-----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, VAkdHeHjsJZTvJ8+Y281mVXVq/bK0cyOmz+8qLkpzzGPg2oiqvPYzU07wCnpXry6 HrAMvRiO73Tde7RUJRE6xg== 0000893838-96-000095.txt : 19961121 0000893838-96-000095.hdr.sgml : 19961121 ACCESSION NUMBER: 0000893838-96-000095 CONFORMED SUBMISSION TYPE: 10-Q CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961120 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AES CHINA GENERATING CO LTD CENTRAL INDEX KEY: 0000916792 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23148 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: ALLIED CAPITAL RESOURCES BLDG - 9TH FLRC STREET 2: 32-38 ICE HOUSE ST CITY: CENTRAL HONG KONG STATE: K3 BUSINESS PHONE: 8528425111 MAIL ADDRESS: STREET 1: ALLIED CAPITAL RESOURCES BLDG 9TH FL STREET 2: 32-38 ICE HOUSE STREET CITY: CENTRAL HOND KONG STATE: K3 ZIP: 00000 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-23148 AES CHINA GENERATING CO. LTD. (Exact name of registrant as specified in its charter) Bermuda 98-0152612 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 3/F., Golden Bridge Plaza #1 Jianguomenwai Avenue Beijing 100020, People's Republic of China (Address of principal executive office) Telephone Number (86 10) 65089619 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the registrant's classes of Common Stock, as of October 14, 1996. 8,134,100 shares of Class A Common Stock, $.01 par value. 7,500,000 shares of Class B Common Stock, $.01 par value. AES CHINA GENERATING CO. LTD. INDEX PART I. FINANCIAL INFORMATION Page No Item 1. Consolidated Financial Statements: Consolidated Statements of Operations.................. 3 Consolidated Balance Sheets.............................5 Consolidated Statements of Cash Flows...................7 Notes to Consolidated Financial Statements..............8 Item 2. Discussion and Analysis of Financial Condition and Results of Operations...........................11 PART II. OTHER INFORMATION Item 3. Legal Proceedings............................ Not Applicable Item 4. Submission of Matters to a Vote of Security Holders ............................ Not Applicable Item 5. Other Information ............................ Not Applicable Item 6. Exhibits and Reports on Form 8-K ......................17 Signatures.............................................19 2 PART I Item 1. Consolidated Financial Statements AES CHINA GENERATING CO. LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Three Months Ended August 31, 1996 August 31, 1995 -------------------------------------------- (unaudited) REVENUES: Electricity sales US$ 4,106 US$ 543 Construction delay fee (3) - ------------------- ------------------ Total revenues 4,103 543 OPERATING COSTS AND EXPENSES: Costs of sales 1,870 187 Development, selling, general and administrative expenses 1,824 2,256 ------------------- ------------------ Total operating costs and expenses 3,694 2,443 ------------------- ------------------ OPERATING INCOME / (LOSS) 409 (1,900) OTHER INCOME / (EXPENSE): Interest income 1,286 2,453 Interest expense (357) - Equity in earnings of affiliate 189 61 ------------------- ------------------ INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 1,527 614 Income taxes 253 - Minority interest 237 38 ------------------- ------------------ NET INCOME US$ 1,037 US$ 576 ------------------- ------------------ NET INCOME PER SHARE US$ 0.06 US$ 0.03 =================== ==================
See Notes to Consolidated Financial Statements 3 AES CHINA GENERATING CO. LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Nine Months Ended August 31, 1996 August 31, 1995 -------------------------------------------- (unaudited) REVENUES: Electricity sales US$ 6,553 US$ 916 Construction delay fee 400 - ------------------- ------------------ Total revenues 6,953 916 OPERATING COSTS AND EXPENSES: Costs of sales 3,867 496 Development, selling, general and administrative expenses 5,229 6,920 ------------------- ------------------ Total operating costs and expenses 9,096 7,416 ------------------- ------------------ OPERATING LOSS (2,143) (6,500) OTHER INCOME / (EXPENSE): Interest income 5,001 8,060 Interest expense (679) - Equity in earnings of affiliate 441 102 ------------------- ------------------ INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 2,620 1,662 Income taxes 455 - Minority interest 218 93 ------------------- ------------------ NET INCOME US$ 1,947 US$ 1,569 ------------------- ------------------ NET INCOME PER SHARE US$ 0.12 US$ 0.09 =================== ==================
See Notes to Consolidated Financial Statements 4 AES CHINA GENERATING CO. LTD. CONSOLIDATED BALANCE SHEETS (In thousands, except par values and share amounts) As of As of August 31, 1996 November 30, 1995 ------------------ --------------------- (unaudited) ASSETS Current Assets: Cash and cash equivalents US$ 92,043 US$ 125,684 Investments - held-to-maturity 6,657 41,609 Investments - available-for-sale 5,911 2,995 Accounts receivable from related parties 4,179 463 Interest receivable 139 293 Inventory 956 31 Prepaid expenses and other current assets 1,530 422 ------------------ --------------------- Total current assets 111,415 171,497 Property, Plant and Equipment: Electric generating facilities 59,303 6,468 Equipment, furniture and leasehold improvements 2,260 1,233 Accumulated depreciation and amortization (2,221) (665) Construction in progress 74,442 39,555 ------------------ --------------------- Total property, plant and equipment, net 133,784 46,591 Other Assets: Project development costs 892 1,083 Investments in and advances to affiliates 19,185 2,566 Note receivable 4,214 7,500 Deposits and other assets 812 634 ------------------ --------------------- Total other assets 25,103 11,783 ------------------ --------------------- TOTAL US$ 270,302 US$ 229,871 ================== =====================
See Notes to Consolidated Financial Statements 5 AES CHINA GENERATING CO. LTD. CONSOLIDATED BALANCE SHEETS (In thousands, except par values and share amounts) As of As of August 31, 1996 November 30, 1995 ------------------ -------------------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable - The AES Corporation US$ 1,747 US$ 214 Accounts payable 1,817 537 Payable for repurchase of shares - 10,011 Payable for investment purchase - 2,995 Accrued liabilities 1,372 1,430 Accrued liabilities for construction 7,618 - Loans from minority shareholders - current portion 1,365 351 Notes payable 481 1,000 ------------------ -------------------- Total current liabilities 14,400 16,538 Long-Term Liabilities: Deferred income taxes 455 - Loans from minority shareholders 33,982 6,666 ------------------ -------------------- Total long-term liabilities 34,437 6,666 Minority Interest 33,345 19,082 Commitments and Contingencies Shareholders' Equity: Class A Common Stock - par value $0.01 per share (50,000,000 shares authorized; 1995-10,216,000 shares issued; 1996-8,134,100 shares issued and outstanding after deducting retirement of treasury stock) 81 102 Class B Common Stock - par value $0.01 per share (50,000,000 shares authorized; 7,500,000 shares issued and outstanding) 75 75 Additional paid-in capital 183,980 201,762 Retained earnings 3,714 1,767 Cumulative translation adjustment 270 250 Treasury stock, at cost (1,912,600 shares at November 30, 1995, of Class A Common Stock) - (16,371) ------------------ -------------------- Total shareholders' equity 188,120 187,585 ------------------ -------------------- TOTAL US$ 270,302 US$ 229,871 ================== ====================
See Notes to Consolidated Financial Statements 6 AES CHINA GENERATING CO. LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Nine Months Ended August 31, 1996 August 31, 1995 ------------------------------------------------ (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income US$ 1,947 US$ 1,569 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,321 348 Provision for deferred taxes 455 - Minority interest 218 93 Equity in earnings of affiliates (441) (102) Dividend from affiliate 447 Change in assets and liabilities: Accounts receivable from related parties (3,373) (748) Interest receivable 246 369 Inventory, prepaid expenses and other current assets (1,851) 126 Deposits (90) (98) Accounts payable and accrued expenses 2,755 (206) --------------------- ------------------- Net cash provided by operating activities 1,634 1,351 CASH FLOWS FROM FINANCING ACTIVITIES: Contributions and loans from minority shareholders 1,117 4,000 Proceeds from note payable 481 - Repayment of note payable (1,000) - Repurchase of Class A common stock (11,443) (3,793) --------------------- ------------------- Net cash provided by/ (used in) financing activities (10,845) 207 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and construction in progress (37,552) (11,848) Purchase of short-term investments (38,082) (156,719) Proceeds from the sale/ maturity of investments 67,123 191,479 Investments in and advances to affiliates (8,500) (1,250) Project development costs and other assets (3,205) (923) Investment in note receivable (4,214) - --------------------- ------------------- Net cash provided by/ (used in) investing activities (24,430) 20,739 --------------------- ------------------- Increase / (decrease) in cash and cash equivalents (33,641) 22,297 CASH AND CASH EQUIVALENTS, Beginning of period 125,684 95,486 --------------------- ------------------- End of period US$ 92,043 US$ 117,783 ===================== ===================
See Notes to Consolidated Financial Statements Supplementary Disclosure: - -------------------------- In April 1996, the Company's joint venture partner in Jiaozuo Wan Fang contributed capital and shareholder loans of $38.4 million in the form of land use rights, construction-in-progress, equipment and receivables, net of accounts payable. 7 AES CHINA GENERATING CO. LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. General and Basis of Presentation AES China Generating Co. Ltd. ("AES Chigen" or the "Company"), a Bermuda company, was incorporated on December 7, 1993, to develop, acquire, finance, construct, own and manage electric power generation facilities in the People's Republic of China (the "PRC"). The Company is an effectively controlled affiliate of The AES Corporation ("AES"). As of August 31, 1996, AES owned approximately 48% of the outstanding common stock of the Company. The consolidated financial statements include the accounts of AES Chigen and its subsidiaries. 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. Intercompany transactions and balances have been eliminated. In the second quarter of 1996, a subsidiary of the Company acquired a controlling interest in Jiaozuo Wan Fang Power Company Limited ("Jiaozuo Wan Fang") for cash which approximated the fair value of net tangible assets acquired. The acquisition was accounted for as a purchase. In the Company's opinion, all adjustments necessary for a fair presentation of the unaudited results of operations for the three months and nine months ended August 31, 1996 and 1995 are included. All such adjustments are accruals of a normal and recurring nature. The results of operations for the periods are not necessarily indicative of the results of operations for the full year. The financial statements are unaudited. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at August 31, 1996 and November 30, 1995 and the reported amounts of revenues and expenses during the three months and nine months ended August 31, 1996 and 1995. Actual results could differ from those estimates. The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the Company's financial statements filed as part of the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995 (the "Annual Report"). This Quarterly Report on Form 10-Q should be read in conjunction with such Annual Report. 2. Investments in and Advances to Affiliates The Company's investments in and advances to affiliates consists of a 25% ownership interest in Yangchun Fuyang Diesel Power Co. Ltd. and, from August 1996, a 25% ownership interest in Wuhu Shaoda Electric Power Development Company Ltd. ("Wuhu Shaoda") and a subordinate loan to the project. 8 3. Note Receivable In August 1995, the Company provided a non-interest bearing loan in the amount of $7.5 million to China Power International Holding Limited to develop and invest in Wuhu Shaoda with a condition that the loan will convert to a minority equity investment in the project upon obtaining approvals from the PRC government. In August 1996, the loan successfully converted to a minority equity investment in the project. As of August 31, 1996, Jiaozuo Wan Fang had provided a loan in the amount of $4.2 million to Zhongyuan Trust and Investment Company for the purpose of providing a loan to Henan Electric Power Corporation for the construction of interconnection and transmission facilities. 4. Loans from Minority Shareholders As of August 31, 1996 loans from minority shareholders included a loan in the amount of $24.7 million from Jiaozuo Aluminum Mill to Jiaozuo Wan Fang. The total commitment amounts to $29.3 million. The loan is unsecured and bears interest at 15.3% per annum and a service fee to the lender at 3% per annum. The loan is divided into two tranches in equal amount. Interest on the first tranche of the loan is payable quarterly in arrears following commercial operation of unit one. Interest on the second tranche of the loan is payable quarterly in arrears following commercial operation of unit two. Principal of the first tranche is repayable in 27 quarterly installments beginning January 1, 1998 and the payment of the second tranche is payable in 25 quarterly installments beginning July 1, 1998. 5. Commitments and Contingencies During the nine months ended August 31, 1996, the Company through its wholly-owned subsidiary, AES China Holding Company (L) Limited, committed to invest an aggregate of $18.0 million in the form of a subordinated term loan to Wuhu Shaoda. As of August 31, 1996, $9.1 million of the committed term loan was advanced to the joint venture. In April 1996, Wuhu Shaoda entered into a $65.0 million syndicated senior loan agreement with a group of nine banks ("lenders") to finance the construction of the power plant. As a condition to the extension of the facility, AES China Holding Company (L) Limited, and the other joint venture partners (together referred to as "Partners"), entered into an undertaking and subordination deed with the lenders and Wuhu Shaoda whereby, the Partners committed to fund any construction cost overrun and working capital deficit of the project in proportion to each Partner's respective equity contribution percentage in the joint venture up to $6.0 million. In April 1996, the Company committed to invest an aggregate of $68.3 million in the form of shareholder loans to Jiaozuo Wan Fang. In October 1996 the Company funded $20.0 million of its shareholder loan commitment. As of August 31, 1996, Jiaozuo Wan Fang had an outstanding commitment to provide a loan of $5.7 million to Zhongyuan Trust and Investment Company for the purpose of providing a loan to Henan Electric Power Corporation for the construction of interconnection and transmission facilities. 9 6. Income Taxes As of August 31, 1996, a deferred tax liability amounting to approximately $0.5 million was provided for, mainly for timing differences arising from deferred expenses and accelerated depreciation of property, plant and equipment under the PRC tax rules. 7. Subsequent Events In September 1996, Chengdu AES-Kaihua Gas Turbine Power Company Ltd., a joint venture, was established to construct, own and operate a 48MW natural gas-fired power plant in Chengdu City, Sichuan Province. The Company has a 35% ownership interest in the project and has committed to invest an aggregate of approximately $18.0 million in the form of equity contributions and shareholder loans to the joint venture. In October 1996, Anhui Liyuan-AES Power Company Ltd. and Hefei Zhongli Energy Company Ltd., two cooperative joint ventures, were established to construct, own and operate a 115.2MW combined cycle power plant in Hefei, Anhui Province. The Company has a 70% ownership interest in the projects and has committed to invest an aggregate of approximately $37.0 million in the form of equity contributions and shareholder loans to these two joint ventures. 10 Item 2. Discussion and Analysis of Financial Condition and Results of Operations Introduction The Company, directly and through its wholly-owned offshore subsidiaries, engages in the development, construction, operation and ownership of electric power generating facilities in the PRC by means of its participation in PRC joint venture limited liability companies to which the Company, or one of its wholly-owned subsidiaries, has made a contribution to the equity thereof ("Joint Ventures"). The Company currently owns interests in the following eight power plants with an aggregate nameplate capacity of approximately 818MW. Projects in Operation or Under Construction Company Company Location Capacity Interest Ownership Joint Venture(s) (Province) (MW) (MW) (%) Fuel Status - ---------------- ---------- ---- ---- --- ---- ------ Jiaozuo Wan Fang Power Henan 250 175 70 Coal Under Company Ltd. construction ("Jiaozuo Wan Fang") (first unit to be in operation by the second quarter of 1997; second unit to be in operation by the second quarter of 1998) Wuhu Shaoda Electric Anhui 250 62.5 25 Coal First unit in Power Development operation Company Ltd. (second unit ("Wuhu Shaoda") to be in operation by the second quarter of 1997) Anhui Liyuan-AES Power Anhui 115.2 80.6 70 Oil Under Company Ltd. construction ("Anhui Liyuan") (simple cycle and Hefei Zhongli Energy unit to be in Company Ltd. operation by ("Zhongli Energy") the third quarter of 1997; combined cycle unit to be in operation in the second quarter of 1998) 11 Wuxi-AES-CAREC Gas Jiangsu 63 34.7 55 Oil Simple cycle Turbine Power Company unit in Ltd. service; ("Wuxi-AES-CAREC") (combined and Wuxi-AES-Zhonghang cycle unit to Power Co. Ltd. be in ("Wuxi-AES-Zhonghang") operation by the first quarter of 1997) Sichuan Fuling Aixi Sichuan 50 35 70 Coal Under Power Company Ltd. construction ("Fuling Aixi") (to be in operation in February 1998) Chengdu AES-Kaihua Gas Sichuan 48 16.8 35 Natural Under Turbine Power Company Gas construction Ltd. (to be in ("Chengdu AES-Kaihua") operation in the third quarter of 1997) Hunan Xiangci-AES Hydro Hunan 26.2 13.4 51 Hydro Two of three Power Company Ltd. units in ("Xiangci-AES") operation (last unit to be in operation in the fourth quarter of 1996) Yangchun Fuyang Diesel Guangdong 15.1 3.8 25 Oil In operation Engine Power Co. Ltd. ("Yangchun Fuyang") ----------- ------------- TOTAL 817.5 421.8 =========== =============
The Company is considering an investment in the Yangcheng International Power Company Limited, a project with an aggregate nameplate capacity of 2,100MW, and is considering investments in four other power projects with an aggregate nameplate capacity of 1,206MW. The economics of any individual electric power project, once in commercial operation, are primarily a function of the tariffs to be paid and the quantity of electricity which is purchased. The Company shares in the net income of the Joint Ventures for the duration of their terms. The 12 Joint Ventures generate revenues through the sale of electricity to power purchasers pursuant to long term power purchase contracts. These contracts require the power purchaser to purchase and pay for minimum quantities of electricity annually or to pay for such quantities if not purchased, in either case, at prices determined according to tariff formulas set forth in the power purchase contracts. These tariff formulas are designed, based on the minimum take obligation of the power purchaser, to be sufficient to pay the operating costs and financing costs of the project and to enable the Company to realize a return on its investment. Demand for power produced by a plant is determined by the demand for electric power in the areas which the plant serves and the degree to which the power plant is dispatched. If the plant is dispatched above the minimum quantity required to be purchased under the power purchase contract, these sales will generate additional income for the Joint Venture and enhance its profitability. If demand is significantly below the minimum level, the Joint Venture will look only to the credit of the power purchaser to pay the required amount. The Company focuses its development efforts on plants that will provide power to areas of high demand relative to existing and planned capacity. The Company receives cash from the Joint Ventures in the form of equity distributions and payments of principal and interest on shareholder loans made by the Company or its wholly-owned subsidiaries to the Joint Ventures. In a number of cases, the Company has, or anticipates having, priority in the payment of dividends over the Chinese partners to the Joint Venture. The Company's shareholder loans rank as general obligations of the Joint Ventures, except in some instances in which third party financing has been secured or will be secured for the Joint Venture, in which case the shareholder loans generally are, or will be, subordinated to such third party debt. Because of the significant magnitude and complexity of constructing electric power plants, construction periods generally range from one to five years, depending on the size of the power plant, the technology utilized and the location. A power plant does not produce revenues until it is completed. If construction is delayed, revenues from the power plant will be similarly delayed and perhaps, if the delay is extended, lost. Additionally, the cost of developing power plants is substantial. The Company capitalizes its development costs and seeks to recover them at the financial closing of a power plant and by amortizing them over the life of the Joint Venture. However, if a power plant under development is abandoned or not financed and completed, such development costs may be unrecoverable. The Company's near-term revenue growth will depend in large part on the Company's ability to bring the Joint Ventures' power plants which are currently under construction into commercial operation. The Company's longer term revenue growth will depend in large part on the Company's ability to secure financing and achieve the financial closing, construction completion and commercial operation of additional projects under development. The Company believes that there are, and will be in the foreseeable future, significant shortages of electric generating capacity in the PRC, especially in many economically important and developed regions of the country. The Company believes it is well-positioned after nearly three years of operations in the PRC to continue to take advantage of opportunities in the China power market. 13 Results of Operations Revenues and Costs of Sales. Total revenues increased from approximately $500,000 to $4.1 million from the third quarter of 1995 to the third quarter of 1996. Costs of sales, which include fuel, operations and maintenance expenses, depreciation and amortization increased from approximately $200,000 to $1.9 million from the third quarter of 1995 to the third quarter of 1996. The increases in revenues and costs of sales were primarily due to the commencement of operations of the Wuxi facility. Total revenues increased from approximately $900,000 to $7.0 million from the nine months ended August 31, 1995 to the nine months ended August 31, 1996. Costs of sales, which include fuel, operations and maintenance expenses, depreciation and amortization, increased from approximately $500,000 to $3.9 million from the first nine months of 1995 to the same period of 1996. The increases in revenues and costs of sales were due primarily to the commencement of operations of Wuxi-AES-CAREC. Development, Selling, General and Administrative Expenses. Development, selling, general and administrative expenses decreased $0.5 million from $2.3 million to $1.8 million from the third quarter of 1996 to the third quarter of 1995. For the nine months ended August 31, 1996, development, selling, general and administrative expenses decreased $1.7 million from $6.9 million to $5.2 million compared with the same period in 1995. The decreases in development, selling, general and administrative expenses for the three months and nine months ended August 31, 1996 were primarily due to the capitalization of a higher proportion of development costs associated with projects which have achieved financial closing. Interest Income. Interest income for the third quarter of 1996 and 1995 and the nine months ended August 31, 1996 and 1995 was primarily generated by income from marketable securities purchased with the proceeds received from the Company's 1994 initial public offering. Interest income decreased $1.2 million to $1.3 million from the third quarter of 1995 to the third quarter of 1996. Interest income for the nine months ended August 31, 1996 decreased $3.1 million from $8.1 million to $5.0 million compared with the corresponding period of 1995. The decreases in interest income for the three months and nine months ended August 31, 1996 were primarily due to a lower average amount of funds available for investment due to investments in Joint Ventures, as well as the repurchase of a portion of the outstanding shares of the Company's Class A Common Stock in the beginning of fiscal 1996. Interest Expense. During the third quarter of 1996 and the nine months ended August 31, 1996, interest expense was approximately $400,000 and $700,000, respectively, related solely to the interest on two minority shareholder loans to Wuxi-AES-CAREC. For the corresponding period in 1995, the Company had no outstanding loans. 14 Liquidity and Capital Resources The Company's business requires substantial investment associated with the development, acquisition and construction of electric power plants and related facilities through its Joint Ventures. As of August 31, 1996, the Company had entered into commitments to invest a total of $204.6 million in the form of equity contributions and loans to its Joint Ventures, of which $91.8 million had been invested as of August 31, 1996. After September 1, 1996, the Company entered into commitments to provide an additional $55.0 million in equity contributions and shareholder loans to Chengdu AES-Kaihua, Liyuan-AES and Zhongli Energy. The Company expects to incur additional commitments in the future in connection with the development, acquisition, construction, ownership and operation of additional electric power plant and related facilities in China. The Company has financed its investments to date out of the proceeds of its initial public offering in 1994. At August 31, 1996, cash and cash equivalents of the Company totaled $92.0 million. In order to meet the Company's commitment to its existing projects and fund the future investment opportunities, the Company will raise debt or additional equity. In addition, the Company expects to obtain additional funds from operating activities as more of its electric power plants become operational. The Company and its Joint Venture partners will need to raise limited-recourse or non-recourse financing from third parties for certain large projects. The Company believes such projects will be successfully developed only if such debt is obtained. The ability of one of the Joint Ventures, Wuhu Shaoda, to pay dividends or distribute earnings to the Company is restricted by the terms of a bank facility which has been entered into by the Joint Venture. The declaration of equity distributions by certain Joint Ventures in which the Company is not entitled to appoint a majority of the board of directors will depend on the consent of the other directors. The Company believes that neither of these restrictions is likely to have a material adverse effect on its liquidity. Also, the ability of the Joint Ventures to make payment in US dollars to lenders with respect to third party debt, to make payment in US dollars to the Company with respect to its shareholder loans to the Joint Ventures and to make equity distributions in US dollars may be subject to certain constraints. Cash from Operations Operating cash flows for the nine months ended August 31, 1996 were $1.6 million as compared with $1.4 million in the same period in 1995, and were primarily attributable to the commencement of operations of Wuxi, together with revenues attributable to the operations of Xiangci-AES. Cash from Investing Activities Cash used for investing activities of $24.4 million in the nine months ended August 31, 1996 reflects $53.4 million of cash used to purchase property, plant and equipment and other project 15 related investments which was partially offset by cash of $29.0 million provided by short-term investments (net of purchases). Cash from Financing Activities During the nine months ended August 31, 1996, $10.8 million in cash was used in financing activities, which was attributable to the repurchase by the Company of shares of its Class A Common Stock, and the repayment of notes payable, partially offset by loans and contributions made to subsidiaries by minority shareholders. Inflation Over the last few years, the PRC economy has registered high growth rates and high rates of inflation. In response, the PRC Government has taken measures to curb inflation. These measures, along with other factors, have reduced inflation in the PRC in 1996. However, there can be no assurance that these austerity measures alone will succeed in controlling inflation, nor that they will not result in severe dislocations in the PRC economy in general. The Company will attempt, whenever possible, to take measures to hedge its projects against the effects of inflation. Generally, this will be done by structuring the tariff formulas in its power purchase contracts to pass through increased costs resulting from inflation. 16 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits 10.32 Equity Joint Venture Contract dated February 12, 1996 among China Power International Holdings Limited, AES China Holding Company (L) Ltd., Anhui Liyuan Electric Power Development Company and Wuhu Energy Development Company 10.33* Operation & Offtake Contract dated July 5, 1996 between Wuhu Shaoda Electric Power Development Company Limited and Anhui Provincial Electric Power Corporation 10.34 Undertaking and Subordination Deed dated June 26, 1996 among AES China Holding Company (L) Limited, Anhui Liyuan Electric Power Development Company Limited, China Power International Holding Limited, Wuhu Energy Development Company, Wuhu Shaoda Electric Power Development Company Limited and CCIC Finance Limited 10.35 Junior Subordination Agreement among China Power International Holding Limited, AES China Holding Company (L) Limited, Anhui Liyuan Electric Power Development Company Limited, Wuhu Energy Development Company and Wuhu Shaoda Electric Power Development Company Limited 10.36 Subordinated Insurance Assignment between Wuhu Shaoda Electric Power Development Company Limited and AES China Holdings Company (L) Limited 10.37 Subordinated Borrower Charge Over Accounts between Wuhu Shaoda Electric Power Development Company Limited and AES China Holdings Company (L) Limited 10.38 Subordinated Project Contracts Assignment between Wuhu Shaoda Electric Power Development Company Limited and AES China Holdings Company (L) Limited 10.39 Subordinated Mortgage Contract between Wuhu Shaoda Electric Power Development Company Limited and AES China Holdings Company (L) Limited 11 Consolidated Statements Regarding Computation of Earnings Per Share b. Reports on Form 8-K Registrant filed a Current Report on Form 8-K, dated October 2, 1996, to provide certain cautionary statements for purposes of the "safe harbor" for forward looking statements under the Private Securities Litigation Reform Act of 1995. - ----------------------- * The Company has sought confidential treatment for certain information identified in this exhibit. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AES China Generating Co. Ltd. ------------------------------------- (Registrant) October 15, 1996 /s/ Jeffery A. Safford - ---------------- ------------------------------------- Date Jeffery A. Safford Vice President Chief Financial Officer and Secretary 18 EXHIBIT INDEX Exhibit Number Document 10.32 Equity Joint Venture Contract dated February 12, 1996 among China Power International Holdings Limited, AES China Holding Company (L) Ltd., Anhui Liyuan Electric Power Development Company and Wuhu Energy Development Company 10.33* Operation & Offtake Contract dated July 5, 1996 between Wuhu Shaoda Electric Power Development Company Limited and Anhui Provincial Electric Power Corporation 10.34 Undertaking and Subordination Deed dated June 26, 1996 among AES China Holding Company (L) Limited, Anhui Liyuan Electric Power Development Company Limited, China Power International Holding Limited, Wuhu Energy Development Company, Wuhu Shaoda Electric Power Development Company Limited and CCIC Finance Limited 10.35 Junior Subordination Agreement among China Power International Holding Limited, AES China Holding Company (L) Limited, Anhui Liyuan Electric Power Development Company Limited, Wuhu Energy Development Company and Wuhu Shaoda Electric Power Development Company Limited 10.36 Subordinated Insurance Assignment between Wuhu Shaoda Electric Power Development Company Limited and AES China Holdings Company (L) Limited 10.37 Subordinated Borrower Charge Over Accounts between Wuhu Shaoda Electric Power Development Company Limited and AES China Holdings Company (L) Limited 10.38 Subordinated Project Contracts Assignment between Wuhu Shaoda Electric Power Development Company Limited and AES China Holdings Company (L) Limited 10.39 Subordinated Mortgage Contract between Wuhu Shaoda Electric Power Development Company Limited and AES China Holdings Company (L) Limited 11 Consolidated Statements Regarding Computation of Earnings Per Share EX-10 2 EX. 10.32 Exhibit 10.32 China Power International Holdings Limited AES China Holding Company (L) Ltd. Anhui Liyuan Electric Power Development Company Wuhu Energy Development Company Equity Joint Venture Contract February 12, 1996 Page: 1 of 30 Table of Contents Article 1. Definitions................................................. 3 Article 2. Parties to the Joint Venture................................ 7 Article 3. Establishment of the Joint Venture.......................... 8 Article 4. Purpose, Scope and Scale of Business........................ 9 Article 5. Total Amount of Investment and Registered Capital........... 9 Article 6. USD and RMB Financing....................................... 10 Article 7. Responsibilities of Parties to the Joint Venture............ 11 Article 8. Site........................................................ 13 Article 9. Construction and Operation of the Power Plant............... 13 Article 10. Electricity Sale and Tariffs................................ 14 Article 11. Purchase of Equipment & Materials and Services.............. 