notice with the Trustee, and upon proof of holding as provided in Section 8.02, revoke such action so far as concerns such Debenture. Except as aforesaid any such action taken by the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture, and of any Debenture issued in exchange therefor, on registration of transfer thereof or in place thereof, irrespective of whether or not any notation in regard thereto is made upon such Debenture. Any action taken by the holders of the majority or percentage in aggregate principal amount of the Debentures of a particular series specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Debentures of that series. ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.01. Purposes for Which Supplemental Indenture May Be Entered Into Without Consent of Debentureholders. In addition to any supplemental indenture otherwise authorized by this Indenture, the Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect), without the consent of the Debentureholders, for one or more of the following purposes: (a) to evidence the succession of another corporation to the Company, and the assumption by any such successor of the covenants of the Company contained herein or otherwise established with respect to the Debentures; or (b) to add to the covenants of the Company such further covenants, restrictions, conditions or provisions for the protection of the holders of the Debentures of all or any series as the Board of Directors and the Trustee shall consider to be for the protection of the holders of Debentures of all or any series, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions, conditions or provisions a default or an Event of Default with respect to such series permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction, condition or provision such supplemental indenture may provide for a particular period of grace 55 after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the holders of a majority in aggregate principal amount of the Debentures of such series to waive such default; or (c) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture as shall not be inconsistent with the provisions of this Indenture and shall not adversely affect the interests of the holders of the Debentures of any series; or (d) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Debenture outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time outstanding, notwithstanding any of the provisions of Section 9.02. SECTION 9.02. Modification of Indenture with Consent of Debentureholders. With the consent (evidenced as provided in Section 8.01) of the holders of not less than a majority in aggregate principal amount of the Debentures of each series affected by such supplemental indenture or indentures at the time outstanding (and, in the case of any series of Debentures held as trust assets of an AES Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such AES Trust as may be required under the Declaration of Trust of such AES Trust), the Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures of such series under this Indenture; provided, however, that no such supplemental indenture 56 shall (i) extend the fixed maturity of any Debentures of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the holder of each Debenture so affected or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Debenture (and, in the case of any series of Debentures held as trust assets of an AES Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of the holders of the Preferred Securities and the Common Securities of such AES Trust as may be required under the Declaration of Trust of such AES Trust) then outstanding and affected thereby. Upon the request of the Company, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Debentureholders (and, in the case of any series of Debentures held as trust assets of an AES Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such AES Trust as may be required under the Declaration of Trust of such AES Trust) required to consent thereto as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. It shall not be necessary for the consent of the Debentureholders of any series affected thereby under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Trustee shall transmit by mail, first class postage prepaid, a notice, setting forth in general terms the substance of such supplemental indenture, to the Debentureholders of all series affected thereby as their names and addresses appear upon the Debenture Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 9.03. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture pursuant to the provisions of this Article or of Section 10.01, this Indenture shall, with respect to such series, be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures of the series affected thereby shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall 57 be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.04. Debentures May Bear Notation of Changes By Supplemental Indentures. Debentures of any series, affected by a supplemental indenture, authenticated and delivered after the execution of such supplemental indenture pursuant to the provisions of this Article or of Section 10.01, may bear a notation in form approved by the Company, provided such form meets the requirements of any exchange upon which such series may be listed, as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures of that series so modified as to conform, in the opinion of the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Debentures of that series then outstanding. SECTION 9.05. Opinion of Counsel. The Trustee, subject to the provisions of Section 7.01, may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article is authorized or permitted by, and conforms to, the terms of this Article and that it is proper for the Trustee under the provisions of this Article to join in the execution thereof. ARTICLE 10 CONSOLIDATION, MERGER, SALE OR CONVEYANCE SECTION 10.01. Satisfaction and Discharge of Indenture. The Company shall not consolidate with or merge into any other Person or transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any other Person to consolidate with or merge into the Company, unless: (a) either the Company shall be the continuing corporation, or the corporation (if other than the Company) formed by such consolidation or into which the Company is merged or to which the properties and assets of the Company substantially as an entity are transferred or leased shall be a corporation organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Debentures and this Indenture; and (b) immediately after giving effect to such transaction no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. 58 SECTION 10.02. Successor Corporation Substituted. The successor corporation formed by such consolidation or into which the Company is merged or to which such transfer or lease is made shall succeed to and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein, and thereafter (except in the case of a lease to another Person) the predecessor corporation shall be relieved of all obligations and covenants under the Indenture and the Debentures and, in the event of such conveyance or transfer, any such predecessor corporation may be dissolved and liquidated. SECTION 10.03. Opinion of Counsel. The Trustee, subject to the provisions of Section 7.01, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or other disposition, and any such assumption, comply with the provisions of this Article. ARTICLE 11 SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 11.01. Satisfaction and Discharge of Indentures. (A) If at any time (a) the Company shall have paid or caused to be paid the principal of and interest on all the Debentures of any series Outstanding hereunder (other than Debentures of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.07) as and when the same shall have become due and payable, or (b) the Company shall have delivered to the Trustee for cancellation all Debentures of any series theretofore authenticated (other than any Debentures of such series which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.07) or (c) (i) all the Debentures of series not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and (ii) the Company shall have irrevocably deposited or caused to be deposited with the Trustee as trust funds the entire amount in cash (other than moneys repaid by the Trustee or any paying agent to the Company in accordance with Section 11.04) or Government Obligations, maturing as to principal and interest at such times and in such amounts as will insure the availability of cash, or a combination thereof, sufficient in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay (A) the principal and interest on all Debentures of such series on each date that such principal or interest is due and payable and (B) any mandatory sinking fund payments on the dates on which such payments are due and payable in accordance with the terms of the Indenture and the Debentures of such series; and if, in any such case, the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further 59 effect (except as to (i) rights of registration of transfer and exchange of Debentures of such series and the Company's right of optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen Debentures, (iii) rights of holders of Debentures to receive payments of principal thereof and interest thereon, upon the original stated due dates therefor (but not upon acceleration), and remaining rights of the Debentureholders to receive mandatory sinking fund payments, if any, (iv) the rights, obligations, duties and immunities of the Trustee hereunder, (v) the rights of the holders of Debentures of such series as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, and (vi) the obligations of the Company under Section 4.02) and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company, shall execute proper instruments acknowledging such satisfaction of and discharging this Indenture; provided, that the rights of Holders of the Debentures to receive amounts in respect of principal of and interest on the Debentures held by them shall not be delayed longer than required by then-applicable mandatory rules or policies of any securities exchange upon which the Debentures are listed. The Company agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Debentures of such series. (B) The following provisions shall apply to the Debentures of each series unless specifically otherwise provided in a Board Resolution or indenture supplemental hereto provided pursuant to Section 2.01. In addition to discharge of the Indenture pursuant to the next preceding paragraph, the Company shall be deemed to have paid and discharged the entire indebtedness on all the Debentures of a series on the date of the deposit referred to in subparagraph (a) below, and the provisions of this Indenture with respect to the Debentures of such series shall no longer be in effect (except as to (i) rights of registration of transfer and exchange of Debentures of such series and the Company's right of optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen Debentures, (iii) rights of holders of Debentures to receive payments of principal thereof and interest thereon, upon the original stated due dates therefor (but not upon acceleration), and remaining rights of the holders of Debentures to receive mandatory sinking fund payments, if any, (iv) the rights, obligations, duties and immunities of the Trustee hereunder, (v) the rights of the Holders of Debentures as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them and (vi) the obligations of the Company under Section 4.02) and the Trustee, at the expense of the Company, shall at the Company's request, execute proper instruments acknowledging the same, if (a) with reference to this provision the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Debentures of such series (i) cash in an amount, or (ii) Governmental Obligations maturing as to principal and 60 interest at such times and in such amounts as will insure the availability of cash or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay (A) the principal and interest on all Debentures of such series on each date that such principal or interest is due and payable or is earlier redeemed (irrevocably provided for under arrangements satisfactory to the Trustee), as the case may be, and (B) any mandatory sinking fund payments on the dates on which such payments are due and payable in accordance with the terms of the Indenture and the Debentures of such series; (b) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound; (c) the Company has delivered to the Trustee an Opinion of Counsel based on the fact that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date hereof, there has been a change in the applicable Federal income tax law, in either case to the effect that, and such opinion shall confirm that, the holders of the Debentures of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred; (d) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this provision have been complied with; and (e) no event or condition shall exist that, pursuant to the provisions of Section 14.02 or 14.03, would prevent the Company from making payments of the principal of or interest on the Debentures of such series on the date of such deposit. SECTION 11.02. Application of Trustee of Funds Deposited For Payment of Debentures. Subject to Section 11.04, all moneys deposited with the Trustee (or other trustee) pursuant to Section 11.01 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company acting as its own paying agent), to the Holders of the particular Debentures of such series for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest; but such money need not be segregated from other funds except to the extent required by law. 61 SECTION 11.03. Application by Trustee of Funds Deposited For Payment of Debentures. In connection with the satisfaction and discharge of this Indenture with respect to Debentures of any series, all moneys then held by any paying agent under the provisions of this Indenture with respect to such series of Debentures shall, upon demand of the Company, be repaid to it or paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys. SECTION 11.04. Repayment of Moneys Held by Paying Agent. Any moneys deposited with or paid to the Trustee or any paying agent for the payment of the principal of or interest on any Security of any series and not applied but remaining unclaimed for two years after the date upon which such principal or interest shall have become due and payable, shall, upon the written request of the Company and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by the Trustee for such series or such paying agent, and the Holder of the Debentures of such series shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company for any payment which such holder may be entitled to collect, and all liability of the Trustee or any paying agent with respect to such moneys shall thereupon cease; provided, however, that the Trustee or such paying agent, before being required to make any such repayment with respect to moneys deposited with it for any payment series, shall at the expense of the Company, mail by first-class mail to holders of such Debentures at their addresses as they shall appear on the Debenture Register, notice, that such moneys remain and that, after a date specified therein, which shall not be less than thirty days from the date of such mailing or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 11.05. Repayment of Moneys Paid by Trustee. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Governmental Obligations deposited pursuant to Section 11.01 or the principal or interest received in respect of such obligations. ARTICLE 12 IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 12.01. Incorporators, Stockholders, Officers and Directors of Company Exempt From Individual Liability. No recourse under or upon any obligations, covenant or agreement of this Indenture, or of any Debenture, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, past, present or future as such, of the Company or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statue or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood 62 that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors as such, of the Company or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, stockholder, officer or director as such, because the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Debentures. ARTICLE 13 MISCELLANEOUS PROVISIONS SECTION 13.01. Successors and Assigns of Company Bound by Indenture. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not. SECTION 13.02. Acts of Board, Committee or Officer of Successor Company Valid. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the corresponding board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. SECTION 13.03. Surrender of Powers of Company. The Company by instrument in writing executed by authority of two-thirds of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company and thereupon such power so surrendered shall terminate both as to the Company and as to any successor corporation. SECTION 13.04. Required Notices or Demands May be Served by Mail. Except as otherwise expressly provided herein any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Debentures to or on the Company may be given or served by being deposited first class postage prepaid in a post-office letterbox addressed (until another address is filed in writing by the Company with the Trustee), as follows: The AES Corporation, 1001 North 19th Street, Arlington, Virginia 22209, Attention: General Counsel and Secretary. Any notice, election, request or demand by the Company or any Debentureholder to or upon 63 the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the Corporate Trust Office of the Trustee. SECTION 13.05. Indenture and Debentures to Be Construed in Accordance with Laws of the State of New York. This Indenture and each Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State (without regard to principles of conflicts of laws thereof). SECTION 13.06. Officer's Certificate and Opinion of Counsel to be Furnished Upon Application or Demands by Company; Statements To Be Included In Each Certificate or Opinion With Respect to Compliance With Condition or Covenant. (a) Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. (b) Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant in this Indenture (other than the certificate provided pursuant to Section 5.03(d) of this Indenture) shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 13.07. Payments Due on Sundays or Holidays. Except as provided pursuant to Section 2.01 pursuant to a Board Resolution, and as set forth in an Officers' Certificate, or established in one or more indentures supplemental to the Indenture, in any case where the date of maturity of interest or principal of any Debenture or the date of redemption of any Debenture shall not be a business day then payment of interest or principal (and premium, if any) may be made on the next succeeding business day with the same force and effect as if made on the nominal date of maturity or redemption, and no interest shall accrue for the period after such nominal date. SECTION 13.08. Provisions Required by Trust Indenture Act of 1939 to Control. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with 64 the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 13.09. Indenture May Be Executed by its Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 13.10. Separability of Indenture Provisions. .In case any one or more of the provisions contained in this Indenture or in the Debentures of any series shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of such Debentures, but this Indenture and such Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. SECTION 13.11. Assignment by Company to Subsidiary. The Company will have the right at all times to assign any of its rights or obligations under this Indenture to a direct or indirect wholly owned Subsidiary of the Company; provided that, in the event of any such assignment, the Company will remain jointly and severally liable for all such obligations. Subject to the foregoing, this Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties hereto. SECTION 13.12. Holders of Preferred Securities as Third Party Beneficiaries of the Indenture; Holders of Preferred Securities May Institute Legal Proceedings Against the Company in Certain Cases. The Company hereby acknowledges that, to the extent specifically set forth herein, prior to a Security Exchange with respect to the Debentures of any series held as trust assets of a AES Trust, the holders of the Preferred Securities of such AES Trust shall expressly be third party beneficiaries of this Indenture. The Company further acknowledges that, prior to a Security Exchange with respect to Debentures of any series held as trust assets of a AES Trust, if the Property Trustee of such AES Trust fails to enforce its rights under this Indenture as the holder of the Debentures of a series held as trust assets of such AES Trust, any holder of the Preferred Securities of such AES Trust may institute legal proceedings directly against the Company to enforce such Property Trustee's rights under this Indenture without first instituting any legal proceedings against such Property Trustee or any other person or entity; provided that, if an Event of Default has occurred and is continuing and such event is attributed to the failure of the Company to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a holder of Preferred Securities of such AES Trust may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder (a "Holder Direct Action") on or after the respective due date specified in the Debentures. In connection with such Holder Direct Action, the rights of the holders of the Common Securities of such AES Trust will be subrogated to the rights of such holder of Preferred Securities to the extent 65 of any payment made by the Company to such holders of Preferred Securities in such Holder Direct Action. Except as provided in the preceding sentences, the holders of Preferred Securities of such AES Trust will not be able to exercise directly any other remedy available to the holders of the Debentures. Reference to a "holder" of Preferred Securities or Common Securities herein shall mean a "Holder" of such securities as defined in the Declaration of Trust. ARTICLE 14 SUBORDINATION OF DEBENTURES SECTION 14.01. Agreement to Subordinate. The Company covenants and agrees, and each Debentureholder issued hereunder by his acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article; and each person holding any Debenture, whether upon original issue or upon transfer, assignment or exchange thereof accepts and agrees that the Principal of and interest on all Debentures issued hereunder shall, to the extent and in the manner herein set forth, be subordinated and subject in right to the prior payment in full of all Senior and Subordinated Debt. SECTION 14.02. Payments to Debentureholders. No payments on account of principal of, premium, if any, or interest on the Debentures shall be made if at the time of such payment or immediately after giving effect thereto there shall exist a default in any payment with respect to any Senior and Subordinated Debt, and such event of default shall not have been cured or waived or shall not have ceased to exist. In addition, during the continuance of any other event of default (other than a payment default) with respect to Designated Senior and Subordinated Debt pursuant to which the maturity thereof may be accelerated, from and after the date of receipt by the Trustee of written notice from the holders of such Designated Senior and Subordinated Debt or from an agent of such holders, no payments on account of principal, premium, if any, or interest in respect of the Debentures may be made by the Company for a period ("Payment Blockage Period") commencing on the date of delivery of such notice and ending 179 days thereafter (unless such Payment Blockage Period shall be terminated by written notice to the Trustee from the holders of such Designated Senior and Subordinated Debt or from an agent of such holders, or such event of default has been cured or waived or has ceased to exist). Only one Payment Blockage Period may be commenced with respect to the Debentures during any period of 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior and Subordinated Debt initiating such Payment Blockage Period shall be or be made the basis for the commencement of any subsequent Payment Blockage Period by the holders of such Designated Senior and Subordinated Debt, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. 66 Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, receivership, reorganization, assignment for the benefit of creditors, marshalling of assets and liabilities or any bankruptcy, insolvency or similar proceedings of the Company, all amounts due or to become due upon all Senior and Subordinated Debt shall first be paid in full, in cash or cash equivalents, or payment thereof provided for in accordance with its terms, before any payment is made on account of the principal of, premium, if any, or interest on the indebtedness evidenced by the Debentures, and upon any such liquidation, dissolution, winding up, receivership, reorganization, assignment, marshalling or proceeding, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Debentureholders or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Debentureholders or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior and Subordinated Debt (pro rata to such holders on the basis of the respective amounts of Senior and Subordinated Debt held by such holders) or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior and Subordinated Debt may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior and Subordinated Debt in full (including, without limitation, except to the extent, if any, prohibited by mandatory provisions of law, post-petition interest, in any such proceedings), after giving effect to any concurrent payment or distribution to or for the holders of Senior and Subordinated Debt, before any payment or distribution is made to the holders of the indebtedness evidenced by the Debentures or to the Trustee under this Indenture. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee under this Indenture or the holders of the Debentures before all Senior and Subordinated Debt is paid in full or provision is made for such payment in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior and Subordinated Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior and Subordinated Debt may have been issued, as their respective interests may appear, for application to the payment of all Senior and Subordinated Debt remaining unpaid until all such Senior and Subordinated Debt shall have been paid in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior and Subordinated Debt. For purposes of this Article, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of arrangement, reorganization or readjustment, the payment of which is subordinated (at least to the 67 extent provided in this Article with respect to the Debentures) to the payment of all Senior and Subordinated Debt which may at the time be outstanding; provided, that (i) the Senior and Subordinated Debt is assumed by the new corporation, if any, resulting from any such arrangement, reorganization or readjustment, and (ii) the rights of the holders of the Senior and Subordinated Debt are not, without the consent of such holders, altered by such arrangement, reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article 10 shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article 10. Nothing in this Section shall apply to claims of, or payments to, the Trustee under or pursuant to Article 7, except as provided therein. This Section shall be subject to the further provisions of Section 14.05. SECTION 14.03. Subrogation of Debentures. Subject to the payment in full of all Senior and Subordinated Debt, the holders of the Debentures shall be subrogated to the rights of the holders of Senior and Subordinated Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior and Subordinated Debt until the principal of and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior and Subordinated Debt of any cash, property or securities to which the holders of the Debentures or the Trustee on their behalf would be entitled except for the provisions of this Article, and no payment over pursuant to the provisions of this Article to the holders of Senior and Subordinated Debt by holders of the Debentures or the Trustee on their behalf shall, as between the Company, its creditors other than holders of Senior and Subordinated Debt and the holders of the Debentures, be deemed to be a payment by the Company to or on account of the Senior and Subordinated Debt; and no payments or distributions of cash, property or securities to or for the benefit of the Debentureholders pursuant to the subrogation provision of this Article, which would otherwise have been paid to the holders of Senior and Subordinated Debt shall be deemed to be a payment by the Company to or for the account of the Debentures. It is understood that the provisions of this Article are and are intended solely for the purpose of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of the Senior and Subordinated Debt, on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors other than the holders of Senior and Subordinated Debt, and the holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debentures the principal of and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Debentures and creditors of the Company other than the holders of the Senior and Subordinated Debt, nor shall anything herein or therein 68 prevent the holder of any Debenture or the Trustee on his behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior and Subordinated Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Article 7, and the holders of the Debentures shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such liquidation, dissolution, winding up, receivership, reorganization, assignment or marshalling proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the holders of the Debentures, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior and Subordinated Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 14.04. Authorization by Debentureholders. Each holder of a Debenture by his acceptance thereof authorizes the Trustee in his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 14.05. Notice to Trustee. The Company shall give prompt written notice to the Trustee and to any paying agent of any fact known to the Company which would prohibit the making of any payment of moneys to or by the Trustee or any paying agent in respect of the Debentures pursuant to the provisions of this Article. Regardless of anything to the contrary contained in this Article or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any Senior and Subordinated Debt or of any default or event of default with respect to any Senior and Subordinated Debt or of any other facts which would prohibit the making of any payment of moneys to or by the Trustee, unless and until the Trustee shall have received notice in writing at its principal Corporate Trust Office to that effect signed by an officer of the Company, or by a holder or agent of a holder of Senior and Subordinated Debt who shall have been certified by the Company or otherwise established to the reasonable satisfaction of the Trustee to be such holder or agent, or by the trustee under any indenture pursuant to which Senior and Subordinated Debt shall be outstanding, and, prior to the receipt of any such written notice, the Trustee shall, subject to the provisions of Article 7, be entitled to assume that no such facts exist; provided that if on a date at least three Business days prior to the date upon which by the terms hereof any such moneys shall become payable for any purpose (including, without limitation, the payment of the principal of, or interest on any Debenture) the Trustee shall not have received with respect to such moneys the notice provided for in this Section, then, regardless of anything herein to the contrary, the Trustee shall have full power and authority to receive such moneys and to apply the same to the purpose for which they were received, and shall 69 not be affected by any notice to the contrary which may be received by it on or after such prior date. Regardless of anything to the contrary herein, nothing shall prevent (a) any payment by the Company or the Trustee to the Debentureholders of amounts in connection with a redemption of Debentures if (i) notice of such redemption has been given pursuant to Article 3 prior to the receipt by the Trustee of written notice as aforesaid, and (ii) such notice of redemption is given not earlier than 60 days before the redemption date, or (b) any payment by the Trustee to the Debentureholders of amounts deposited with it pursuant to Article 11. The Trustee shall be entitled to rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior and Subordinated Debt (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of Senior and Subordinated Debt or a trustee on behalf of any such holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior and Subordinated Debt to participate in any payment or distribution pursuant to this Article, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior and Subordinated Debt held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article, and if such evidence is not furnished the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment. SECTION 14.06. Trustee's Relation to Senior and Subordinated Debt. The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article with respect to any Senior and Subordinated Debt which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior and Subordinated Debt and nothing in this Indenture shall deprive the Trustee or any such agent, of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Article 7. With respect to the holders of Senior and Subordinated Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to the holders of Senior and Subordinated Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior and Subordinated Debt and, subject to the provisions of Article 7, the Trustee shall not be liable to any holder of Senior and Subordinated Debt if it shall pay over or deliver to holders of Debentures, the Company or any other person moneys or assets to which any holder of Senior and Subordinated Debt shall be entitled by virtue of this Article or otherwise. 70 SECTION 14.07. No Impairment to Subordination. No right of any present or future holder of any Senior and Subordinated Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The First National Bank of Chicago, as Trustee, hereby accepts the trust in this Indenture declared and provided, upon the terms and conditions herein above set forth. 71 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. THE AES CORPORATION By /s/ BARRY J. SHARP ------------------------------------------------ Name: Barry J. Sharp Title:Vice President and Chief Financial Officer Attest: By /s/ WILLIAM R. LURASCHI ------------------------------------------------ Name: William R. Luraschi Title:General Counsel and SEcretary THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE By /s/ MARY FONTI ------------------------------------------------ Name: Mary Fonti Title: Assistant Vice President Attest: By /s/ MELISSA WEISMAN ------------------------------------------------ Name:Melissa Weisman Title: Vice President 72 EX-4.3 4 EXHIBIT 4.3 CONFORMED COPY ==================== THE AES CORPORATION AND THE FIRST NATIONAL BANK OF CHICAGO as Trustee ------------------ FIRST SUPPLEMENTAL INDENTURE Dated as of March 31, 1997 TO JUNIOR SUBORDINATED INDENTURE Dated as of March 1, 1997 ------------------- 5.375% Junior Subordinated Convertible Debentures Due 2027 ==================== The First Supplemental INDENTURE, dated as of the thirty first day of March, 1997 (the "First Supplemental Indenture"), between THE AES CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (hereinafter sometimes referred to as the "Company") and The First National Bank of Chicago, a national banking association, as trustee (hereinafter sometimes referred to as the "Trustee") under the Junior Subordinated Indenture dated as of March 1, 1997 between the Company and the Trustee (the "Indenture") (except as otherwise set forth herein, all terms used and not defined herein are used as defined in the Indenture or in the Declaration of Trust); WHEREAS, the Company executed and delivered the Indenture to the Trustee to provide for the future issuance of its junior subordinated securities (the "Debentures"), said Debentures to be issued from time to time in series as might be determined by the Company under the Indenture, in an unlimited aggregate principal amount which may be authenticated and delivered thereunder as in the Indenture provided; and WHEREAS, pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of its Debentures to be known as its 5.375% Junior Subordinated Convertible Debentures due 2027 (said series being hereinafter referred to as the "Series 5.375% Debentures"), the form and substance of such Series 5.375% Debentures and the terms, provisions and conditions thereof to be set forth as provided in the Indenture and this First Supplemental Indenture; and WHEREAS, the Company has caused to be formed AES Trust I ("AES Trust I" or the "Trust") as a statutory business trust under the Business Trust Act of the State of Delaware (12 Del. Code ss. 3801 et seq.) pursuant to a declaration of trust dated November 1, 1996 (the "Original Declaration") and the filing of a restated certificate of trust with the Secretary of State of the State of Delaware on March 27, 1997; and WHEREAS, the Original Declaration is to be amended and restated in its entirety pursuant to an Amended and Restated Declaration of Trust dated as of March 31, 1997 (such Amended and Restated Declaration of Trust, as amended from time to time, the "Declaration of Trust"); and WHEREAS, AES Trust I desires to issue its $2.6875 Term Convertible Securities, Series A (the "Preferred Securities" or "TECONS") and sell such Preferred Securities to initial purchasers; and WHEREAS, in connection with such purchases of Preferred Securities and the related purchase by the Company of the Common Securities (as defined in the Declaration of Trust) of AES Trust I, AES Trust I will purchase as trust assets Series 5.375% Debentures; and WHEREAS, pursuant to the Declaration of Trust, the legal title to the Series 5.375% Debentures shall be owned and held of record in the name of The First National 2 Bank of Chicago or its successor under the Declaration of Trust, as Property Trustee (the "Property Trustee"), in trust for the benefit of holders of the Preferred Securities and the Common Securities; and WHEREAS, upon the occurrence of a Special Event (as defined in the Declaration of Trust) the Regular Trustees (as defined in the Declaration of Trust) of AES Trust I shall, unless the Series 5.375% Debentures are redeemed as described herein, dissolve AES Trust I and cause to be distributed to the holders of Preferred Securities and Common Securities, on a Pro Rata basis (determined as provided in the terms of the Preferred Securities and Common Securities attached as Exhibits B and C to the Declaration of Trust), Series 5.375% Debentures and, in connection with a Liquidation Distribution (as defined in the Declaration of Trust), the Regular Trustees may cause to be distributed to holders of Preferred Securities and Common Securities, on such a Pro Rata basis, Series 5.375% Debentures (each a "Dissolution Event"); and WHEREAS, the Company desires and has requested the Trustee to join with it in the execution and delivery of this First Supplemental Indenture, and all requirements necessary to make this First Supplemental Indenture a valid instrument, in accordance with its terms, and to make the Series 5.375% Debentures when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; NOW THEREFORE, in consideration of the purchase and acceptance of the Series 5.375% Debentures by the holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the Series 5.375% Debentures and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee as follows: ARTICLE ONE GENERAL TERMS AND CONDITIONS OF THE SERIES 5.375% DEBENTURES SECTION 1.01. There shall be and is hereby authorized a series of Debentures designated the "5.375% Junior Subordinated Convertible Debentures Due 2027", limited in aggregate principal amount to $257,732,000 (except as provided in this Section 1.01 and 7.01). Upon exercise of the overallotment option set forth in the Underwriting Agreement (as defined in the Declaration of Trust), additional Series 5.375% Debentures in the aggregate principal amount