14 Article 12. Electricity Fees, Profit Distributions and Sharing of Risks and Losses........................................... 14 Article 13. The Board of Directors...................................... 15 Article 14. Operation and Management Organization....................... 18 Article 15. Labor Management............................................ 19 Article 16. Annual Operating Plans and Budgets.......................... 19 Article 17. Taxes, Accounting and Audit................................. 20 Article 18. Bank Account and Foreign Exchange........................... 22 Article 19. Term of the Joint Venture................................... 22 Article 20. Transfer of Interests....................................... 22 Article 21. Termination Prior to the Expiration and Dissolution......... 23 Article 22. Disposal of Assets upon the Expiration of the JV............ 24 Article 23. Liabilities for Breach of Contract.......................... 24 Article 24. Power Plant Insurance....................................... 25 Article 25. Confidentiality............................................. 25 Article 26. Force Majeure............................................... 26 Article 27. Applicable Laws............................................. 26 Article 28. Settlement of Disputes...................................... 27 Article 29. Miscellaneous............................................... 27 Page: 2 of 30 PREAMBLE IN ACCORDANCE WITH THE LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON SINO-FOREIGN EQUITY JOINT VENTURES (HEREINAFTER REFERRED TO AS "THE EQUITY JOINT VENTURE LAW") AND OTHER PROMULGATED RELEVANT CHINESE LAWS AND REGULATIONS, CHINA POWER INTERNATIONAL HOLDING LIMITED ("PARTY A"), AES CHINA HOLDING COMPANY (L) LTD. ("PARTY B"), ANHUI LIYUAN ELECTRIC POWER DEVELOPMENT COMPANY ("PARTY C") AND WUHU ENERGY DEVELOPMENT COMPANY ("PARTY D") (EACH, A "PARTY" AND COLLECTIVELY, THE "PARTIES"), ADHERING TO THE PRINCIPAL OF EQUALITY AND MUTUAL BENEFIT, AGREE TO SET UP A SINO-FOREIGN JOINT VENTURE ENTERPRISE IN WUHU CITY, ANHUI PROVINCE, THE PEOPLE'S REPUBLIC OF CHINA. THE PARTIES HAVE HERETO REACHED THE FOLLOWING AGREEMENT: Article 1. Definitions Unless otherwise stated in the provisions of this Contract, the following terms shall have meanings set forth below: 1.1 "Power Plant" shall mean the power plant which will be built, designed, constructed, commissioned and completed in Wuhu City, Anhui Province, the People's Republic of China consisting of 2 x 125MW coal-fired generating units and all buildings, equipment and machines, including but not limited to coal and ash handling facilities, civil works and marine works, the transmission facilities linking the plant with the grid, auxiliary buildings and offices in accordance with the terms and conditions of this Contract and the EPC Contract. 1.2 "Anhui Power" shall mean Anhui Provincial Electric Power Corporation. 1.3 "EPC Contract" shall mean the construction contract entered into by and between the Joint Venture and Anhui Power for the purpose of the overall design and construction of the Power Plant. 1.4 "Operation and Offtake Contract" shall mean the contract entered into by and between the Joint Venture and Anhui Power regarding the operation of, and sale of the electricity from the Power Plant. 1.5 "Site" shall mean the site on which the Power Plant is located in Wuhu Power Plant of Anhui Province, China. 1.6 "Project Budget" shall mean the project budget as included in the EPC Contract. Page: 3 of 30 1.7 "Tariff" shall mean the on-grid tariff per KWH of electricity generated by the Power Plant which is approved by relevant Chinese authorities and paid by Anhui Power and which can be adjusted in accordance with Article 7 of the Operation and Offtake Contract. 1.8 "Plant Insurance" shall mean in accordance with Article 24 hereof, insurance obtained and maintained by Anhui Power on behalf of the Joint Venture for the construction and operation of the Power Plant. 1.9 "Actual Completion Date" shall mean in accordance with EPC Contract, the date on which any one of the units successfully completes the 72 hour and 24 hour trial operation, and such completion is certified by the Engineering Consultant (as defined in the EPC Contract) approved by the Creditors. 1.10 "Contract Completion Date" shall mean as defined in Article 5 of the EPC Contract. 1.11 "Joint Venture" or "JV" shall mean the joint venture company set up by the Parties pursuant to the Equity Joint Venture Law, other promulgated relevant Chinese laws and regulations and this Contract. The name of the Joint Venture in Chinese is: (omitted) and the name of the JV in English is: Wuhu Shaoda Electric Power Development Company Limited. 1.12 "Articles of Association" shall mean the Articles of Association of the Joint Venture. 1.13 "Business License" shall mean the Business license to be issued to the Joint Venture by the State Administration for Industry and Commerce of China or its other related local branches. 1.14 "Board of Directors" or "Board" shall mean the Board of Directors of the Joint Venture. 1.15 "Directors" shall mean members of the Board of Directors of the Joint Venture. 1.16 "Establishment Date of the Joint Venture" shall mean the date when the Business License of the Joint Venture is issued. 1.17 "Examination and Approval Authority" shall mean the Ministry of Foreign Trade and Economic Cooperation of China and its authorized examination and approval authorities. 1.18 "Term of the Joint Venture" shall mean the duration of the Joint Venture set forth in Article 19 of this Contract, including any extended term. Page: 4 of 30 1.19 "Affiliate of a Party" shall mean a company directly or indirectly controlled by a party by means of its voting right or other means, or a Party directly or indirectly controlled by a company by means of its voting right or other means. "Control" means the right to elect the member of the Board of Directors or the direction of operation and management. 1.20 "Confidential Information" shall mean technology and know-how as well as analytical data, processes, programs, manuals, designs, sketches, photographs, plans, drawings, specifications, reports, studies, findings, non - patented inventions and ideas and other information relating to the construction, installation and financing of the Power Plant as well as the use or sale of electricity, whether of a technical engineering, operational, business or economic nature, whenever designated as "Confidential" by any Party or any of its relevant Affiliates and provided by any Party or any of its relevant Affiliates in connection with the negotiation of the project contemplated hereunder, the implementation of this Contract or the conduct of the business contemplated by this Contract. Confidential Information, however, shall not include such information which is now or hereafter becomes part of the public domain through authorized publication, information which the receiving Party can demonstrate was already in its possession at the time of receipt, and information which hereafter comes into the possession of the receiving Party and was or is not acquired by the receiving Party directly or indirectly from the providing Party or sources under an obligation of secrecy to such providing Party. 1.21 "Force Majeure" shall mean any of the following events (1) wars, hostilities or insurrections; (2) pestilence or other epidemics; (3) fires that are not caused by carelessness or deliberateness (4) lightning; (5) earthquakes; (6) other natural forces including natural disasters. The events listed above must have all of the following five characteristics at the same time: (1) taking place after the signing of this Contract; (2) enforeseable or unavoidable; (3) beyond the control of any of the Parties; (4) directly preventing the performance of the obligations under this Contract by any Party. (5) unpreventable by the best efforts of the Party affected. Page: 5 of 30 1.22 "Renminbi" or "RMB" shall mean the lawful currency of China. 1.23 "RMB Financing" shall mean the RMB loans to the Joint Venture provided from sources within China. 1.24 "Foreign Exchange" shall mean any currency other than RMB. 1.25 "U.S. Dollars", "USD" or "US$" shall mean the lawful currency of the United States of America. 1.26 "US$ Senior Loan" shall mean the USD loans provided by the First Creditor to the Joint Venture on the terms and conditions set forth in the USD Senior Loan Contract. 1.27 "USD Senior Loan Contract" shall mean the Contract signed between the Joint Venture and the First Creditor for the purpose of providing the USD Senior Loan needed by the Power Plant. 1.28 "USD Subordinated Loan" shall mean the USD loans provided by the Second Creditor to the Joint Venture on the terms and conditions set forth in the USD Subordinated Loan Contract. 1.29 "USD Subordinated Loan Contract" shall mean the Contract signed between the Joint Venture and the Second Creditor for the purpose of providing the USD Subordinated Loan needed by the Power Plant. 1.30 "Creditor" shall mean an agency or legal person who provides funds under the Financing Contract. 1.31 "Financing Contract" shall mean any Contract entered into by and between the JV and a Creditor by which to obtain construction funds for the Power Plant, including USD Senior Loan Contract, USD Subordinated Loan Contract and RMB Loan Contract. 1.32 "China" shall mean the People's Republic of China. Page: 6 of 30 Article 2. Parties to the Joint Venture 2.1 Each of the Parties hereby represents and warrants to other Parties that it is duly established and registered as set forth below, that it has full legal power and right to enter into this Contract that its legal representative named below is duly authorized to sign this Contract and other contracts contemplated hereunder on its behalf, that it has taken all necessary actions and will seek approval from the Examination and Approval Authority to approve this Contract and the other contracts contemplated hereunder; that upon the approval of the Examination and Approval Authority, this Contract shall constitute the legal, valid and binding obligations of such Party, and the terms of this Contract shall be enforceable against such Party; its execution, delivery and performance of this Contract and other contracts will not violate any of its constituent documents, other agreements, obligations, or any currently effective law, regulation or decree of its home country that may be applicable to any aspect of the transactions contemplated hereunder. 2.2 The parties to this Contract are: Party A: China Power International Holdings Limited Legal address: Suite 5306, 531 F, Central Plaza 18 Harbour Road, Wanchai, Hong Kong Legal Representative: Zang Mingchang Position: General Manager Nationality: People's Republic of China Party B: AES China Holding Company (L) Ltd. Legal Address: Lot A, Level 3, Wisma Oceanic Jalan Okk Awang Besar, 87007 Federal Territory of Labuan Legal Representative: Paul Hanrahan Position: President Nationality: USA Party C: Anhui Liyuan Electric Power Develpment Company Legal Address: No. 415 Wuhu Road Hefei, Anhui Province China, 230061 Legal Representative: Cheng Guangjie Position: Chairman of the Board of Directors Nationality: People's Republic of China Page: 7 of 30 Party D: Wuhu Energy Development Company Legal Address: Commercial Office Building Huangshan West Road Wuhu, Anhui Province China, 241000 Legal Representative: Wang Wudao Position: General Manager Nationality: People's Republic of China Article 3. Establishment of the Joint Venture 3.1 The Parties of the Joint Venture agree to set up the Joint Venture in accordance with the Equity Joint Venture Law and other relevant laws and regulations of China. The JV is a legal entity in China, and under the protection and governance of Chinese laws. All activities of the JV shall abide by promulgated relevant laws, and rules and regulations of China. 3.2 The name of the JV in Chinese is: (omitted) and in English is Wuhu Shaoda Electric Power Development Company Limited. The legal address of the JV is Commercial Office Building, Huangshan West Road, Wuhu City, Anhui Province. 3.3 The form of organization of the JV shall be a limited liability company. All parties shall share the losses, risks, legal liabilities and other liabilities of the JV in proportion to their respective contributions to the registered capital of the JV. Such liabilities are limited to the registered capital contributed by each Party. Unless otherwise agreed upon in written agreement among the Parties to the JV, other than to provide registered capital, each Party shall not be collectively or individually held responsible to the JV or to a third party in connection with the JV's activities. If any action of a Party, which causes losses, increased risks and liabilities, is not in the scope of this Contract and violates the Article of Association or is not included in the scope of business of the Joint Venture, no other Party shall be held responsible for such losses, risks, legal or other liabilities. 3.4 After the JV has obtained the approval certificate, the JV Parties shall proceed to register with and obtain a Business License from the Administration for Industry and Commerce in accordance with relevant laws and regulations of the People's Republic of China. Page: 8 of 30 Article 4. Purpose, Scope, and Scale of Business 4.1 The purposes of the JV shall be to: (a) build and develop the Power Plant, and generate and sell electricity generated by the Power Plant in order to support and encourage Wuhu's opening to the outside world and bring into play its own advantages, strengthen economic cooperation and technical exchanges, (b) obtain advanced and appropriate equipment for the Power Plant and use modern managerial methods in order to increase the electricity supply in Anhui Province; (c) achieve expected economic benefits for each Party. 4.2 The JV's scope of business is to build, own and operate the Power Plant, and generate and sell electricity. 4.3 The scale of the JV's business includes the generation and sale of the electricity generated by 2x125 MW coal-fired generators. Article 5. Total Amount of Investment and Registered Capital 5.1 The total amount of investment of the JV shall be US$118.37 million, of which the transmission project accounts for US$ 18.07 million. 5.2 The registered capital of the JV shall be US$30 million, and shall be contributed by the Parties according to the following ratios: Party A 45% US$13.50 million Party B 25% US$7.50 million Party C 20% US$6.00 million Party D 10% US$3.00 million Page: 9 of 30 5.3 The registered capital of the JV shall be paid in cash by the Parties. Party C and D shall contribute their portions in RMB cash. The amount of RMB cash shall be calculated on the basis of the actual amount of RMB deposited into the designated bank accounts of the JV using the reference USD/RMB exchange rate on the date of the deposit as announced by the People's Bank of China. Party A and B shall contribute their portions in USD cash. 5.4 All cash payments made by the Parties to the Joint Venture as their respective registered capital contributions shall be remitted to the Joint Venture's bank accounts. 5.5 The Parties shall make their respective registered capital contributions in accordance with Articles 5.2, 5.3 and 5.4 hereof within 30 days after the establishment of the JV and the obtaining of the Business License. 5.6 After the Parties have made their respective registered capital contributions to the JV, the JV shall, at its own expense, engage an accountant registered in China, and accepted by all the Parties, to verify the registered capital contributions and issue a verification report, at which time investment certificates shall be issued to the contributing Parties by the JV. 5.7 Any proposed increase of registered capital of the JV shall be approved by the Board of Directors and then be submitted to the Examination and Approval Authority for approval. After being approved by the Examination and Approval Authority, the JV shall register such increase with the relevant Administration for Industry and Commerce. The contribution ratio among the Parties for any additional registered capital shall be the same as the original registered capital construction ratio unless otherwise agreed upon by the Parties. Upon the agreement of the Parties and approval by the Examination and Approval Authority, the Parties may agree to adjust the current ratio of the registered capital contribution of the Parties. 5.8 All costs related to the project development shall be included in the total amount of investment of the JV and be paid by the JV. Article 6. USD Financing and RMB Financing 6.1 The Parties shall arrange financings for the Joint Venture in an amount equivalent to the difference between the amount of the total investment and the amount of the registered capital of the Joint Venture in accordance with Article 6.2 of this Contract. Page: 10 of 30 6.2 Party A shall procure the provision to the Joint Venture of the USD Senior Loan amounting to US$65 million on behalf of the Joint Venture and shall provide guarantee for the USD Senior Loan; Party B shall procure the provision to the Joint Venture of the USD Subordinated Loan amounting to US$18 million on behalf of the Joint Venture, and shall provide guarantee for the USD Subordinated Loan. Party C and Party D shall provide or procure the provision to the Joint Venture of financing up to US$3.75 million (equivalent to RMB 31.10 million approximately at the exchange rate of US$1:RMB 8.3), and shall provide guarantee for such financing. Should there be any cost overrun in the course of construction, the Parties shall each raise funds in proportions to their contributions to registered capital. Article 7. Responsibilities of Parties to the Joint Venture 7.1 Responsibilities of Party C and D include the following: (a) contributing their respective portions of the registered capital in accordance with this Contract and other relevant laws and regulations; (b) arranging financing in accordance with this Contract; (c) assisting the Joint Venture in applying to relevant authorities of China for approval, registration, permission, business license and other matters concerning the establishment and operation of the JV, including relevant plans for the construction and the annual generation plans of the Power Plant; (d) assisting the JV in purchasing and receiving equipment that shall be purchased in China; (e) assisting the JV in obtaining required coal, steel, cement and other materials in accordance with the JV's required quantities, specifications and delivery time and assisting the JV in obtaining any necessary quota; (f) assisting the JV in negotiating with the relevant land administration department and other government agencies for the use of the Site for the Power Plant, and assisting in handling all other necessary formalities so as to ensure that during the term, the JV is authorized to use the land at the Site in accordance with its scope of business; Page: 11 of 30 (g) assisting the JV and its foreign employees in obtaining entry visas, residence and work permits, and in arranging for board and lodging, medical care, other related matters and in processing their traveling procedures in China; (h) assisting the JV in applying for applicable taxes and other applicable preferential treatments in accordance with relevant laws and regulations of China; (i) assisting the JV in obtaining, within one month of the establishment of the Joint Venture official approval for opening USD and RMB accounts as provided in this Contract; (j) assisting the JV in applying for relevant approvals and permission so that the JV can (1) convert RMB into USD and balance the foreign exchange account; (2) remit Party A and Party B's shares of profits and other distributions and (3) adjust Tariffs in accordance with Article 10 of this Contract; (k) handling other reasonable matters entrusted by the Joint Venture from time to time. 7.2 Additional responsibilities of Party C shall be to: (a) cause Anhui Power to sign the EPC Contract and abide by the responsibilities set forth in the EPC Contract; (b) cause Anhui Poser to sign the Operation and Offtake Contract and abide by the responsibilities set forth in the Operation and Offtake Contract; (c) assist the JV in steadily generating electricity and in selling such electricity to the Anhui provincial power grid in accordance with the design capacity of the Power Plant during the term of the JV; (d) assist the JV in recruiting local Chinese management personnel, technical personnel, workers and other necessary personnel; (e) cause Anhui Power to perform or do all other acts or matters envisaged in the other provisions of this Contract to be performed or done by Anhui Power; (f) assist Party A and Party B in negotiating and obtaining foreign fund financing for any in the name of the Joint Venture by providing necessary documents; 7.3 Responsibilities of Parties A and B shall include the following: (a) contributing their respective portions of the registered capital of the JV in accordance with this Contract and relevant laws; Page: 12 of 30 (b) arranging financing outside of China in accordance with Article 6.2 of this Contract; (c) assisting the Joint Venture to purchase equipment, supplies and materials within China and overseas; (d) assisting the Joint Venture in introducing advanced management technique and financial management experiences; (e) assisting the Joint Venture in recruiting qualified personnel and consultants when necessary; (f) assisting the staff of the Joint Venture in handing formalities for overseas visa for training in the operation and management of the Power Plant; (g) handling other reasonable matters entrusted by the Joint Venture from time to time. Article 8. Site The Joint Venture shall obtain the lawful right to use the site in accordance with the provisions of Chinese laws in order to ensure its excessive use of the Site during the term of this Contract. Article 9. Construction and Operation of the Power Plant 9.1 The Joint Venture will entrust Anhui Power as the general contractor for construction in change of the construction of the Power Plant. 9.2 The Joint Venture will entrust Anhui Power as the constractor for operation in charge of the operation and management of the Power Plant, including the supply of coal for the Power Plant. 9.3 The Parties agree that Anhui Power shall be responsible for the design, construction, completion, commissioning, delivery, operation and management of the Power Plant in accordance with this Contract, EPC Contract and Operation and Offtake Contract. Management as referred to in the previous paragraph shall mean the management of the Power Plant and not the management of the Joint Venture. Page: 13 of 30 9.4 Party C shall cause Anhui Power to prepare in time on behalf of the JV an annual generation plans, an annual income and expenditures plan, and an annual renovations and improvements plan, and submit these plans to the Board of Directors for approval and be responsible to implement them upon approval. Article 10. Electricity Sale and Tariffs All electricity generated by the Power Plant shall be dispatched to the Anhui provincial power grid for sale. The details concerning the dispatch of electricity, Tariffs and payment shall be as presented in the Operation and Offtake Contract. Article 11. Purchase of Equipment & Materials and Services 11.1 Provided that all conditions being equal, the JV shall purchase required machinery and equipment, raw materials, fuels, accessories and office supplies first in China. 11.2 For all imported machinery, transportation tools, raw materials and accessories, the JV shall, in accordance with "Laws of Inspection of Import and Export Goods of the People's Republic of China", tender all imports to Import and Export Commodities Inspection Authority of the PRC for inspection. Article 12. Electricity Fees, Profit Distributions and Sharing of Risks and Losses 12.1 Whereas, Anhui Power shall provide services in accordance with the EPC Contract and the Operation and Offtake Contract, the JV shall pay to Anhui Power a management fee pursuant to these contracts. 12.2 The revenues due to the JV, including the monthly payments made by Anhui Power for electricity under the Operation and Offtake Contract, insurance proceeds and all other amounts, shall be distributed in the following order of priority after having paid the projected operation and fuel costs of the Power Plant, financial charges (loan interest, exchange loss and financing cost), the cost of the Joint Venture and all kinds of taxes: (i) principal repayable in respect of the USD Senior Loan; Page: 14 of 30 (ii) principal repayable in respect of the USD Subordinated Loan; (iii) principal payable in respect of the RMB Loan; (iv) the JV's losses from the previous fiscal year as approved by the Board; (v) contributions to the three funds as required by the Chinese law and in accordance with Article 17.3 of this Contract; (vi) distribution of profits to Parties A, B, C and D in accordance with Articles 12.3 hereof. 12.3 Each of the Parties shall be distributed its profits in accordance with its respective ratio of contributions of the registered capital of the Joint Venture. Each Party's profit shall be calculated in US dollars. The distribution of profits to Parties A and B shall be in USD and if the JV possesses insufficient foreign exchange, they can be paid in RMB on the prerequisite of ensuring the foreign exchange required for repaying USD financing, and the distribution of profits to Party C and D shall be in RMB. Article 13. The Board of Directors 13.1 The Board of Directors shall consist of nine directors, three of which will be appointed by Party A, two by Party B, two by Party C and two by Party D. The Board shall have one Chairman, and two Vice Chairmen. The Chairman shall be appointed by Party A; Parties B and C shall appoint one Vice Chairman each. The Chairman and Vice Chairmen shall serve for a term of four years and the term may be renewable by the appointing Parties. If there is a vacancy on the Board, it shall be filled by the Party who appointed the initial Director. Any Party may remove at any time for any reason any or all of the Directors appointed by such Party and appoint in lieu thereof any other person to serve the remainder of the relevant term. 13.2 The Chairman of the Board shall be the legal representative of the JV and shall at all times carry out decisions, resolutions and orders made by the Board. If the Chairman is unable or fails to exercise his responsibilities for any reason, he shall authorize a Vice Chairman to act on his behalf. The duties of the Directors shall not include daily administrative duties. 13.3 The Board shall be the highest authority of the JV and shall decide all major issues of the JV. For details regarding its authority and responsibilities, see this Contract and the Articles of Association. Page: 15 of 30 13.4 The following issues must be approved by all the directors voting in person or by proxy at an officially-convened Board meeting in order to be validated: (a) amendment(s) of the Articles of Association and this Contract; (b) increase or transfer of the registered capital pledge of interests under this Contract, and adjustment to the percentage of the JV Parties' registered capital contributions; (c) JV's merger with any other economic organizations; (d) transfer, sale, lease or other means of disposal of the JV's business or its assets in part or in total; purchase of control or acquisition in part or in total of business or assets of other companies or units; (e) extension and termination of the term, dissolution or liquidation of the JV; (f) any expenditures related to compensation for losses caused by any Force Majeure as defined in the EPC Contract or the Operation and Offtake Contract; (g) change of the Contract Completion Date specified in the EPC Contract; (h) change in the Project Budgets; (i) decision over the annual operating budget (including change of Tariffs), annual financial budget and financial reports (including the balance sheet and the profit-loss statement); (j) increase in the JV's production capacity; (k) signing or amending any loan contracts, guarantees or other important contracts (including but not limited to the EPC Contract and the Operation and Offtake Contract) signed on behalf of or by the JV or using any of the JV's interests, buildings, real estate, and fixed assets or capital goods hereby as collateral, pledges, or guarantees; (l) the appointment and dismissal of an independent auditor and approval of the audited annual financial report of the JV; (m) decisions regarding the annual generation plan, operating plan and strategies; (n) decisions with respect to funding for the general reserve fund, the enterprise development fund and employee bonus and welfare fund; and decisions on how to use the general reserve fund and the enterprise development fund; Page: 16 of 30 (o) decisions on using foreign exchange in ways unspecified in Article 18.3 of this Contract; (p) decisions regarding the use or expenditure of the employee bonus and welfare fund; and (q) the appointment and dismissal of the General Manager and Deputy General Managers, and decision regarding salaries of the General manager, Deputy General Managers and other senior management personnel. (r) other issues specified in this Contract or the Articles of Association. 13.5 The Board shall convene at least one meeting every year. The meetings shall be held at the legal address of the JV or the registered addresses of Party A, B or C, or at such other place discussed by the Board. The quorum shall be at least six directors with at least one from each party. The Board's resolutions can also be voted on via fax or written forms. 13.6 Within three days after receiving a proposal for an interim meeting by two directors, the Chairman, or any one of the Vice Chairmen, shall decide whether to convene such meeting and promptly notify all other directors of his or her decision. 13.7 The Chairman or any of the Vice Chairmen shall send notices regarding any annual or interim meeting to each Director at least 14 days prior to the date of such meeting, including the agenda, time and place of such meeting. Such notices may be waived by the unanimous consent of all Directors attending the meeting in person or by proxy. The Board meeting shall not be held less than 14 days or more than 28 days from the date of the issuance of the notification. 13.8 If any Directors can not attend any meeting for any reason, such Directors may authorize a person in writing (via mail, fax or hand-delivery) to represent them in attending the meeting and voting at the meeting. A proxy can represent one or more than one Director. 13.9 The Directors shall serve without compensation from the JV. If a Director is an employee of the JV at the same time, the JV shall compensate the person according to his or her position in the JV. The JV shall reimburse Directors for all reasonable expenses incurred related to the Board meetings. Page: 17 of 30 13.10 Minutes of every Board meeting shall be recorded and signed by all attending Directors. If a proxy attends the meeting on behalf of a Director, the proxy shall sign the minutes of that meeting on behalf of the Director. In order to facilitate each meeting, the Chairman shall designate the secretary of the meeting (if the Chairman is absent, then the Vice Chairman shall do so). The responsibilities of the secretary are to keep minutes of each meeting and to translate or arrange translation of all documents related to the meeting. The secretary shall also distribute the above documents to each Director. Minutes shall be kept in Chinese, kept on file by the JV, and copies of minutes shall be distributed to each Party at the addresses specified in Article 29.6. Article 14. Operation and Management Organization 14.1 The Board of Directors shall establish an operation and management organization which shall be responsible for the daily operation and management of the JV. The organization shall consist of a General Manager and several Deputy General Managers appointed by the Board of Directors. (one Deputy General Manager shall be appointed by Party B to be responsible for supervising the operation and maintenance of the Power Plant). 14.2 The responsibility of the General Manager shall be to carry out the resolutions of the Board of Directors and organize and conduct the daily operation and management of the JV. The Deputy General Managers shall assist the General Manager and be concurrently the manager of the various business departments. The specifics relating to the authority of the General Manager and Deputy General Managers are detailed in the Articles of Association. 14.3 The General Manger shall propose and suggest the formation of the business and management departments and candidates for senior staff, and submit the proposals to the Board of Directors for approval. 14.4 Managers may be dismissed for abuse of power, seeking personal interests, graft or serious dereliction of duty, or if they are completely incapable of accomplishing their work assignment. Unless otherwise approved by the Board of Directors, managers and other employees of the JV shall not take any positions or work in other companies, units, entities or organizations. Unless otherwise approved by the Board of Directors, persons who violate this rule shall be dismissed immediately. Page: 18 of 30 Article 15. Labor Management 15.1 The JV shall enjoy the full independence of an equity joint venture enterprise with respect to hiring and dismissing its employees. The recruitment, employment, dismissal, resignation, wages, salaries, labor insurance, welfare, bonuses and labor discipline, etc. of the employees of the JV shall be handled in accordance with relevant laws and regulations of China. 15.2 The employees of the JV shall abide by the regulations and rules set by the JV and fulfill their duties. Upon authorization by the Board of Directors, the General Manager shall formulate and promulgate regulations and measures regarding labor management. The recruitment, employment, dismissal, resignation, wages, salaries, labor insurance, welfare, bonuses and penalties, property rights to any invention or publication made by the employees of the JV during their employment and procedure for application for protecting the relevant copyrights shall be specified in written labor contracts with each employee and in recruitment regulations and rules of the JV. 15.3 Anhui Power's employees selected to work in the Power Plant shall be managed by Anhui Power, but shall be considered as employees of the JV when calculating these employee's wages, bonuses, and welfare. 15.4 Depending on the merits of the case, the General Manager is fully authorized to warn, record a demerit of, deduct wage of, or dismiss any employee who violates the provisions of the labor contract or the rules, regulations or labor discipline of the JV. Article 16. Annual Operating Plans and Budgets 16.1 The General Manager and his staff shall be responsible for the preparation of the annual operating plans and budgets of the JV based on the annual operating plans and budgets submitted by Anhui Power. The operating plans and budgets (including balance sheet, profit and loss statement and cash flow projection) for each fiscal year shall be submitted to the Board of Directors for examination and approval prior to December of the preceding year and shall include, but not be limited to, comprehensive and detailed information regarding: (a) Procurement of coal and other materials, equipment, machinery and other assets of the JV; Page: 19 of 30 (b) Raising and use of funds (including foreign exchange and RMB); (c) Plans with respect to the generation and sale of electricity; (d) Projected revenues, expenditures and profits of the JV; (e) Tariff policies; and (f) Plans for staff and workers' training. 16.2 The Board of Directors shall complete its examination and approval of the annual operating plan and budget for each at a meeting in the preceding year. The General Manager shall be responsible for the implementation of the annual operating plan and budget as approved by the Board of Directors. Article 17. Taxes, Accounting and Audit 17.1 The JV shall pay taxes in accordance with relevant Chinese laws and regulations. The JV shall apply for enjoying all preferential taxes available under the law applicable to the JV in China. 17.2 The individual employees of the JV shall be responsible for paying their own individual income taxes in accordance with relevant officially promulgated laws and regulations of China. 17.3 After payment of income taxes by the JV, the JV shall in accordance with relevant officially promulgated regulations of China set aside a certain amount for the reserve fund, the bonus and welfare fund for workers and staff members and the enterprise development fund. The actual amounts to be allocated each year for such funds shall be determined by the Board of Directors on the basis of the JV's actual economic circumstances, but the amount allocated to the bonus and welfare fund in any year shall not exceed five (5%) percent and the aggregate amount allocated to all three funds in any year shall not exceed fifteen (15%) percent of the JV's net after-tax profits for such year. If a change in the law of China renders either of these limits ineffective, it shall be adjusted accordingly. 17.4 The fiscal year of the JV shall start on January 1 of the year and end on December 31 of the same year. The first fiscal year of the JV shall commence on the Establishment Date and end on December 31 of the same year. The last fiscal year of the JV shall start on January 1 of the year of termination and end on the date of termination of the JV. Page: 20 of 30 17.5 The JV shall adopt internationally recognized accrual basis and debit and credit accounting systems. Accounting records, vouchers, books and statements of the JV shall be prepared and kept in Chinese. The JV shall use RMB as the base bookkeeping currency for its financial records. The annual quarterly and monthly reports shall be approved and jointly signed by the General Manager and the chief accountant (who shall be employed by the JV) and shall be prepared and kept in Chinese. 17.6 In accordance with the relevant laws and regulations of China, including the Foreign Investment Enterprise Accounting System of the People's Republic of China, the JV shall formulate accounting and administrative measures regarding its financial affairs. 17.7 An accountant registered in China and acceptable to all the Parties shall be engaged by the JV as its auditor to examine and verify the accounts and books of the JV and shall submit the audit report to the Board and the General Manager. Any Party shall also have the right, but not the obligation, not more than once in each fiscal year to appoint an accountant registered in China or abroad to audit the accounts of the JV at the expense of such Party; provided, however, that such auditor shall undertake to keep confidential all documents used in the audit. The JV shall make available its accounting books and records to such auditor on reasonable terms. 17.8 The JV shall prepare and provide to the Parties the following reports in the format of generally accepted accounting principles as applicable in the electric power industry of China; (a) Within 90 days after the last day of each fiscal year, the JV shall provide the Parties with complete and audited financial statements (including the profit and loss statement and balance sheet) as of the last day of such fiscal year; (b) Within 30 days after the last day of each financial quarter, the JV shall provide the Parties with the unaudited financial statements for such quarter, including a profit and loss statement (for such quarter and for the year-to-date) and a balance sheet (as of the last day of such quarter); (c) Within 21 days after the last day of each month, the JV shall provide the Parties with (i) a profit and loss statement for such month, and (ii) a forecast for the remainder of the current financial quarter, which shall include, without limitation, the number of personnel, revenue, cash balance and expenses. 17.9 The JV's accounting systems shall be filed with the Wuhu Finance Bureau and the Wuhu Taxation Bureau. The Board of Directors shall have the right to perform the duty of financial supervision. The Parties shall have the right to appoint accountants at their own expenses to examine and audit the books of the JV. Page: 21 of 30 Article 18. Bank Account and Foreign Exchange 18.1 The JV shall open its RMB and foreign exchange accounts in banks approved and acknowledged by the Chinese Government. Such foreign exchange account shall hold all monthly payments made by Anhui Power to the JV in respect of the USD Financing as well as the monthly distribution of profit. The procedures for signing and issuing JV checks shall be decided by the Board of Directors and specified in the financial rules of the JV. 18.2 The balance of foreign exchange of the JV shall be resolved through regulation after the procedures as stipulated by Chinese laws are approved by relevant department. 18.3 The JV foreign exchanges shall be allocated and utilized in accordance with the following order of priorities or an order of priority otherwise unanimously approved by the Board: (a) payments for USD Financing costs; (b) payments of principal and interest in accordance with USD Senior Loans and USD Subordinated Loans; (c) payments for other foreign exchange expenses; (d) profit distributions to Party A and Party B in profit distributions. Article 19. Term of the Joint Venture 19.1 The term of the JV shall be 20 years starting from the Establishment Date of the JV, unless the JV is terminated prior to the expiration of the term as specified in Article 21 or extends its term as specified in Article 19.2. 19.2 If proposed by one Party and unanimously approved by the Board, an application for an extension of the term of the JV shall be submitted to the original Examination and Approval Authority six months prior to the expiration date of the JV. Page: 22 of 30 Article 20. Transfer of Interests 20.1 No Party shall transfer any of its interests in the registered capital of the JV before the Actual Completion Date for both units of the Power Plant. 20.2 No Party shall sell, assign or otherwise dispose of all or part of its interest to the registered capital of the JV to any other Party or to a third party without first obtaining the unanimous approval from the Board of Directors. Any person to which one of the Party's registered capital contribution is assigned shall agree in writing to be bound by the relevant rights and responsibilities under this Contract. Such assignment shall not adversely affect any other Party's rights and responsibilities under this Contract. 20.3 Subject to Article 21.1 and 21.2 above, any Party (seller) wishing to sell, assign or otherwise dispose of the whole or any part of interest in the registered capital of the JV shall do so in accordance with procedures of relevant laws and regulations. The other JV Parties have the preemptive right of purchase. Any Party's conditions for assignment of contributions to a third party shall not be more favorable than those to the other JV Parties, if within 45 days' issuance of a written notice by the assigning party, the other JV Parties have not accepted these conditions or have not indicated their intuitions to purchase, they shall be deemed to agree to this assignment. When a Party assigns its contributions to its associated organization, the above preemptive right of purchase shall not apply. 20.4 Neither the business of the JV nor the performance of this Contract or other contracts or agreements shall be interrupted by any such sale or other transfer of such interest. 20.5 All transfers shall be submitted to the Examination and Approval Authority for approval. Upon receipt of the approval, the JV shall register the change with the relevant Administration for Industry and Commerce. Article 21. Termination Prior to the Expiration and Dissolution 21.1 Should there be any event of force majeure during the repayment period of the USD Senior Loans, the JV may be terminated in advance by unanimous agreement among all the Parties upon condition that all amounts outstanding or owing by the Joint Venture under or in connection with the USD Senior Loan have been fully discharged and have been approved by the Examination and Approval Authority. Page: 23 of 30 21.2 Shall there be any of the following occurrences after all the accounts in connection with the USD Senior Loan have been discharged: (i) Owing to causes of a force majeure event, the Power Plant is damaged, outage continues for a year without any hope of recovery; (ii) The Operation and offtabe Contract is terminated and the Power Purchase will not perform its duty to purchase power; (iii) The Joint Venture fails to achieve its business purpose and holds no prospect for development; the Joint Venture may terminate prior to expiration upon unanimous agreement by the Board of Directors and having been approved by the original Examination and Approval Authority. 21.3 Upon earlier termination, the Joint Venture shall undergo liquidation according to law and having repaid all its debts, the remaining assets shall be distributed in accordance with the proportion of the registered capital contributed by each Party. Article 22. Disposal of Assets upon the Expiration of the JV Upon the expiration of the term of the JV (including any extended term), the JV shall carry out liquidation according to relevant laws. The assets after liquidation shall be distributed in accordance with the proportion of registered capital contributed by each Party. Article 23. Liabilities for Breach of Contract 23.1 If any party fails to perform its obligations hereunder and fails to cure them within the restricted period, it will constitute breach of contract. Subject to the conditions permitted by the Chinese law, the breaching party shall indemnify any direct or indirect losses of the other JV Parties and the JV for its breach of Contract; such losses include but are not limited to legal and other expenses arising from such dispute. Page: 24 of 30 23.2 If any Party faults made its registered capital contributions in the amounts and at the time as set forth in the provisions of Article 5 of this Contract, commencing from the first month of arrears, the breaching Party shall make a monthly payment of a breach of contract penalty to the non-breaching Parties which is equal to one point five percent (1.5%) of the contribution in arrears. If a contribution is in arrears for 3 months, the non-breaching Parties shall have the right to supersede the status of the breaching Party and according to the law to claim the compensation from the breaching Party for the losses resulting from its failure to make its capital contribution. 23.3 If this Contract cannot be performed or cannot be performed completely because of the default of one of the Parties, the Company and the non-breaching Party shall send a notice to the breaching Party requiring it to rectify its default within 30 days from receipt of such notice. If within such period rectification has not been made by the breaching Party, it shall be considered to constitute a breach of this Contract and Party the non-breaching Party shall be liable for compensating the Company and the non-breaching Party for the losses suffered. 23.4 If more than one Party is at default, each breaching Party shall respectively bear its share of the liability for breaching the Contract. Article 24. Power Plant Insurance Appropriate arrangements will be made for the insurance of the Power Plant during the construction period and during the operating period. The types of insurance coverage, term and amounts of insurance shall be discussed and decided by the Board of Directors and purchased from insurance companies within China. Article 25. Confidentiality 25.1 Each of the parties acknowledges and agrees that the performance of its obligations under this contract may involved the disclosure of Confidential Information. 25.2 Each of the Parties, their relevant Affiliates, and the JV and their respective employees and personnel shall use the Confidential Information only for the purposes specified in this Contract, and shall not disclose any of the Confidential Information to third parties, except to its attorneys, accountants and advisers retained in connection with the subject matter hereof, without the prior written consent of the Party providing such Confidential Information. All Parties, their Affiliates and the JV shall make such confidential information available only to those JV personnel whose duties require them to be familiar with such Confidential Information. Page: 25 of 30 Article 26. Force Majeure 26.1 If any Party is prevented by any Force Majeure event from performing its obligations specified in this Contract, the time to perform such obligations by the Party affected shall be extended, on a day-for-day basis, by the number of days during which the Party is excused from performing its obligations under this Contract as a result of an event of Force Majeure. All the other obligations and time to perform those obligations shall not be affected. 26.2 Upon occurrence of any Force Majeure event, the Party affected shall promptly notify the other Parties by cable, telex or fax and, within 15 days, provide details of the event, together with a valid certifying documents evidencing the reasons for which the Contract cannot be performed or cannot be performed in part or for which performance needs to be delayed. Such certifying document shall be provided by the local notorial office where the force majeure event occurred. In accordance with the degree of impact of the event on the performance of the Contract, the Parties shall discuss and decide whether there is to be full or partial exemption from responsibility for performing the Contract, or whether the performe of the Contract is to be delayed. However, the party's obligations to make capital contributions shall not be affected by the force majeure event, and before the decision is made in connection with exemption from or delayed performance of obligations of the Contract, the Party that encounters and event of force majeure must use its best efforts to performance its obligations under the Contract and to reduce to the minimum the losses to the Company and the Other Parties. 26.3 If a force majeure event has resulted in the destruction of the Power Plant during the Joint Venture term, the Board of Directors at the request of at least two Directors, shall meet to determine whether to terminate this Contract in accordance with the provisions of Article 21. Article 27. Applicable Laws This Contract shall be governed by the laws of China. Page: 26 of 30 Article 28. Settlement of Disputes 28.1 Should there be any dispute in connection with this Contract, one Party shall notify the others in writing of the dispute. Should the Party intend to resolve the dispute through friendly consultations, the Party shall notify the other of their intention in writing. Under such circumstances, the Parties shall make their best efforts to settle the dispute through friendly consultations within 60 days after the date of issuing the notification. 28.2 In case no settlement can be reached within 60 days after the date of issuing the notification, the dispute shall be submitted to arbitration for final arbitration. 28.3 The dispute shall be submitted to the China International Economic and Trade Arbitration Commission in Beijing for arbitration. The arbitration award is final and binding upon all Parties. Article 29. Miscellaneous 29.1 This Contract is executed in Chinese and English. Should there be any inconsistency in the interpretation of the two languages, the Chinese version shall prevail. 29.2 This Contract may be amended only by a document in writing executed by the duly authorized representatives of all Parties hereto, Such amendments may become effective only upon approval by the relevant Chinese government authorities. 29.3 The rights and obligations of the Parties under this Contract shall continue to exist throughout the term of JV (and any extension thereof) and shall not be prejudiced by the establishment of the JV, the adoption of the Articles of Association or the execution of any of the related Contracts hereto. In the event of any conflict or inconsistency between the provisions of this Contract and the provisions of the Articles of Association or any of the related Contracts hereto (including specifically and without limitation the EPC Contract) on the other, the provisions of this Contract shall prevail. 29.4 This Contract shall become effective after being approved by the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China or its authorized examination and approval authority. It is also applicable to amendments to this Contract. Page: 27 of 30 29.5 All notices given by one Party to the other Parties shall be made in Chinese by personal delivery, fax or registered air mail promptly transmitted or addressed as indicated below or to such other address notified in lieu thereof. Unless otherwise specifically provided, the date of receipt of a notice or communication hereunder shall be deemed to be the date of receipt if delivered personally, 10 days after its postmark in the case of a registered air mail and 1 working day after dispatch in the case of a fax, (or whichever shall first occur if different delivery means are used). Any Party may change its address for the purpose hereunder by written notice to the other Parties. Party A: China Power International Holding Limited Address: 5/f, Office Building, Capital Hotel No. 3 Qianmen East Avenue Beijing, China Telephone: 010-5129988-3510 Facsimile: 010-5227647 Post Code: 100008 Party B: AES China Holding Company (L) Ltd. Address: 3/F (W), Golden Bridge Building No.1 (A) Jianguomenwai Avenue Beijing, China Telephone: 010-5089619 Facsimile: 010-5089828 Post Code: 100020 Party C: Anhui Liyuan Electric Power Development Company Ltd. Address: No. 415 Wuhu Road Hefei City, Anhui Province, China Telephone: 0551-3632007 Facsimile: 0551-3633393 Post Code: 230061 Page: 28 of 30 Party D: Wuhu Energy Development Company Address: Commercial Office Building Huangshan West Road Wuhu City, Anhui Province, China Telephone: 0553-3823224 Facsimile: 0553-3823224 Post Code: 241000 29.6 Failure or delay on the part of any Party to exercise any right or privilege under this Contract shall not be regarded as a waiver of such rights or privileges nor shall any partial exercise of any right or privilege preclude any further exercise thereof. Any waiver by a Party at a certain time of a breach by another Party shall not be construed as a waiver by such Party of its rights to such provision, or any of its other rights hereunder. 29.7 If any one or more of the provisions contained in this Contract or any document executed in connection herewith shall be invalid, illegal or unenforceable in any respect under any applicable law, (i) the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired and shall remain in full force and effect; and (ii) the invalid, illegal or unenforceable provision shall be replaced by a new provision that is valid, legal and enforceable and that comes closest in expressing the intention of such invalid, illegal or unenforceable provision. 29.8 The headings contained in this Contract are for reference only and shall not be deemed to be a part of this Contract or to affect the remaining or interpretation hereof. Each of the Parties hereto have caused this Contract to be executed by their duly authorized representatives on , 1996. China Power International Holdings Limited Signatory: /s/ [SIGNATURE ILLEGIBLE] Name: Title: AES China Holding Company (L) Ltd. Signatory: /s/ [SIGNATURE ILLEGIBLE] Name: Title: Party C: Anhui Liyuan Electric Power Development Company Signatory: /s/ [SIGNATURE ILLEGIBLE] Name: Title: Wuhu Energy Development Company Signatory: /s/ [SIGNATURE ILLEGIBLE] Name: Title: EX-10 3 EX. 10.33 Information contained herein, marked with [*], is being filed pursuant to a request for confidential treatment. Exhibit 10.33 Dated 5th July 1996 WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED And ANHUI PROVINCIAL ELECTRIC POWER CORPORATION PHASE IV OF WUHU POWER PLANT OPERATION & OFFTAKE CONTRACT This Contract has been entered into on 5th July, 1996 by and BETWEEN Anhui Provincial Electric Power Corporation ("Anhui Power"); and Wuhu Shaoda Electric Power Development Company Limited (hereinafter referred to as the "Joint Venture") IT IS HEREBY AGREED as follows: ARTICLE 1. DEFINITIONS With respect to this Contract the following expressions shall have the meanings set forth below: 1.1 "Actual Completion Date" shall mean, as defined in the EPC Contract, in respect of any Unit, the date on which such Unit has successfully completed its 72-hour and 24-hour trial operation and other tests required by applicable laws and regulations in China and such completion has been certified by the engineering consultant approved by the US$ Creditor(s). 1.2 "Annual Generation Plan" shall mean the annual generation plan compiled in accordance with Article 6.2. 1.3 "Approved Operating Costs" shall mean the portion of the Electricity Fee deemed by the relevant price control authorities to be attributable to the operating and fuel costs of the Power Plant. 1.4 "Approved Swap Agreement" means an agreement with respect to the exchange of payments representing interest rates entered into by the Joint Venture in compliance with and according to the terms of the US$ Senior Loan Contract. 1.5 "Responsibility of the Joint Venture" has the meaning set forth in Article 8.3. 1.6 "Cost Component of the Joint Venture" shall mean, in respect of any period, the portion of the Electricity Fee attributable to the payment of the administration and management expenses, insurance premium and expenses, taxes levied on the business transactions of the Joint Venture, auditor's fees, engineering consultant fees, advisory fees and all other fees of a similar nature incurred by the Joint Venture for such period. 1.7 "Contract Completion Date" shall mean in respect of any Unit the date as defined in Article 5 of the EPC Contract in respect of such Unit. 1.8 "Creditor" shall mean any creditor or legal entity providing financing pursuant to a Financing Contract. 1.9 "Delivery Point" shall mean the measuring point at the high voltage side of the step-up transformer. 1.10 "Electricity Sales Tax" or "EST" shall mean the Value Added Tax and surcharges levied against the Joint Venture by any State or local tax authorities in accordance with the Provisional Regulations of Value Added Tax of the People's Republic of China and the Rules of Implementation thereof, the Notice concerning the Regulations on Value Added Tax for Electricity Products published by the State Tax Administration, and/or other similar taxes of whatever name or according to any laws or regulations which replaced the above laws and regulations and/or any other value added or sales taxes (i.e. all 1 taxes or surcharges charged against the Joint Venture on the amount of electricity sold by the Joint Venture or on the amount of any payments received by the Joint Venture). 1.11 "Electricity Fee" shall mean in respect of any Unit for any 12 month period the Tariff for that 12 month period as approved by the pricing control authority multiplied by the Minimum Purchase Quantity of such Unit for such 12 month period. 1.12 "Financing Contract" shall mean any contract entered into by and between the Joint Venture and one or more Creditors by which the Joint Venture is to obtain, inter alia, construction funds for the Power Plant, including the US$ Senior Loan Contract, the US$ Subordinated Loan Contract and the RMB Loan Contract. 1.13 "FX Financing Contracts" shall mean the US$ Senior Loan Contract, US$ Subordinated Loan Contract, all security and other documents entered into by the Joint Venture pursuant to the terms of the US$ Senior Loan Contract and all Approved Swap Agreements (if any) and any other agreement pursuant to which the Joint Venture incurs foreign exchange obligations in connection with the planning, arrangement, construction, operation or management of the Power Plant and which has been entered into by the Joint Venture in compliance with the terms of the US$ Senior Loan Contract and US$ Subordinated Loan Contract. 1.14 "Joint Venture Contract" shall mean the contract entered into on 12 February 1996 for the establishment of the Joint Venture and the development of the Power Plant, as amended from time to time. 1.15 "KWH" shall mean Kilowatt Hour. 1.16 "Minimum Purchase Quantity" or "MPQ" shall mean, unless otherwise specified, the Minimum Purchase Quantity of each Unit of the Power Plant for a 12 month period and shall have the meaning stipulated in Article 2.2. 1.17 "Month" shall mean calendar month. 1.18 "Power Grid" shall mean the electricity transmission grid in Anhui Province. 1.19 "Operation Services" shall mean the services in respect of the management, operation and maintenance of the Power Plant to be performed pursuant to Article 4. 1.20 "Power Plant" shall mean the Power Plant which will be built, designed, constructed, commissioned and completed in Wuhu City, Anhui Province, People's Republic of China, consisting of 2 x 125 MW coal-fired generating units and all buildings, equipment and machines, including but not limited to the transmission facilities linking the Power Plant to the Power Grid, office and other auxiliary buildings, coal and ash handling facilities, civil works and marine works in accordance with the terms and conditions of the Joint Venture Contract and the EPC Contract. 1.21 "Power Plant Force Majeure" shall have the meaning as defined in Article 12.1. 1.22 "EPC Contract" shall mean the contract entered into by and between the Joint Venture and Anhui Power for the purpose of the overall engineering, procurement and construction of the Power Plant. 1.23 "Pre-Operation Services" shall mean the services to be performed in relation to each Unit before such Unit comes into operation as detailed in Article 4 and Appendix III. 1.24 "Renminbi" and "RMB" shall mean the lawful currency of the People's Republic of China. 2 1.25 "RMB Equity Return Portion" shall mean the portion of the Electricity Fee attributable as profits payable to Parties C and D under the Joint Venture Contract in respect of the relevant 12 month period. 1.26 "RMB Financing Portion" shall mean the portion of the Electricity Fee to enable the Joint Venture to repay the principal and interest due and payable on any RMB debt of the Joint Venture in respect of the relevant 12 month period. 1.27 "Tariff" shall mean the on-grid tariff per KWH of electricity purchased by Anhui Power and approved by relevant Chinese authorities. The tariff shall be adjusted in accordance with Article 7. 1.28 "Tariff Commencement Date" for Unit I shall mean the earlier of (a) the Actual Completion Date of Unit I and (b) the date falling six months after the date of the US$ Senior Loan Contract and for Unit II shall mean the earlier of (a) the Actual Completion Date of Unit II and (b) the date falling twelve months after the date of the US$ Senior Loan Contract. 1.29 "Termination Payment" shall mean an amount in RMB which, when received by the Joint Venture and (where relevant) converted into US$ (and net of any associated costs payable by the Joint Venture) shall be the greater of (i) the expected revenue of the Power Plant net of operating and fuel costs over the period from the date of termination to the original scheduled expiry date of this Contract discounted for early receipt using a discount rate of ten per cent. per annum and (ii) an amount sufficient to discharge in full all obligations and liabilities (actual and contingent) of the Joint Venture in respect of (a) operating expenses of the Power Plant, (b) US$ Senior Debt Costs and (c) any other debt or liability of the Joint Venture which has not been effectively subordinated to the US$ Senior Debt Costs. 1.30 "Termination Event" shall mean any Event of Default (as defined in the US$ Senior Loan Contract). 1.31 "Unit" shall mean either Unit I or Unit II. 1.32 "Unit I" shall mean the first unit of the Power Plant to be completed, together with the common facilities and all essential, auxiliary and service facilities. 1.33 "Unit II" shall mean the second unit of the Power Plant to be completed, together with the common facilities and all essential, auxiliary and service facilities. 1.34 "Unit Commissioning" shall mean, in respect of any Unit, the commissioning and bringing into operation and service of such Unit until the relevant Unit has successfully completed its 72-hr. and 24-hr. tests. 1.35 "US Dollars" and "US$" shall mean the lawful currency of the United States of America. 1.36 "US$ Equity Return Portion" shall mean the portion of the Electricity Fee attributable as profit to Parties A and B under the Joint Venture Contract in respect of the relevant 12 month period. 1.37 "US$ Financing Component" shall mean the portion of the Electricity Fee to enable the Joint Venture to make all payments of principal, interest, indemnity amounts, fees, costs and expenses and other amounts due and payable under the FX Financing Contracts in respect of the relevant 12 month period. 1.38 "US$ Senior Debt Costs" means all and any sums (whether principal, interest, indemnity amounts, fees, costs, expenses or other amounts) which are or will be at any relevant 3 time due and payable, whether on their due date, on demand or howsoever, under any FX Financing Contract in each case as conclusively determined by the Facility Agent (as defined in the US$ Senior Loan Contract). 1.39 "US$ Subordinated Loan Contract" means the agreement between the Joint Venture and AES China Holding (L) Company Limited for the provision of a loan of US$18,000,000 to the Joint Venture. 1.40 "US$ Senior Loan Contract" means the agreement between the Joint Venture and certain Creditors for the provision of a loan of US$65,000,000 to the Joint Venture. 1.41 "Year" shall mean a calendar year (from January 1st to December 31st). 1.42 "Pre-Commercial Operation Period" shall mean in respect of each Unit the first 185 days after the Actual Completion Date of that Unit. 1.43 "IIR" means the rate of interest which discounts the flow of revenue received by an investment so that the net present value of the cash flow is equal to the capital sum invested. 1.44 "Interconnection Contract" means the contract dated the date hereof between the Joint Venture and Anhui Power providing for the Power Plant to be connected to the Power Grid. ARTICLE 2. SALE AND PURCHASE OF ELECTRICITY 2.1 Minimum Generation Quantity 2.1.1 In the first 365 days starting from the Actual Completion Date of each Unit, the Minimum Generation Quantity (MGQ1) for that Unit shall be 125,000 X 5,000 KWH 2.1.2 Thereafter the Minimum Generation Quantity (MGQ2)for each Unit subsequent to the first 365 days (reduced pro rata if less than one year) is: 125,000 X 5,500 KWH 2.2 Minimum Purchase Quantity 2.2.1 The Minimum Purchase Quantity (MPQ1) of each Unit for the first 365 days starting from the Actual Completion Date of that Unit is: MGQ1 x (1-7.6%) 2.2.2 The Minimum Purchase Quantity (MPQ2) for each Unit thereafter (reduced pro rata if less than one year) is: MGQ2 x (1-7.6%) 2.3 Obligation to Take Electricity Anhui Power shall: (a) Take all electricity generated and available to be taken off from the Delivery Point by each Unit during the Unit Commissioning and interconnection thereof as and when it is generated in accordance with the program for Unit Commissioning of the Joint Venture; 4 [***] Filed separately with the Commission pursuant to a request for confidential treatment. (b) from the Actual Completion Date of Unit I to the Actual Completion Date of Unit II, take electricity generated by Unit 1 in accordance with the Annual Generation Plan agreed under Article 6, namely, MPQ1 x the number of days between the Actual Completion Dates of the two Units/365 days; and (c) from the Actual Completion Date of Unit II until the end of the Joint Venture term, take not less than the MPQ of both Units during each year (reduced pro rata if less than a year). 2.4 Commissioning The Joint Venture and Anhui Power shall consult with each other, as soon as practicable, on the proposed commissioning schedule, including testing dates, and Anhui Power shall notify the Joint Venture immediately on each occasion on which it will be ready to commence any such test. 2.5 Steady Electricity Generation Within the allowed range of the Power Grid, Anhui Power shall ensure that the Power Plant is always kept running at a load at which the Power Plant may be operated in a stable condition in accordance with all relevant regulations and rules of China including without limitation those issued from time to time by the Ministry of Electric Power or other competent authority. 2.6 Steady Electricity Offtake Anhui Power shall maintain a steady offtake of electricity from the Power Plant. 2.7 Offtake During Pre-Commercial Operation Period The first 185 days after the Actual Completion Date of each Unit shall be the Pre-Commercial Operation Period of that Unit. Anhui Power shall offtake the electricity generated during the Pre-Commercial Operation Period by each Unit and make payment therefor at on-grid Tariff (as determined under Article 7) and enable the Unit(s) to start and shut down for load adjustments. The Joint Venture shall compensate Anhui Power on the basis of [***] on-grid electricity. Such compensation shall be part of the generation cost of the Power Plant and form part of the projected operating costs. ARTICLE 3. DELIVERY OF ELECTRICITY 3.1 Delivery Point When electricity is delivered through the Delivery Point to the Power Grid, it shall be deemed to have been received by the Power Grid. 3.2 Measurements and Records The quantities of electricity delivered shall be measured and recorded in accordance with the provisions of Article 5 of the Interconnection Contract. Such measurements and record shall, in the absence of manifest error and omission, be conclusive and final. Anhui Power and the Joint Venture shall consult with each other to determine the procedure for further verification relating to the above which may, from time to time, be considered necessary. 