of up to $25,773,200 may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Series 5.375% Debentures to or upon the written order of the Company, which order shall be accompanied by evidence satisfactory to the Trustee that the overallotment option has been exercised. The Series 5.375% Debentures shall 3 mature and the principal shall be due and payable together with all accrued and unpaid interest thereon, including Compounded Interest (as hereinafter defined) on March 31, 2027 (the "Maturity Date"). SECTION 1.02. (a) Except as provided in Section 1.02(b), the Series 5.375% Debentures shall be issued in fully registered certificated form without interest coupons in denominations of $50 or integral multiples thereof. Principal and interest on the Series 5.375% Debentures issued in certificated form will be payable, the transfer of such Series 5.375% Debentures will be registrable and such Series 5.375% Debentures will be exchangeable for Series 5.375% Debentures bearing identical terms and provisions at the office or agency of the Company in the Borough of Manhattan, The City and State of New York; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Debenture register and that the payment of principal with respect to the Series 5.375% Debentures will only be made upon surrender of the Series 5.375% Debentures to the Trustee. Notwithstanding the foregoing, so long as the Property Trustee is the legal owner and record holder of the Series 5.375% Debentures, the payment of the principal of and interest (including Compounded Interest, if any) on the Series 5.375% Debentures held by the Property Trustee will be made by the Company in immediately available funds on the payment date therefor at such place and to the Property Account (as defined in the Declaration of Trust) established and maintained by the Property Trustee pursuant to the Declaration of Trust. (b) In connection with a Dissolution Event: (i) Series 5.375% Debentures in certificated form may be presented to the Trustee by the Property Trustee in exchange for a Global Debenture representing the Series 5.375% Debentures in an aggregate principal amount equal to all Outstanding Series 5.375% Debentures, to be registered in the name of the Depositary, or its nominee, and delivered by the Trustee to the Depositary for crediting to the accounts of its participants pursuant to the instructions of the Regular Trustees (as defined in the Declaration of Trust). The Company upon any such presentation shall execute a Global Debenture representing the Series 5.375% Debentures in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with the Indenture and this First Supplemental Indenture. Payments on the Series 5.375% Debentures issued as a Global Debenture will be made to the Depositary; and (ii) if any Preferred Securities are held in non book-entry certificated form, Series 5.375% Debentures in certificated form may be presented to the Trustee by the Property Trustee and any Preferred Security Certificate (as defined in 4 the Declaration of Trust) which represents Preferred Securities other than Preferred Securities held by the Clearing Agency (as defined in the Declaration of Trust) or its nominee ("Non Book-Entry Preferred Securities") will be deemed to represent beneficial interests in Series 5.375% Debentures presented to the Trustee by the Property Trustee having an aggregate principal amount equal to the aggregate liquidation amount of the Non Book-Entry Preferred Securities until such Preferred Security Certificate are presented to the Debenture Registrar for transfer or reissuance at which time such Preferred Security Certificate will be canceled and a Series 5.375% Debenture, registered in the name of the holder of the Preferred Security Certificate or the transferee of the holder of such Preferred Security Certificate, as the case may be, with an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Security Certificate canceled will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with the Indenture and this First Supplemental Indenture. On issue of such Series 5.375% Debentures, Series 5.375% Debentures with an equivalent aggregate amount that were presented by the Property Trustee to the Trustee will be deemed to have been canceled. SECTION 1.03. Each Series 5.375% Debenture will bear interest at the rate of 5.375% per annum from March 31, 1997 until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum, compounded quarterly, payable (subject to the provisions of Article Three) quarterly in arrears on the last day of each calendar quarter (each an "Interest Payment Date", commencing on June 30, 1997), to the person in whose name such Series 5.375% Debenture or any predecessor Series 5.375% Debenture is registered, at the close of business on the regular record date for such interest installment, which, except as set forth below, shall be, in respect of any Series 5.375% Debentures of which the Property Trustee is the registered holder of or a Global Debenture, the close of business on the business day next preceding that Interest Payment Date. Notwithstanding the foregoing sentence, if the Preferred Securities are no longer in book-entry only form or if pursuant to the provisions of Section 2.11(c) of the Indenture the Series 5.375% Debentures are not represented by a Global Debenture, the regular record dates for such interest installment shall be the close of business on the fifteenth day of the month in which that Interest Payment Date occurs. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date, and may be paid to the person in whose name the Series 5.375% Debenture (or one or more Predecessor Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of the Series 5.375% Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Series 5.375% Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. 5 The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Series 5.375% Debentures is not a business day, then payment of interest payable on such date will be made on the next succeeding day which is a business day (and without any interest or other payment in respect of any such delay), except that, if such business day is in the next succeeding calendar year, such payment shall be made on the immediately preceding business day, in each case with the same force and effect as if made on such date. If at any time AES Trust I shall be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the U.S., or any other taxing authority, then, in any such case, the Company will pay as additional interest ("Additional Interest") on the Series 5.375% Debentures such additional amounts as shall be required so that the net amounts received and retained by AES Trust I after paying any such taxes, duties, assessments or other governmental charges will be equal to the amounts AES Trust I would have received had no such taxes, duties, assessments, or other governmental charges been imposed. ARTICLE TWO OPTIONAL REDEMPTION OF THE SERIES 5.375% DEBENTURES SECTION 2.01. Except as provided in Section 2.02 and subject to the provisions below, Series 5.375% Debentures may not be redeemed by the Company prior to March 31, 2000. Subject to the terms of Article Three of the Indenture, the Company shall have the right to redeem the Series 5.375% Debentures, in whole or in part, from time to time, on or after March 31, 2000, upon not less than 30 nor more than 60 days notice to the Holder of the Series 5.375% Debentures, at the following prices (expressed as percentages of the principal amount of the Series 5.375% Debentures) (the "Optional Redemption Price"), together with any accrued and unpaid interest thereon, including Compounded Interest (as defined herein), if any, to, but excluding, the date of such redemption, if redeemed during the 12-month period beginning March 31: Year Redemption Price ---- ---------------- 2000 103.359% 2001 102.688% 2002 102.016% 2003 101.344% 2004 100.672% and 100% if redeemed on or after March 31, 2005. 6 If the Series 5.375% Debentures are redeemed on any Interest Payment Date, accrued and unpaid interest shall be payable to Holders of record on the relevant record date. The Company may not redeem any Series 5.375% Debentures unless all accrued and unpaid interest thereon, including Compounded Interest, if any, has been paid for all quarterly periods terminating on or prior to the date of notice of redemption. So long as the corresponding Trust Securities are outstanding, the proceeds from the redemption of the Series 5.375% Debentures will be used to redeem the Trust Securities. If the Company gives a notice of redemption in respect of Junior Subordinated Debentures (which notice will be irrevocable), then, by 12:00 noon, New York City time, on the redemption date, the Company will deposit irrevocably with the Indenture Trustee funds sufficient to pay the applicable Redemption Price and will give irrevocable instructions and authority to pay such Redemption Price to the holders of the Junior Subordinated Debentures. If any date fixed for redemption of Junior Subordinated Debentures is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calender year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. In the event of any redemption in part, the Company shall not be required to (i) issue, register the transfer of or exchange any Junior Subordinated Debentures during a period beginning at the opening of business 15 days before any selection for redemption of Junior Subordinated Debentures and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all holders of Junior Subordinated Debentures to be redeemed and (ii) register the transfer of or exchange any Junior Subordinated Debentures so selected for redemption, in whole or in part, except the unredeemed portion of any Junior Subordinated Debentures being redeemed in part. SECTION 2.02. If, at any time, a Tax Event (as defined below) shall occur or be continuing and (i) the Regular Trustees and the Company shall have received an opinion (a "Redemption Tax Opinion") of a nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Company would be precluded from deducting the interest on the Series 5.375% Debentures for United States federal income tax purposes even if the Series 5.375% Debentures were distributed to the holders of Preferred Securities and Common Securities in liquidation of such holder's interest in AES Trust I as set forth in the Declaration of Trust or (ii) the Regular Trustees shall have been informed by such tax counsel that a No Recognition Opinion (as defined below) cannot be delivered to AES Trust I, the Company shall have the right at any time, upon not less than 30 nor more than 7 60 days' notice, to redeem the Series 5.375% Debentures in whole or in part for cash at a price equal to 100% of the principal amount thereof, together with any accrued and unpaid interest thereon, including Compounded Interest, if any, to, but excluding the date of redemption, within 90 days following the occurrence of such Tax Event; provided, however, that, if at the time there is available to the Company or the Regular Trustees on behalf of AES Trust I the opportunity to eliminate, within such 90 day period, the Tax Event by taking some ministerial action ("Ministerial Action"), such as filing a form or making an election, or pursuing some other similar reasonable measure, which has no adverse effect on AES Trust I, the Company or the holders of the Preferred Securities, the Company or the Regular Trustees on behalf of AES Trust I will pursue such measure in lieu of redemption and provided further that the Company shall have no right to redeem the Series 5.375% Debentures while the Regular Trustees on behalf of AES Trust I are pursuing any such Ministerial Action. "Tax Event" means that the Company and the Regular Trustees shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after March 24, 1997 as a result of (a) any amendment to, or change in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or effective or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after March 24, 1997 there is more than an insubstantial risk that (i) AES Trust I is, or will be within 90 days of the date thereof, subject to United States federal income tax with respect to income accrued or received on the Series 5.375% Debentures, (ii) AES Trust I is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges or (iii) interest payable by the Company to AES Trust I on the Series 5.375% Debentures is not, or within 90 days of the date thereof will not be, deductible by the Company for United States federal income tax purposes. "No Recognition Opinion" means an opinion of a nationally recognized independent tax counsel experienced in such matters, which opinion may rely on any then applicable published revenue ruling of the Internal Revenue Service, to the effect that the holders of the Preferred Securities will not recognize any gain or loss for United States federal income tax purposes as a result of a dissolution of AES Trust I and distribution of the Series 5.375% Debentures as provided in the Declaration of Trust. SECTION 2.03. If the Series 5.375% Debentures are only partially redeemed pursuant to this Article Two, the Series 5.375% Debentures will be redeemed pro rata or 8 by lot or by any other method utilized by the Trustee, provided that if at the time of redemption, the Series 5.375% Debentures are registered as a Global Debenture, the Depository shall determine by lot the principal amount of such Series 5.375% Debentures held by each Debenture Holder to be redeemed in accordance with its customary procedures. Notwithstanding the foregoing, if a partial redemption of the Series 5.375% Debentures would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed, the Company shall not be permitted to effect such partial redemption and will only redeem the Series 5.375% Debentures in whole. ARTICLE THREE EXTENSION OF INTEREST PAYMENT PERIOD SECTION 3.01. So long as the Company is not in default in the payment of interest on the Series 5.375% Debentures, the Company shall have the right, at any time during the term of the Series 5.375% Debentures, from time to time to extend the interest payment period of such Series 5.375% Debentures for up to 20 consecutive quarterly interest periods (the "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest accrued and unpaid thereon (together with interest thereon at the rate of 5.375% per annum to the extent permitted by applicable law, compounded quarterly ("Compounded Interest")); provided that no Extended Interest Payment Period may extend beyond the Maturity Date or redemption date of the Series 5.375% Debentures. During such Extended Interest Payment Period the Company shall not declare or pay any dividend on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its common stock or preferred stock or make any guarantee payments with respect thereto; provided that the foregoing will not apply to any stock dividends paid by the Company in Common Stock. Prior to the termination of any such Extended Interest Payment Period, the Company may pay all or any portion of the interest accrued on the Series 5.375% Debentures on any Interest Payment Date to holders of record on the regular record date for such Interest Payment Date or from time to time further extend such Period; provided that such Period together with all such further extensions thereof shall not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extended Interest Payment Period and upon the payment of all accrued and unpaid interest then due, together with Compounded Interest, the Company may select a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof. At the end of the Extended Interest Payment Period the Company shall pay all interest accrued and unpaid on the Series 5.375% Debentures including any Compounded Interest which shall be payable to the holders of the Series 5.375% Debentures in whose names the Series 5.375% Debentures are registered in the Debenture register on the first record date after the end of the Extended Interest Payment Period. 9 SECTION 3.02. (a) So long as the Property Trustee is the legal owner and holder of record of the Series 5.375% Debentures, at the time the Company selects an Extended Interest Payment Period, the Company shall give both the Property Trustee and the Trustee written notice of its selection of such Extended Interest Payment Period one business day prior to the earlier of (i) the next succeeding date on which distributions on the Preferred Securities are payable or (ii) the date AES Trust I is required to give notice of the record date or the date such distributions are payable to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Preferred Securities, but in any event not less than one business day prior to such record date. The Company shall cause AES Trust I to give notice of the Company's selection of such Extended Interest Payment Period to the holders of the Preferred Securities. (b) If as a result of a Dissolution Event Series 5.375% Debentures have been distributed to holders of Preferred Securities and Common Securities, at the time the Company selects an Extended Interest Payment Period, the Company shall give the holders of the Series 5.375% Debentures and the Trustee written notice of its selection of such Extended Interest Payment Period at least 10 business days prior to the earlier of (i) the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Series 5.375% Debentures. SECTION 3.03. The quarter in which any notice is given pursuant to Section 3.02 shall be counted as one of the quarters permitted in the maximum Extended Interest Payment Period permitted under this Article Three. ARTICLE FOUR COVENANTS APPLICABLE TO SERIES 5.375% DEBENTURES SECTION 4.01. So long as any Preferred Securities remain outstanding, the Company will not declare or pay any dividends on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its common stock or preferred stock or make any guarantee payments with respect thereto if at such time (i) the Company shall be in default with respect to its Guarantee Payments (as defined in the Guarantee Agreement) or other payment obligations under the Guarantee Agreement, (ii) there shall have occurred any Event of Default under the Indenture with respect to the Series 5.375% 10 Debentures or (iii) the Company shall have given notice of its election of an Extended Interest Payment Period and such Period, or any extension thereof, is continuing; provided that the foregoing will not apply to any stock dividends paid by the Company in Common Stock. SECTION 4.02. In connection with the distribution of the Series 5.375% Debentures to the holders of the Preferred Securities upon a Dissolution Event, the Company will use its best efforts to list such Series 5.375% Debentures on the New York Stock Exchange or on such other exchange as the Preferred Securities are then listed and traded. SECTION 4.03. The Company covenants and agrees for the benefit of the holders of the Preferred Securities to comply fully with all of its obligations and agreements under the Declaration of Trust, including, without limitation, its obligations under Article 4 thereof. SECTION 4.04. Prior to the distribution of Series 5.375% Debentures to the holders of Preferred Securities upon a Dissolution Event, the Company covenants and agrees for the benefit of the holders of the Preferred Securities (i) not to cause or permit the Common Securities to be transferred except as permitted by the Declaration of Trust and (ii) that it will use reasonable efforts to cause the Trust to continue to be treated as a grantor trust for United States federal income tax purposes, except in connection with a distribution of the Series 5.375% Debentures as provided in the Declaration of Trust. ARTICLE FIVE CONVERSION OF DEBENTURES SECTION 5.01. Subject to and upon compliance with the provisions of this Article Five, the Series 5.375% Debentures are convertible at the option of the Holder, at any time through the close of business on March 31, 2027 (or, in the case of Series 5.375% Debentures called for redemption, prior to the close of business on the Business Day prior to the corresponding redemption date) into fully paid and nonassessable shares of 11 Common Stock of the Company at an initial conversion rate of 0.6906 shares of Common Stock for each $50 in aggregate principal amount of Series 5.375% Debentures (equal to a conversion price (as adjusted from time to time, the "Conversion Price") of $72.40 per share of Common Stock), subject to adjustment as described in this Article Five. A