5 ARTICLE 4. OPERATION OF THE POWER PLANT 4.1 Entrusting Anhui Power as Operator The Joint Venture appoints Anhui Power as operator (Operator), and Anhui Power accepts the appointment to act as Operator in connection with the management, operation and maintenance of the Power Plant. The role of the Operator includes the obligation to perform the Pre-Operation Services, Operation Services (see Appendix III for details) and the obligation of coal supply to the Power Plant. 4.2 General 4.2.1 When performing the Operation Services, Anhui Power shall not cause the Joint Venture to breach any laws and regulations relevant to the operation of the Power Plant and the terms of any other contracts to which the Joint Venture is a party. 4.2.2 Anhui Power shall operate the Power Plant in accordance with good industry operating practice for thermal power plants and carry out its Operation Services in order to achieve commercial interests of the Joint Venture as a priority; 4.2.3 As part of the Operation Services, Anhui Power shall ensure that the Power Plant is regularly and properly maintained and overhauled so that it is able to generate the Minimum Purchase Quantity for both Units throughout the term of this Contract. 4.3 Operation Subject to compliance with Article 4.4 and with good operating practice for thermal power plants, from the Actual Completion Date of Unit I, Anhui Power shall use best efforts to keep the Power Plant operating at such capacity as may from time to time be necessary to meet the Power Grid's demand for electricity. 4.4 Operation in Accordance with Design Specifications: In order to ensure that the Power Plant operates safely and efficiently during both Units' designed operation period and to ensure that the Power Plant does not encounter avoidable breakdowns, damage or deterioration throughout the period for which it has been designed to operate, the Power Plant must be operated in accordance with its operating manuals so as not to exceed the limitations on operation recommended by the equipment manufacturer. 4.5 Scope of Entrustment Anhui Power shall be responsible for the operation, management and maintenance of the 2 x 125 MW Units and its ancillary facilities and for supplying sufficient fuel to the Power Plant. 4.6 Pre-Operation Services Anhui Power shall: (a) perform the services necessary to prepare the Power Plant to commence operations and provide on-job training of the operation staff; (b) provide the necessary staffing and resources to the Joint Venture to enable the Joint Venture to perform its obligations with respect to the Power Plant construction and the commissioning of the Units. The related expenses shall be included in the Project Budget as stipulated in Appendix I of the EPC Contract; 6 (c) provide such advice and support to the Joint Venture in connection with the construction of the Power Plant and the commissioning of the Units as may be reasonably expected to be within the scope of Anhui Power's qualifications, competence and experience, and as the Joint Venture may reasonably request; and (d) provide the other Pre-Operation Services, as detailed in Appendix III. The obligations of Anhui Power in relation to the Pre-Operation Services for each Unit will commence upon execution of this Contract and remain in effect until discharged by the end of the Defects Liability Period (as defined in the EPC Contract). 4.7 Operation Services Upon and after the Actual Completion Date of each Unit, Anhui Power shall provide the following Operation Services throughout the continuance of this Contract to such Unit as follows: (a) perform all its duties and obligations in relations to the Power Plant operation, so as to fulfil Anhui Power's obligations under this Article 4; and (b) provide such advice and support to the Joint Venture in connection with the operation of the Power Plant as may be reasonably expected to be within the scope of Anhui Power's qualifications, competence and experience, and as the Joint Venture may reasonably request. (c) provide the other Operation Services, as detailed in Appendix III. 4.8 Coal Supply 4.8.1 Anhui Power is responsible for the coal supply to the Power Plant according to the specifications set forth in Appendix IV hereof, and shall deliver coal to the Power Plant's coal yard so as to ensure that the Power Plant has sufficient coal at all relevant times as may be necessary to generate the Minimum Generation Quantity for both Units as set out in Article 2.1. 4.8.2 Before the Actual Completion Date of each Unit, Anhui Power shall provide fuel oil, coal, chemicals, consumables and personnel needed for commissioning of the Unit during the trial operation period which expenses have been included in project budget set out in Appendix I of the EPC Contract. 4.9 Plans and Budget Anhui Power shall consult and agree with, and submit to the Joint Venture before the end of each year the generation plan and the annual budget of the generation and operating cost of the Power Plant for the next year. 4.10 Information Anhui Power shall periodically provide information related concerning the operation of the Power Plant and the carrying out of the Pre-Operation Services and the Operation Services to the Joint Venture. Anhui Power shall provide the Joint Venture with periodic reports and send copies of the reports to each party to the Joint Venture Contract and the Engineering Consultant referred to under the EPC Contract. The reports shall include financial and operation statements. (For details, see Appendix III, Section 5). 7 [***] Filed separately with the Commission pursuant to a request for confidential treatment. 4.11 Key Personnel After consulting with the Joint Venture, Anhui Power shall nominate a qualified, competent and experienced person to act as Plant Manager, who shall not be replaced without prior consultation with the Joint Venture. If the Plant Manager resigns, or is dismissed or is otherwise unable to perform his duties, Anhui Power shall promptly consult with the Joint Venture, and shall promptly appoint another qualified, competent and experienced person to fill the vacancy. 4.12 Sub-Contracting 4.12.1 Anhui Power shall not delegate or subcontract the entire Pre-Operation Services or the Operating Services to any third party. 4.12.2 Subject to Article 4.12.1 hereof, Anhui Power may subcontract part only of the Pre-Operation Services or the Operation Services to specialists or other subcontractors as are necessary to enable it to fulfil its obligations. Such subcontracting shall not relieve Anhui Power from any of its duties, obligations and liabilities under this Contract. Anhui Power shall be fully responsible for the actions and breaches of all subcontractors as if they were its own actions and breaches. 4.13 Strict Obligations Anhui Power's obligations under this Contract are strict obligations. Anhui Power shall not be relieved from any of its obligations under this Contract by reason of any exercise or non-exercise, or delay in exercise, by the Joint Venture of any or all of its powers or rights under this Contract. Article 5. OPERATION DUTIES 5.1 General The Joint Venture shall provide assistance and advice in connection with the placing of the insurance identified in Article 11 which shall be effected by Anhui Power on the behalf of the Joint Venture. 5.2 Working Capital The Joint Venture shall be required to provide to Anhui Power a [***] working capital prior to the Actual Completion Date of Unit 1. During the operational period Anhui Power shall be responsible for arranging and obtaining any necessary additional working capital on its own account as required and the interest expenses incurred in connection therewith shall be counted as part of the cost of generation. The Joint Venture shall provide Anhui Power with assistance in the arrangement of such loans but shall not be obliged to advance, or procure the advance of, or to guarantee or otherwise incur any liability (contingent or actual) in respect of any advance by a third party of, any funds to Anhui Power. 5.3 Limitation of Liabilities and Mitigation 5.3.1 If the Power Plant cannot generate electricity because of a Power Plant Force Majeure event Anhui Power shall use all efforts to resume operation of the Power Plant at full capacity as soon as possible. 5.3.2 Obligations of Anhui Power 8 [***] Filed separately with the Commission pursuant to a request for confidential treatment. On and from the Actual Completion Date of each Unit, Anhui Power shall be fully responsible for ensuring that that Unit generates its Minimum Purchase Quantity. If the relevant Unit cannot generate its Minimum Purchase Quantity, the resulting shortfall in generation shall be compensated by Anhui Power. Anhui Power's liability under this Article 5.3.2 shall only be relieved within the limit of this Contract due to the liability of the Joint Venture or Power Plant Force Majeure in accordance with and pursuant to Article 8.5. 5.4 Payments for Pre-Operation Services In order to enable Anhui Power to carry out the Pre-Operation Services pursuant to Article 4.6, the Joint Venture shall pay the Pre-operation service fees to Anhui Power. Pre-operation services fees are included in the Project Budget in Appendix I of the EPC Contract. 5.5 Payment for Operation Service In order to enable Anhui Power to carry out the Operation Services pursuant to Article 4.7, the Joint Venture shall pay Anhui Power a monthly management fee, calculated at a rate of [***] of on-grid power after the Pre-Commercial Operation Period of each Unit. Such fee will be counted as part of the generation cost of the Power Plant and form part of the projected operating costs. 5.6 Payment - General Anhui Power shall only be entitled to receive from the Joint Venture the amounts expressly provided for under this Contract. Article 6. EXCHANGE OF INFORMATION 6.1 Preparation of Operation Plans: In order to ensure that the Power Plant operates efficiently at all times, according to Article 4.4, Anhui Power shall: (a) compile a preliminary operation plan no later than the end of July of each year, and specify: (i) the Power Plant's projected average operation load for the succeeding year; (ii) the projected periods during which each Unit may be shut down for overhaul, repair and maintenance in the succeeding year; and (b) hold regular meetings with the Joint Venture regarding the offtake obligations and electricity demands so that, subject to the above provisions, Anhui Power can amend the relevant operation schedule mentioned above if necessary, but without prejudice to the Tariff or the MPQ of any Unit. 6.2 Annual Generation Plan Anhui Power shall, no later than November of each year, finalize and submit to the Joint Venture the Annual Generation Plan for the Power Plant for the succeeding year. 6.3 Change in Load Level After the Actual Completion Date of each Unit, generation of electricity from such Unit shall comply with the central scheduling and dispatch requirements for Anhui Province (For details, see the Interconnection Contract). The Power Plant must be operated in 9 accordance with the provisions of Article 4 and with good thermal power plant operation practice. 6.4 Exchange of Information 6.4.1 Anhui Power shall promptly notify the Joint Venture of the occurrence if it becomes aware that the maximum generating capacity of the Power Plant is insufficient to meet the scheduled operating load of the Power Plant. 6.4.2 Anhui Power and the Joint Venture shall hold regular meetings to discuss and resolve any problems so as to ensure the smooth operation of the Power Plant and the smooth offtake of electricity therefrom. Article 7. Price and Terms of Payment 7.1 The Calculation and Approval of the Tariff During the term of this Contract the Tariff in any one year shall, assuming that each Unit of the Power Plant delivers its Minimum Purchase Quantity, be sufficient to enable the Joint Venture to pay the Power Plant's operating costs (including but not limited to fuel cost), all amounts payable by the Joint Venture in that year in respect of US$ Senior Debt Costs (including principal, interest, fees and maintaining any retention/reserve amounts required pursuant to the US$ Senior Loan Contract) all amounts payable by the Joint Venture in that year in respect of any other US$ loans and/or RMB loans, fees and losses on conversion in foreign exchange, necessary expenses of the Joint Venture, taxes to be paid, the Joint Venture reserves and the investors' anticipated return on equity of the Joint Venture and, for this purpose, where any such amount is denominated in a currency other than RMB, the applicable part of the tariff payment shall equal an RMB amount that, after conversion into the applicable foreign currency will enable the Joint Venture to discharge the relevant amount. Anhui Power and the Joint Venture will estimate and agree these costs in consultation with the Facility Agent, and the Joint Venture will submit the agreed proposed Tariff in respect of the level of which it shall previously have consulted with the Facility Agent to the relevant pricing authorities for approval. The proposed on-grid Tariff will be estimated in this manner and submitted for adjustment on an annual basis. 7.1.1 Components of the On-Grid Tariff RMB Portion: Loan principal Reasonable profit Salaries Unforeseeable costs Financing costs Water costs Materials Repairs Fuel Depreciation Taxes Entrusted operation and management fees Other expenses US$ Portion: Loan principal (of both the US$ Senior Loan and US$ Subordinated Loan) 10 [***] Filed separately with the Commission pursuant to a request for confidential treatment. Financing costs (including interest, fees, realised ` foreign exchange losses, other financing costs etc) any amount required to fill the Dollar Retention Account to the Dollar Retention Amount (as defined in the US$ Senior Loan Contract) Reasonable profit Other expenses 7.1.2 Approval of the On Grid Tariff: The on-grid tariff submitted for approval shall be calculated on the basis of 5,500 hours of annual utilization of each Unit of generating equipment; in the first year after the Actual Completion Date of each Unit, the on-grid tariff submitted for approval will be calculated on the basis of 5,000 annual utilization hours of each Unit. Without limiting the foregoing, the estimated on-grid tariff shall be: (a) based on, among other matters, the loan repayment period of 7 (seven) years (including construction period) under the US$ Senior Loan Contract and ten years under the US$ Subordinated Loan Contract and the RMB Loan Contract, the loan interest rate and other costs and the after tax IRR of [***] since the date of contribution of the registered capital; and (b) adjusted via adjustment accounts to compensate for unforeseeable increase in costs resulting from changes in fuel, interest rate, exchange rate, tax expenses and other factors 7.1.3 Adjustment of On-Grid Tariff: Before the end of each year, the Joint Venture shall estimate and apply for the on-grid Tariff of the next year according to the mechanism and taking into account all the factors set out in this Article 7.1. 7.1.4 On-Grid Tariff: The Joint Venture will be responsible for estimating the proposed on-grid Tariff for each Year and submitting the annual application to the relevant pricing authorities in Anhui Province for approval. Anhui Power shall provide such assistance and information as the Joint Venture may require. 7.1.5 Composition of the Sales Tariff from the Power Grid to end-users: (a) electricity supply costs (including purchase costs) (b) reasonable profit (c) interest and principal repayments for the associated transmission project (d) taxes 7.1.6 Approval of the Sales Tariff: Anhui Power will be responsible for estimating the sales tariff and submitting the application to the relevant pricing authorities in Anhui Province for approval. 7.1.7 Adjustment of Sales Tariff: 11 [***] Filed separately with the Commission pursuant to a request for confidential treatment. The sales tariff will be adjusted annually according to the same principle for adjusting the on- grid tariff. 7.2 Generation before the Actual Completion Date: All electricity generated by either Unit I or Unit II before the relevant Tariff Commencement Date will be delivered to Anhui Power free of charge while its operating and fuel costs shall be borne by Anhui Power. 7.3 Payment for Minimum Purchase Quantity: Notwithstanding any other provision of this Contract, as the strict liability of Anhui Power, irrespective of whether the Actual Completion Date of either Unit has occurred and as an unconditional obligation, Anhui Power shall: (a) from the Tariff Commencement Date of Unit I to the Tariff Commencement Date of Unit II, pay the Electricity Fee of Unit I on a monthly basis in the proportion specified in Appendix I, and (b) from the Tariff Commencement Date of Unit II pay the Electricity Fee of both Units on a monthly basis in the proportion specified in Appendix I. Every payment shall be made to the Joint Venture not later than the end of the following calendar month and made to a bank account designated by the Joint Venture. 7.4 Financial Arrangements 7.4.1 The Joint Venture and Anhui Power shall make an estimate of on-grid price and cost prior to the beginning of each year pursuant to Article 7.1 and after submitting it to the competent pricing authorities of Anhui Province for approval, shall determine, in accordance with the requirements of the US$ Senior Loan Contract, projected unit operating cost of the on-grid price of that year. The projected unit operating cost shall include unit operating and fuel cost and other unit costs as described in Table 2 of Appendix I hereto and as approved by the Joint Venture in compliance with its obligations under the US$ Senior Loan Contract. After review by the relevant price control authorities, the portion of the projected operating costs of the type set out in Table 2 of Appendix 1 approved for inclusion in the Tariff for a particular Year shall be the Approved Operating Costs for that Year. The Joint Venture shall calculate the exact level of the Approved Operating Costs, the Approved Operating Cost per KWH and the AOC Percentage for that Year. The AOC Percentage is: Approved Operating Cost per KWH x [***] % --------------------------------------- Tariff 7.4.2 It is agreed that, as operator of the Power Plant, Anhui Power shall be responsible to satisfy all operating costs of the Power Plant (including fuel costs and other costs specified in Table 2 of Appendix I) and Anhui Power shall indemnify the Joint Venture in respect of every loss, cost, liability or expense which the Joint Venture may suffer or incur as a consequence of any failure by Anhui Power to fulfil its obligations hereunder. The Approved Operating Cost shall be deducted from the Electricity Fee. The deduction shall be by retention of the AOC Percentage from each payment to be made under this Contract by Anhui Power. Anhui Power shall not be entitled to make such deduction if:- 12 [***] Filed separately with the Commission pursuant to a request for confidential treatment. (a) an Event of Default or prospective Event of Default (each as therein defined) has occurred under the US$ Senior Loan Contract; or (b) Anhui Power is in breach of any of its obligations under this Contract. The remainder (after deduction if applicable) is payable to the bank account designated by the Joint Venture. 7.4.3 The Joint Venture will be responsible for converting relevant parts of the Electricity Fee to foreign currencies to enable the Joint Venture to meet its obligations denominated in foreign currencies. By request from the Joint Venture, Anhui Power shall provide reasonable assistance to Joint Venture with respect to said foreign exchange conversion and obtaining the necessary approvals. 7.5 Electricity Generation in Excess of Minimum Purchase Quantity: 7.5.1 Anhui Power shall purchase the electricity generated in excess of the Minimum Purchase Quantity for both Units at the on-grid tariff. The income from this excess electricity net of the AOC Percentage (provided that the conditions in Article 7.4.2(a) and (b) are satisfied - if such conditions are not satisfied such income shall be paid gross) shall first be paid to the Joint Venture and shall be applied by the Joint Venture in satisfaction of any shortfall in Electricity Fee, consequent upon the application of Article 8.5.2. To the extent there is any remaining surplus: (a) In the first 365 days after the Actual Completion Date of each Unit 30% of such surplus shall be paid to Anhui Power as incentive payment for taking electricity in excess of 10,000 utilisation hours (cumulative both Units). (b) For each year afterwards: (i) [***]% of such surplus will be paid to Anhui Power as incentive payments for the portion in excess of 11000 hours if both Units achieve between 11000 and 13000 utilization hours in aggregate; (ii) [***]% of such surplus will be the incentive payments to Anhui Power for the portion in excess of 13000 hours if both Units achieve more than 13000 utilization hours in aggregate; (iii) Any remaining amount will be retained by the Joint Venture. If pursuant to Appendix 1 a refund is due to Anhui Power at the end of any Year, this shall be refunded by the Joint Venture within 60 days following the end of the relevant Year. Provided that the Joint Venture shall not be obliged to make this refund at that time if, and for so long as, this would jeopardise its ability to make payments under the US$ Senior Loan Contract, US$ Subordinated Loan Contract and in respect of other unsubordinated debt or liability of the Joint Venture as they fall due. 7.6 Invoices and Payments 7.6.1 Anhui Power shall provide to the Joint Venture the preceding months financial report for each Unit before the 14th day of each month, and shall exchange the accounts records with each other so that, after the approval of the Joint Venture, such records will be used as the basis for making account books. 7.6.2 Anhui Power shall provide to the Joint Venture annual financial statements for each Unit within 60 days after the end of each year. 13 [***] Filed separately with the Commission pursuant to a request for confidential treatment. 7.6.3 The Electricity Fee, net of Approved Operating Costs (where permitted as set out in Article 7.4.2) shall be paid in full in accordance with the payment schedule set out in Appendix I without any other deduction, set-off or withholding of any nature whatsoever. If any withholding is required by law, Anhui Power shall at the same time pay to the Joint Venture such additional amounts as will ensure that the Joint Venture receives the full amount of the Electricity Fee on the due date as if such deduction or withholding had not been made. 7.6.4 Notwithstanding any other provision of this Contract Anhui Power's obligation to pay the Electricity Fee in accordance with this Article 7 and the Joint Venture's right to receive such amounts are independent of the Power Plant and production or dispatch therefrom and the calculation and receipt by Anhui Power of the sales tariff from the grid to end-users and any other matter or circumstance whatsoever (except as and to the extent that relief has been expressly provided for in Article 8.5.2) and Anhui Power's payment obligations hereunder are absolute, unconditional and independent of any other dealings between the parties or any other matter or circumstance whatsoever. 7.6.5 If Anhui Power cannot fulfil its payment obligations on the date specified in this Contract, it shall pay to the Joint Venture a late payment penalty calculated at [***]% of the delinquent amount of payments per day on an accumulative basis. Article 8. CAUSE OF FAILURE TO GENERATE 8.1 Determining the Causes The following procedure shall be used to determine whether any failure to generate electricity was caused by a Power Plant Force Majeure event, or is the responsibility of Anhui Power, or the responsibility of the Joint Venture. 8.1.1 The Joint Venture and Anhui Power shall, acting through their respective technical consultants, endeavor to reach agreement on the cause for failure to generate electricity. Any such agreement shall be binding to all parties. 8.1.2 If no agreement can be reached within 14 days after the day on which all parties were notified, then either party may request an expert, mutually agreed upon, from a third party, to make a decision which, when made, shall be binding on all parties. Pending the decision Anhui Power shall make payments under Article 8.5.2 as if the cause of the occurrence were Power Plant Force Majeure. If it is subsequently determined that the cause was Anhui Power's Responsibility, Anhui Power shall forthwith pay the difference between the payments it would have made but for this paragraph and the payments actually made by Anhui Power pursuant to this paragraph, to the Joint Venture. 8.2 Responsibility of Anhui Power If the cause for failure to generate is not Power Plant Force Majeure event or the Responsibility of the Joint Venture, then Anhui Power is liable for the cause. 8.3 Responsibility of the Joint Venture Responsibility of the Joint Venture means that the Joint Venture failed to perform its obligations under this Contract. 8.4 Power Plant Force Majeure (as defined in Article 12.1). 8.5 Adjustment of MPQ 14 8.5.1 Planned Outages: Each Unit of the Power Plant may be shutdown for a period or periods not exceeding, in aggregate:- (a) Forty-five days for each Unit in each third Year in which a major overhaul will take place; and (b) twenty-two days for each Unit in each Year, for the purposes of repair and maintenance, provided that, subject to Article 8.5.2, any such shutdown or other failure to dispatch shall not affect Anhui Power's obligation to pay the Electricity Fee in accordance with Article 7. 8.5.2 Unplanned Outages: If in any Year any Unit is shutdown or fails to generate for a period in excess of that specified in Article 8.5.1 and it is determined in accordance with Article 8 that the cause of such shutdown or failure is the Responsibility of the Joint Venture or is caused by Power Plant Force Majeure, the proportionate part of the MPQ attributable to the period of shutdown or other non-generation shall be reduced by a proportion which is equal to the proportion which the US$ Equity Return Portion plus the RMB Equity Return Portion bears to the aggregate Electricity Fee in the relevant period. In no event shall any reduction in the Electricity Fee be such as to result in the Electricity Fee less the Approved Operating Costs for the relevant period being insufficient to enable the Joint Venture to pay its entire US$ Senior Debt Costs and any other financing costs for the relevant period. 8.5.3 Prior to the Joint Venture unconditionally satisfying its obligations under the US$ Senior Loan Contract, the payments to be made by Anhui Power under this Contract for MPQ of the two Units shall be on the basis of an 11,000 integrated working hours of such Units. After the Joint Venture has unconditionally satisfied its obligations under the US$ Senior Loan Contract, the parties shall agree upon the working hours, taking into account the conditions of the Power Grid and the Tariff, so as to achieve the anticipated rate of return. Article 9. PREPARATION TO INTERCONNECT TO GRID 9.1 Interconnection to the Power Grid: 9.1.1 Anhui Power shall guarantee that the Power Plant is interconnected to 220KV transmission network of the Power Grid by the Tariff Commencement Date of Unit I. 9.1.2 The Power Grid shall be capable of providing the Power Plant with sufficient quantities of electricity power as required for the performance of the commissioning tests and start up without delay or restriction, for the performance of the synchronizing of each Unit without delay or restriction and for the Power Plant to transmit all electricity produced during Unit Commissioning and to transmit continuously the maximum output of electricity generated by each Unit. 9.2 Liability of Anhui Power If the Power Plant is not interconnected with the Power Grid by the Tariff Commencement Date of Unit I, or is not available for use in accordance with the requirements as described in Article 9 hereof, then the failure of the Power Plant to generate electricity shall be deemed to be Anhui Power's responsibility. Anhui Power must purchase all electricity delivered from the Delivery Point and pay according to Article 7. 15 9.3 Liability of the Joint Venture The Joint Venture shall be at fault if it fails to make any required payment under and in accordance with the EPC Contract and this results in the Power Plant not being interconnected with the Power Grid. Article 10. INDEMNITY If a party to this Contract is in breach of its obligations under it, the breaching party shall bear responsibility for and shall indemnify and hold the non-breaching party harmless from and against any loss or damage, cost, liability or claim against the non-breaching party, and all expenses relating thereto, including, but not limited to, legal fees and expenses, which may be suffered by the non-breaching party, due to the other party's breach of its obligations under any relevant contract including but not limited to this Contract and the Interconnection Contract. ARTICLE 11. INSURANCE 11.1 Insurance from Joint Venture The Joint Venture shall maintain and obtain such insurance in respect of the construction and operation of the Power Plant (including, but not limited to, those specified in Appendix 5) in the name of the Joint Venture as required by the FX Financing Contracts. The insurance expense shall be counted as part of the cost of electricity generation. 11.2 Insurance from Anhui Power Anhui Power shall obtain and maintain insurance, in its own name, and shall be responsible for any liability relating to workers and staff and as required by the relevant laws of China. The insurance expense shall be passed through to the Tariff as part of the cost of electricity generation. 11.3 Policies and Claims Anhui Power shall comply with all requirements of such insurance and shall provide the Joint Venture with all information and assistance within its capacity to aid the Joint Venture in making any claims under insurance carried and maintained under Article 11.1 and in processing claims under its insurance. Anhui Power shall promptly notify the Joint Venture of the occurrence of any accident or other event covered by or affecting the insurance. ARTICLE 12. OCCURRENCE OF POWER PLANT FORCE MAJEURE 12.1 Power Plant Force Majeure means any of the following events: (a) war, hostility or insurrection; (b) plague or other epidemics; (c) fire; (d) lightning; (e) earthquake; or 16 (f) damages to property as a result of the operation of the forces of nature, including natural calamities, and which an experienced power plant operator or electricity supplier, as the case may be, could not foresee; which, in each case; (i) occurs within the boundaries of the Power Plant; and (ii) prevents the Power Plant from generating electricity; and (iii) cannot be prevented by any effort according to the good operating practices for thermal power plants. 12.2 Notification If an event of Power Plant Force Majeure occurs at any time, Anhui Power shall, as soon as possible, notify the Joint Venture of such event. Together with such notification, Anhui Power shall present its proposals to mitigate the effects of such event of Power Plant Force Majeure. 12.3 Consultation Anhui Power and the Joint Venture shall as soon as possible consult with each other with the object of maintaining economic production of electricity by the Power Plant and minimizing any occurrence of expenses and disruption. 12.4 Mitigation Anhui Power shall use its best efforts to overcome the effects of the event of Power Plant Force Majeure. ARTICLE 13. SPECIFICATION OF COAL 13.1 Coal Must Comply with Specifications Anhui Power shall ensure that each of the deliveries of coal supplied to the Power Plant shall comply with all of the specifications set forth in Appendix IV. 13.2 Coal Analysis on Delivery When each load of coal is delivered at the Power Plant, the coal shall, at the cost of Anhui Power (which shall form part of the operating expenses), be weighed and analyzed based on the condition when payment is made in accordance with the procedures set forth in Measurement Standards Bureau of P.R.C. standards: (1) ((GB475-83)) Sampling Process for Commercial Coal: (2) ((GB474-83)) Coal Sample Making Process: and (3) ((GB212-91)) The industrial Analysis Process of Coal (or such other equivalent internationally accepted standards as the Parties may agree). ARTICLE 14. NOTICES 14.1 Address for Notices Under this Contract, each invoice, notice or other document to be sent by each party by courier, mail or facsimile or delivered to other parties shall be in writing and sent or delivered to the other party at the following addresses: (a) Anhui Power: 17 No. 415 Wuhu Road Hefei, Anhui, P.R.C. 230061 Facsimile: 0551-3633393 Receiver: Cheng Guangjie (b) The Joint Venture: Commercial Office Building West Huangshan Road Wuhu, Anhui, P.R.C. 241000 Facsimile: 0553-3823224 Receiver: Wang Wudao or other address as one party may have notified to the other party in writing from time to time. 14.2 Delivery of Notices Any such invoice, notice or other document: (a) may be delivered in person to the relevant address on any day during the hours of 9.00 a.m. to 12.00 noon and 2.00 p.m. to 5.00 p.m. in an envelope. The envelope shall indicate on the front of it the subject matter of its contents and the envelope shall be marked for the attention of such officer or employee (if any) as the relevant party shall have notified to the other party for the purpose. (b) if so presented for delivery, may be handed to any person then present at such address who will provide written notice of the receipt of the same; and (c) if the person effecting delivery is unable to obtain such written acknowledgment within one hour of his arrival at such address, may be left there. 14.3 Deemed Delivery Any invoice, notice or other document delivered by hand shall be deemed to have been delivered and received if delivery is effected in accordance with Article 14.2. Any document sent by facsimile shall be deemed to be delivered on the working day after it is sent. Any document sent by mail shall be deemed to have been delivered three working days after it is mailed. ARTICLE 15. MISCELLANEOUS 15.1 Separate and Independent Contract This Contract shall be construed as a separate and independent contract. If there is any conflict between this Contract and any other agreement between any of the parties relating to the same subject matter, the provisions of this Contract shall prevail. 15.2 Language of Contract This Contract shall be executed in Chinese and English. Both the English and Chinese versions of this Contract are of equal validity. 15.3 Amendments Any amendments to this Contract and/or the Appendices must be in writing and signed by the duly authorized representatives of the Joint Venture and Anhui Power and approved by the relevant authorities. 18 ARTICLE 16. TERMINATION IN ADVANCE 16.1 Termination Events Upon the occurrence of a Termination Event, Anhui Power shall be obliged to immediately pay to the Joint Venture the Termination Payment, whereupon the Joint Venture shall transfer all right, title and interest in the Power Plant to Anhui Power or to such other person as Anhui Power shall nominate and, without prejudice to any existing accrued rights of the parties, this Contract shall automatically terminate. If the Parties do not, for whatever reason, within 60 days after the occurrence of a Termination Event, agree the amount of the Termination Payment or any component thereof, Anhui Power shall immediately pay to the Joint Venture on account of Termination Payment an amount equal to the amount certified by the Facility Agent (as defined in the US$ Senior Loan Contract) to represent its estimate of the amount which would be payable under item (ii) in the definition of Termination Payment. Such amount on account of Termination Payment paid by Anhui Power shall be applied first in or towards satisfaction in full of all amounts due under or in connection with the US$ Senior Loan Contract and shall be paid without prejudice to the rights and obligations hereunder of either the Joint Venture or Anhui Power to subsequently require or make any necessary adjusting payments between them once the amount of the Termination Payment is agreed between them. 16.2 Termination by Agreement Subject as provided in Article 16.1 neither party may terminate this Contract without the consent of the other or (in the case or an assignment by any party, whether by way of security or otherwise) the assignee of the other party. In any event this Contract shall not be capable of termination without the consent of the Creditors so long as the Joint Venture has any obligations, actual or contingent, pursuant to the FX Financing Contracts. ARTICLE 17. Law and Dispute Resolution 17.1 Governing Law This Contract shall be governed and construed in accordance with the laws of China. If any disputes arise, they shall be settled according to the laws of China. 17.2 Settlement of Disputes Any disputes arising from the execution of or in connection with this Contract shall be settled through friendly consultations between the parties. In the event no settlement can be amicably reached through consultation within 60 days, the disputes shall be submitted to the China International Economic and Trade Arbitration Commission in Beijing for arbitration. The arbitration award shall be final and binding on all parties. ARTICLE 18. EFFECT AND TERM OF CONTRACT 18.1 Effect of Contract 18.1.1 This Contract will come into effect on the date of execution by both parties. 18.1.2 Copies of this Contract shall be submitted for record purposes to the appropriate authorities by Anhui Power. 19 18.2 Term This Contract shall remain in force until the expiration of the Joint Venture term or shall be extended for the same period as the period affected by Power Plant Force Majeure. Article 19. Assignment 19.1 Anhui Power hereby acknowledges and consents to the assignment by the Joint Venture of any or all of its rights and benefits under this Contract in favour of any Creditor(s). 19.2 The terms "Anhui Power", "Joint Venture" and "Party" shall include their respective successors and permitted assigns. IN WITNESS WHEREOF, this Contract has been duly executed by the parties as of the date first above written. Signatories to this Contract Wuhu Shaoda Electric Power Development Company Limited Representative: [Signature Illegible] Date:_______________1996 Witness: [Signature Illegible] Anhui Provincial Electric Power Corporation Representative: [Signature Illegible Date:________________1996 Witness: [Signature Illegible] [***] Filed separately with the Commission pursuant to a request for confidential treatment. Appendix I Invoice Format Invoice for Electricity Fee Payment from Month: Date: to Month: Date: Date of Meter Recording: Date of Table fill-out: This month is the ____ month of this quarter, The meter reading of the preceding month was ________, The meter reading of this month is ________. The portion of Electricity Fee for this month is ________, being the price determined pursuant to Article 7 of the Operation and Offtake Contract. The on-grid electricity of the first month of this quarter is _____ The on-grid electricity of the second month of this quarter is ____ The on-grid electricity of the third month of this quarter is _____ Sum of money due ____________ Balance due ___________ Amount payable (sum of money due + balance due) ____________ Balance due = unpaid account of the amount payable for the preceding month + delinquency charge as referred to in Article 7.6.4 Payments Due: (a) Payment due in respect of the 1st, 2nd, 4th, 5th, 7th, 8th, 10th and 11th months of each Year: [***] (b) Payment due in respect of the 3rd and 9th month of each Year: [***] (c) Payment due in respect of the 6th month of each Year: [***] (d) Payment due in respect of the 12th month of each Year: [***] where 21 AMPQ is the aggregate of the MPQ of both Units (it will be the MPQ of Unit I before the Tariff Commencement of Unit II); T is the Tariff; AOCP is the AOC Percentage (as determined under Article 7.4); A is the excess of actual generation (expressed in KWH) from the beginning of the 1st month to the end of the 6th month over one half of the AMPQ; (A may never be less than zero); and C is the excess of actual generation (expressed in KWH) in the Year over the AMPQ (C may never be less than zero). 22 Table 2 Operation Cost of the Power Plant 1, Fuel 2, Power Offtake 3, Water 4, Salary 5, Welfare 6, Maintenance 7, Other Costs Office Work Water Travel Heating Low-value Consumable Amortization Labor Protection Repairs Transportation Insurance Leasing Sewage The Worker Union Fee Staff Education Testing and Experiment External Service Technical Transfer Unemployment Insurance Reception Waste Ash Disposal Land Use Audit Consultant Afforestation Stock Products Loss, Damage and Abandonment Salary Review Guard and Fire Fighting 23 Corporate Membership Water Conservancy Fund Price Adjustment Fund Entrusted O & M Fee Others 8, Bank Charges 9, Working Capital Adjustment 10, Technical Renovation 24 Appendix II Metering and Recording of Power Output 1 The KWH meter to record both active and reactive power quantity supplied by the Power Plant to Power Grid shall be located at the Breaker No. 1 and the Breaker No. 2 at the high voltage side of the step-up transformer of the Power Plant; the KWH meter to record power supply from Anhui Power Grid to the Power Station shall be located at the Breaker No. 3 at the high voltage side of the start-up transformer of the Power Plant. 2 Under normal operation, power from the Power Plant to Power Grid shall be transmitted through the 220KV step-up substation of the Power Plant and the 220KV transmission line. 3 The accuracy of metering equipment shall comply with accuracy standards for Class 1 metering equipment, namely: Active Power Meter: Grade 0.5 Reactive Power Meter: Grade 2.0 PT: Grade 0.2 CT: Grade 0.2 The metering equipment shall be managed in accordance with Regulations for Management of Electric Power Meters, promulgated by the Ministry of Electric Power. 4 Under normal operation, auxiliary power of the Power Plant shall be provided by the high-voltage station service transformer; in case of outage of the station service transformer, it shall be provided by the start-up transformer. 5 Power transmitted from the Power Plant to Power Grid shall be calculated through the following formula: Qg1 + Qg2 Among these, Qg1 is the active power volume supplied by the Power Plant to Anhui Electric Power Grid measured by KWH meter at the Breaker No. 1; Qg2 is the reactive power volume supplied by the Power Plant to Anhui Electric Power Grid measured by KWH meter at the Breaker No. 2. 6 Power transmitted from Anhui Power Grid to the Power Plant shall be calculated as the active power quantity measured by KWH meter at the Breaker No. 3 at the high voltage side of the start-up transformer. 7 The Joint Venture and Anhui Power shall jointly appoint a qualified institution to be responsible for recording of all KWH meters. At noon of the last day of each month or a time in the same day as agreed upon by the Parties, the Joint Venture and Anhui Power shall send representatives to the site to witness the recording. In case that any one Party is absent at such an agreed time, the Party present shall witness the recording alone, and the result of such recording shall be binding on both Parties. 8 The Joint Venture and Anhui Power shall jointly appoint a qualified institution to calibrate all meters and their auxiliary parts every year. At the time when calibration takes place, the Joint Venture and Anhui Power shall send representatives to the site to witness the calibration. In case that any one side is absent at such an agreed time, the Party present shall witness the calibration alone, and the result of such calibration shall be binding on both Parties. 25 9 If any Party finds, for some reason, that the above metering equipment may be inaccurate, that Party shall immediately notify the other Party of the situation. The inaccurate metering equipment shall be tested and recalibrated promptly. The power output at the time of metering inaccuracy shall be calculated at a temporary metering point determined by both Parties. 26 Appendix III Pre-Operation and Operation Services Part I Pre-operation Services Before the actual date of construction completion of the units, Anhui Power shall provide the following pre-operation services: 1 Preparation for Operation Anhui Power shall 1.1 in consultation with the Joint Venture, draw out maintenance and the administrative management system for the Power Plant; 1.2 three months prior to the full start-up and interconnection of the Unit I of the Power Plant, make out and submit to the Joint Venture operation and safety codes applicable to the Power Plant (Preliminary Version). Within three months after commencement of commercial operation of the Power Plant, the above codes shall be modified and observed during operation of the Power Plant. Copies of such codes shall be sent to the Joint Venture for file keeping purpose; 1.3 develop a complete set of training program for the Power Plants O & M employees for them to become familiar with power plants and satisfactorily fulfil their responsibility. The training program shall include seminars, site visits, and training given by EPC contractors and equipment manufacturers. The training program shall be based on technical data and manuals provided by EPC contractors, including information about start-up, operation, basic maintenance, fire fighting and safety, etc.; 1.4 in consultation with the Joint Venture, draw out criteria for recruitment of employees of the Power Plant, and recruit qualified and experienced employees according to such criteria; 1.5 assist the Joint Venture in monitoring, operation and tests of the Power Plant; 1.6 send to the Joint Venture and relevant operation management departments technical data and final drawings provided by EPC contractors, the original copy of which shall be kept in the safest place within the Power Plant; 1.7 in consultation with the Joint Venture, draw out the list of all consumable, spare parts, tools and materials needed by the Power Plant, and purchase on behalf of the Power Plant the above things needed by the Power Plant during the first year of commercial operation; 1.8 in consultation with the Joint Venture, draw out a detailed maintenance plan and methods for the first year of commercial operation of the Power Plant; in consideration of the rights and obligations of the Joint Venture, draw out an outline plan for the scheduled overhaul for the first four years of commercial operation. 2 Start-up, interconnection, commissioning and tests Anhui Power shall 2.1 provide spare parts, consumable, fuel oil, water, coal and lubricants necessary for timely, safe and stable start-up of the Units; 2.2 be responsible for implementing, and guaranteeing the Units to be in compliance with the interconnection conditions stipulated in Article 2 of the Interconnection Contract; 27 2.3 provide qualified and experienced engineers in sufficient quantities to perform start-up, commissioning, interconnection and 72- hour and 24 hour performance tests of the Units; 2.4 provide all necessary power for commissioning of the Power Plant (including power needed for start-up); 2.5 record in detail and keep all the data of the start-up and performance tests of the Power Plant; 2.6 provide other necessary services. Part II Services and Operation 1 Recruitment and training Anhui Power shall 1.1 guarantee to meet the manning requirement of the Power Plant; in case of any vacancy, recruit qualified and experienced staff; 1.2 provide relevant class and site training for new employees, to train them to be qualified employees for their duties; 1.3 ensure the continuity of training programs, the staff training shall include safety measures, O & M procedures, and establish relevant examination and promotion system; 1.4 provide other necessary services related to recruitment and training. 2 Operation of Power Plant 2.1 Anhui Power shall maintain, operate, commission and inspect the Power Plant: 1) to enable the Power Plant to be in good condition during the term of the Joint Venture; 2) to maintain high availability and efficiency of generation facilities of the Power Plant; 3) to minimize the occurrence of accidents and damages, and in case of accidents and damages, to minimize their duration. 2.2 provide to the Joint Venture, on a timely basis and at regular intervals, reports on operation, repairs, tests, maintenance and examination of the Units; 2.3 carry out the performance test stipulated by the Ministry of Electric Power for similar coal-fired power plants; 2.4 guarantee that the Power Plant shall abide by all applicable laws, regulations, safety rules and other stipulations. 2.5 perform relevant obligations and responsibilities of the Joint Venture related to operation of the Power Plant as stipulated in the "Interconnection Contract" and "Dispatch Contract"; if any reduction of power generation occurs due to the responsibility of Anhui Power, Anhui Power shall indemnify the Joint Venture from losses incurred by such reductions. As an operator of the Power Plant, Anhui Power shall indemnify the Joint Venture for any penalties under the relevant provisions of this Contract; 28 2.6 be responsible for daily maintenance, overhauls and repairs, and planned or emergency maintenance; 2.7 make annual generation and maintenance plan in accordance with the "Operation and Offtake Contract" and implement the same; 2.8 dispose of all the unnecessary materials and wastes of the Power Plant. 3 Management Anhui Power shall 3.1 keep the Power Plant in good operation condition and appropriate level of spare parts reservation according to good operational practices of similar coal-fired power plants; 3.2 be responsible for management of maintenance of the Power Plant; 3.3 in the event of any emergency or unusual event affecting the normal operation of the Power Plant, take all necessary actions to minimize injury to persons and damage to the Power Plant and, immediately report to the Joint Venture the nature of such emergency or unusual event. 4 Procurement Anhui Power shall 4.1 check regularly needs of spare parts, consumable and materials of the Power Plant (considering the designed life of equipment, actual maintenance records and any technical specification changes), and, draw out corresponding plans and do the purchase according to these plans; 4.2 be responsible for organizing the coal supply, and ensure enough fuel for continuous, steady and safe operation of the Power Plant, at least to meet the needs of production of the Minimum Generation Quantity. 5 Statements and reports Anhui Power shall, before delivery of the first Unit, provide suggestions on forms of the following daily, monthly and annual reports, and determine the forms in consultation with the Joint Venture. 5.1 Daily reports Anhui Power shall provide the Joint Venture with daily reports on daily operation of the Power Plant, including without limitation the following items: 1) net generation volume of each Unit; 2) coal consumption of each Unit; 3) causes for deviation of each Unit from the daily load curve; 4) description of emergencies or unusual events resulting in deduction of power generation and injuries. 5.2 Monthly reports Anhui Power shall, within the first 10 days of each month, provide to the Company a monthly report on the performance of the Units for the previous month. The report shall include, but not be limited to the following: 29 1) statistical statement on operation in the form required by the Ministry of Electric Power; 2) major repair and maintenance activities carried out during the previous month, and those planned for the next month; 3) expenses of the previous month and those planned for the next month; 4) statistical statement of safety record during the previous month; 5) summary of unusual events and emergencies during the previous month, and measures already taken by Anhui Power to mitigate the effects of same. 5.3 Annual Report Anhui Power shall, within 60 days after the end of each calendar year, submit to the Joint Venture an annual report of such calendar year. The annual report shall include but not be limited to the following: 1) annual operational data; 2) annual repair and maintenance data; 3) annual safety record and statistics of accidents; 4) annual financial statement; 5) summary of any disputes relating to the Power Plant; 6) environmental monitoring; 7) other data at reasonable request of the Joint Venture. 5.4 Other reports Anhui Power shall provide: 1) a report on safety status of the Power Plant, with data on personal and material damages, as required by relevant authority; 2) other reports at reasonable request of the Joint Venture. 6 Access to the Power Plant 6.1 Anhui Power shall provide all necessary working and living facilities to the resident representatives of the Joint Venture in the Power Plant. 6.2 Anhui Power shall allow representatives or consultants from the Joint Venture to inspect and monitor the operation of the Power Plant at any time. 6.3 Anhui Power shall, upon request of the Joint Venture, allow the Joint Venture or its representatives to have access at any time to any information, data and records held by Anhui Power. 7 Other responsibility Anhui Power shall be responsible for responding to other requests from relevant authorities concerning the Power Plant. 30 Appendix IV Coal Specifications and Permissible Deviation Range Item Spec. Deviation ---- ----- --------- carbon (%) 52 +/-3 hydrogen (%) 3.2 +/-0.3 nitrogen (%) 1.24 +/-0.1 sulphur (%) 0.45 +/-0.03 oxygen (%) 3.4 +/-0.5 ash (%) 28 +/-4 water content (%) 8.45 +/-0.05 fixed water (%) 1.52 +/-0.20 vaporized substances (%) 16 +/-1 low heat value (Kcal kg) 5000 +/-300 ash melting point t1,t2,t3)1500C t1,t2,t3)1500C grindability (%) 80 +/-1 Ash Components: SiO2 47.21 +/-1 TiO2 1.67 +/-1.7 Al2O3 35.37 +/-1 Fe2O3 4.71 +/-0.2 MgO 1.26 +/-0.01 CaO 2.42 +/-0.1 Na2 O1.57 +/-0.12 K2O 1.57 +/-0.03 Dust, Electric Resistance Ratio 27C 5.28x109 ohm/cm 100C 2.44x1012 ohm/cm 120C 3.03x1012 ohm/cm 150C 3.60 x1012 ohm/cm 180C 2.19x1012 ohm/cm NO IMPURITIES: no impurities shall be contained in the coal delivered, including without limitation bones, stones, pieces of iron and wood. No oil or other substances shall be added to the coal in order to change its heat value without prior consent from the Buyer. 31 Appendix V Necessary Insurance 1 Third Party Liability 2 Life injury and Medical Care 3 Enterprise Property (Substitute Value) 4 Vehicles (Vehicles and the Third Party Liability) 5 Owner Liability 6 Profit Loss 7 Marine Cargo 8 Construction and Installation 9 Water Transport and Land Transport Cargo 10 Boiler and Machinery (including construction and operation periods) 32 [***] Filed separately with the Commission pursuant to a request for confidential treatment. Appendix VI Common Auxiliary Facilities Utilization and Management [***] Appendix A List and Description of Common Facilities 1 Coal Pier 2 Coal Transportation Passage 3 Civil Construction of Circulating Pump House and Water Leading Pipe 4 Ash Removal Tunnel and Pipe 5 Civil Construction of the Grid Control Room 6 Water Treatment Chamber 7 Coal Transportation Central Room 8 Coal Pool, Dry Coal Bunker and Impeller 9 Land of Main Production Building 10 Auxiliary Production Facilities 11 Welfare (including Dormitories, Guest House and Dinning Hall) 12 Other Public Facilities (including Bathing Rooms, Nursery, Kindergarten, Administration Building, Recreation Center and Entry Access) EX-10 4 EX. 10.34 Exhibit 10.34 DATED 26th June 1996 AES CHINA HOLDING COMPANY (L) LIMITED and ANHUI LIYUAN ELECTRIC POWER DEVELOPMENT COMPANY LIMITED and CHINA POWER INTERNATIONAL HOLDING LIMITED and WUHU ENERGY DEVELOPMENT COMPANY together as Sponsors and Subordinated Lenders and WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED as Borrower and CCIC FINANCE LIMITED on its own behalf and as facility agent for the Lenders referred to herein ------------------------------------ UNDERTAKING AND SUBORDINATION DEED ------------------------------------- Baker & McKenzie 14th Floor Hutchison House Hong Kong CONTENTS Number Clause Heading Page - ------ -------------- ---- 1. Interpretation.........................................................2 2. Project Undertakings...................................................3 3. Subordination of Indebtedness..........................................5 4. Acknowledgement by Borrower............................................9 5. Continuing Security....................................................9 6. Representations and Warranties.........................................9 7. Undertakings..........................................................11 8. Borrower's Representations, Warranties and Undertaking................13 9. Claims by Subordinated Lenders........................................14 10. Taxes and Other Deductions............................................14 11. Costs, Charges and Expenses...........................................14 12. Indemnity.............................................................15 13. Further Assurance.....................................................16 14. Evidence of Debt......................................................16 15. Suspense Account......................................................16 16. Waiver and Severability...............................................17 17. Miscellaneous.........................................................17 18. Assignment............................................................19 19. Notices...............................................................19 20. Governing Law and Jurisdiction........................................21 Execution ...............................................................23 THIS DEED is made on the 26th day of June 1996 -------- --------- BETWEEN: (1) AES CHINA HOLDING COMPANY (L) LIMITED of Lot A, Level 3, Wisma Oceanic, Jalan Okk Awang Besar, 87007, Federal Territory of Labuan, Malaysia ("AES"); (2) ANHUI LIYUAN ELECTRIC POWER DEVELOPMENT COMPANY LIMITED of No. 415 Wuhu Road, Hefei, Anhui Province, People's Republic of China ("Anhui Liyuan"); (3) CHINA POWER INTERNATIONAL HOLDING LIMITED of Suite 5306, 53/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong ("CPIL"); (4) WUHU ENERGY DEVELOPMENT COMPANY of Commercial Office Building, Huangshan West Road, Wuhu, Anhui Province, People's Republic of China ("Wuhu"); (AES, Anhui Liyuan, CPIL and Wuhu shall in their respective capacities as Joint Venture Parties and sponsors of the Project and as provider of subordinated loans as envisaged in Clause 2.02 of this Deed, be collectively referred to as the "Sponsors" and, in their respective capacities as lenders under Subordinated Loan Agreements only, be collectively referred to as the "Subordinated Lenders"); (5) WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED, an equity joint venture company formed under the Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment and whose registered office is at Commercial Office Building, West Huangshan Road, Wuhu, Anhui Province, People's Republic of China, as borrower (the "Borrower"); and (6) CCIC FINANCE LIMITED of 38th Floor, Bank of China Tower, 1 Garden Road, Central, Hong Kong on its own behalf and as facility agent for the Lenders referred to below (in such capacity, the "Facility Agent"). WHEREAS: (A) By a loan agreement (the "Loan Agreement") dated 22nd April 1996 made between (1) the Borrower, (2) CCIC Finance Limited, as arranger (the "Arranger"), (3) Bank of China, Hong Kong Branch, Cho Hung Bank, DKB Asia Limited, Dresdner Bank AG Hong Kong Branch, The First National Bank of Chicago, The Industrial Bank of Japan, Limited, Korea First Bank and Westdeutsche Landesbank Girozentrale, Hong Kong Branch, as co-arrangers (the "Co-Arrangers"), (4) the banks and other financial institutions named therein as lenders (the "Lenders"), (5) Bank of China, Anhui Branch, as security agent (the "Security Agent") and (6) the Facility Agent, the Lenders have agreed to make available to the Borrower a term loan facility of up to sixty-five million Dollars (US$65,000,000), upon the terms set out therein. (B) It is a condition precedent to the Lenders making the Facility available to the Borrower that the Sponsors, the Subordinated Lenders and the Borrower enter into this Deed. NOW THIS DEED WITNESSES as follows: 1. INTERPRETATION 1.01 Definitions and Construction. In this Deed, unless the context requires otherwise: (a) terms and expressions defined in or construed for the purposes of the Loan Agreement shall have the same meanings or be construed in the same manner when used in this Deed; (b) "Committed Subordinated Loan Agreements" shall mean the AES Loan Agreement, the Anhui Liyuan Loan Agreement and the Wuhu Loan Agreement; (c) the expression "Facility Agent" shall mean the Facility Agent acting on its own behalf and as facility agent for the Lenders and the expression "Lenders" shall include the Arranger, the Lead Managers, and the Security Agent in their respective capacities as such; (d) "Relevant Percentage" means: (i) in relation to AES, twenty-five per cent (25%); (ii) in relation to Anhui Liyuan, twenty per cent (20%); (iii) in relation to CPIL, forty-five per cent (45%); and (iv) in relation to Wuhu, ten per cent (10%); (e) "Secured Indebtedness" means all and any sums (whether principal, interest, fees or otherwise) which are or at any time may become payable by the Borrower under the Loan Agreement or any Security Document to which it is a party and all other monies hereby secured; (f) "Subordinated Indebtedness" means all and any sums, in whatever currency, which are now or may hereafter become due, owing or incurred by the Borrower to the Subordinated Lenders, whether in respect of principal, interest or otherwise, on account of any advance, loan or payment made to or for the account of the Borrower; (g) "Subordinated Loan Agreement" means any loan agreement, facility letter or other document now or hereafter entered into between the Subordinated Lenders and the Borrower creating or evidencing the Subordinated Indebtedness (or any part thereof) including, without limitation, the Committed Subordinated Loan Agreements. 1.02 The Subordinated Lenders and the Sponsors. References to the Subordinated Lenders and the Sponsors shall mean and include each and every person liable hereunder as Subordinated Lender or Sponsor, as the case may be (except the Borrower) or, where the context permits, any one or more of them and all representations, warranties, undertakings, agreements and obligations of the Subordinated Lenders and the Sponsors herein expressed or implied shall, unless the context requires otherwise, be deemed to be made, given or assumed by each of the Subordinated Lenders and the Sponsors severally. 1.03 Loan Agreement. To the extent applicable and required by relevant law, the terms and conditions of the Loan Agreement shall be deemed to be incorporated into this Deed by reference and this Deed shall be read and construed as if such terms and conditions had been set out in full herein. 1.04 Successors and Assigns. The expressions "Subordinated Lenders", "Borrower", "Facility Agent", "Sponsors" and "Lenders" shall where the context permits include their respective personal representatives, successors and permitted assigns and any persons deriving title under them. 1.05 Miscellaneous. In this Deed, unless the context requires otherwise, references to statutory provisions shall be construed as references to those provisions as replaced, amended, modified or re-enacted from time to time; words importing the singular include the plural and vice versa and words importing a gender include every gender; references to this Deed, the Loan Agreement, any other Security Document, any Project Contract or any other document referred to herein shall be construed as references to such document as the same may be amended or supplemented (provided that any required consent or approval for such amendment or supplement has been obtained) from time to time; unless otherwise stated, references to Clauses are to clauses of this Deed. Clause headings are inserted for reference only and shall be ignored in construing this Deed. 2. PROJECT UNDERTAKINGS 2.01 Undertaking. In consideration of the Lenders agreeing to make the Facility available to the Borrower upon the terms and conditions of the Loan Agreement and as a continuing security for the due and punctual payment of the Secured Indebtedness and the due and punctual performance and observance by the Borrower of all other obligations of the Borrower contained in the Loan Agreement or any Security Document to which it is a party, each of the Sponsors hereby unconditionally and irrevocably undertakes with the Facility Agent that: (a) it will use its best efforts to procure that the Borrower shall proceed with, and complete, the Installation in accordance with the EPC Contract and the Installation Plan and any other requirements of the Loan Agreement and that the Project Completion Date shall occur on or before the Scheduled Completion Date, provided that its obligation to advance, or otherwise make available funds to the Borrower in respect of such obligation shall be limited as set forth in paragraphs (b) and (c) below; (b) from time to time upon the Borrower or the Facility Agent having determined in accordance with the Loan Agreement that a Cost Overrun has occurred or is likely to occur it will pay to or procure that there be paid to the Borrower by way of further equity contribution to the Borrower, an amount equal to its Relevant Percentage of each payment required to be made by the Borrower on account of Installation Costs which the Borrower is not able or entitled to fund from its own resources or by means of any advance under any Subordinated Loan Agreement or an Advance under the Facility, such payments by the Sponsors to be made in such amounts and at such times as shall be necessary to ensure that (assuming each of the Sponsors makes its respective payment hereunder) the Borrower is able to satisfy those Installation Costs immediately upon their becoming due; (c) it will pay to or procure that there be paid to the Borrower, from time to time, an amount equal to its Relevant Percentage of each sum required by the Borrower to meet any Working Capital Deficit and, for this purpose "Working Capital Deficit" means, for any relevant period, any amount by which the payment obligations of the Borrower (other than under the Loan Agreement or any Subordinated Loan Agreement) during that period exceed the funds available to the Borrower to satisfy such outgoings during that period provided that no Working Capital Deficit shall arise prior to the first Actual Completion Date (as defined in the Operation and Offtake Contract) to occur of either Unit of the Power Plant; (d) procure that the Project is not abandoned or cancelled, in whole or in part. 2.02 Payments. Each of the Sponsors hereby unconditionally and irrevocably undertakes with the Facility Agent that it shall make payments or advances to the Borrower pursuant to Clause 2.01(b) and Clause 2.01(c) above as and when required in writing by the Borrower or the Facility Agent (accompanied, if the requirement relates to a payment under Clause 2.01(b) in respect of Cost Overrun, by a certification from the Technical Consultant that a Cost Overrun has occurred or is reasonably likely to occur) from time to time so as to enable the Borrower to meet its relevant liabilities when due. The Sponsors shall make all payments pursuant to Clause 2.01(b) by way of cash contribution to the capital of the Borrower (making a corresponding increase in the registered capital of the Borrower) and shall make all payments pursuant to Clause 2.01(c) by way of advance of subordinated debt on terms and in currencies (being Dollars or RMB) to be agreed between the Sponsors and the Borrower from time to time (but subject always to the provisions of this Deed). 2.03 Lenders. If any Sponsor (the "Defaulting Sponsor") fails to perform its obligations under the foregoing provisions of this Clause 2, the Lenders and/or the Facility Agent may (but shall not be obliged to) proceed to perform all or any of such obligations on behalf of the Defaulting Sponsor by procuring completion of the Installation and the occurrence of the Project Completion Date or by making payment of amounts payable under the foregoing provisions of this Clause 2, as appropriate, and the Defaulting Sponsor shall, from time to time, forthwith upon receiving the Facility Agent's first written demand, pay to the Facility Agent the amount so paid together with interest thereon at the rate referred to in clause 16 of the Loan Agreement, calculated from the date of such payment by the Lenders and/or the Facility Agent until full reimbursement, both before and after judgement. 