Holder of Series 5.375% Debentures may convert any portion of the principal amount of the Series 5.375% Debentures into that number of fully paid and nonassessable shares of Common Stock obtained by dividing the principal amount of the Series 5.375% Debentures to be converted by such conversion price. All calculations under this Article Five shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. SECTION 5.02. (a) In order to convert all or a portion of the Series 5.375% Debentures, the Holder thereof shall deliver to the Conversion Agent an irrevocable Notice of Conversion setting forth the principal amount of Series 5.375% Debentures to be converted, together with the name or names, if other than the Holder, in which the shares of Common Stock should be issued upon conversion and, if such Series 5.375% Debentures are definitive Series 5.375% Debentures, surrender to the Conversion Agent the Series 5.375% Debentures to be converted, duly endorsed or assigned to the Company or in blank. In addition, a holder of Trust Securities may exercise its right under the Declaration of Trust to convert such Trust Securities into Common Stock by delivering to the Conversion Agent an irrevocable Notice of Conversion setting forth the information called for by the preceding sentence and directing the Conversion Agent to (i) exchange such Trust Security for a portion of the Series 5.375% Debentures held by the Trust (at an exchange rate of $50 principal amount of Series 5.375% Debentures for each Trust Security) and (ii) immediately convert such Series 5.375% Debentures, on behalf of such holder, into Common Stock of the Company pursuant to this Article Five and, if such Trust Securities are in definitive form, surrendering such Trust Securities, duly endorsed or assigned to the Company or in blank. So long as any Trust Securities are outstanding, the Trust shall not convert any Series 5.375% Debentures except pursuant to a Notice of Conversion delivered to the Conversion Agent by a holder of Trust Securities. Any reference herein to a "holder" of Trust Securities shall mean a "Holder" of such securities as defined in the Declaration of Trust. If a Preferred Security is surrendered for conversion after the close of business on any regular record date for payment of a Distribution and before the opening of business on the corresponding Distribution payment date, then, notwithstanding such conversion, the Distribution payable on such Distribution payment date will be paid in cash to the person in whose name the Series 5.375% Debenture is registered at the close of business on such record date, and (other than a Series 5.375% Debenture or a portion of a Series 5.375% Debenture called for redemption on a redemption date occurring after such record date and on or prior to such Distribution payment date) when so surrendered for conversion, the Series 5.375% Debenture must be accompanied by payment of an amount equal to the Distribution payable on such Distribution payment date. Except as otherwise provided in the immediately preceding sentence, in the case of any Series 5.375% Debenture which is converted, interest whose Maturity Date is after the date of conversion 12 of such Series 5.375% Debenture shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest on the Series 5.375% Debenture being converted, which shall be deemed to be paid in full. Each conversion shall be deemed to have been effected immediately prior to the close of business on the day on which the Notice of Conversion was received (the "Conversion Date") by the Conversion Agent from the Holder or from a holder of the Preferred Securities effecting a conversion thereof pursuant to its conversion rights under the Declaration, as the case may be. The Person or Persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of the Conversion Date. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver at the office of the Conversion Agent, unless otherwise directed by the Holder in the Notice of Conversion, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same. The Conversion Agent shall deliver such certificate or certificates to such Person or Persons. (b) The Company's delivery upon conversion of the fixed number of shares of Common Stock into which the Series 5.375% Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at maturity of the portion of Series 5.375% Debentures so converted and any unpaid interest (including Compounded Interest) accrued on such Series 5.375% Debentures at the time of such conversion. (c) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, the Company shall pay to the Conversion Agent a cash adjustment in an amount equal to the same fraction of the Closing Price of such fractional interest on the date on which the Series 5.375% Debentures were duly surrendered to the Conversion Agent for conversion, or, if such day is not a day on which any securities are traded on the national securities exchange or quotation system used to determine the Closing Price (a "Trading Day"), on the next Trading Day, and the Conversion Agent in turn will make such payment, if any, to the Holder of the Series 5.375% Debentures or the holder of the Preferred Securities so converted. (d) In the event of the conversion of any Series 5.375% Debenture in part only, a new Series 5.375% Debenture or Series 5.375% Debentures for the unconverted portion thereof will be issued in the name of the Holder thereof upon the cancellation thereof in accordance with Section 2.05 of the Indenture. (e) In effecting the conversion transactions described in this Section 5.02, the Conversion Agent is acting as agent of the holders of Preferred Securities (in the exchange of Preferred Securities for Series 5.375% Debentures) and as agent of the Holders of Series 5.375% Debentures (in the conversion of Series 5.375% Debentures into Common Stock), as the case may be. The Conversion Agent is hereby authorized (i) to exchange Series 5.375% Debentures held by the Trust from time to time for Preferred Securities in 13 connection with the conversion of such Preferred Securities in accordance with this Article Five and (ii) to convert all or a portion of the Series 5.375% Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Article Five and to deliver to the Trust a new Series 5.375% Debenture or Series 5.375% Debentures for any resulting unconverted principal amount. SECTION 5.03. (a) The Conversion Price shall be adjusted from time to time as follows: (i) In case the Company shall pay or make a dividend or other distribution on Common Stock in shares of Common Stock, then the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this subparagraph (i), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company (except to the extent such dividend or distribution is being made with respect to such shares) but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. (ii) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, then the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller amount of shares of Common Stock, then the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iii) In case the Company shall issue rights or warrants to all holders of Common Stock entitling them (for a period expiring 14 within 45 days after the record date fixed for a distribution of such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as hereinafter defined) per share (determined as provided in subparagraph (vii) below) of Common Stock on the date fixed for the determination of shareholders entitled to receive such rights or warrants (other than pursuant to a dividend reinvestment plan), then the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such Current Market Price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this subparagraph (iii), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company agrees not to issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Company. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made in respect of the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. (iv) Subject to the second paragraph of this subparagraph (iv), in case the Company shall, by dividend or otherwise, distribute to all holders of Common Stock (A) shares of capital stock of the Company (other than Common Stock), (B) evidence of indebtedness of the Company and/or (C) other assets (including securities, but excluding (1) any rights or warrants referred to in subparagraph (iii) above, (2) any rights or warrants to obtain capital stock of a company other than the Company or any subsidiary of the Company (including any rights offerings of the Company with respect to capital stock of companies in which the Company has an 15 investment (a "Rights Offering")), (3) dividends or distributions in connection with the liquidation, dissolution or winding-up of the Company, (4) dividends payable solely in cash that may from time to time be fixed by the Board of Directors of the Company and (5) dividends or distributions referred to in subparagraph (i) above), then in each case (unless the Company makes the election referred to in the next sentence) the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such record date by a fraction the numerator of which shall be the Current Market Price per share (determined as provided in subparagraph (vii) below) of the Common Stock on such record date (the "Reference Date") less the then fair market value on the Reference Date (as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive and shall be described in a statement filed with the Depositary and the Trustee) of the portion of the shares of capital stock of the Company, evidences of indebtedness or other assets so distributed (and for which an adjustment to the Conversion Price has not been made previously pursuant to the terms of this Article Five) applicable to one share of Common Stock and the denominator shall be such Current Market Price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the Reference Date. However, the Company may elect, in its sole discretion, in lieu of the foregoing adjustment, to make adequate provision so that each holder of Securities shall have the right to receive upon conversion thereof the amount and kind of shares of capital stock, evidences of indebtedness or other assets such holder would have received had such holder converted such shares on such record date. If the Board of Directors of the Company determines the fair market value of any distribution for purposes of this subparagraph (iv) by reference to the actual or when issued trading market for any securities (including shares of capital stock or evidence of indebtedness of the Company) comprising a distribution of securities, it must in doing so consider the price in such market over the period used in computing the Current Market Price of the Common Stock. For purposes of this subparagraph (iv), any dividend or distribution that includes both (x) any of the items described in clauses (A), (B) or (C) of the first paragraph of this subparagraph (iv) and (y) Common Stock or rights or warrants to subscribe for or purchase Common Stock of the type referred to in subparagraph (iii) shall be deemed to be (1) a dividend or distribution of shares of capital stock of the Company (other than Common Stock), evidences of 16 indebtedness of the Company or other assets of the type referred to in clause (C) of the first paragraph of this subparagraph (iv) (making any Conversion Price reduction required by this subparagraph (iv)) immediately followed by (2) a dividend or distribution of such Common Stock or rights or warrants to purchase Common Stock of the type referred to in subparagraph (iii) (making any further Conversion Price reduction required by subparagraph (i) or (iii) of this Section 5.03(a)), except (A) the Reference Date of such dividend or distribution as defined in this subparagraph (iv) shall be substituted as "the date fixed for the determination of shareholders entitled to receive such rights or warrants" and "the date fixed for such determination" within the meaning of subparagraphs (i) and (iii) of this Section 5.03(a) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of subparagraph (i) of this Section 5.03(a). The occurrence of a distribution or the occurrence of any other event as a result of which holders of Series 5.375% Debentures converting such notes into Common Stock hereunder will not be entitled to receive rights issued pursuant to any shareholder protective rights agreement now or hereafter in effect (the "Other Rights") in the same amount and manner as if such holders had converted such shares immediately prior to the occurrence of such distribution or other event shall be deemed a distribution of Other Rights for the purposes of conversion adjustments pursuant to this subparagraph (iv). In lieu of making any adjustment to the Conversion Price under this subparagraph (iv) as a result of such a distribution of Other Rights, the Company may elect, in its sole discretion, to provide that Other Rights shall be issuable in the same amount and manner upon conversion of the Series 5.375% Debentures without regard to whether the shares of Common Stock issuable upon conversion of the Series 5.375% Debentures were issued before or after such distribution or other event. (v) In case the Company shall, by dividend or otherwise, at any time distribute cash to all holders of Common Stock, excluding (A) any cash dividends on Common Stock to the extent that the aggregate cash dividends per share of Common Stock in any consecutive 12-month period do not exceed the greater of (x) the amount per share of Common Stock of the cash dividends paid on the Common Stock in the immediately preceding 12-month period, to the extent that such dividends for the immediately preceding 12- month period did not require an adjustment to the Conversion Price 17 pursuant to this subparagraph (v) (as adjusted to reflect subdivisions or combinations of the Common Stock) and (y) 15% of the average of the daily Closing Prices (as hereinafter defined) of the Common Stock for the ten consecutive Trading Days immediately prior to the date of declaration of such dividend and (B) any dividend or distribution in connection with the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary; or any redemption of any Other Rights; provided, however, that no adjustment shall be made pursuant to this subparagraph (v) if such distribution would otherwise constitute a Fundamental Change (as hereinafter defined) and be reflected in a resulting adjustment to the Conversion Price as provided in this Article Five) then, in each case (unless the Company makes the election referred to in the proviso following this clause), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect at the close of business on such record date by a fraction the numerator of which shall be the Closing Price of a share of Common Stock on such record date less the amount of cash so distributed (to the extent not excluded as provided above) applicable to one share of Common Stock, and the denominator shall be the Closing Price of a share of Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such record date; provided, however, that the Company may elect, in its sole discretion, in lieu of the foregoing adjustment, to make adequate provision so that each holder of Securities shall thereafter have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Security on such record date. If any adjustment is required to be made as set forth in this subparagraph (v) as a result of a distribution which is a dividend described in clause (A) of this subparagraph (v), such adjustment will be based upon the amount by which such distribution exceeds the amount of the dividend permitted to be excluded pursuant to such clause (A) of this subparagraph (v). If an adjustment is required to be made pursuant to this subparagraph (v) as a result of a distribution which is not such a dividend, such adjustment would be based upon the full amount of such distribution. (vi) In case of the consummation of a tender or exchange offer (other than an odd-lot tender offer) made by the Company or any subsidiary of the Company for all or any portion of the outstanding shares of Common Stock to the extent that the cash and fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive and shall be described in a resolution of such Board) of any other consideration 18 included in such payment per share of Common Stock at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as amended) exceed by more than 10%, with any smaller excess being disregarded in computing the adjustment to the Conversion Price provided in this subparagraph (vi), the first reported sale price per share of Common Stock on the Trading Day next succeeding the Expiration Time, then the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the Expiration Time by a fraction the numerator of which shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time multiplied by the first reported sale price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the first reported sale price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (vii) For the purpose of any computation under this Article Five, the "Current Market Price per share" of Common Stock on any day shall be deemed to be the average of the daily Closing Prices (as hereinafter defined) per share of Common Stock for the ten consecutive Trading Days prior to and including the date in question; provided, however, that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance, distribution or Fundamental Change requiring such computation) that requires an adjustment to the Conversion Price pursuant to this Article Five (the "Other Event") occurs during such ten consecutive Trading Days and prior to the "ex" date for the issuance, distribution or Fundamental Change requiring such computation (the "Current Event"), the Closing Price for each Trading Day prior to the "ex" date for such Other Event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such Other Event, (2) if the "ex" date for any Other Event occurs on or after the "ex" date for the 19 Current Event and on or prior to the date in question, the Closing Price for each Trading Day on and after the "ex" date for such Other Event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such Other Event (provided that in the event that such fraction is required to be determined at a date subsequent to the date in question and with reference to events taking place subsequent to the date in question, the Board of Directors of the Company or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive and described in a resolution of the Board of Directors of the Company or such duly authorized committee thereof, as the case may be, shall in good faith estimate such fraction based on assumptions it deems reasonable regarding such events taking place subsequent to the date in question, and such estimated fraction shall be used for purposes of such adjustment until such time as the actual fraction by which the Conversion Price is so required to be adjusted as a result of such Other Event is determined), and (3) if the "ex" date for the Current Event is on or prior to the date in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined in good faith by the Board of Directors of the Company or, to the extent permitted by applicable law, a duly authorized committee thereof in a manner consistent with any determination of such value for purposes of this Article Five, whose determination shall be conclusive and described in a resolution of the Board of Directors of the Company or such duly authorized committee thereof, as the case may be) of the shares of capital stock, evidences of indebtedness or other assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of this subparagraph (vii), the term "ex" date, (1) when used with respect to any issuance, distribution or Fundamental Change, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance, such distribution or the cash, securities, property or other assets distributable in such Fundamental Change to holders of the Common Stock, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective and (3) when used with respect to 20 any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the Expiration Time of such offer. (viii) No adjustment in the Conversion Price shall be required pursuant to this Section 5.03(a) unless the adjustment would require a change of at least 1% of such price; provided, however, that any adjustments which by reason of this subparagraph (viii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations shall be made to the nearest cent (with .005 being rounded upward) or to the nearest 1/100th of a share (with .005 of a share being rounded upward), as the case may be. Notwithstanding anything to the contrary in this Article Five, the Company from time to time may, to the extent permitted by law, reduce the Conversion Price by any amount for any period of at least 20 Business Days, in which case the Company shall give at least 15 days' notice of such reduction to the holders of Series 5.375% Debentures and the Trustee. In addition, the Company may, at its option, make such reductions in the Conversion Price in addition to those set forth in this Article Five, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. (ix) In any case in which this Article Five provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (A) issuing to the holder of any Series 5.375% Debentures converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of any fractional shares pursuant to this Article Five. (x) For purposes of this Article Five, "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of this Article Five, shares issuable on conversion of Series 5.375% Debentures shall 21 include only shares of the class designated as the Company Common Stock on the date of the initial issuance of Series 5.375% Debentures by the Company or shares of any class or classes resulting from any reclassification or reclassification thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided, however, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. (b) Whenever the Conversion Price is adjusted as herein provided: (i) the Company shall compute the adjusted Conversion Price and shall prepare a certificate signed by the Chief Financial Officer or the Treasurer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Trustee and the transfer agent for the Preferred Securities and the Series 5.375% Debentures; and (ii) a notice stating the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall as soon as practicable be mailed by the Company to all record holders of Preferred Securities and the Series 5.375% Debentures at their last addresses as they appear upon the stock transfer books of the Company and the Trust. SECTION 5.04. (a) In the event that the Company shall be a party to any transaction or series of transactions constituting a Fundamental Change, including, without limitation, (i) any recapitalization or reclassification of shares of Common Stock (other than a change in the par value or as a result of a subdivision or combination of the Common Stock), (ii) any consolidation of the Company with, or merger of the Company into, any other corporation or any merger of another corporation into the Company as a result of which holders of Common Stock shall be entitled to receive securities or other property or assets (including cash) with respect to or in exchange for Common Stock (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), (iii) any sale or transfer of all or substantially all of the assets of the Company, or (iv) any compulsory share exchange, pursuant to any of which the holders of Common Stock shall be entitled to receive other securities, cash or other property, then appropriate provision shall be made as part of the terms of such transaction or series of transactions so that the holder of each Series 5.375% 22 Debenture then outstanding shall have the right thereafter to convert such Series 5.375% Debenture only into (A) if any such transaction does not constitute a Common Stock Fundamental Change (as hereinafter defined), the kind and amount of the securities, cash or other property that would have been receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock into which such Series 5.375% Debenture might have been converted immediately prior to such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange, after, in the case of a Non-Stock Fundamental Change (as hereinafter defined), giving effect to any adjustment in the Conversion Price required by the provisions which follow in subparagraph (i) of Section 5.04(c), and (B) in the case of a Common Stock Fundamental Change (as hereinafter defined), common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change in an amount determined pursuant to the provisions which follow in subparagraph (ii) of Section 5.04(c). The company formed by such consolidation or resulting from such merger or which acquires such assets or which acquires the Common Stock, as the case may be, shall enter into a supplemental indenture with the Trustee, satisfactory in form to the Trustee, the provisions of which provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article Five. The above provisions shall similarly apply to successive recapitalization, reclassifications, consolidations, mergers, sales, transfers or share exchanges. (b) Notwithstanding any other provisions in this Article Five to the contrary, if any Fundamental Change (as hereinafter defined) occurs, then the Conversion Price in effect will be adjusted immediately following such Fundamental Change as described below in Section 5.04(c). In addition, in the event of a Common Stock Fundamental Change, each Series 5.375% Debenture shall be convertible solely into common stock of the kind received by holders of Common Stock as the result of such Common Stock Fundamental Change as more specifically provided below in Section 5.04(c). (c) For purposes of calculating any adjustment to be made pursuant to this Article Five in the event of a Fundamental Change, immediately following such Fundamental Change (and for such purposes a Fundamental Change shall be deemed to occur on the earlier of (a) the occurrence of such Fundamental Change and (b) the date, if any, fixed for determination of shareholders entitled to receive the cash, securities, property or other assets distributable in such Fundamental Change to holders of the Common Stock): (i) in the case of a Non-Stock Fundamental Change, the Conversion Price per share of Common Stock shall be the lower of (A) the Conversion Price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other adjustments effected pursuant to this Article Five, and (B) the product of (1) the greater of the Applicable Price (as hereinafter defined) or the then applicable Reference Market Price (as hereinafter defined) and (2) a fraction the numerator of which shall be $100 23 and the denominator of which shall be the amount set forth below (based on the date on which such Non-Stock Fundamental Change occurs). For the twelve month period beginning March 31: Year Denominator ---- ----------- 1997 105.375% 1998 104.703% 1999 104.031% 2000 103.359% 2001 102.687% 2002 102.015% 2003 101.343% 2004 100.671% and thereafter, 100.00; (ii) in the case of a Common Stock Fundamental Change, the Conversion Price per share of Common Stock shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other adjustments effected pursuant to this Article Five, multiplied by a fraction, the numerator of which is the Purchaser Stock Price (as hereinafter defined) and the denominator of which is the Applicable Price; provided, however, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of Common Stock is common stock of the successor, acquiror or other third party (and cash, if any, paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the Common Stock shall have been exchanged for, converted into or acquired for common stock (and cash, if any, with respect to fractional interests) of the successor, acquiror or other third party, the Conversion Price per share of Common Stock immediately following such Common Stock Fundamental Change shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change divided by the number of shares of common stock of the successor, acquiror, or other third party received by a holder of one share of Common Stock as a result of such Common Stock Fundamental Change. (d) The following definitions shall apply to terms used in this Article Five: (i) "Applicable Price" shall mean (A) in the event of a Non-Stock Fundamental Change in which the holders of Common Stock receive only cash, the amount of cash receivable by a holder of one share of Common Stock and (B) in the event of any other Fundamental Change, the average of the Closing Prices for one share of Common Stock during the ten Trading Days immediately prior to the 24 record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change or, if there is no such record date, prior to the date upon which the holders of Common Stock shall have the right to receive such cash, securities, property or other assets. (ii) "Closing Price" with respect to any securities on any day shall mean the closing sale price, regular way, on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange or, if such security is not listed or admitted to trading on such Exchange, on the principal national securities exchange or quotation system on which such security is quoted or listed or admitted to trading or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the date in question as reported by the National Quotation Bureau Incorporated, or a similarly generally accepted reporting service or, if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Company for that purpose or a price determined in good faith by the Board of Directors of the Company. (iii) "Common Stock Fundamental Change" shall mean any Fundamental Change in which more than 50% of the value (as determined in good faith by the Board of Directors of the Company) of the consideration received by the holders of Common Stock pursuant to such transactions consists of shares of common stock that, for the ten consecutive Trading Days immediately prior to such Fundamental Change, has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on the Nasdaq National Market; provided, however, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (A) the Company continues to exist after the occurrence of such Fundamental Change and the outstanding Preferred Securities continue to exist as outstanding Preferred Securities, or (B) the outstanding Preferred Securities continue to exist as Preferred Securities and are convertible into common stock of the successor to the Company. (iv) "Fundamental Change" shall mean the occurrence of any transaction or event or series of transactions or events pursuant to which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitutes solely the right to receive cash, securities, property or other assets (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); provided, however, in the case of a plan involving more than one such transaction or event, for purposes of adjustment of the Conversion Price, such Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock has been exchanged for, converted into, or acquired for or constitutes solely the right to 25 receive cash, securities, property or other assets, but the adjustment shall be based upon the consideration which the holders of Common Stock received in such transaction or event as a result of which more than 50% of the Common Stock shall have been exchanged for, converted into, or acquired for or shall constitute solely the right to receive cash, securities, property or other assets. (v) "Non-Stock Fundamental Change" shall mean any Fundamental Change other than a Common Stock Fundamental Change. (vi) "Purchaser Stock Price" shall mean, with respect to any Common Stock Fundamental Change, the average of the Closing Prices for one share of the common stock received by holders of Common Stock in such Common Stock Fundamental Change during the ten Trading Days immediately prior to the record date for the determination of the holders of Common Stock entitled to receive such common stock or, if there is no such record date, prior to the date upon which the holders of Common Stock shall have the right to receive such common stock. (vii) "Reference Market Price" shall initially mean $39.08 (which is an amount equal to 66-2/3% of the last reported sale price for the Common Stock on the New York Stock Exchange on March 24, 1997) and, in the event of any adjustment to the Conversion Price other than as a result of a Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of the initial Reference Market Price to the initial Conversion Price set forth in this Article Five. (e) In determining the amount and type of consideration received by a holder of Common Stock in the event of a Fundamental Change, consideration received by a holder of Common Stock pursuant to a statutory right of appraisal will be disregarded. SECTION 5.05. In case: (i) the Company shall declare a dividend (or any other distribution) on Common Stock that would cause an adjustment to the Conversion Price of the Series 5.375% Debentures pursuant to the terms of any of the subparagraphs above (including such an adjustment that would occur but for the terms of the first sentence of Section 5.03(a)(viii) above); or (ii) the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock or combined into a smaller number of shares of Common Stock; or (iii) the Company shall authorize the granting to the holders of Common Stock generally of rights or warrants (for a period expiring within 45 days after the record date fixed for a distribution of such rights and warrants) to subscribe for or 26 purchase any shares of the Company's capital stock or other capital stock of any class or of any other rights (including any Rights Offerings); or (iv) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or a compulsory share exchange; or (v) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company; then the Company shall (i) if any Preferred Securities are outstanding, cause to be filed with the transfer agent for the Preferred Securities, and shall cause to be mailed to the holders of record of the Preferred Securities, at their last addresses as they shall appear upon the stock transfer books of the Trust or (ii) shall cause to be mailed to all Holders at their last addresses as they shall appear in the books and records of the Trust, at least 15 days prior to the applicable record or effective date hereinafter specified, a notice stating (A) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). SECTION 5.06. The Company shall reserve, free from pre-emptive rights, out of its authorized but unissued shares, sufficient shares to provide for the conversion of the Series 5.375% Debentures from time to time as such Series 5.375% Debentures are presented for conversion, provided, that nothing contained herein shall be construed to preclude the Company from satisfying its obligations in respect of the conversion of Series 5.375% Debentures by delivery of repurchased shares of Common Stock which are held in the treasury of the Company. If any shares of Common Stock to be reserved for the purpose of conversion of Series 5.375% Debentures hereunder require registration with or approval of any governmental authority under any Federal or State law before such shares may be validly issued or delivered upon conversion, then the Company covenants that it will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be, provided, however, that nothing in this Section 5.06 shall be deemed to affect 27 in any way the obligations of the Company to convert Series 5.375% Debentures into Common Stock as provided in this Article Five. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the Common Stock, the Company will take all corporate action which may, in the Opinion of Counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock which may be issued upon conversion of Series 5.375% Debentures will upon issue be fully paid and non-assessable by the Company and free of pre-emptive rights. SECTION 5.07. Notwithstanding the foregoing provisions, the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan, and the issuance of any shares of Common Stock or options or rights to purchase such shares pursuant to any employee benefit plan or program of the Company or pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of March 31, 1997, shall not be deemed to constitute an issuance of Common Stock or exercisable, exchangeable or convertible securities by the Company to which any of the adjustment provisions described above applies. There shall also be no adjustment of the Conversion Price in case of the issuance of any stock (or securities convertible into or exchangeable for stock) of the Company except as specifically described in this Article Five. SECTION 5.08. In case the Company shall, by dividend or otherwise, declare or make a distribution on the Common Stock referred to in Section 5.03(a)(iv) or 5.03(a)(v) (including, without limitation, dividends or distributions referred to in the last sentence of Section 5.03(a)(vi)), the Holder of the Series 5.375% Debentures, upon the conversion thereof subsequent to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution and prior to the effectiveness of the Conversion Price adjustment in respect of such distribution, shall also be entitled to receive for each share of Common Stock into which the Series 5.375% Debentures are converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; provided, however, that, at the election of the Company (whose election shall be evidenced by a resolution of the Board of Directors) with respect to all Holders so converting, the Company may, in lieu of distributing to such Holder any portion of such distribution not consisting of cash or securities of the Company, pay such Holder an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors). If any conversion of Series 5.375% Debentures described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock which the Holder of Series 5.375% Debentures 28 so converted is entitled to receive in accordance with the immediately preceding sentence, the Company may elect (such election to be evidenced by a resolution of the Board of Directors) to distribute to such Holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such Holder is so entitled, provided, that such due bill (a) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (b) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets no later than the date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution. ARTICLE SIX FORM OF SERIES 5.375% DEBENTURES SECTION 6.01. The Series 5.375% Debentures and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the following forms: (FORM OF FACE OF DEBENTURE) [IF THE NOTE IS TO BE A GLOBAL DEBENTURE, INSERT - This Debenture is a Global Debenture within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee of a Depositary. This Debenture is exchangeable for Debentures registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Debenture (other than a transfer of this Debenture as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary) may be registered except in limited circumstances. Unless this Debenture is presented by an authorized representative to The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any Debenture issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] 29 No. $ CUSIP NO. ____________ THE AES CORPORATION ____% JUNIOR SUBORDINATED DEBENTURE DUE 2027 The AES Corporation, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the principal sum of _________ Dollars on March 31, 2027, and to pay interest on said principal sum from March 31, 1997 or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears commencing March 31, 1997 at the rate of 5.375% per annum plus Compounded Interest, if any, until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a business day, then payment of interest payable on such date will be made on the next succeeding day which is a business day (and without any interest or other payment in respect of any such delay), except that, if such business day is in the next succeeding calendar year, such payment shall be made on the immediately preceding business day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Debenture (or one or more Predecessor Debentures, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, [which shall be the close of business on the day next preceding such Interest Payment Date, provided if the Preferred Securities of AES Trust I are no longer in book-entry only form, the regular record dates shall be the close of business on the fifteenth (15th) day of the month in which such Interest Payment Date occurs] [IF PURSUANT TO THE PROVISIONS OF SECTION 2.11(c) OF THE INDENTURE THE Series 5.375% DEBENTURES ARE NOT REPRESENTED BY A GLOBAL DEBENTURE -- which shall be the close of business on the fifteenth (15th) day of the month in which such Interest Payment Date occurs.] Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date, and may be paid to the person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of this series of Debentures not less than 10 days prior to 30 such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Debenture shall be payable at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City and State of New York, in any coin or currency of the United States of America which at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Debenture register and that the payment of principal will only be made upon the surrender of this Debenture to the Trustee. Notwithstanding the foregoing, so long as the owner and record holder of this Debenture is the Property Trustee (as defined in the Indenture referred to on the reverse hereof), the payment of the principal of (and premium, if any) and interest (including Compounded Interest, if any) on this Debenture will be made at such place and to such account of the Property Trustee as may be designated by the Property Trustee. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior and Subordinated Debt, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior and Subordinated Debt, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions. This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. 31 IN WITNESS WHEREOF, the Company has caused this Instrument to be executed. Dated: The AES Corporation By ----------------------------------- Attest: By ----------------------------------- Secretary CERTIFICATE OF AUTHENTICATION This is one of the Debentures of the series of Debentures described in the within-mentioned Indenture. The First Bank of Chicago -------------------------------- as Trustee or as Authentication Agent By By ----------------------------------- ------------------------------ Authorized Signatory Authorized Signatory (FORM OF REVERSE OF DEBENTURE) This Debenture is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "Debentures"), specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an Indenture dated as of March 1, 1997 duly executed and delivered between the Company and The First National Bank of Chicago, a national banking association, as Trustee (herein referred to as the "Trustee"), as supplemented by the First Supplemental Indenture dated as of March 31, 1997 between the Company and the Trustee (said Indenture as so supplemented being hereinafter referred to as the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures, and, to the extent specifically set forth in the Indenture, the holders of Senior and Subordinated Debt and Preferred Securities. By the terms of the Indenture, the Debentures are issuable in series which may vary as to amount, date of maturity, rate of interest and in other respects as in the Indenture provided. This series of Debentures is designated the 5.375% Junior Subordinated Debentures due 2027 and is limited in aggregate principal amount as specified in said First Supplemental Indenture. Except as provided in the next paragraph, the Debentures may not be redeemed by the Company prior to March 31, 2000. The Company shall have the right to redeem this Debenture at the option of the Company, without premium or penalty, in whole or in part at any time on or after March 31, 2000 (an "Optional Redemption"), upon not less than 30 nor move than 60 days notice to the Holder of the Series 5.375% Debentures, at the following prices (as expressed as percentages of the principal amount of the Debentures) (the "Optional Redemption Price"), together with any accrued but unpaid interest, including any Compounded Interest, if any, to, but including, the date of such redemption, if redeemed during the 12-month period beginning March 31: Year Redemption Price ---- ---------------- 2000 103.359% 2001 102.688% 2002 102.016% 2003 101.344% 2004 100.672% and 100% if redeemed on or after March 31, 2005. If the Series 5.375% Debentures are redeemed on any Interest Payment Date, accrued and unpaid interest shall be payable to Holders of record on the relevant record date. The Company may not redeem any Series 5.375% Debentures unless all accrued and unpaid interest thereon, including Compounded Interest, if any, has been paid for all quarterly periods terminating on or prior to the date of notice of redemption. So long as 34 the corresponding Trust Securities are outstanding, the proceeds from the redemption of the Series 5.375% Debentures will be used to redeem the Trust Securities. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided if, at the time of redemption, the Debentures are registered as a Global Debenture, the Depository shall determine the principal amount of such Debentures held by each holder of Debentures to be redeemed in accordance with its customary procedures. If, at any time, a Tax Event (as defined below) shall occur or be continuing after receipt of a Dissolution Tax Opinion (as defined below) and (i) the Regular Trustees and the Company shall have received an opinion (a "Redemption Tax Opinion") of a nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Company would be precluded from deducting the interest on the Series 5.375% Debentures for United States federal income tax purposes even if the Series 5.375% Debentures were distributed to the holders of Preferred Securities and Common Securities in liquidation of such holder's interest in AES Trust I as set forth in the Declaration of Trust or (ii) the Regular Trustees shall have been informed by such tax counsel that a No Recognition Opinion (as defined below) cannot be delivered to AES Trust I, the Company shall have the right at any time, upon not less than 30 nor more than 60 days' notice, to redeem the Series 5.375% Debentures in whole or in part for cash at a price equal to 100% of the principal amount thereof, together with any accrued and unpaid interest thereon, including Compounded Interest if any, to, but excluding the date of redemption, within 90 days following the occurrence of such Tax Event; provided, however, that, if at the time there is available to the Company or the Regular Trustees on behalf of AES Trust I the opportunity to eliminate, within such 90 day period, the Tax Event by taking some ministerial action ("Ministerial Action"), such as filing a form or making an election, or pursuing some other similar reasonable measure, which has no adverse effect on AES Trust I, the Company or the holders of the Preferred Securities, the Company or the Regular Trustees on behalf of AES Trust I will pursue such measure in lieu of redemption and provided further that the Company shall have no right to redeem the Series 5.375% Debentures while the Regular Trustees on behalf of AES Trust I are pursuing any such Ministerial Action. "Tax Event" means that the Company and the Regular Trustees shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after March 24, 1997, as a result of (a) any amendment to, or change in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally 35 accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or effective or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after March 24, 1997, there is more than an insubstantial risk that (i) AES Trust I is, or will be within 90 days of the date thereof, subject to United States federal income tax with respect to income accrued or received on the Series 5.375% Debentures, (ii) AES Trust I is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges or (iii) interest payable by the Company to AES Trust I on the Series 5.375% Debentures is not, or within 90 days of the date thereof will not be, deductible by the Company for United States federal income tax purposes. "No Recognition Opinion" means an opinion of a nationally recognized independent tax counsel experienced in such matters, which opinion may rely on any then applicable published revenue ruling of the Internal Revenue Service, to the effect that the holders of the Preferred Securities will not recognize any gain or loss for United States federal income tax purposes as a result of a dissolution of AES Trust I and distribution of the Series 5.375% Debentures as provided in the Declaration of Trust. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption or as a result of a Tax Event as described above, the Debentures will be redeemed pro rata or by lot or in some other equitable manner determined by the Trustee. Notwithstanding the foregoing, if a partial redemption of the Series 5.375% Debentures would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed, the Company shall not be permitted to effect such partial redemption and will only redeem the Series 5.375% Debentures in whole. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Debenture upon compliance by the Company with certain conditions set forth therein. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Debentures of each series affected at the time outstanding, as defined in the Indenture (and, in the case of any series of Debentures held as trust assets of an AES Trust and with 36 respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such AES Trust) as may be required under the Declaration of Trust of such AES Trust to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Debentures; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Debentures of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the holder of each Debenture so affected or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Debenture (and, in the case of any series of Debentures held as trust assets of an AES Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of the holders of the Preferred Securities and the Common Securities of such AES Trust as may be required under the Declaration of Trust of such AES Trust) then outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Debentures of a series at the time outstanding affected thereby (subject, in the case of any series of Debentures held as trust assets of an AES Trust and with respect to which a Securities Exchange has not theretofore occurred, to such consent of holders of Preferred Securities and Common Securities of such AES Trust as may be required under the Declaration of Trust of such AES Trust), on behalf of the Holders of the Debentures of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any of the Debentures of such series. Any such consent or waiver by the registered Holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. Subject to Section 13.12 of the Indenture, no reference herein to the Indenture (other than such Section) and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Debenture at the time and place at the rate and in the money herein prescribed. So long as the Company is not in default in the payment of interest on the Debentures, the Company shall have the right, at any time during the term of the Debentures, from time to time to extend the interest payment period of such Debentures for up to 20 consecutive quarterly interest periods (the "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate of 5.375% per annum to the extent permitted by applicable law, compounded quarterly ("Compounded Interest")); provided 37 that no Extended Interest Payment Period may extend beyond the date of maturity or any redemption date of the Debentures. During such Extended Interest Payment Period the Company shall not declare or pay any dividend on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its common stock or preferred stock, or make any guarantee payments with respect thereto, provided that the foregoing will not apply to any stock dividends, paid by the Company in Common Stock. Prior to the termination of any such Extended Interest Payment Period, the Company may pay all or any portion of the interest accrued on the Debentures on any Interest Payment Date to holders of record on the regular record date for such Interest Payment Date or from time to time further extend such Extended Interest Payment Period, provided that such Period together with all such further extensions thereof shall not exceed 20 consecutive quarterly interest periods. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest then due, together with Compounded Interest, the Company may select a new Extended Interest Payment Period, subject to the foregoing requirements. No interest on this Debenture shall be due and payable during an Extended Interest Payment Period, except at the end thereof. At the end of the Extended Interest Payment Period the Company shall pay all interest accrued and unpaid on the Series 5.375% Debentures including any Compounded Interest which shall be payable to the holders of the Series 5.375% Debentures in whose names the Series 5.375% Debentures are registered in the Debenture register on the first record date after the end of the Extended Interest Payment Period. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Debenture register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and any Debenture Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in 38 respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. The Holder of any Debenture has the right, exercisable at any time through the close of business (New York time) on March 31, 2027 (or, in the case of a Debenture called for redemption, prior to the close of business on the Business Day prior to the corresponding redemption date), to convert the principal amount thereof (or any portion thereof that is an integral multiple of $50) into shares of Common Stock at the initial conversion rate of 0.6906 shares of Common Stock for each Debenture (equivalent to a Conversion Price of $72.40 per share of Common Stock), subject to adjustment under certain circumstances. To convert a Debenture, a Holder must (a) complete and sign a conversion notice substantially in the form attached hereto, (b) surrender the Debenture to a Conversion Agent, (c) furnish appropriate endorsements or transfer documents if required by the Conversion Agent and (d) pay any transfer or similar tax, if required. If a Debenture is surrendered for conversion after the close of business on any regular record date for payment of a Distribution and before the opening of business on the corresponding Distribution payment date, then, notwithstanding such conversion, the Distribution payable on such Distribution payment date will be paid in cash to the person in whose name the Debenture is registered at the close of business on such record date, and (other than a Debenture or a portion of a Debenture called for redemption on a redemption date occurring after such record date and on or prior to such Distribution payment date) when so surrendered for conversion, the Debenture must be accompanied by payment of an amount equal to the Distribution payable on such Distribution payment date. The number of shares issuable upon conversion of a Debenture is determined by dividing the principal amount of the Debenture converted by the Conversion Price in effect on the Conversion Date. No fractional shares will be issued upon conversion but a cash adjustment will be made for any fractional interest. The outstanding principal amount of any Debenture shall be reduced by the portion of the principal amount thereof converted into shares of Common Stock. [If certificated Debentures -- The Debentures of this series are issuable only in registered form without coupons in denominations of $50 and any integral multiple thereto.] [If Global Debenture -- This Global Debenture is exchangeable for Debentures in definitive form under certain limited circumstances set forth in the Indenture. Debentures of this series so issued are issuable only in registered form without coupons in denominations of $50 or any integral multiple thereof.] As provided in the Indenture and subject to certain limitations [If Global Debenture -- herein and] therein set forth, Debentures of this series [If Global Debenture -- so issued] are exchangeable for a like aggregate principal amount of Debentures of this series of a different authorized denomination, as requested by the Holder surrendering the same. 39 All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 40 [FORM OF ELECTION TO CONVERT] ELECTION TO CONVERT To: The AES Corporation The undersigned owner of this Convertible Debenture hereby irrevocably exercises the option to convert this Debenture, or the portion below designated, into Common Stock of THE AES CORPORATION, in accordance with the terms of the Indenture referred to in this Debenture, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date: ________, ____ in whole Portions of Debenture to be converted ($50 or integral multiples thereof): $ ------------------------------- Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number ------------------------------- ------------------------------- ------------------------------- Signature Guarantee:*_______ - -------- * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership of participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. 41 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Debenture to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints _________________ ____________________________________ ________________________________________________________________________________ ___________________________________________________ agent to transfer this Debenture on the books of the Trust. The agent may substitute another to act for him or her. Date:_______________________________________ Signature:__________________________________ (Sign exactly as your name appears on the other side of this Debenture) Signature Guarantee*:_________________________________________________ - -------- * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership of participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. 42 ARTICLE SEVEN ORIGINAL ISSUE OF SERIES 5.375% DEBENTURES SECTION 7.01. Except as provided in Section 1.01 and this Section 7.01, Series 5.375% Debentures in the aggregate principal amount equal to $257,732,000 may, upon execution of this First Supplemental Indenture, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Debentures to or upon the written order of the Company, signed by its Chairman, its President, or any Vice President and its Treasurer or an Assistant Treasurer, without any further action by the Company. Upon exercise of the overallotment option set forth in the Underwriting Agreement, additional Series 5.375% Debentures in the aggregate principal amount of up to $25,773,200 may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Series 5.375% Debentures executed as aforesaid by the Company, to or upon the written order of the Company, which order shall be accompanied by evidence satisfactory to the Trustee that the overallotment option has been exercised. ARTICLE EIGHT MISCELLANEOUS PROVISIONS SECTION 8.01. Except as otherwise expressly provided in this First Supplemental Indenture or in the form of Series 5.375% Debenture or otherwise clearly required by the context hereof or thereof, all terms used herein or in said form of Series 5.375% Debenture that are defined in the Indenture shall have the several meanings respectively assigned to them thereby. SECTION 8.02. The Indenture, as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed. This First Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. SECTION 8.03. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this First Supplemental Indenture. SECTION 8.04. This First Supplemental Indenture may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 43 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, on the date or dates indicated in the acknowledgments and as of the day and year first above written. THE AES CORPORATION By /s/ BARRY J. SHARP ------------------------------------------------ Name: Barry J. Sharp Title:Vice President and Chief Financial Officer Attest: By /s/ WILLIAM R. LURASCHI ------------------------------------------------ Name: William R. Luraschi Title:General Counsel and SEcretary THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE By /s/ MARY FONTI ------------------------------------------------ Name: Mary Fonti Title: Assistant Vice President Attest: By /s/ MELISSA WEISMAN ------------------------------------------------ Name:Melissa Weisman Title: Vice President 44 EX-4.4 5 EXHIBIT 4.4 CONFORMED COPY ================================================================================ THE AES CORPORATION GUARANTEE AGREEMENT --------------------------- Dated as of March 31, 1997 --------------------------- ================================================================================ TABLE OF CONTENTS ---------------------- PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions................................................1 ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. Trust Indenture Act; Application...........................4 SECTION 2.02. Lists of Holders of Preferred Securities...................5 SECTION 2.03. Reports by the Guarantee Trust.............................5 SECTION 2.04. Periodic Reports to Guarantee Trust........................5 SECTION 2.05. Evidence of Compliance with Conditions Precedent...........5 SECTION 2.06. Events of Default; Waiver..................................5 SECTION 2.07. Disclosure of Information..................................6 SECTION 2.08. Conflicting Interest.......................................6 ARTICLE 3 POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE SECTION 3.01. Powers and Duties of the Guarantee Trustee.................6 SECTION 3.02. Certain Rights and Duties of the Guarantee Trustee.........7 SECTION 3.03. Not Responsible for Recitals or Issuance of Guarantee......9 ARTICLE 4 GUARANTEE TRUSTEE SECTION 4.01. Qualifications............................................10 SECTION 4.02. Appointment, Removal and Resignation of Guarantee Trustee.........................................................10 ARTICLE 5 GUARANTEE SECTION 5.01. Guarantee.................................................11 SECTION 5.02. Waiver of Notice..........................................11 SECTION 5.03. Obligations Not Affected..................................11 SECTION 5.04. Enforcement of Guarantee..................................13 SECTION 5.05. Guarantee of Payment......................................13 SECTION 5.06. Subrogation...............................................13 SECTION 5.07. Independent Obligations...................................13 ARTICLE 6 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01. Limitation of Transactions................................14 SECTION 6.02. Subordination.............................................14 i Page ARTICLE 7 TERMINATION SECTION 7.01. Termination...............................................14 ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION SECTION 8.01. Exculpation...............................................15 SECTION 8.02. Indemnification...........................................15 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Successors and Assigns....................................16 SECTION 9.02. Amendments................................................16 SECTION 9.03. Notices...................................................16 SECTION 9.04. Genders...................................................17 SECTION 9.05. Benefit...................................................17 SECTION 9.06. Governing Law.............................................17 SECTION 9.07. Counterparts..............................................17 SECTION 9.08. Exercise of Overallotment Option..........................17 ii GUARANTEE AGREEMENT This GUARANTEE AGREEMENT, dated as of March 31, 1997, is executed and delivered by The AES Corporation, a Delaware corporation (the "Guarantor"), and The First National Bank of Chicago, a national banking association, as the initial Guarantee Trustee (as defined herein) for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of AES Trust I, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of March 31, 1997 among the trustees of the Issuer named therein, The AES Corporation, as Sponsor, and the Holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer may issue up to $275,000,000 aggregate liquidation amount of its $2.6875 Term Convertible Securities, Series A (the "Preferred Securities") representing undivided beneficial interests in the assets of the Issuer and having the terms set forth in Exhibit B to the Declaration, of which $250,000,000 liquidation amount of Preferred Securities are being issued as of the date hereof. Up to the remaining $25,000,000 liquidation amount of Preferred Securities may be issued by the Issuer if and to the extent that the over-allotment option granted by the Guarantor and the Issuer pursuant to the Underwriting Agreement (as defined in the Declaration) is exercised by the Underwriters named in the Underwriting Agreement. WHEREAS, as incentive for the Holders to purchase Preferred Securities, the Guarantor desires to irrevocably and unconditionally agree, to the extent set forth herein, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the purchase by the initial purchasers thereof of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders from time to time of the Preferred Securities. ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. (a) Capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "the Guarantee Agreement" or "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "Commission" means the Securities and Exchange Commission. "Common Securities" means the securities representing undivided beneficial interests in the assets of the Issuer, having the terms set forth in Exhibit C to the Declaration. "Common Stock" means the common stock of the Guarantor, par value $.01 per share. "Covered Person" means any Holder of Preferred Securities. "Debentures" means the series of Junior Subordinated Debentures issued by the Guarantor under the Indenture to the Property Trustee and entitled the "5.375% Junior Subordinated Convertible Debentures due 2027". "Distributions" means the periodic distributions and other payments payable to Holders of Preferred Securities in accordance with the terms of the Preferred Securities set forth in Exhibit B to the Declaration. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement. "Guarantee Payments" shall mean the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Issuer: (i) any accrued and unpaid Distributions and the 2 redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price"), with respect to the Preferred Securities called for redemption by the Issuer but only if and to the extent that in each case the Guarantor has made a payment to the Property Trustee of interest or principal on the Debentures and (ii) upon a voluntary or involuntary dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to Holders or the redemption of all the Preferred Securities upon the maturity or redemption of the Debentures as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Issuer has funds available therefor, or (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "Liquidation Distribution"). "Guarantee Trustee" means The First National Bank of Chicago, a national banking association, until a Successor Guarantee Trustee has been appointed and accepted such appointment pursuant to the terms of this Guarantee Agreement and thereafter means each such Successor Guarantee Trustee. "Holder" shall mean any holder, as registered on the books and records of the Issuer, of any Preferred Securities; provided, however, that in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any entity directly or indirectly controlling or controlled by or under direct or indirect common control with the Guarantor. "Indemnified Person" means the Guarantee Trustee, any Affiliate of the Guarantee Trustee, and any officers, directors, shareholders, members, partners, employees, representatives or agents of the Guarantee Trustee. "Indenture" means the Junior Subordinated Indenture dated as of March 1, 1997 between the Guarantor and The First National Bank of Chicago, as trustee, as supplemented by the First Supplemental Indenture thereto dated as of March 31, 1997, pursuant to which the Debentures are to be issued. "Majority in liquidation amount of the Preferred Securities" means, except as otherwise required by the Trust Indenture Act, Holder(s) of outstanding Preferred Securities voting together as a single class, who are the record owners of Preferred Securities whose liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) represents more than 50% of the liquidation amount of all outstanding Preferred Securities. 3 "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Securities" has the meaning set forth in the first WHEREAS clause above. "Property Trustee" means the Person acting as Property Trustee under the Declaration. "Redemption Price" has the meaning set forth in the definition of "Guarantee Payments." "Responsible Officer" means, with respect to the Guarantee Trustee, the chairman of the board of directors, the president, any vice-president, any assistant vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer or any other officer of the Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Successor Guarantee Trustee" means a successor Guarantee Trustee possessing the qualifications to act as a Guarantee Trustee under Section 4.01(a). "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. Trust Indenture Act; Application. (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions; (b) if and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by ss.ss. 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control; and 4 (c) the application of the Trust Indenture Act to this Guarantee Agreement shall not affect the nature of the Preferred Securities as equity securities representing undivided beneficial interests in the assets of the Issuer. SECTION 2.02. Lists of Holders of Preferred Securities. (a) The Guarantor shall provide the Guarantee Trustee with such information as is required under ss. 312(a) of the Trust Indenture Act at the times and in the manner provided in ss. 312(a); and (b) the Guarantee Trustee shall comply with its obligations under ss.ss. 310(b), 311 and 312(b) of the Trust Indenture Act. SECTION 2.03. Reports by the Guarantee Trust. Within 60 days after May 15 of each year, commencing May 1998 the Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by ss. 313 of the Trust Indenture Act, if any, in the form, in the manner and at the times provided by ss. 313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the requirements of ss. 313(d) of the Trust Indenture Act. SECTION 2.04. Periodic Reports to Guarantee Trust. The Guarantor shall provide to the Guarantee Trustee, the Commission and the Holders of the Preferred Securities, as applicable, such documents, reports and information as required by ss. 314(a)(1)-(3) (if any) of the Trust Indenture Act and the compliance certificates required by ss. 314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be provided in the form, in the manner and at the times required by ss. 314(a)(4) and (c) of the Trust Indenture Act (provided that any certificate to be provided pursuant to ss. 314(a)(4) of the Trust Indenture Act shall be provided within 120 days of the end of each fiscal year of the Issuer). SECTION 2.05. Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Guarantee Agreement which relate to any of the matters set forth in ss. 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given pursuant to ss. 314(c) shall comply with ss. 314(e) of the Trust Indenture Act. SECTION 2.06. Events of Default; Waiver. (a) Subject to Section 2.06(b), Holders of Preferred Securities may by vote of at least a Majority in liquidation amount of the Preferred Securities, (A) direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon by the Guarantee Trustee or (B) on behalf of the Holders of all Preferred Securities waive any past Event of Default and its consequences. Upon such waiver, any such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to 5 any subsequent or other default or Event of Default or impair any right consequent thereon. (b) The right of any Holder of Preferred Securities to receive payment of the Guarantee Payments in accordance with this Guarantee Agreement, or to institute suit for the enforcement of any such payment, shall not be impaired without the consent of each such Holder. SECTION 2.07. Disclosure of Information. The disclosure of information as to the names and addresses of the Holders of the Preferred Securities in accordance with ss. 312 of the Trust Indenture Act, regardless of the source from which such information was derived, shall not be deemed to be a violation of any existing law, or any law hereafter enacted which does not specifically refer to ss. 312 of the Trust Indenture Act, nor shall the Guarantee Trustee be held accountable by reason of mailing any material pursuant to a request made under ss. 312(b) of the Trust Indenture Act. SECTION 2.08. Conflicting Interest. The Declaration shall be deemed to be specifically described in this Guarantee Agreement for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE 3 POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE SECTION 3.01. Powers and Duties of the Guarantee Trustee. (a) This Guarantee Agreement shall be held by the Guarantee Trustee in trust for the benefit of the Holders of the Preferred Securities. The Guarantee Trustee shall not transfer its right, title and interest in the Guarantee Agreement to any Person except a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Guarantee Trustee or to a Holder of Preferred Securities exercising his or her rights pursuant to Section 5.04. The right, title and interest of the Guarantee Trustee to the Guarantee Agreement shall vest automatically in each Person who may hereafter be appointed as Guarantee Trustee in accordance with Article 4. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. (b) If an Event of Default occurs and is continuing, the Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders of the Preferred Securities. 6 (c) This Guarantee Agreement and all moneys received by the Property Trustee hereunder in respect of the Guarantee Payments will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of that Guarantee Trustee or its agents or their creditors. (d) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default known to the Guarantee Trustee, transmit by mail, first class postage prepaid, to the holders of the Preferred Securities, as their names and addresses appear upon the register, notice of all Events of Default, unless such defaults shall have been cured before the giving of such notice; provided, that, the Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Guarantee Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Preferred Securities. The Guarantee Trustee shall not be deemed to have knowledge of any default except any default as to which the Guarantee Trustee shall have received written notice or a Responsible Officer charged with the administration of this Guarantee Agreement shall have obtained written notice. (e) The Guarantee Trustee shall continue to serve as a Trustee unless a Successor Guarantee Trustee has been appointed and accepted that appointment in accordance with Article 4. SECTION 3.02. Certain Rights and Duties of the Guarantee Trustee. (a) The Guarantee Trustee, before the occurrence of an Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06(a)), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Guarantee Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are 7 specifically set forth in this Guarantee Agreement, and no implied covenants or obligations shall be read into this Guarantee Agreement against the Guarantee Trustee; and (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement; (ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts; (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of Preferred Securities as provided herein relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. (c) Subject to the provisions of Section 3.02(a) and (b): (i) whenever in the administration of this Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon a certificate, which shall comply with the provisions of ss. 314(e) of the Trust Indenture Act, signed by any authorized officer of the Guarantor; 8 (ii) the Guarantee Trustee (A) may consult with counsel (which may be counsel to the Guarantor or any of its Affiliates and may include any of its employees) selected by it in good faith and with due care and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction; (iii) the Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care; (iv) the Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holders of Preferred Securities, unless such Holders shall have offered to the Guarantee Trustee reasonable security and indemnity against the costs, expenses (including its attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided that nothing contained in this clause (iv) shall relieve the Guarantee Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Guarantee Agreement, and to use the same degree of care and skill in this exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and (v) any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders of the Preferred Securities and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Guarantee Trustee to so act, or as to its compliance with any of the terms and provisions of this Guarantee Agreement, both of which shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking such action. SECTION 3.03. Not Responsible for Recitals or Issuance of Guarantee. The recitals contained in this Guarantee shall be taken as the statements of the Guarantor and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representations as to the validity or sufficiency of this Guarantee Agreement. 9 ARTICLE 4 GUARANTEE TRUSTEE SECTION 4.01. Qualifications. (a) There shall at all times be a Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this section 4.01(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Guarantee Trustee shall cease to satisfy the requirements of clauses (i)-(ii) above, the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.02. If the Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of ss. 310(b) of the Trust Indenture Act, the Guarantee Trustee and the Guarantor shall in all respects comply with the provisions of ss. 310(b) of the Trust Indenture Act. SECTION 4.02. Appointment, Removal and Resignation of Guarantee Trustee. (a) Subject to Section 4.02(b), the Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor except following the occurrence and during the continuation of an Event of Default. (b) The Guarantee Trustee shall not be removed in accordance with Section 4.02(a) until a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01(a) has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor and the Guarantee Trustee being removed. 10 (c) The Guarantee Trustee appointed to office shall hold office until his successor shall have been appointed or until its removal or resignation. (d) The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument (a "Resignation Request") in writing signed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that no such resignation of the Guarantee Trustee shall be effective until a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01(a) has been appointed and has accepted such appointment by instrument executed by such Successor Guarantee Trustee and delivered to Guarantor and the resigning Guarantee Trustee. (e) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.02 delivery to the Guarantor of a Resignation Request, the resigning Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a Successor Guarantee Trustee. ARTICLE 5 GUARANTEE SECTION 5.01. Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer) regardless of any defense, right of set-off or counterclaim which the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 5.02. Waiver of Notice. The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.03. Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in 11 no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions (other than an extension of time for payment of Distributions that results from the extension of any interest payment period on the Debentures), Redemption Price, Liquidation Distribution (as defined in the Declaration) or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities; (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.03 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. 12 SECTION 5.04. Enforcement of Guarantee. The Guarantor and the Guarantee Trustee expressly acknowledge that (i) this Guarantee Agreement will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on behalf of the Holders; (iii) Holders representing not less than a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available in respect of this Guarantee Agreement including the giving of directions to the Guarantee Trustee, or exercising any trust or other power conferred upon the Guarantee Trustee under this Guarantee Agreement, and (iv) notwithstanding the foregoing, if the Guarantor has failed to make any Guarantee Payment hereunder, any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Issuer, the Guarantee Trustee, or any other Person. SECTION 5.05. Guarantee of Payment. This Guarantee Agreement creates a guarantee of payment and not merely of collection. This Guarantee Agreement will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Issuer). SECTION 5.06. Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders against the Issuer in respect of any amounts paid to the Holders by the Guarantor under this Guarantee Agreement; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.07. Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Preferred Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof. 13 ARTICLE 6 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01. Limitation of Transactions. So long as any Preferred Securities remain outstanding, the Guarantor will not declare or pay dividends on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its common stock or preferred stock or make any guarantee payment with respect thereto if at such time (i) the Guarantor shall be in default with respect to its Guarantee Payments or other payment obligations hereunder, (ii) there shall have occurred any event of default under the Declaration or (iii) the Guarantor shall have given notice of its selection of an Extension Period (as defined in the Indenture) and such period, or any extension thereof, is continuing; provided that the foregoing will not apply to any stock dividends paid by the Guarantor in Common Stock. In addition, so long as any Preferred Securities remain outstanding, the Guarantor (i) will remain the sole direct or indirect owner of all of the outstanding Common Securities and shall not cause or permit the Common Securities to be transferred except to the extent such transfer is permitted under Section 9.01 of the Declaration; provided that any permitted successor of the Guarantor under the Indenture may succeed to the Guarantor's ownership of the Common Securities and (ii) will use reasonable efforts to cause the Issuer to continue to be treated as a grantor trust for United States federal income tax purposes except in connection with a distribution of Debentures as provided in the Declaration. SECTION 6.02. Subordination. This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, including the Debentures, except those made pari passu herewith or subordinate hereto by their terms, and (ii) pari passu in right of payment with the most senior preferred stock issued, from time to time, if any, by the Guarantor and with respect to obligations under other guarantee agreements which the Guarantor may enter into from time to time to the extent that such agreements shall be entered into in substantially the form hereof and provide for comparable guarantees by the Guarantor of payment on preferred securities issued by other AES Trusts. ARTICLE 7 TERMINATION SECTION 7.01. Termination. This Guarantee Agreement shall terminate and be of no further force and effect upon full payment of the Redemption Price of all Preferred Securities, or upon the distribution of Debentures to Holders of Preferred Securities and Common Securities in exchange for all of the Preferred 14 Securities and Common Securities, or upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid with respect to the Preferred Securities or this Guarantee Agreement. ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION SECTION 8.01. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee Agreement or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.02. Indemnification. (a) To the fullest extent permitted by applicable law, the Guarantor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Guarantee Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of negligence or willful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the 15 Guarantor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Guarantor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 8.02(a). (c) The provisions of this Article shall survive the termination of this Guarantee Agreement or the resignation or removal of the Guarantee Trustee. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Successors and Assigns. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assignees, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. Except in connection with a consolidation, merger or sale involving the Guarantor that is permitted under Article Ten of the Indenture, the Guarantor shall not assign its obligations hereunder. SECTION 9.02. Amendments. Except with respect to any changes which do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of not less than a Majority in liquidation amount of the Preferred Securities. The provisions of Section 12.02 of the Declaration concerning meetings of Holders shall apply to the giving of such approval. SECTION 9.03. Notices. Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows: (a) if given to the Guarantor, to the address set forth below or such other address as the Guarantor may give notice of to the Holders: The AES Corporation 1001 North 19th Street Arlington, Virginia 22209 Facsimile No.: (703) 528-4510 Attention: General Counsel and Secretary 16 (b) if given to the Guarantee Trustee, to the address set forth below or such other address as the Guarantee Trustee may give notice to the Holders: The First National Bank of Chicago One First National Plaza, Suite 0126 Chicago, Illinois 60670-0126 Attention: Corporate Trust Administration Telecopy: (312) 407-1708 (c) if given to any Holder of Preferred Securities, at the address set forth on the books and records of the Issuer. All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.04. Genders. The masculine, feminine and neuter genders used herein shall include the masculine, feminine and neuter genders. SECTION 9.05. Benefit. This Guarantee Agreement is solely for the benefit of the Holders and subject to Section 3.01(a) is not separately transferable from the Preferred Securities. SECTION 9.06. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS). SECTION 9.07. Counterparts. This Guarantee Agreement may be executed in counterparts, each of which shall be an original; but such counterparts shall together constitute one and the same instrument. SECTION 9.08. Exercise of Overallotment Option. If and to the extent that Preferred Securities are issued by the Issuer upon exercise of the overallotment option referred to the second WHEREAS clause, the Guarantor agrees to give prompt notice thereof to the Guarantee Trustee but the failure to give such notice shall not relieve the Guarantor of any of its obligations hereunder. 17 THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. The AES Corporation By: /s/ BARRY J. SHARP ------------------------------- Name:Barry J. Sharp Title: Vice President and Chief Financial Officer The First National Bank of Chicago As Guarantee Trustee By: /s/ MARY FONTI ------------------------------- Name: Mary Fonti Title:Assistant Vice President 18 EX-4.15 6 EXHIBIT 4.15 Exhibit 4.15 The Company has numerous other instruments governing long-term indebtedness that are not registered, none of which exceeds ten percent of the total assets of the Registrant and its subsidiaries on a consolidated basis, and the Company hereby agrees to furnish a copy of any of such agreements to the Commission upon request. EX-11 7 EXHIBIT 11 Exhibit 11 THE AES CORPORATION - ------------------- STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE FOR THE YEARS ENDED
- ----------------------------------------------------------------------------------------------------- 1995 1996 1997 - ----------------------------------------------------------------------------------------------------- ($ in millions, except per share amounts) BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 149.9 151.5 166.6 ------------- ------------- ------------- NET INCOME $ 107 $ 125 $ 188 ============= ============= ============= PER SHARE AMOUNT $0.71 $0.83 $1.13 ============= ============= ============= DILUTED Weighted Average Number of Shares of Common Stock Outstanding 149.9 151.5 166.6 Net effect of Dilutive Stock Options and Warrants Based on the Treasury Stock Method Using Ending Market Price 1.5 2.7 4.4 Stock Units Allocated to the Deferred Compensation Plans for Executives and Directors 0.5 0.5 0.5 Effect of Convertible Debt - Based on the If-Converted Method 3.8 2.5 6.3 ------------- ------------- ------------- WEIGHTED AVERAGE SHARES OUTSTANDING 155.7 157.2 177.8 ============= ============= ============= NET INCOME $ 107 $ 125 $ 188 Additional Contribution to Net Income if Convertible Debt is fully converted 2 1 10 ------------- ------------- ------------- ADJUSTED NET INCOME $ 109 $ 126 $ 198 ============= ============= ============= PER SHARE AMOUNT $0.70 $0.80 $1.11 ============= ============= =============
EX-12 8 EXHIBIT 12 Exhibit 12 THE AES CORPORATION AND SUBSIDIARIES STATEMENT RE: CALCULATIONS OF RATIO OF EARNINGS TO FIXED CHARGES (In millions, unaudited)
Year Ended December 31, --------------------------------------------------------- 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- COMPUTATION OF EARNINGS: Income from continuing operations before income taxes $ 89 $ 142 $ 164 $ 185 $ 244 Adjustment for undistributed equity earnings, net of distributions (11) (6) 3 (20) (57) Interest expense 125 122 122 138 228 Depreciation of previously capitalized interest 4 4 4 4 4 Net amortization of issuance costs 3 4 5 6 16 -------- ------- --------- -------- ----------- Earnings $ 210 $ 266 $ 298 $ 313 $ 435 ======== ======= ========= ======== =========== COMPUTATION OF FIXED CHARGES: Interest expensed and capitalized amounts (including construction related fixed charges) $ 127 $ 124 $ 132 $ 165 $ 295 Net amortization of issuance costs (including capitalized amounts) 3 4 5 6 16 -------- ------- --------- -------- ----------- Fixed charges $ 130 $ 128 $ 137 $ 171 $ 311 ======== ======= ======== ======== ========== Ratio of earnings to fixed charges 1.62 x 2.08 x 2.18 x 1.83 x 1.40 x
EX-21 9 EXHIBIT 21 Exhibit 21 Subsidiaries of The AES Corporation
Subsidiary Name Jurisdiction or Incorporation --------------- ----------------------------- AES - MS Pty Ltd. Australia AES Acquisition Co. Ltd. Bermuda AES Alamitos, L.L.C. Delaware AES Allegheny, Inc. Delaware AES America's Holdings, Inc. Delaware AES Americas International Holdings, Limited Bermuda AES Americas Investments, Inc. Delaware AES Argentina Operations, Ltd. Cayman Islands AES Argentina, Inc. Delaware AES Australia Holding B.V. Netherlands AES Australian Energy Finance Pty Limited Australia AES Balboa, Inc. Delaware AES Bandeirante, Ltd. Cayman Islands AES Barry Operations Ltd. United Kingdom AES Barry, Ltd. United Kingdom AES Beaver Valley, Inc. Delaware AES Borsodi Avamtermelo Kft Hungary AES Brasil Ltda. Brazil AES Brazil Holdings, Inc. Delaware AES Brazil International Holdings, Limited Bermuda AES Bucks County, Inc. Delaware AES California Management Co., Inc. Delaware AES Campos Novos Inc. Cayman Islands AES Canada, Inc. Delaware AES Caribbean Holdings, Inc. Delaware AES Caribbean Services, Inc. Delaware AES Cayman Guaiba, Ltd. Cayman Islands AES Cayman I Cayman Islands AES Cayman II Cayman Islands AES Cayman Islands Holdings, Ltd. Cayman Islands AES Cayman Pampas, Ltd. Cayman Islands AES Cemig Empreendimentos Inc. Cayman Islands AES Cemig Funding Corporation Delaware AES Cemig Holdings, Inc. Delaware AES Chigen Company (L) Limited Malaysia AES China Generating Co. Ltd. Bermuda AES Connecticut Management, Inc. Delaware AES Constructors, Inc. Delaware AES Coral Reef, LLC Cayman Islands AES Deepwater, Inc. Delaware AES Distribucion Dominicana, Ltd. Cayman Islands AES Dominican Holdings, Inc. Delaware AES El Salvador, Ltd. Cayman Islands AES Electric Investments, Limited Bermuda AES Elsta B.V. Netherlands AES Energen, Ltd. Cayman Islands AES Energy (Asia) Pte Ltd. Singapore AES Energy Canada, Inc. Canada AES Energy Mexico, Inc. Delaware AES Energy of Colombia, Inc. Delaware AES Energy, Ltd. Bermuda AES Engineering, Inc. Cayman Islands AES Europe S.A. France AES Forca, Ltd. Cayman Islands AES FSC Corporation Barbados AES Gas Power, Inc. Delaware AES Global Power Holdings, B.V. Netherlands AES GPH, L.L.C. Delaware AES Guaiba Empreedementos Ltda. Brazil AES Guaiba II Empreedementos Ltda. Brazil AES Harriman Cove, Inc. Delaware AES Hawaii Management Company, Inc. Delaware AES Hawaii, Inc. Delaware AES Hazleton, Inc. Delaware AES HGP, Inc. Delaware AES HLP, Inc. Delaware AES Holdings Limited Cayman Islands AES Hungary Limited United Kingdom AES Intercon II, Ltd. Cayman Islands AES Intercon, Ltd. Cayman Islands AES Interenergy, Ltd. Cayman Islands AES International Development, Ltd. Cayman Islands AES International Holdings II, Ltd. British Virgin Islands AES International Holdings, Inc. Delaware AES International Holdings, Ltd. British Virgin Islands AES Investments II, Ltd. Cayman Islands AES Investments Limited Cayman Islands AES Jericoacoara Ltda. Brazil AES Joshua Tree, Inc. Delaware AES Juniata, Inc. Delaware AES Kingston, Inc. Canada AES Lal Pir Limited Pakistan AES Las Mareas, Inc. Delaware AES Latin America, Inc. Delaware AES Latrobe Valley, BV Netherlands AES Light II, Inc. Delaware AES Light, Inc. Delaware AES Los Mina Finance Company Cayman Islands AES Los Mina Holdings, Inc. Delaware AES Mayan Holdings, S. de R.L. de C.V. Mexico AES Medway Electric Limited United Kingdom AES Medway Operations Limited United Kingdom AES Merida B.V. Netherlands AES Merida III, S. de R. L. de C. V. Mexico AES Merida Management Services, S. de R.L. de C.V. Mexico AES Merida Operations Cayman Islands AES Mexico Development, S. de R.L. de C.V. Mexico AES Mexico Farms, Inc. Delaware AES Miskolc, Inc. Delaware AES Monterey, Inc. Delaware AES Mt. Stuart B.V. Netherlands AES Ocean Springs, Ltd. Cayman Islands AES Oklahoma Management Co., Inc. Delaware AES Orissa Operations Private Limited India AES Pak Gen (Pvt) Company Pakistan AES Pak Gen Holdings, Inc. Mauritius AES Pakistan (Holdings) Limited United Kingdom AES Pakistan (Pvt) Ltd. Pakistan AES Pakistan Holdings Mauritius AES Pakistan Operations, Ltd. Delaware AES Partington Ltd. United Kingdom AES Pasadena, Inc. Delaware AES Piedmont II, Inc. Delaware AES Piedmont, Inc. Delaware AES Placerita, Inc. Delaware AES Power North, Inc. Delaware AES Power, Inc. Delaware AES Prachinburi Holdings B.V. Netherlands AES Rio Diamante, Inc. Delaware AES Rio Ozama Holdings, Ltd. Cayman Islands AES Riverside, Inc. Delaware AES San Nicolas, Inc. Delaware AES Shady Point, Inc. Delaware AES Silk Road Ltd. United Kingdom AES Silk Road, Inc. Delaware AES South City, L.L.C. Delaware AES ST Ekibastuz, LLP Kazakhstan Companhia Centro-Oeste de Distribuicao de Energia Eletrica (D.B.A. "AES Sul") Brazil AES Sul Distribuidora Gaucha de Energia S.A. Brazil AES Summit Generation Ltd. United Kingdom AES Suntree Power Ltd. Ireland AES Terneuzen Engineering B.V. Netherlands AES Terneuzen Management Services B.V. Netherlands AES Thames, Inc. Delaware AES Transpower, Inc. Delaware AES Transpower, Inc. Mauritius AES Treasure Cove, Ltd. Cayman Islands AES Trust I Delaware AES Trust II Delaware AES Turbine Equipment, Inc. Delaware AES Tyneside Ltd. United Kingdom AES UK Energy Holdings Ltd. United Kingdom AES UK Holdings, Ltd. United Kingdom AES Victoria Holdings BV Netherlands AES Victoria Partners B.V. Netherlands AES Warrior Run, Inc. Delaware AES Western Maryland Management Co., Inc. Delaware AES WR Limited Partnership Delaware AES Yucatan, S. de R.L. de C.V. Mexico AES/Sonat Adelanto, Inc. Delaware AES/Sonat Power, L.L.C. Virginia AESEBA Funding Corporation Delaware AESEBA S.A. Argentina Altai Power LLP Kazakhstan Anhui Liyuan - AES Power Co., Ltd. China Australian Power Holdings Netherlands Australian Power Partners B.V. Netherlands Bitacora B.V. Netherlands Borsod Energetikia, Kft. Hungary BV Partners Delaware Cavanal Minerals, Inc. Delaware Central Termica San Nicolas S.A. Argentina Cloghan Limited Northern Ireland Cloghan Point Holdings Limited Northern Ireland CMS Generation San Nicolas Company Michigan Coal Creek Minerals, Inc. Delaware DOC Dominicana, S.A. Dominican Republic DOC Guatemala S.A. Guatemala Dominican Power Metering, Ltd. Cayman Islands Dominican Power Partners LDC Cayman Islands Emerald Power Holdings C.V. Netherlands Empresa Distribuidora de Energia Norte S.A. Argentina Empresa Distribuidora de Energia Sur S.A. Argentina European Power Holdings B.V. Netherlands Gippsland Australia Global Power Holdings CV Netherlands Hazelwood Finance Limited Partnership Australia Hefei Zhongli Energy Co. Ltd. China Hidroelectrica Rio Juramento S.A. Argentina Hidrotermica San Juan S.A. Argentina Hunan Xiangci-AES Hydro Power Company Ltd. China Indian Queens Power Ltd. United Kingdom Inversora AES Americas S.A. Argentina Inversora de San Nicolas S.A. Argentina Jiaozuo Wan Fang Power Company Ltd. China Kingston Cogen Limited Partnership Canada Kingston Northern Lights, Inc. Canada Kingston Power Partners, Inc. Canada Kokomo Holdings Ltd. Cayman Islands Loy Yang Finance Corporation Pty Ltd Australia Morwell Australia Mountain Minerals, Inc. Delaware Mt. Stuart General Partnership Australia Nogradszen Kft Hungary Northern/AES Energy, LLC Minnesota Placerita Oil Co., Inc. Delaware Sichuan Fuling Aixi Power Company Ltd. China Tau Power Holdings BV Netherlands Terneuzen Cogen B.V. Netherlands Tisza Eromu Rt. Hungary Twin Rivers Power, Inc. Delaware UK Asset Management Services, Ltd. United Kingdom UK Energy Holdings Limited United Kingdom UK Power Finance Ltd United Kingdom Wuxi AES CAREC Gas Turbine Power Company Limited China Wuxi AES Zhong Hang Power Company Limited China Zarnowicka Elektrownia Gazowa S.A. Poland
EX-23 10 EXHIBIT 23 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in The AES Corporation's Registration Statement No. 33-44498 on Form S-8, Registration Statement No. 33-49262 on Form S-8, Registration Statement No. 333-26225 on Form S-8, Registration Statement No. 333-28883 on Form S-8, Registration Statement No. 333-28885 on Form S-8, Registration Statement No. 333-38535 on Form S-8, Registration Statement No. 33-95406 on Form S-3, Registration Statement No. 333-39857 on Form S-3, Registration Statement No. 333-46189 on Form S-3, and Registration Statement No. 333-44845 on Form S-4 of our report dated January 28, 1998, except for Note 16, as to which the date is February 10, 1998, appearing in this Annual Report on Form 10-K of The AES Corporation for the year ended December 31, 1997. DELOITTE & TOUCHE LLP Washington, DC March 30, 1998 EX-24 11 EXHIBIT 24 Exhibit 24 POWER OF ATTORNEY The undersigned, acting in the capacity or capacities stated opposite their respective names below, hereby constitute and appoint BARRY J. SHARP and WILLIAM R. LURASCHI and each of them severally, the attorneys-in-fact of the undersigned with full power to them and each of them to sign for and in the name of the undersigned in the capacities indicated below the Company's Annual Report on Form 10-K and any and all amendments and supplements thereto.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ Roger W. Sant Chairman of the Board and Director January 28, 1998 - ----------------- (Roger W. Sant) /s/ Dennis W. Bakke President, Chief Executive Officer January 28, 1998 - ------------------- (Dennis W. Bakke) and Director /s/ Vicki-Ann Assevero Director January 28, 1998 (Vicki-Ann Assevero) /s/ Dr. Alice F. Emerson Director January 28, 1998 - ------------------------ (Dr. Alice F. Emerson) /s/ Frank Jungers Director January 28, 1998 (Frank Jungers) /s/ Robert F. Hemphill, Jr. Director January 28, 1998 - --------------------------- (Robert F. Hemphill, Jr.) /s/ John H. McArthur Director January 28, 1998 - -------------------- (John H. McArthur) /s/ Dr. Henry R. Linden Director January 28, 1998 - ----------------------- Dr. Henry R. Linden) /s/ Hazel R. O'Leary Director January 28, 1998 - -------------------- (Hazel R. O'Leary) /s/ Thomas I. Unterberg Director January 28, 1998 - ----------------------- (Thomas I. Unterberg) /s/ Robert H. Waterman, Jr. Director January 28, 1998 - --------------------------- (Robert H. Waterman, Jr.)
EX-27 12 FDS 5
5 1,000,000 US DOLLARS 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1 302 127 360 (37) 95 1190 4522 (373) 8909 1204 4585 550 0 2 1479 8909 1361 1411 940 1043 0 17 244 263 56 188 0 3 0 185 1.11 1.09
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