3. SUBORDINATION OF INDEBTEDNESS 3.01 Subordination. In consideration of the Lenders agreeing to make the Facility available to the Borrower upon the terms and conditions of the Loan Agreement and as a continuing security for the due and punctual payment of the Secured Indebtedness and the due and punctual performance and observance by the Borrower of all other obligations of the Borrower contained in the Loan Agreement or any Security Document to which it is a party, each of the Subordinated Lenders agrees that throughout the continuance of this Deed and so long as the Secured Indebtedness or any part thereof remains owing: (a) subject to Clauses 3.02, 3.05 and 3.07, the Subordinated Indebtedness owing to it: (i) is, and shall remain, subordinated and the payment thereof deferred to all and any rights, claims and actions which the Facility Agent or any Lender may now or hereafter have against the Borrower in respect of the Secured Indebtedness; (ii) shall not be repaid or repayable, in whole or in part, except with the prior written consent of the Majority Lenders; (iii) may accrue interest, but such interest shall not be payable; (iv) is and shall remain unsecured by any Charge over the whole or any part of the assets of the Borrower; (v) is not, and shall not become capable of being, subject to any right of set-off or counterclaim; (b) subject to Clauses 3.02, 3.05 and 3.07, it shall not claim, request, demand, sue for, take or receive (whether by set-off or in any other manner and whether from the Borrower or any other person) any money or other property in respect of the Subordinated Indebtedness or any part thereof; (c) if any monies (including the proceeds of any set-off or counterclaim) or other property are received directly or indirectly in respect of the Subordinated Indebtedness by or on behalf of it in breach of any of the provisions of this Deed, it will hold the same upon trust to be applied first in or towards payment of the Secured Indebtedness and second, as to any balance remaining after irrevocable and unconditional payment and discharge in full of the Secured Indebtedness, in or towards payment of the Subordinated Indebtedness, upon such terms as the Subordinated Lenders shall have agreed among themselves; (d) subject to Clause 3.07, if any Charge is created as security for the Subordinated Indebtedness then, immediately on the creation thereof, the benefit of such Charge shall be assigned or transferred in favour of the Facility Agent as security for the Secured Indebtedness and any instrument or agreement evidencing such Charge shall be deposited with the Facility Agent; (e) it shall require the Borrower to, and shall ensure that the Borrower shall pay to the Facility Agent or as the Facility Agent may direct any amounts which, if paid to such Subordinated Lender, would be subject to the trust mentioned in paragraph (c) above. 3.02 Proceedings for Winding-Up of Borrower. In any proceedings for the compulsory or voluntary winding-up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto): (a) the Facility Agent and the Lenders shall be entitled to receive payment in full of the Secured Indebtedness before the Subordinated Lenders shall be entitled to receive any payment on account of the Subordinated Indebtedness or any part thereof; (b) the Subordinated Lenders agree that they will prove for the full amount of their claims in respect of the Subordinated Indebtedness and that in accordance with the trust mentioned in Clause 3.01(c), any amounts payable to the Subordinated Lenders in respect of the Subordinated Indebtedness shall be applied in payment or satisfaction of the Secured Indebtedness until the whole of the Secured Indebtedness shall have been certified by the Facility Agent as having been discharged and the remaining balance (if any) may be applied towards payment of the amounts owing to the Subordinated Lenders in respect of the Subordinated Indebtedness, upon such terms as the Subordinated Lenders shall have agreed among themselves. 3.03 Subordinated Loan Agreements. The Subordinated Lenders agree that: (a) each and every Subordinated Loan Agreement now or hereafter entered into shall be subject in every respect to the terms of this Deed; (b) insofar as the terms of any Subordinated Loan Agreement or any transaction in connection therewith are or may be inconsistent with the terms of this Deed, the terms contained herein shall prevail; (c) in respect of any Subordinated Loan Agreement proposed to be entered into after the date hereof, the prior written approval of the terms thereof shall first be obtained from the Facility Agent; (d) no amendment shall be made to any Subordinated Loan Agreement except in writing and with the Facility Agent's prior written approval of the terms thereof, such approval not to be unreasonably withheld; (e) immediately after the execution of any Subordinated Loan Agreement, or any agreement for the amendment of any Subordinated Loan Agreement, copies thereof shall be delivered to the Facility Agent as evidence thereof; (f) no repayment or prepayment of principal may be made by the Borrower (or payment in respect thereof accepted by the Subordinated Lenders) under any Committed Subordinated Loan Agreement unless if and to the extent that, subject to Clause 3.01(a)(ii) and the other provisions of this Deed, contemporaneously with or immediately prior to such repayment or prepayment to any Subordinated Lender, a repayment or prepayment of the Loan in at least a rateable amount is made by the Borrower under the Loan Agreement. For these purposes, "rateable amount" means an amount equal to X% of the Loan, where "X" is the proportion, expressed as a percentage, that the amount of the proposed repayment or prepayment under the relevant Committed Subordinated Loan Agreement bears to the total principal amount outstanding under that Committed Subordinated Loan Agreement. 3.04 Application. All monies and other property received by the Facility Agent in respect of the Subordinated Indebtedness may be applied by the Facility Agent in or towards satisfaction of the Secured Indebtedness in such manner as the Facility Agent (acting on the instructions of the Majority Lenders) may decide. 3.05 Permitted Payments. The Borrower shall be entitled to make payments of principal and interest under and in accordance with the terms of the AES Loan Agreement, the Anhui Liyuan Loan Agreement, the Wuhu Loan Agreement and the arrangements relating to the other Subordinated Indebtedness made pursuant to Clause 2.01(c) as envisaged in clause 14 of the Loan Agreement provided that at the relevant time no Event of Default or prospective Event of Default has occurred and is continuing. 3.06 Directions and Authorisations. Each Subordinated Lender hereby irrevocably: (a) directs the Borrower to pay to the Facility Agent (or as the Facility Agent may direct) any amounts which, if paid to such Subordinated Lender would be subject to the trust mentioned in Clause 3.01(c); (b) authorises the Facility Agent, in the event of a compulsory or voluntary winding up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto) to ask, demand, sue or prove for, and take and receive, in the name of such Subordinated Lender or otherwise, all amounts payable to such Subordinated Lender on account of any Subordinated Indebtedness owing by the Borrower, and the Subordinated Lender further covenants that in such event at the request of the Facility Agent, it will take all such action and execute all such documents as the Facility Agent may reasonable require in order to enable the Facility Agent to recover such Subordinated Indebtedness or any part thereof. 3.07 AES Security and CPIL Security. Notwithstanding any other provision of this Deed: (a) the AES Lender(s) shall be entitled to take the benefit of Charges and other security from the Borrower as security for the performance of the Borrower's obligations under the AES Loan Agreement provided that the rights of the AES Lender(s) in respect of such Charges or other security shall be subordinated to, and in all respects shall rank in priority after, the rights of the Agents, the Arranger, the Co-Arrangers and the Lenders on the terms of this Deed and the Priority Deed and provided further that each such Charge or other security (and each document creating or evidencing the same) shall be dated at least one day after, and (in respect of each such document to be filed or registered) shall be filed or registered on and with effect from a day which is at least one day after, the date of the Charges, other security and Security Documents in favour of the Agent(s), the Arranger, the Co-Arrangers and the Lenders (or any of them); (b) AES (and any other AES Lender(s)) shall be entitled to initiate enforcement proceedings under the AES Loan Agreement or otherwise take action to foreclose any Charges or other security granted as security therefor in accordance with its respective terms with the consent of the Majority Lenders (such consent being required only so long as any amount remains to be lent under the Loan Agreement or the Secured Indebtedness or any part thereof remains owing) and in accordance with the terms of this Deed and the Priority Deed provided that, in any event, any proceeds of such enforcement shall be held and dealt with subject to the terms and conditions of this Deed and the Priority Deed provided further that, notwithstanding any of the foregoing, AES may accelerate the due date of all obligations of the Borrower under the AES Loan Agreement where the Lenders have accelerated the repayment of the Loan pursuant to Clause 15.02(a) of the Loan Agreement); (c) CPIL shall be entitled to take the benefit of Charges and other security from the Borrower as security in connection with the provision of the Guarantee (subject to the provisions of the Guarantee) provided that the rights of CPIL in respect of such Charges or other security shall be subordinated to, and in all respects shall rank in priority after, the rights of the Agents, the Arranger, the Co-Arrangers and the Lenders on the terms of this Deed and the Priority Deed; (d) CPIL shall be entitled to initiate enforcement proceedings under the CPIL Security Documents or otherwise take action to foreclose any Charges or other security granted thereby in accordance with its respective terms with the consent of the Majority Lenders (such consent being required only so long as any amount remains to be lent under the Loan Agreement or the Secured Indebtedness or any part thereof remains owing) and in accordance with the terms of this Deed and the Priority Deed provided that, in any event, any proceeds of such enforcement shall be held and dealt with subject to the terms and conditions of this Deed and the Priority Deed and provided further that each such Charge or other security (and each document creating or evidencing the same) shall be dated at least one day after, and (in respect of each such document to be filed or registered) shall be filed or registered on and with effect from a day which is at least one day after, the date of the Charges, other security and Security Documents in favour of the Agent(s), the Arranger, the Co-Arrangers and the Lenders (or any of them). 4. ACKNOWLEDGEMENT BY BORROWER The Borrower acknowledges the subordination of the Subordinated Indebtedness and warrants and undertakes throughout the continuance of this Deed and so long as the Secured Indebtedness or any part thereof remains owing that: (a) it will make all payments due in respect of the Subordinated Indebtedness in accordance with the provisions of this Deed and it will comply with all the other provisions of this Deed and it will not do, take part in or take the benefit of anything which would or may breach the provisions of this Deed; (b) it will promptly notify the Facility Agent whenever it incurs any Subordinated Indebtedness; (c) it has no notice of any prior disposal of or Charge over the Subordinated Indebtedness or any part thereof to any other person other than any disposal pursuant to Clause 7.03. 5. CONTINUING SECURITY This Deed shall be a continuing security and shall remain in full force and effect until the Secured Indebtedness has been paid in full, notwithstanding the insolvency, bankruptcy or liquidation or any incapacity or change in the constitution or status of any of the Sponsors, the Subordinated Lenders, the Borrower or any other person or any intermediate settlement of account or other matter whatsoever. This Deed is in addition to, and independent of, any Charge, guarantee or other security or right or remedy now or at any time hereafter held by or available to the Facility Agent or any Lender. 6. REPRESENTATIONS AND WARRANTIES 6.01 Representations and Warranties. Each of the Sponsors and the Subordinated Lenders represents and warrants severally and for itself to the Facility Agent that: (a) it has full power, authority and legal right to enter into and engage in the transactions contemplated by this Deed and has taken or obtained all necessary corporate and other action to authorise the execution and performance of this Deed; (b) this Deed constitutes its legal, valid and binding obligations enforceable in accordance with its terms; (c) neither the execution of this Deed nor the performance by it of any of its obligations or the exercise of any of its rights hereunder will conflict with or result in a breach of any law, regulation, judgment, order, authorisation, agreement or obligation applicable to it or cause any limitation placed on it to be exceeded or, except as indicated in Clause 3.07, result in the creation of or oblige it to create a Charge in respect of the Subordinated Indebtedness; (d) all authorisations required from any governmental or other authority or from any of its shareholders or creditors for or in connection with the execution, validity and performance of this Deed have been obtained and are in full force and effect; (e) it is not necessary in order to ensure the validity, enforceability or admissibility in evidence in proceedings of this Deed in its country of incorporation or any other relevant jurisdiction that it or any other document be filed or registered with any authority in its country of incorporation or elsewhere or that any tax be paid in respect thereof except as set out in appendix 2 of the Loan Agreement; (f) the Sponsors and the Subordinated Lenders are generally subject to civil and commercial law and to legal proceedings and neither the Sponsors and the Subordinated Lenders nor any of their assets or revenues are entitled to any immunity or privilege (sovereign or otherwise) from any set-off, judgment, execution, attachment or other legal process; (g) no material litigation, arbitration or administrative proceeding is currently taking place or pending or, to the best of its knowledge, information and belief, threatened against it or its assets or revenues. 6.02 Additional Representations and Warranties. Each of the Subordinated Lenders additionally represents and warrants severally and for itself to the Facility Agent that: (a) the Subordinated Loan Agreements in existence at the date hereof are valid and in full force and effect and the provisions thereof have been fully complied with and the Borrower is not in default in respect of any provision thereof; (b) except as provided in Clause 7.03, each Subordinated Lender is the sole beneficial owner of the Subordinated Indebtedness owing to it and no Charge exists over all or any part of the Subordinated Indebtedness (except as created under or pursuant to this Deed). 6.03 Continuing Representation and Warranty. Each of the Sponsors and the Subordinated Lenders also represents and warrants to and undertakes with the Facility Agent severally and for itself that the foregoing representations and warranties set out in Clause 6.01 (in the case of the Sponsors and the Subordinated Lenders) and Clause 6.02 (in the case of the Subordinated Lenders only) with respect to it will be true and accurate throughout the continuance of this Deed with reference to the facts and circumstances subsisting from time to time, provided that the representation and warranty in Clause 6.01(b) shall (where applicable) be subject (as to matters of law only) to appendix 3 of the Loan Agreement. 7. UNDERTAKINGS 7.01 Affirmative undertakings. Each of the Sponsors severally and for itself undertakes and agrees with the Facility Agent throughout the continuance of this Deed and so long as any sum remains owing hereunder that it will, unless the Majority Lenders otherwise agree in writing: (a) supply to the Facility Agent in sufficient number for each Lender: (i) as soon as they are available, but in any event within one hundred and eighty (180) days after the end of each of its financial years, copies of its financial statements in respect of such financial year (including a profit and loss account and balance sheet) audited and certified without qualification by (a) in the case of AES and CPIL, a firm of independent accountants acceptable to the Facility Agent and (b) in the case of Anhui Liyuan and Wuhu, an independent public accountant acceptable to the Facility Agent; (ii) as soon as they are available, but in any event within one hundred and twenty (120) days after the end of each half of each of its financial years, copies of its unaudited financial statements (including a profit and loss account and balance sheet) prepared on a basis consistent with its audited financial statements together with a certificate signed by its principal financial officer to the effect that such financial statements are true in all material respects and present fairly its financial position as at the end of, and the results of its operations for, such half-year period; (iii) promptly on request, such additional financial or other information relating to it as the Facility Agent may from time to time reasonably request; (b) keep proper records and books of account in respect of its business and permit the Facility Agent and/or any professional consultants appointed by the Facility Agent at all reasonable times to inspect and examine its records and books of account; (c) promptly inform the Facility Agent of the occurrence of any Event of Default or prospective Event of Default; (d) maintain its corporate existence and conduct its business in a proper and efficient manner and in compliance with all laws, regulations, authorisations, agreements and obligations applicable to it and pay all taxes imposed on it when due; (e) procure that there is no change of the parties to the Joint Venture Contract or to the ownership or control (direct or indirect) of the Borrower and each Sponsor save in accordance with clause 13.01(f) of the Loan Agreement; (f) no amendment or supplement shall be made to the Joint Venture Contract or the articles of incorporation of the Borrower; (g) ensure that its obligations under this Deed at all times rank at least pari passu with all its unsecured obligations save for obligations that are mandatorily preferred by law; (h) punctually pay all sums due from it and otherwise comply with its obligations under this Deed and the other Security Documents to which it is a party; (i) do or permit to be done every act or thing which the Facility Agent may from time to time require for the purpose of enforcing the rights of the Facility Agent hereunder; (j) except as expressly permitted by the terms of this Deed not do or knowingly cause or permit to be done anything which may in any way depreciate, jeopardise or otherwise prejudice the value of the Facility Agent's security hereunder. 7.02 Subordination Undertakings. Each Subordinated Lender undertakes and agrees with the Facility Agent throughout the continuance of this Deed and so long as the Secured Indebtedness or any part thereof remains owing that it will, unless the Majority Lenders otherwise agree in writing: (a) not create or attempt or agree to create or permit to arise or exist any Charge over all or any part of the Subordinated Indebtedness or any interest therein or, subject to Clause 7.03, otherwise assign, deal with or dispose of all or any part of the Subordinated Indebtedness (except under or pursuant to this Deed); (b) subject to the provisions of this Deed, at all times remain the beneficial owners of the Subordinated Indebtedness; (c) not vary the liability of the Borrower in relation to the Subordinated Indebtedness; (d) upon the request of the Facility Agent, supply to the Facility Agent such information regarding the amount and terms of the Subordinated Indebtedness as the Facility Agent may require; (e) subject to the provisions of this Deed, duly observe and perform all its obligations under the Subordinated Loan Agreements; (f) do or permit to be done every act or thing which the Facility Agent may from time to time require for the purpose of enforcing the rights of the Facility Agent hereunder; (g) not do or knowingly cause or permit to be done anything which may in any way depreciate, jeopardise or otherwise prejudice the value of the Facility Agent's security hereunder; (h) ensure that each date for repayment of principal and payment of interest under the Committed Subordinated Loan Agreement to which it is a party shall be an Interest Payment Date; (i) promptly inform the Facility Agent of any breach of this Deed known to it; (j) maintain its corporate existence and conduct its business in a proper and efficient manner and in compliance with all laws, regulations, authorisations, agreements and obligations applicable to it and pay all taxes imposed on it when due; (k) ensure that its obligations under this Deed at all times rank at least pari passu with all its unsecured obligations save for obligations that are mandatorily preferred by law; (l) punctually pay all sums due from it and otherwise comply with its obligations under this Deed and the other Security Documents (if any) to which it is a party. 7.03 AES Loan Agreement. So long as the AES Loan Agreement remains a Subordinated Loan Agreement, AES may (i) sub-participate all or any part of its interest under the AES Loan Agreement and (ii) assign all or any of its rights under the AES Loan Agreement (with the Facility Agent's prior written consent, such consent not to be unreasonably withheld) provided that each such assignee shall accede to this Deed as a Subordinated Lender and, for avoidance of doubt, not as a Sponsor, by executing and delivering to the Facility Agent an accession deed in form and substance acceptable to the Facility Agent. AES shall not transfer or dispose of all or any part of its obligations to advance or make available funds to the Borrower under the AES Loan Agreement or purport to do so. 8. BORROWER'S REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 8.01 Representations and Warranties. The Borrower represents and warrants to the Facility Agent in the terms of Clause 6.02(a) and also represents, warrants and undertakes to the Facility Agent that such representation and warranty will be true and accurate from time to time throughout the continuance of this Deed with reference to the facts and circumstances subsisting from time to time. 8.02 Undertakings. The Borrower undertakes and agrees with the Facility Agent in the terms of Clause 7.02(d) to (g) inclusive. 9. CLAIMS BY SUBORDINATED LENDERS Each Subordinated Lender severally represents to and undertakes with the Facility Agent that it has not taken and will not take any security in respect of its liability under this Deed whether from the Borrower or any other person. So long as any sum remains owing by the Borrower to the Facility Agent or the Lenders, no Subordinated Lender shall exercise any right of subrogation, contribution or any other rights of a surety or enforce any security or other right or claim against the Borrower (whether in respect of its liability under this Deed or otherwise) or any other person who has guaranteed or given any security in respect of the Secured Indebtedness or, subject to the provisions of this Deed, claim in the insolvency or liquidation of the Borrower or any such other person in competition with the Facility Agent or the Lenders. If any Subordinated Lender receives any payment or benefit in breach of this Clause, it shall hold the same upon trust for the Facility Agent as a continuing security for the Secured Indebtedness. 10. TAXES AND OTHER DEDUCTIONS All sums payable by the Sponsors and the Subordinated Lenders under this Deed shall be paid in full without set-off or counterclaim or any restriction or condition and free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings of any nature. If the Sponsors or the Subordinated Lenders or any other person are required by any law or regulation to make any deduction or withholding (on account of tax (other than an Excluded Tax) or otherwise) from any payment for the account of any Lender or the Facility Agent, the relevant Sponsors or Subordinated Lenders shall, together with such payment, pay such additional amount as will ensure that such Lender or the Facility Agent receives (free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings) the full amount which it would have received if no such deduction or withholding had been required. The Sponsors and the Subordinated Lenders shall promptly forward to the Facility Agent copies of official receipts or other evidence showing that the full amount of any such deduction or withholding has been paid over to the relevant taxation or other authority. 11. COSTS, CHARGES AND EXPENSES Each of the Sponsors and the Subordinated Lenders and the Borrower shall from time to time forthwith on demand pay to or reimburse the Facility Agent and the Lenders for: (a) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the Facility Agent or any Lender in connection with the preparation, execution and registration of any amendment to or extension of, or the giving of any consent or waiver in connection with this Deed; and (b) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the Facility Agent or any Lender in exercising any of its or their rights or powers hereunder or in suing for or seeking to recover any sums due hereunder or otherwise preserving or enforcing its or their rights hereunder or in defending any claims brought against it or them in respect of this Deed or in releasing or re-assigning this Deed upon payment of all monies hereby secured and until payment of the same in full, all such costs, charges and expenses shall be secured by this Deed. The liability of such Sponsor and each Subordinated Lender in respect of amounts due under this Clause 11 shall be borne severally by them in the proportions of their Relevant Percentages, provided, that in the event that any amount becomes payable to the Facility Agent and/or the Lenders under this Clause 11 solely by virtue of the action or inaction of certain only of the Sponsors or the Subordinated Lenders, those relevant Sponsors and/or Subordinated Lenders shall bear sole liability and responsibility in respect of such amount so payable and where there is more than one such Sponsor or Subordinated Lender, so liable and responsible, such liability and responsibility shall be borne jointly and severally among them. To the extent practicable, the Facility Agent shall consult the relevant Sponsor or Subordinated Lender and the Borrower before incurring any major expenditure. 12. INDEMNITY 12.01 Sponsors' and Subordinated Lenders' General Indemnity. Each Sponsor and Subordinated Lender shall indemnify the Facility Agent and each Lender against all losses, liabilities, damages, costs and expenses incurred by it or them in the execution or performance of the terms and conditions hereof and against all actions, proceedings, claims, demands, costs, charges and expenses which may be incurred, sustained or arise in respect of the non-performance or non-observance of any of the undertakings and agreements on the part of that Sponsor or Subordinated Lender herein contained or in respect of any matter or thing done or omitted by it relating in any way whatsoever to the Subordinated Indebtedness of that Subordinated Lender. 12.02 Borrower's General Indemnity. The Borrower shall indemnify the Facility Agent and each Lender against all losses, liabilities, damages, costs and expenses incurred by it or them in the execution or performance of the terms and conditions hereof and against all actions, proceedings, claims, demands, costs, charges and expenses which may be incurred, sustained or arise in respect of the non-performance or non-observance of any of the undertakings and agreements on the part of the Sponsors, the Subordinated Lenders and the Borrower herein contained or in respect of any matter or thing done or omitted relating in any way whatsoever to the Subordinated Indebtedness. 12.03 Currency Indemnity. If an amount due to the Facility Agent from the Subordinated Lenders, the Sponsors and/or the Borrower in one currency (the "first currency") is received by the Facility Agent in another currency (the "second currency"), the obligations of Subordinated Lenders, the Sponsors and/or the Borrower, as the case may be, to the Facility Agent in respect of such amount shall only be discharged to the extent that the Facility Agent may purchase the first currency with the second currency in accordance with normal banking procedures. If the amount of the first currency which may be so purchased (after deducting any costs of exchange and any other related costs) is less than the amount so due, the relevant Subordinated Lender, Sponsor or the Borrower, as the case may be, shall indemnify the Facility Agent against the shortfall. This indemnity shall be an obligation of the Subordinated Lenders, Sponsors and the Borrower independent of and in addition to its other obligations under this Deed. 12.03 Payment and Security. The Facility Agent may retain and pay out of any money in the Facility Agent's hands all sums necessary to effect the indemnity contained in this Clause and all sums payable by the Sponsors, the Subordinated Lenders and the Borrower under this Clause shall form part of the monies hereby secured. 13. FURTHER ASSURANCE 13.01 Further Assurance. Each of the Sponsors, the Subordinated Lenders and the Borrower shall at any time and from time to time (whether before or after the security hereby created shall have become enforceable) execute such further legal or other mortgages, charges or assignments and do all such transfers, assurances, acts and things as the Facility Agent may require over or in respect of the Subordinated Indebtedness to secure all monies, obligations and liabilities hereby covenanted to be paid or hereby secured or for the purposes of perfecting and completing any assignment of the Facility Agent's rights, benefits or obligations hereunder and the Sponsors, the Subordinated Lenders and the Borrower shall also give all notices, orders and directions which the Facility Agent may require. 13.02 Enforcement of Facility Agent's Rights. Each of the Sponsors, the Subordinated Lenders and the Borrower will do or permit to be done everything which the Facility Agent may from time to time require to be done for the purpose of enforcing the Facility Agent's rights hereunder and will allow the names of the Sponsors, the Subordinated Lenders and the Borrower (as the case may be) to be used as and when required by the Facility Agent for that purpose. 14. EVIDENCE OF DEBT Any statement of account purporting to show an amount due from the Borrower under the Loan Agreement or any Security Document to which it is a party or from any Sponsor or Subordinated Lender under this Deed and signed as correct by a duly authorised officer of the Facility Agent shall, in the absence of manifest error, be conclusive evidence of the amount so due. 15. SUSPENSE ACCOUNT The Facility Agent may place and keep any monies received by virtue of this Deed (whether before or after the insolvency, bankruptcy or liquidation of any of the Sponsors, Subordinated Lenders or the Borrower) to the credit of a suspense account for so long as the Facility Agent may think fit in order to preserve the rights of the Facility Agent or any Lender to sue or prove for the whole amount of its claims against the Sponsors, the Subordinated Lenders, the Borrower or any other person. 16. WAIVER AND SEVERABILITY No failure or delay by the Facility Agent or any Lender in exercising any right, power or remedy hereunder shall impair such right, power or remedy or operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. If at any time any provision of this Deed is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, the legality, validity and enforceability of such provision under the law of any other jurisdiction, and of the remaining provisions of this Deed, shall not be affected or impaired thereby. 17. MISCELLANEOUS 17.01 Continuing Obligations. The liabilities and obligations of the Sponsors, the Subordinated Lenders and the Borrower under this Deed shall remain in force notwithstanding any act, omission, event or circumstance whatsoever, until full, proper and valid payment of the Secured Indebtedness. 17.02 Protective Clauses. Without limiting Clause 17.01, neither the liability of the Sponsors, the Subordinated Lenders or the Borrower nor the validity or enforceability of this Deed shall be prejudiced, affected or discharged by: (a) the granting of any time or indulgence to the Borrower or any other person; (b) any variation or modification of the Loan Agreement, any of the Security Documents or any other document referred to therein; (c) the invalidity or unenforceability of any obligation or liability of the Borrower under the Loan Agreement or any of the Security Documents to which it is a party; (d) any invalidity or irregularity in the execution of the Loan Agreement or this Deed or any of the other Security Documents; (e) any deficiency in the powers of the Borrower to enter into or perform any of its obligations under the Loan Agreement or any of the Security Documents to which it is party or any irregularity in the exercise thereof or any lack of authority by any person purporting to act on behalf of the Borrower; (f) the insolvency, bankruptcy or liquidation or any incapacity, disability or limitation or any change in the constitution or status of the Borrower or any of the Sponsors or Subordinated Lenders; (g) any other Security Document, Charge, guarantee or other security or right or remedy being or becoming held by or available to the Facility Agent or any Lender or by any of the same being or becoming wholly or partly void, voidable, unenforceable or impaired or by the Facility Agent or any Lender at any time releasing, refraining from enforcing, varying or in any other way dealing with any of the same or any power, right or remedy the Facility Agent or any Lender may now or hereafter have from or against the Borrower or any other person; (h) any waiver, exercise, omission to exercise, compromise, renewal or release of any rights against the Borrower or any other person or any compromise, arrangement or settlement with any of the same; (i) any act, omission, event or circumstance which would or may but for this provision operate to prejudice, affect or discharge this Deed or the liability of the Sponsors and the Subordinated Lenders or the Borrower hereunder, and each of the Subordinated Lenders and Sponsors hereby consents to all acts and omissions of any Agent and the Lenders pertaining to the above. 17.03 Binding Nature of Deed. Each of the Sponsors and the Subordinated Lenders agrees to be bound by this Deed notwithstanding that any other person who was intended to sign or be bound by this Deed fails, for any reason, so to sign or be bound or that this Deed is for any reason invalid or unenforceable against such person. 17.04 Release of Sponsors/Subordinated Lenders. Without prejudice to the generality of Clause 17.02, the Facility Agent or any Lender may release any of the Sponsors and/or the Subordinated Lenders from liability under this Deed or vary or modify the obligations of or grant any time or indulgence to or make any other arrangements with any of the Sponsors and/or the Subordinated Lenders without affecting or discharging its rights against the other Sponsors and/or Subordinated Lenders. 17.05 Unrestricted Right of Enforcement. This Deed may be enforced without the Facility Agent or any Lender first having recourse to any other security or rights or taking any other steps or proceedings against the Sponsors, the Subordinated Lenders, the Borrower or any other person or may be enforced for any balance due after resorting to any one or more other means of obtaining payment or discharge of the monies obligations and liabilities hereby secured. 17.06 Discharges and Releases. Notwithstanding any discharge, release or settlement from time to time between the Facility Agent or any Lender and the Sponsors, the Subordinated Lenders or the Borrower, if any security, disposition or payment granted or made to the Facility Agent or any Lender in respect of the Secured Indebtedness by the Sponsors, the Subordinated Lenders, the Borrower or any other person is avoided or set aside or ordered to be surrendered, paid away, refunded or reduced by virtue of any provision, law or enactment relating to bankruptcy, insolvency, liquidation, winding-up, composition or arrangement for the time being in force or for any other reason, the Facility Agent shall be entitled hereafter to enforce this Deed as if no such discharge, release or settlement had occurred. 17.07 Amendment. Any amendment or waiver of any provision of this Deed and any waiver of any default under this Deed shall only be effective if made in writing and signed by the Facility Agent. 18. ASSIGNMENT 18.01 The Sponsors, the Subordinated Lenders and the Borrower. Subject to Clause 7.03, none of the Sponsors, the Subordinated Lenders and the Borrower shall assign any of their rights hereunder. 18.02 The Lenders. The Lenders may assign or grant participations in all or any part of their rights under this Deed and make disclosures in accordance with the provisions of clause 22 of the Loan Agreement but as if references therein to the Borrower were references to the Sponsors, the Subordinated Lenders or the Borrower (as the case may be). 19. NOTICES 19.01 Delivery. Each notice, demand or other communication to be given or made under this Deed shall be in writing and delivered or sent to the relevant party at its address or telex number or fax number set out below (or such other address or telex number or fax number as the addressee has by five (5) days' prior written notice specified to the other party): To the AES China Holding Company (L) Limited Subordinated c/o AES China Generating Co. Ltd. 9/F., Allied Capital Resources Building 32-38 Ice House Street Central Hong Kong Fax Number: (852) 2530 1673 Attention : Jeffery A. Safford, Chief Financial Officer Anhui Liyuan Electric Power Development Company Limited No.415 Wuhu Road Hefei Anhui Province People's Republic of China Fax Number: (0551) 363 7642 Attention : Long Wen Ming/Suan Jie/Chen Liang Bao China Power International Holding Limited Suite 5306, 53/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Fax Number: (852) 2802 3922 Attention : Zhao Xin Yan/Wang Zi Chao Wuhu Energy Development Company Commercial Office Building Huangshan West Road Wuhu Anhui Province People's Republic of China Fax Number: (0553) 382 3224 Attention : Zhai Dao Ping To the Borrower: Wuhu Shaoda Electric Power Development Company Limited Commercial Office Building West Huangshan Road Wuhu Anhui Province People's Republic of China Fax Number: (0553) 382 3224 Attention : Zhai Dao Ping To the Facility CCIC Finance Limited Agent: 38th Floor Bank of China Tower 1 Garden Road Central Hong Kong Telex Number: 61931 Answerback : CCICX HX Fax Number : (852) 2877 2105 Attention : Loans Administration Department 19.02 Deemed Delivery. Any notice, demand or other communication so addressed to the relevant party shall be deemed to have been delivered (a) if given or made by letter, when actually delivered to the relevant address; (b) if given or made by telex, when despatched with confirmed answerback and (c) if given or made by fax, when despatched. 20. GOVERNING LAW AND JURISDICTION 20.01 Law. This Deed and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of England. 20.02 Jurisdiction. Each of the Sponsors, the Subordinated Lenders and the Borrower agrees that any legal action or proceeding arising out of or relating to this Deed may be brought in the courts of England and irrevocably submits to the non-exclusive jurisdiction of such courts. 20.03 Process Agent. Each of the Sponsors, the Subordinated Lenders and the Borrower irrevocably appoints Messrs. Rowe & Maw (attention: Mr. Bernd Ratzke, Ref 26866/0001) of 20 Blackfriars Lane, London EC4V 6HT, England as their agent to receive and acknowledge on their behalf service of any writ, summons, order, judgment or other notice of legal process in England. If for any reason the agent named above (or its successor) no longer serves as agent of any Sponsor, Subordinated Lender or the Borrower for this purpose, the relevant Sponsor, Subordinated Lender or the Borrower (as the case may be) shall promptly appoint a successor agent satisfactory to the Facility Agent and notify the Facility Agent thereof provided that until the Facility Agent receives such notification, it shall be entitled to treat the agent named above (or its said successor) as the agent of such Sponsor, Subordinated Lender and/or the Borrower (as the case may be) for the purposes of this Clause. The Sponsors, the Subordinated Lenders and the Borrower agree that any such legal process shall be sufficiently served on them if delivered to such agent for service at its address for the time being in England whether or not such agent gives notice thereof to the Sponsors, the Subordinated Lenders and the Borrower. 20.04 No Limitation on Right of Action. Nothing herein shall limit the right of the Facility Agent and the Lenders to commence any legal action against the Sponsors, the Subordinated Lenders or the Borrower and/or their property in any other jurisdiction or to serve process in any manner permitted by law, and the taking of proceedings in any jurisdiction shall not preclude the taking of proceedings in any other jurisdiction whether concurrently or not. 20.05 Waiver; Final Judgment Conclusive. Each of the Sponsors, the Subordinated Lenders and the Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the choice of England as the venue of any legal action arising out of or relating to this Deed. The Sponsors, the Subordinated Lenders and the Borrower also agree that a final judgment against them in any such legal action shall be final and conclusive and may be enforced in any other jurisdiction, and that a certified or otherwise duly authenticated copy of the judgment shall be conclusive evidence of the fact and amount of their indebtedness. 20.06 Waiver of Immunity. Each of the Sponsors, the Subordinated Lenders and the Borrower irrevocably waives any immunity to which it or its property may at any time be or become entitled, whether characterised as sovereign immunity or otherwise, from any set-off or legal action in England or elsewhere, including immunity from service of process, immunity from jurisdiction of any court or tribunal, and immunity of any of its property from attachment prior to judgment or from execution of a judgment. IN WITNESS whereof the Sponsors, the Subordinated Lenders and the Borrower have executed this Deed on the day and year first above written. THE SPONSORS AND THE SUBORDINATED LENDERS - ----------------------------------------- THE COMMON SEAL of ) AES CHINA HOLDING COMPANY ) (L) LIMITED ) /s/Edward C. Hall, III was hereunto affixed ) /s/Jeffery A. Safford in the presence of: ) [Signature Illegible] EXECUTED as, and DELIVERED as, a Deed ) by ANHUI LIYUAN ELECTRIC POWER ) DEVELOPMENT COMPANY LIMITED ) [Signature Illegible] ) acting by its authorised signatory ) in the presence of: ) /s/David W. Platt David W. Platt Solicitor Hong Kong THE COMMON SEAL of ) CHINA POWER INTERNATIONAL ) HOLDING LIMITED ) [Signature Illegible] was hereunto affixed ) in the presence of: ) /s/David W. Platt David W. Platt Solicitor Hong Kong EXECUTED as, and DELIVERED as, a Deed ) by WUHU ENERGY DEVELOPMENT ) COMPANY ) [Signature Illegible] acting by its authorised signatory ) in the presence of: ) /s/David W. Platt David W. Platt Solicitor Hong Kong THE BORROWER - ------------ EXECUTED as, and DELIVERED as, a Deed ) by WUHU SHAODA ELECTRIC POWER ) DEVELOPMENT COMPANY LIMITED ) ) [Signature Illegible] acting by its authorised signatory ) in the presence of: ) /s/David W. Platt David W. Platt Hong Kong THE FACILITY AGENT - ------------------ SIGNED for and on behalf of ) CCIC FINANCE LIMITED ) [Signature Illegible] by ) TO ALL TO WHOM these presents shall come, I, MARK JONATHAN ROBERTS Notary Public by authority duly admitted and practising at do hereby certify that on the 14TH day of MAY 1996 at 4TH FLOOR ALEXANDRA HOUSE, HONG KONG aforesaid there personally came before me JEFFERY ATWOOD SAFFORD and EDWARD C. HALL III the subscribing witnesses to the foregoing instrument who declared and said that they were present and did see the affixation of the Common Seal of AES CHINA HOLDING COMPANY (L) LIMITED thereto in accordance with the Memorandum and Articles of Association of AES CHINA HOLDING COMPANY (L) LIMITED. IN FAITH AND TESTIMONY whereof I have hereunto set my hand and seal of office at HONG KONG this 14TH day of MAY in the year one thousand nine hundred and ninety-SIX (1996). /s/ Mark Roberts ----------------------- Signature Mark Jonathan Roberts Notary Public 3rd - 6th Floors Alexandra House Hong Kong EX-10 5 EX. 10.35 CHINA POWER INTERNATIONAL HOLDING LIMITED as Guarantor and a Sponsor and AES CHINA HOLDING COMPANY (L) LIMITED as Junior Lender and a Sponsor and ANHUI LIYUAN ELECTRIC POWER DEVELOPMENT COMPANY LIMITED and WUHU ENERGY DEVELOPMENT COMPANY together as Junior Subordinated Lenders and Sponsors and WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED as Borrower JUNIOR SUBORDINATION AGREEMENT CHADBOURNE & PARKE LLP AMERICAN ATTORNEYS AT LAW SUITE 3704, PEREGRINE TOWER LIPPO CENTRE, 89 QUEENSWAY HONG KONG CONTENTS Number Clause Heading Page - ------ -------------- ---- 1. Interpretation.....................................................2 2. Subordination of Indebtedness......................................5 3. Permitted Payments................................................15 4. Further Acknowledgments...........................................15 5. Acknowledgment by Borrower........................................16 6. Continuing Security...............................................17 7. Representations and Warranties....................................17 8. Undertakings......................................................18 9 Borrower's Representations, Warranties and Undertakings...........20 10. Claims by Junior Creditors........................................21 11. Taxes and Other Deductions........................................21 12. Costs, Charges and Expenses.......................................21 13. Indemnity.........................................................22 14. Further Assurance.................................................23 15. Suspense Account..................................................23 16. Waiver and Severability...........................................23 17. Miscellaneous.....................................................24 18. Assignment........................................................25 19. Notices...........................................................26 20. Governing Law and Jurisdiction....................................27 Execution Block THIS DEED is made on the day of 1996 -------------- ---------------------- AMONG: (1) CHINA POWER INTERNATIONAL HOLDING LIMITED of Suite 5306, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong (in its capacity as guarantor of the obligations of the Borrower under the Senior Loan Agreement, the Guarantor, and in its capacity as a sponsor of the Project and as a provider of subordinated loans under clause 2.02 of the Senior Subordination Agreement, a "Sponsor"); (2) AES CHINA HOLDING COMPANY (L) LIMITED of Lot A, Level 3, Wisma Oceanic, Jalan OKK Awang Besar, 87007, Federal Territory of Labuan, Malaysia (in its capacity as a lender under the AES Loan Agreement, the "Junior Lender", and in its capacity as a sponsor of the Project and as a provider of subordinated loans under clause 2.02 of the Senior Subordination Agreement, a "Sponsor"); (3) ANHUI LIYUAN ELECTRIC POWER DEVELOPMENT COMPANY LIMITED of No. 415 Wuhu Road, Hefei, Anhui Province, People's Republic of China ("Anhui Liyuan"); (4) WUHU ENERGY DEVELOPMENT COMPANY of Commercial Office Building, West Huangshan Road, Wuhu, Anhui Province, People's Republic of China ("Wuhu"); (Anhui Liyuan and Wuhu shall, in their capacities as lenders under their respective Committed Junior Subordinated Loan Agreements, be collectively referred to as the "Junior Subordinated Lenders", and in their capacities as sponsors of the Project and as providers of subordinated loans under clause 2.02 of the Senior Subordination Agreement, "Sponsors"); and (5) WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED, an equity joint venture company formed under the Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment and whose registered office is at Commercial Office Building, West Huangshan Road, Wuhu, Anhui Province, People's Republic of China, as borrower (the "Borrower"). WHEREAS: (A) By a guarantee (the "CPIL Guarantee") executed, or to be executed, by (1) the Guarantor and (2) the Facility Agent, the Guarantor has agreed to guarantee the payment obligations of the Borrower under the Senior Loan Agreement, upon the terms set out therein. (B) By a loan agreement (the "AES Loan Agreement") executed, or to be executed, by (1) the Borrower and (2) the Junior Lender, the Junior Lender has agreed to make available to the Borrower a term loan facility of up to eighteen million Dollars (US$18,000,000) (the "AES Loan"), upon the terms set out therein. (C) By a loan agreement (the "Anhui Liyuan Loan Agreement") executed, or to be executed, by (1) the Borrower and (2) Anhui Liyuan, Anhui Liyuan has agreed to make available to the Borrower a term loan facility upon the terms set out therein. (D) By a loan agreement (the "Wuhu Loan Agreement") executed, or to be executed, by (1) the Borrower and (2) Wuhu, Wuhu has agreed to make available to the Borrower a term loan facility upon the terms set out therein. (E) By an undertaking and subordination deed (the "Senior Subordination Agreement") executed, or to be executed, by (1) the Borrower, (2) the Facility Agent and (3) the Sponsors, the Sponsors have agreed, among other things, to make subordinated loans available to the Borrower to meet Working Capital Deficits (as defined in the Senior Subordination Agreement), upon the terms set out therein. (F) It is a condition precedent to the Junior Lender making the Facility available to the Borrower that each of the parties hereto enter into this Deed. NOW THIS DEED WITNESSES as follows: 1. INTERPRETATION 1.01 Definitions and Construction. In this Deed, unless the context requires otherwise: (a) terms and expressions defined in or construed for the purposes of the AES Loan Agreement shall have the same meanings or be construed in the same manner when used in this Deed; (b) "Class A Indebtedness" means all and any sums now or hereafter due and owing by the Borrower to the Guarantor by way of subrogation, set-off, counterclaim or otherwise against the Borrower in respect of any payment made by the Guarantor under the Guarantee, provided that such Class A Indebtedness shall not exceed sixty-five million Dollars (US$65,000,000); (c) "Class B Indebtedness" means all and any sums (whether principal, interest, fees or otherwise) now or hereafter due and owing by the Borrower to the Junior Lender under the AES Loan Agreement or any Subordinated Security Document to which the Borrower is a party and all other monies thereby secured; (d) "Class C Indebtedness" means all and any sums (whether principal, interest, fees or otherwise) now or hereafter due and owing by the Borrower to the Junior Subordinated Lenders under the Committed Junior Subordinated Loan Agreements; (e) "Class D Indebtedness" means all and any sums (whether principal, interest, fees or otherwise) now or hereafter due and owing by the Borrower to the Sponsors under the Sponsor Subordinated Loan Agreements; (f) "Committed Junior Subordinated Loan Agreements" means the Anhui Liyuan Loan Agreement and the Wuhu Loan Agreement; (g) "Committed Junior Subordinated Loans" means the loans made under the Committed Junior Subordinated Loan Agreements; (h) "Event of Default" means, with respect to each class of indebtedness, any occurrence of any event of default in any document evidencing any Senior Indebtedness; and "prospective Event of Default" means any event or circumstance which with the giving of notice and/or the passage of time and/or the making of any relevant determination and/or the forming of any necessary opinion would be an Event of Default; (i) A "holder" of any class of indebtedness means the holder of the specified class of indebtedness, as such, for purposes of determining rights and obligations hereunder, without regard to any other class of indebtedness that may also be held by such holder. (j) "Junior Creditor" means any holder of Junior Indebtedness, as such. (k) "Junior Indebtedness" means, with respect to any class of indebtedness subject to this Deed, another class of indebtedness which is subordinated in right of payment as provided in Clause 2, and (i) with respect to Class A Indebtedness, Junior Indebtedness means Class B, C and D Indebtedness; (ii) with respect to Class B Indebtedness, Junior Indebtedness means Class C and D Indebtedness; and (iii) with respect to Class C Indebtedness, Junior Indebtedness means Class D Indebtedness; (l) "Senior Creditor" means any holder of Senior Indebtedness, as such. (m) "Senior Indebtedness" means, with respect to any class of indebtedness subject to this Deed, another class of indebtedness which has priority in right of payment as provided in Clause 2, and (i) with respect to Class D Indebtedness, Senior Indebtedness means Class A, B and C Indebtedness; (ii) with respect to Class C Indebtedness, Senior Indebtedness means Class A and B Indebtedness; and (iii) with respect to Class B Indebtedness, Senior Indebtedness means Class A Indebtedness; (n) "Sponsor Subordinated Loan Agreements" means all loan agreements, facility letters or other documents now or hereafter entered into between the Sponsors and the Borrower creating or evidencing all loans made pursuant to clause 2 of the Senior Subordination Agreement; (o) "Subordinated Indebtedness" means the Class A, B, C and D Indebtedness; and (p) "Subordinated Loan Agreements" means all loan agreements, facility letters or other documents now or hereafter entered into between the holders of Class B, C and D Indebtedness and the Borrower. 1.02 The Junior Creditors. References to the Junior Creditors shall mean and include each and every person liable hereunder as a Junior Creditor or, where the context permits, any one or more of them and all representations, warranties, undertakings, agreements and obligations of the Junior Creditors herein expressed or implied shall, unless the context requires otherwise, be deemed to be made, given or assumed by each of the Junior Creditors severally. 1.03 Successors and Assigns. The expressions "Guarantor", "Sponsors", "Junior Subordinated Lenders", "Borrower", "Junior Lender", "Anhui Liyuan", "Wuhu", "holder", "Junior Creditor" and "Senior Creditor" shall where the context permits include their respective personal representatives, successors and permitted assigns and any persons deriving title under them. 1.04 Miscellaneous. In this Deed, unless the context requires otherwise, references to statutory provisions shall be construed as references to those provisions as replaced, amended, modified or re-enacted from time to time; words importing the singular include the plural and vice versa and words importing a gender include every gender; references to any document referred to herein shall be construed as references to such document as the same may be amended or supplemented (provided that any required consent or approval for such amendment or supplement has been obtained) from time to time; unless otherwise stated, references to Clauses are to clauses of this Deed. Clause headings are inserted for reference only and shall be ignored in construing this Deed. 2. SUBORDINATION OF INDEBTEDNESS 2.01 Class A Indebtedness. (a) Subordination. In consideration of the holder of Class A Indebtedness agreeing to guarantee the obligations of the Borrower under the Senior Loan Agreement and as a continuing security for the due and punctual payment of the Class A Indebtedness and the due and punctual performance and observance by the Borrower of all obligations of the Borrower contained in any security document in favor of the Guarantor to which the Borrower is a party, each of the holders of Class B, C and D Indebtedness agrees that throughout the continuance of this Deed and so long as the Class A Indebtedness or any part thereof remains owing: (i) except as provided in Clause 3, the Class B, C and D Indebtedness, as applicable, owing to it: (A) is, and shall remain, subordinated and the payment thereof deferred to all and any rights, claims and actions which the holder of Class A Indebtedness may now or hereafter have against the Borrower in respect of the Class A Indebtedness; (B) shall not be repaid or repayable, in whole or in part, except with the prior written consent of the holder of Class A Indebtedness in the event of the winding-up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto); (C) may accrue interest, but such interest shall not be payable; (D) except for the Class B Indebtedness, is and shall remain unsecured by any Charge over the whole or any part of the assets of the Borrower; and (E) is not, and shall not become capable of being, subject to any right of set-off or counterclaim; (ii) except as provided in Clause 3, it shall not claim, request, demand, sue for, take or receive (whether by set-off or in any other manner and whether from the Borrower or any other person) any money or other property in respect of the Class B, C or D Indebtedness or any part thereof; (iii) if any monies (including the proceeds of any set-off or counterclaim) or other property are received directly or indirectly in respect of any Class B, C or D Indebtedness by or on behalf of it in breach of any of the provisions of this Deed, it will hold the same upon trust to be applied first in or towards payment of Class A Indebtedness and second, as to any balance remaining after irrevocable and unconditional payment and discharge in full of the Class A Indebtedness, in or towards payment of the Class B, C and D Indebtedness in accordance with the provisions of this Deed; (iv) if any Charge is created as security for the Class C or D Indebtedness then, immediately on the creation thereof, the benefit of such Charge shall be assigned or transferred in favor of the holder of Class A Indebtedness as security for the Class A Indebtedness and any instrument or agreement evidencing such Charge shall be deposited with the holder of Class A indebtedness; and (v) it shall require the Borrower to, and shall ensure that the Borrower shall pay to the holder of Class A Indebtedness or as the holder of Class A Indebtedness may direct any amounts which, if paid to such holder of Class B, C or D Indebtedness, would be subject to the trust mentioned in paragraph (iii) above. (b) Proceedings for Winding-Up of Borrower. In any proceedings for the compulsory or voluntary winding-up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto): (i) the holder of Class A Indebtedness shall be entitled to receive payment in full of the Class A Indebtedness before the holders of Class B, C and D Indebtedness shall be entitled to receive any payment on account of the Class B, C or D Indebtedness or any part thereof; and (ii) the holders of Class B, C and D Indebtedness agree that they will prove for the full amount of their claims in respect of their respective Class B, C and D Indebtedness and that in accordance with the trust mentioned in Clause 2.01(a)(iii), any amounts payable to the holders of Class B, C and D Indebtedness in respect of the Class B, C and D Indebtedness shall be applied in payment or satisfaction of the Class A Indebtedness until the whole of the Class A Indebtedness shall have been certified by the holder of Class A Indebtedness as having been discharged and the remaining balance (if any) may be applied towards payment of the Class B, C and D Indebtedness in accordance with the provisions of this Deed. (c) Subordinated Loan Agreements. Each of the holders of Class B, C and D Indebtedness agree that: (i) each and every Subordinated Loan Agreement entered into by it shall be subject in every respect to the terms of this Deed; (ii) insofar as the terms of any Subordinated Loan Agreement entered into by it or any transaction in connection therewith are or may be inconsistent with the terms of this Deed, the terms contained herein shall prevail; (iii) in respect of any Subordinated Loan Agreement proposed to be entered into by it after the date hereof, the prior written approval of the terms thereof shall first be obtained from the holder of Class A Indebtedness; (iv) no amendment shall be made to any Subordinated Loan Agreement entered into by it except in writing and with the prior written approval of the terms thereof by the holder of Class A Indebtedness, such approval not to be unreasonably withheld; (v) immediately after the execution of any Subordinated Loan Agreement entered into by it, or any agreement for the amendment of any Subordinated Loan Agreement entered into by it, copies thereof shall be delivered to the holder of Class Indebtedness as evidence thereof; and (vi) no prepayment of principal may be made by the Borrower to the holders of Class C or D Indebtedness (or payment in respect thereof accepted by the holders of Class C or D Indebtedness) under any Subordinated Loan Agreement entered into by the holders of Class C or D Indebtedness. (d) Application. All monies and other property received by the holder of Class A Indebtedness in respect of the Class B, C or D Indebtedness may be applied in or towards satisfaction of the Class A Indebtedness due and owing in such manner as the holder of Class A Indebtedness may decide, provided that: (i) any excess after the Class A Indebtedness has been paid in full shall be paid or delivered to the holder of Class B Indebtedness and may be applied in or towards satisfaction of the Class B Indebtedness due and owing in such manner as the holder of Class B Indebtedness may decide; (ii) any excess after the Class B Indebtedness has been paid in full shall be paid or delivered to the holders of Class C Indebtedness and may be applied in or towards satisfaction of the Class C Indebtedness due and owing in such manner as the holders of Class C Indebtedness may decide; and (iii) any excess after the Class C Indebtedness has been paid in full shall be paid or delivered to the holders of Class D Indebtedness and may be applied in or towards satisfaction of the Class D Indebtedness due and owing in such manner as the holders of Class D Indebtedness may decide. (e) Directions and Authorizations. Each holder of Class B, C and D Indebtedness hereby irrevocably: (i) directs the Borrower to pay to the holder of Class A Indebtedness (or as the holder of Class A Indebtedness may direct) any amounts which, if paid to such holder of Class B, C or D Indebtedness would be subject to the trust mentioned in Clause 2.01(a)(iii); and (ii) authorizes the holder of Class A Indebtedness, in the event of a compulsory or voluntary winding up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto) to ask, demand, sue or prove for, and take and receive, in the name of such holder of Class B, C or D Indebtedness or otherwise, all amounts payable to such holder of Class B, C or D Indebtedness on account of any Class B, C or D Indebtedness owing by the Borrower, and each of the holders of Class B, C and D Indebtedness further covenants that in such event at the request of the holder of Class A Indebtedness, it will take all such action and execute all such documents as the holder of Class A Indebtedness may reasonably require in order to enable the holder of Class A Indebtedness to recover such Class B, C or D Indebtedness or any part thereof. 2.02 Class B Indebtedness. (a) Subordination. In consideration of the holder of Class B Indebtedness agreeing to make the AES Loan available to the Borrower upon the terms and conditions of the AES Loan Agreement and as a continuing security for the due and punctual payment of the Class B Indebtedness and the due and punctual performance and observance by the Borrower of all other obligations of the Borrower contained in the AES Loan Agreement or any Subordinated Security Document or any other security document related thereto to which it is a party, each of the holders of Class C and D Indebtedness agrees that throughout the continuance of this Deed and so long as the Class B Indebtedness or any part thereof remains owing: (i) except as provided in Clause 3, the Class C and D Indebtedness, as applicable, owing to it: (A) is, and shall remain, subordinated and the payment thereof deferred to all and any rights, claims and actions which the holder of Class B Indebtedness may now or hereafter have against the Borrower in respect of the Class B Indebtedness; (B) shall not be repaid or repayable, in whole or in part, except with the prior written consent of the holder of Class B Indebtedness in the event of the winding-up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto); (C) may accrue interest, but such interest shall not be payable; (D) is and shall remain unsecured by any Charge over the whole or any part of the assets of the Borrower; and (E) is not, and shall not become capable of being, subject to any right of set-off or counterclaim; (ii) except as provided in Clause 3, it shall not claim, request, demand, sue for, take or receive (whether by set-off or in any other manner and whether from the Borrower or any other person) any money or other property in respect of the Class C or D Indebtedness or any part thereof; (iii) if any monies (including the proceeds of any set-off or counterclaim) or other property are received directly or indirectly in respect of any Class C or D Indebtedness by or on behalf of it in breach of any of the provisions of this Deed, it will hold the same upon trust to be applied first in or towards payment of Class B Indebtedness and second, as to any balance remaining after irrevocable and unconditional payment and discharge in full of the Class B Indebtedness, in or towards payment of the Class C and D Indebtedness in accordance with the provisions of this Deed; (iv) if any Charge is created as security for the Class C or D Indebtedness then, immediately on the creation thereof, the benefit of such Charge shall be assigned or transferred in favor of the holder of Class B Indebtedness as security for the Class B Indebtedness and any instrument or agreement evidencing such Charge shall be deposited with the holder of Class B indebtedness; and (v) it shall require the Borrower to, and shall ensure that the Borrower shall pay to the holder of Class B Indebtedness or as the holder of Class B Indebtedness may direct any amounts which, if paid to such holder of Class C or D Indebtedness, would be subject to the trust mentioned in paragraph (iii) above. (b) Proceedings for Winding-Up of Borrower. In any proceedings for the compulsory or voluntary winding-up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto): (i) the holder of Class B Indebtedness shall be entitled to receive payment in full of the Class B Indebtedness before the holders of Class C and D Indebtedness shall be entitled to receive any payment on account of the Class C or D Indebtedness or any part thereof; and (ii) the holders of Class C and D Indebtedness agree that they will prove for the full amount of their claims in respect of their respective Class C and D Indebtedness and that in accordance with the trust mentioned in Clause 2.02(a)(iii), any amounts payable to the holders of Class C and D Indebtedness in respect of the Class C and D Indebtedness shall be applied in payment or satisfaction of the Class B Indebtedness until the whole of the Class B Indebtedness shall have been certified by the holder of Class B Indebtedness as having been discharged and the remaining balance (if any) may be applied towards payment of the Class C and D Indebtedness in accordance with the provisions of this Deed. (c) Subordinated Loan Agreements. Each of the holders of Class C and D Indebtedness agrees that: (i) each and every Subordinated Loan Agreement entered into by it shall be subject in every respect to the terms of this Deed; (ii) insofar as the terms of any Subordinated Loan Agreement entered into by it or any transaction in connection therewith are or may be inconsistent with the terms of this Deed, the terms contained herein shall prevail; (iii) in respect of any Subordinated Loan Agreement proposed to be entered into by it after the date hereof, the prior written approval of the terms thereof shall first be obtained from the holder of Class B Indebtedness; (iv) no amendment shall be made to any Subordinated Loan Agreement entered into by it except in writing and with the prior written approval of the terms thereof by the holder of Class B Indebtedness, such approval not to be unreasonably withheld; (v) immediately after the execution of any Subordinated Loan Agreement entered into by it, or any agreement for the amendment of any Subordinated Loan Agreement entered into by it, copies thereof shall be delivered to the holder of Class B Indebtedness as evidence thereof; and (vi) no prepayment of principal may be made by the Borrower to the holders of Class C or D Indebtedness (or payment in respect thereof accepted by the holders of Class C or D Indebtedness) under any Subordinated Loan Agreement entered into by it. (d) Application. All monies and other property received by the holder of Class B Indebtedness in respect of the Class C or D Indebtedness may be applied in or towards satisfaction of the Class B Indebtedness due and owing in such manner as the holder of Class B Indebtedness may decide, provided that: (i) any excess after the Class B Indebtedness has been paid in full shall be paid or delivered to the holders of Class C Indebtedness and may be applied in or towards satisfaction of the Class C Indebtedness due and owing in such manner as the holders of Class C Indebtedness may decide; and (ii) any excess after the Class C Indebtedness has been paid in full shall be paid or delivered to the holders of Class D Indebtedness and may be applied in or towards satisfaction of the Class D Indebtedness due and owing in such manner as the holders of Class D Indebtedness may decide. (e) Directions and Authorizations. Each holder of Class C and D Indebtedness hereby irrevocably: (i) directs the Borrower to pay to the holder of Class B Indebtedness (or as the holder of Class B Indebtedness may direct) any amounts which, if paid to such holder of Class C or D Indebtedness would be subject to the trust mentioned in Clause 2.02(a)(iii); and (ii) authorizes the holder of Class B Indebtedness, in the event of a compulsory or voluntary winding up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto) to ask, demand, sue or prove for, and take and receive, in the name of such holder of Class C or D Indebtedness or otherwise, all amounts payable to such holder of Class C or D Indebtedness on account of any Class C or D Indebtedness owing by the Borrower, and each of the holders of Class C and D Indebtedness further covenants that in such event at the request of the holder of Class B Indebtedness, it will take all such action and execute all such documents as the holder of Class B Indebtedness may reasonably require in order to enable the holder of Class B Indebtedness to recover such Class C or D Indebtedness or any part thereof. 2.03 Class C Indebtedness. (a) Subordination. In consideration of the holders of Class C Indebtedness agreeing to make their respective Committed Junior Subordinated Loans available to the Borrower upon the terms and conditions of the Committed Junior Subordinated Loan Agreements and as a continuing security for the due and punctual payment of the Class C Indebtedness and the due and punctual performance and observance by the Borrower of all other obligations of the Borrower contained in the Committed Junior Subordinated Loan Agreements, the holders of Class D Indebtedness agree that throughout the continuance of this Deed and so long as the Class C Indebtedness or any part thereof remains owing: (i) except as provided in Clause 3, the Class D Indebtedness owing to it: (A) is, and shall remain, subordinated and the payment thereof deferred to all and any rights, claims and actions which the holders of Class C Indebtedness may now or hereafter have against the Borrower in respect of the Class C Indebtedness; (B) shall not be repaid or repayable, in whole or in part, except with the prior written consent of the holders of Class C Indebtedness in the event of the winding-up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto); (C) may accrue interest, but such interest shall not be payable; (D) is and shall remain unsecured by any Charge over the whole or any part of the assets of the Borrower; and (E) is not, and shall not become capable of being, subject to any right of set-off or counterclaim; (ii) except as provided in Clause 3, it shall not claim, request, demand, sue for, take or receive (whether by set-off or in any other manner and whether from the Borrower or any other person) any money or other property in respect of the Class D Indebtedness or any part thereof; (iii) if any monies (including the proceeds of any set-off or counterclaim) or other property are received directly or indirectly in respect of any Class D Indebtedness by or on behalf of it in breach of any of the provisions of this Deed, it will hold the same upon trust to be applied first in or towards payment of Class C Indebtedness and second, as to any balance remaining after irrevocable and unconditional payment and discharge in full of the Class C Indebtedness, in or towards payment of the Class D Indebtedness in accordance with the provisions of this Deed; (iv) if any Charge is created as security for the Class D Indebtedness then, immediately on the creation thereof, the benefit of such Charge shall be assigned or transferred in favor of the holder of Class C Indebtedness as security for the Class C Indebtedness and any instrument or agreement evidencing such Charge shall be deposited with the holder of Class C indebtedness; and (v) it shall require the Borrower to, and shall ensure that the Borrower shall pay to the holder of Class C Indebtedness or as the holder of Class C Indebtedness may direct any amounts which, if paid to such holder of Class D Indebtedness, would be subject to the trust mentioned in paragraph (iii) above. (b) Proceedings for Winding-Up of Borrower. In any proceedings for the compulsory or voluntary winding-up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto): (i) the holders of Class C Indebtedness shall be entitled to receive payment in full of the Class C Indebtedness before the holders of Class D Indebtedness shall be entitled to receive any payment on account of the Class D Indebtedness or any part thereof; and (ii) the holders of Class D Indebtedness agree that they will prove for the full amount of their claims in respect of their Class D Indebtedness and that in accordance with the trust mentioned in Clause 2.03(a)(iii), any amounts payable to the holders of Class D Indebtedness in respect of the Class D Indebtedness shall be applied in payment or satisfaction of the Class C Indebtedness until the whole of the Class C Indebtedness shall have been certified by the holder of Class C Indebtedness as having been discharged and the remaining balance (if any) may be applied towards payment of the Class D Indebtedness in accordance with the provisions of this Deed. (c) Subordinated Loan Agreements. Each of the holders of Class D Indebtedness agrees that: (i) each and every Subordinated Loan Agreement entered into by it in respect of Class D Indebtedness shall be subject in every respect to the terms of this Deed; (ii) insofar as the terms of any Subordinated Loan Agreement entered into by it in respect of Class D Indebtedness or any transaction in connection therewith are or may be inconsistent with the terms of this Deed, the terms contained herein shall prevail; (iii) in respect of any Subordinated Loan Agreement proposed to be entered into by it in respect of Class D Indebtedness after the date hereof, the prior written approval of the terms thereof shall first be obtained from the holders of Class C Indebtedness; (iv) no amendment shall be made to any Subordinated Loan Agreement entered into by it in respect of Class D Indebtedness except in writing and with the prior written approval of the terms thereof by the holders of Class C Indebtedness, such approval not to be unreasonably withheld; (v) immediately after the execution of any Subordinated Loan Agreement entered into by it in respect of Class D Indebtedness, or any agreement for the amendment of any Subordinated Loan Agreement entered into by it in respect of Class D Indebtedness, copies thereof shall be delivered to the holders of Class C Indebtedness as evidence thereof; and (vi) no prepayment of principal may be made by the Borrower to the holders of Class D Indebtedness (or payment in respect thereof accepted by the holders of Class D Indebtedness) under any Subordinated Loan Agreement entered into by it in respect of Class D Indebtedness. (d) Application. All monies and other property received by the holder of Class C Indebtedness in respect of the Class D Indebtedness may be applied by the holders of Class C Indebtedness in or towards satisfaction of the Class C Indebtedness due and owing in such manner as the holders of Class C Indebtedness may decide, provided that any excess after the Class C Indebtedness has been paid in full shall be paid or delivered to the holders of Class D Indebtedness and may be applied in or towards satisfaction of the Class D Indebtedness due and owing in such manner as the holders of Class D Indebtedness may decide. (e) Directions and Authorizations. Each holder of Class D Indebtedness hereby irrevocably: (i) directs the Borrower to pay to the holders of Class C Indebtedness (or as the holders of Class C Indebtedness may direct) any amounts which, if paid to such holders of Class C Indebtedness would be subject to the trust mentioned in Clause 2.03(a)(iii); and (ii) authorizes the holders of Class C Indebtedness, in the event of a compulsory or voluntary winding up, liquidation or dissolution of the Borrower (or any proceedings analogous thereto) to ask, demand, sue or prove for, and take and receive, in the name of such holder of Class D Indebtedness or otherwise, all amounts payable to such holder of Class D Indebtedness on account of any Class D Indebtedness owing by the Borrower, and each of the holders of Class D Indebtedness further covenants that in such event at the request of the holder of Class C Indebtedness, it will take all such action and execute all such documents as the holders of Class C Indebtedness may reasonably require in order to enable the holders of Class C Indebtedness to recover such Class D Indebtedness or any part thereof. 3. PERMITTED PAYMENTS Notwithstanding the terms of Clause 2, the Borrower shall be entitled to make scheduled payments of principal and interest to each holder of Class B, C and D Indebtedness under and in accordance with the terms of their respective Subordinated Loan Agreements, and clause 14 of the Senior Loan Agreement until such time as the Class A Indebtedness has been paid in full, and clause 14 of the AES Loan Agreement thereafter, provided that, with respect to each class, at the relevant time no Event of Default or prospective Event of Default has occurred and is continuing. 4. FURTHER ACKNOWLEDGMENTS 4.01 Relationship between the Senior and Junior Subordination Agreements. Each of the holders of Class A, B, C and D Indebtedness acknowledges that the Class A, B, C and D Indebtedness are subordinated to any and all amounts owed by the Borrower to the Senior Financing Parties under the Senior Loan Agreement and the Security Documents (as defined in the Senior Loan Agreement) (the "Senior Bank Debt") in accordance with the terms of the Senior Subordination Agreement; that the Class B, C and D Indebtedness is subordinated to the Class A Indebtedness, the Class C and D Indebtedness is subordinated to the Class B Indebtedness and the Class D Indebtedness is subordinated to the Class C Indebtedness, all in accordance with the terms of this Deed; and that, in the event of any inconsistencies between the provisions of the Senior Subordination Agreement and this Deed, the provisions of the Senior Subordination Agreement shall govern as between the Senior Financing Parties of the one part and the holders of the Class A, B, C and D Indebtedness of the other part, and the provisions of this Deed shall govern as between or among the parties signatory hereto. 4.02 Indebtedness in Same Class. Each of the holders of Class A, B, C and D Indebtedness acknowledges that all indebtedness in the same class of indebtedness shall rank pari passu in right of payment and any payment to any class of indebtedness made hereunder shall be made pro rata to all holders of the indebtedness of such class. 4.03 Purpose of Subordination. Each of the holders of Class A, B, C and D Indebtedness acknowledges that the provisions of this Deed are and are intended solely for the purpose of defining the relative rights of such holders of indebtedness of the Borrower. Nothing contained in this Deed shall or is intended to impair, as between the Borrower and any holder of indebtedness subject to this Deed, the obligation of the Borrower, which is unconditional and absolute, to pay to such holder any amounts in respect of its indebtedness as and when the same shall become due in accordance with its terms. 4.04 AES Loan Agreement. Each of the holders of Class A, C and D Indebtedness acknowledges that AES may, without the consent of any such holders, (a) sub-participate all or any part of its interest under the AES Loan Agreement to any person and (ii) assign all or any of its rights under the AES Loan Agreement to any person, provided that each such assignee shall accede to this Deed as a holder of Class B Indebtedness. 5. ACKNOWLEDGMENT BY BORROWER The Borrower acknowledges the subordination of the Class B, C and D Indebtedness and warrants and undertakes throughout the continuance of this Deed and so long as the Class A, B, C or D Indebtedness or any part thereof remains owing that: (a) it will make all payments due in respect of the Class B, C and D Indebtedness in accordance with the provisions of the Senior Subordination Agreement and this Deed and it will comply with all the other provisions of the Senior Subordination Agreement and this Deed and it will not do, take part in or take the benefit of anything which would or may breach the provisions of the Senior Subordination Agreement or this Deed; (b) it will promptly notify the Senior Creditors prior to incurring any Class B, C or D Indebtedness; and (c) it has no notice of any prior disposal of or Charge over the Class B, C or D Indebtedness or any part thereof to any other person. 6. CONTINUING SECURITY This Deed shall be a continuing security and shall remain in full force and effect until the Class A, B and C Indebtedness have been paid in full, notwithstanding the insolvency, bankruptcy or liquidation or any incapacity or change in the constitution or status of any of the holders of Class B, C or D Indebtedness, the Borrower or any other person or any intermediate settlement of account or other matter whatsoever. This Deed is in addition to, and independent of, any Charge, guarantee or other security or right or remedy now or at any time hereafter held by or available to the holders of Class A and B Indebtedness. 7. REPRESENTATIONS AND WARRANTIES 7.01 Representations and Warranties. Each of the Junior Creditors represents and warrants severally and for itself to the Senior Creditors that: (a) it has full power, authority and legal right to enter into and engage in the transactions contemplated by this Deed and has taken or obtained all necessary corporate and other action to authorize the execution and performance of this Deed; (b) this Deed constitutes its legal, valid and binding obligation enforceable in accordance with its terms; (c) neither the execution of this Deed nor the performance by it of any of its obligations or the exercise of any of its rights hereunder will conflict with or result in a breach of any law, regulation, judgment, order, authorization, agreement or obligation applicable to it or cause any limitation placed on it to be exceeded or result in the creation of or oblige it to create a Charge in respect of the Class C or D Indebtedness; (d) all authorizations required from any governmental or other authority or from any of its shareholders or creditors for or in connection with the execution, validity and performance of this Deed have been obtained and are in full force and effect; (e) it is not necessary in order to ensure the validity, enforceability or admissibility in evidence in proceedings of this Deed in its country of incorporation or any other relevant jurisdiction that it or any other document be filed or registered with any authority in its country of incorporation or elsewhere or that any tax be paid in respect thereof except as set out in appendix 2 of the AES Loan Agreement; (f) it is generally subject to civil and commercial law and to legal proceedings and neither it nor any of its assets or revenues are entitled to any immunity or privilege (sovereign or otherwise) from any set-off, judgment, execution, attachment or other legal process; (g) its Subordinated Loan Agreement in existence at the date hereof is valid and in full force and effect, the provisions thereof have been fully complied with, the Borrower is not in default in respect of any provision thereof and it has provided true and complete copies thereof to the Senior Creditors; (h) except as provided in Clause 4.04, it is the sole beneficial owner of the Subordinated Indebtedness owing to it; and (i) no Charge exists over all or any part of its Subordinated Indebtedness (except as created under or pursuant to this Deed). 7.02 Continuing Representation and Warranty. Each of the Junior Creditors also represents and warrants to and undertakes with the Senior Creditors severally and for itself that the foregoing representations and warranties set out in Clause 7.01 with respect to it will be true and accurate throughout the continuance of this Deed with reference to the facts and circumstances existing from time to time, provided that each representation and warranty in Clause 7.01(b) shall (where applicable) be subject (as to matters of law only) to Schedule 3 of the AES Loan Agreement. 7.03 Qualification of Representations and Warranties. Each representation and warranty in Clauses 7.01(a) through (d) inclusive shall (where applicable) be subject (as to matters of law only) to the qualifications specified in Schedule 3 of the AES Loan Agreement. 8. UNDERTAKINGS 8.01 Affirmative undertakings. Each of the holders of Class C and D Indebtedness severally and for itself undertakes and agrees with the holder of Class B Indebtedness throughout the continuance of this Deed and so long as the Class B Indebtedness or any part thereof remains owing that it will, unless the holder of Class B Indebtedness otherwise agrees in writing: (a) supply to the holder of Class B Indebtedness: (i) as soon as they are available, but in any event within one hundred and eighty (180) days after the end of each of its financial years, copies of its financial statements in respect of such financial year (including a profit and loss account and balance sheet) audited and certified by an independent public accountant acceptable to the holder of Class B Indebtedness; (ii) as soon as they are available, but in any event within one hundred and twenty (120) days after the end of each half of each of its financial years, copies of its unaudited financial statements (including a profit and loss account and balance sheet) prepared on a basis consistent with its audited financial statements together with a certificate signed by its principal financial officer to the effect that such financial statements are true in all material respects and present fairly its financial position as at the end of, and the results of its operations for, such half-year period; and (iii) promptly on request, such additional financial or other information relating to it as the holder of Class B Indebtedness may from time to time reasonably request; (b) keep proper records and books of account in respect of its business and permit the holder of Class B Indebtedness and/or any professional consultants appointed by the holder of Class B Indebtedness at all reasonable times to inspect and examine its records and books of account; (c) promptly inform the holder of Class B Indebtedness of the occurrence of any Event of Default or prospective Event of Default; (d) maintain its corporate existence and conduct its business in a proper and efficient manner and in compliance with all laws, regulations, authorizations, agreements and obligations applicable to it and pay all taxes imposed on it when due; (e) punctually pay all sums due from it and otherwise comply with its obligations under this Deed; (f) do or permit to be done every act or thing which the holder of Class B Indebtedness may from time to time reasonably require for the purpose of enforcing the rights of the holder of Class B Indebtedness hereunder; (g) not do or knowingly cause or permit to be done anything which may in any way depreciate, jeopardize or otherwise prejudice the value of the security of the holder of Class B Indebtedness hereunder; (h) not create or attempt or agree to create or permit to arise or exist any Charge over all or any part of its Subordinated Indebtedness or any interest therein or otherwise assign, deal with or dispose of all or any part of its Subordinated Indebtedness (except under or pursuant to this Deed); (i) at all times remain the beneficial owners of its Subordinated Indebtedness; (j) not vary the liability of the Borrower in relation to its Subordinated Indebtedness; (k) upon the request of the holder of Class B Indebtedness, supply to the holder of Class B Indebtedness such information regarding the amount and terms of the Junior Indebtedness as the holder of Class B Indebtedness may require; (l) subject to the provisions of this Deed, duly observe and perform all its obligations under any Subordinated Loan Agreement to which it is a party; (m) ensure that each date for repayment of principal and payment of interest under any Subordinated Loan Agreement to which it is a party shall be an Interest Payment Date; and (n) promptly inform the holder of Class B Indebtedness of any breach of this Deed known to it. 9. BORROWER'S REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 9.01 Representations and Warranties. The Borrower represents and warrants to the holder of Class A, B, C and D Indebtedness in the terms of Clause 7.01(g) and also represents, warrants and undertakes to the Senior Creditors that such representation and warranty will be true and accurate from time to time throughout the continuance of this Deed with reference to the facts and circumstances existing from time to time. 9.02 Undertakings. The Borrower undertakes and agrees with the Senior Creditors in the terms of Clause 8.01(f), (g), (n) and (o). 10. CLAIMS BY JUNIOR CREDITORS Each Junior Creditor severally represents to and undertakes with the Senior Creditors that it has not taken and will not take any security in respect of obligations owing to it under this Deed whether from the Borrower or any other person. So long as any sum remains owing by the Borrower to the Senior Creditors, no Junior Creditor shall exercise any right of subrogation, contribution or any other rights of a surety or enforce any security or other right or claim against the Borrower (whether in respect of its liability under this Deed or otherwise) or any other person who has guaranteed or given any security in respect of the Senior Indebtedness or, subject to the provisions of this Deed, claim in the insolvency or liquidation of the Borrower or any such other person in competition with the Senior Creditors. If any Junior Creditor receives any payment or benefit in breach of this Clause 10, it shall hold the same upon trust for the Senior Creditors as a continuing security for the Senior Indebtedness. 11. TAXES AND OTHER DEDUCTIONS All sums payable by the Junior Creditors under this Deed shall be paid in full without set-off or counterclaim or any restriction or condition and free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings of any nature. If any Junior Creditor or any other person are required by any law or regulation to make any deduction or withholding (on account of tax (other than an Excluded Tax) or otherwise) from any payment for the account of the Senior Creditors, the relevant Junior Creditor shall, together with such payment, pay such additional amount as will ensure that the Senior Creditors receive (free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings) the full amount which they would have received if no such deduction or withholding had been required. The Junior Creditors shall promptly forward to the Senior Creditors copies of official receipts or other evidence showing that the full amount of any such deduction or withholding has been paid over to the relevant taxation or other authority. 12. COSTS, CHARGES AND EXPENSES Each of the holders of Class C Indebtedness and the Borrower shall from time to time forthwith on demand pay to or reimburse the holders of Class B Indebtedness for: (a) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the holders of Class B Indebtedness in connection with the preparation, execution and registration of any amendment to or extension of, or the giving of any consent or waiver in connection with this Deed; and (b) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the holders of Class B Indebtedness in exercising any of their rights or powers hereunder or in suing for or seeking to recover any sums due hereunder or otherwise preserving or enforcing their rights hereunder or in defending any claims brought against them in respect of this Deed or in releasing or re-assigning this Deed upon payment of all monies hereby secured and until payment of the same in full, all such costs, charges and expenses shall be secured by this Deed. The liability of the holders of Class C Indebtedness in respect of amounts due under this Clause 12 shall be borne severally by them, provided that, in the event that any amount becomes payable to the holders of Class B Indebtedness under this Clause 12 solely by virtue of the action or inaction of certain holders of Class C Indebtedness, those relevant holders of Class C Indebtedness shall bear sole liability and responsibility in respect of such amount so payable. To the extent practicable, the Senior Creditors shall consult the Junior Creditors and the Borrower before incurring any major expenditure. 13. INDEMNITY 13.01 Junior Creditors' General Indemnity. Each Junior Creditor shall indemnify the Senior Creditors against all losses, liabilities, damages, costs and expenses incurred by them in the execution or performance of the terms and conditions hereof and against all actions, proceedings, claims, demands, costs, charges and expenses which may be incurred, sustained or arise in respect of the non-performance or non-observance of any of the undertakings and agreements on the part of that Junior Creditor herein contained or in respect of any matter or thing done or omitted by it relating in any way whatsoever to the Subordinated Indebtedness of that Junior Creditor. 13.02 Borrower's General Indemnity. The Borrower shall indemnify the Senior Creditors against all losses, liabilities, damages, costs and expenses incurred by them in the execution or performance of the terms and conditions hereof and against all actions, proceedings, claims, demands, costs, charges and expenses which may be incurred, sustained or arise in respect of the non-performance or non-observance of any of the undertakings and agreements on the part of the Junior Creditors and the Borrower herein contained or in respect of any matter or thing done or omitted relating in any way whatsoever to the Subordinated Indebtedness. 13.03 Payment and Security. The Senior Creditors may retain and pay out of any money in the Senior Creditors' hands all sums necessary to effect the indemnity contained in this Clause 13 and all sums payable by the Junior Creditors and the Borrower under this Clause 13 shall form part of the monies hereby secured. 14. FURTHER ASSURANCE 14.01 Further Assurance. Each of the Junior Creditors and the Borrower shall at any time and from time to time (whether before or after the security hereby created shall have become enforceable) execute such further legal or other mortgages, charges or assignments and do all such transfers, assurances, acts and things as the Senior Creditors may require over or in respect of the Subordinated Indebtedness to secure all monies, obligations and liabilities hereby covenanted to be paid or hereby secured or for the purposes of perfecting and completing any assignment of the Senior Creditor's rights, benefits or obligations hereunder and the Junior Creditors and the Borrower shall also give all notices, orders and directions which the Senior Creditors may require. 14.02 Enforcement of Senior Creditors' Rights. Each of the Junior Creditors and the Borrower will do or permit to be done everything which the Senior Creditors may from time to time require to be done for the purpose of enforcing the Senior Creditors' rights hereunder and will allow the names of the Junior Creditors and the Borrower (as the case may be) to be used as and when required by the Senior Creditors for that purpose. 15. SUSPENSE ACCOUNT Any Senior Creditor may place and keep any monies received by virtue of this Deed (whether before or after the insolvency, bankruptcy or liquidation of any of the Junior Creditors or the Borrower) to the credit of a suspense account for so long as the Senior Creditor may think fit in order to preserve the rights of such Senior Creditor to sue or prove for the whole amount of its claims against the Junior Creditors, the Borrower or any other person. 16. WAIVER AND SEVERABILITY No failure or delay by any Senior Creditor in exercising any right, power or remedy hereunder shall impair such right, power or remedy or operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. If at any time any provision of this Deed is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, the legality, validity and enforceability of such provision under the law of any other jurisdiction, and of the remaining provisions of this Deed, shall not be affected or impaired thereby. 17. MISCELLANEOUS 17.01 Continuing Obligations. The liabilities and obligations of the Junior Creditors and the Borrower under this Deed shall remain in force notwithstanding any act, omission, event or circumstance whatsoever, until full, proper and valid payment of the Senior Indebtedness. 17.02 Protective Clauses. Without limiting Clause 17.01, neither the liability of the Junior Creditors or the Borrower nor the validity or enforceability of this Deed shall be prejudiced, affected or discharged by: (a) the granting of any time or indulgence to the Borrower or any other person; (b) any variation or modification of any document evidencing or securing the Senior Indebtedness; (c) the invalidity or unenforceability of any obligation or liability of the Borrower under any document evidencing or securing the Senior Indebtedness to which it is a party; (d) any invalidity or irregularity in the execution of any document evidencing or securing the Senior Indebtedness; (e) any deficiency in the powers of the Borrower to enter into or perform any of its obligations under any document evidencing or securing the Senior Indebtedness to which it is party or any irregularity in the exercise thereof or any lack of authority by any person purporting to act on behalf of the Borrower; (f) the insolvency, bankruptcy or liquidation or any incapacity, disability or limitation or any change in the constitution or status of the Borrower or any of the Junior Creditors; (g) any document evidencing security, Charge, guarantee or other security or right or remedy being or becoming held by or available to any Senior Creditor or by any of the same being or becoming wholly or partly void, voidable, unenforceable or impaired, or by any Senior Creditor at any time releasing, refraining from enforcing, varying or in any other way dealing with any of the same or any power, right or remedy such Senior Creditor may now or hereafter have from or against the Borrower or any other person; (h) any waiver, exercise, omission to exercise, compromise, renewal or release of any rights against the Borrower or any other person or any compromise, arrangement or settlement with any of the same; and (i) any act, omission, event or circumstance which would or may, but for this provision, operate to prejudice, affect or discharge this Deed or the liability of the Junior Creditors or the Borrower hereunder. 17.03 Binding Nature of Deed. The Borrower and each of the Junior Creditors agrees to be bound by this Deed notwithstanding that any other person who was intended to sign or be bound by this Deed fails, for any reason, so to sign or be bound or that this Deed is for any reason invalid or unenforceable against such person. 17.04 Unrestricted Right of Enforcement. This Deed may be enforced without the Senior Creditors first having recourse to any other security or rights or taking any other steps or proceedings against the Junior Creditors, the Borrower or any other person or may be enforced for any balance due after resorting to any one or more other means of obtaining payment or discharge of the monies, obligations and liabilities hereby secured. 17.05 Discharges and Releases. Notwithstanding any discharge, release or settlement from time to time between or among any or all the Senior Creditors and the Junior Creditors or the Borrower, if any security, disposition or payment granted or made to any Senior Creditor in respect of the Subordinated Indebtedness by any Junior Creditor, the Borrower or any other person is avoided or set aside or ordered to be surrendered, paid away, refunded or reduced by virtue of any provision, law or enactment relating to bankruptcy, insolvency, liquidation, winding-up, composition or arrangement for the time being in force or for any other reason, each of the Senior Creditors shall be entitled hereafter to enforce this Deed as if no such discharge, release or settlement had occurred. 17.06 Amendment. Any amendment or waiver of any provision of this Deed and any waiver of any default under this Deed shall only be effective if made in writing and signed by or on behalf of the party against whom enforcement of the amendment or waiver is asserted. 18. ASSIGNMENT 18.01 The Holders of Class A, C and D Indebtedness and the Borrower. None of the holders of Class A, C and D Indebtedness and the Borrower shall assign any of their rights hereunder. 18.02 The Holder of Class B Indebtedness. The holder of Class B Indebtedness may assign or grant participations in all or any part of its rights under this Deed and make disclosures in accordance with the provisions of clause 19 of the AES Loan Agreement as if references therein to the Borrower were references to the holders of Class A, C or D Indebtedness or the Borrower (as the case may be) and any assignee of or participant in Class B Indebtedness may further so assign or grant participations in all or any part of its rights under this Deed. 19. NOTICES 19.01 Delivery. Each notice, demand or other communication to be given or made under this Deed shall be in writing and delivered or sent to the relevant party at its address or telex number or fax number set out below (or such other address or telex number or fax number as the addressee has by five (5) days' prior written notice specified to the other party): To the Guarantor China Power International Holding Limited and Sponsor: Suite 5306, Central Plaza 18 Harbour Road Wanchai, Hong Kong Fax Number: (852) 2802-3922 Attention: Zhao Xin Yan/ Wang Zi Chao To the Junior AES China Holding Company (L) Limited Lender and 9th Floor, Allied Capital Resources Building Sponsor: 32-38 Ice House Street Central, Hong Kong Fax Number: (852) 2530-1673 Attention: Jeff Safford Chief Financial Officer To the Junior Anhui Liyuan Electric Power Limited Subordinated No. 415 Wuhu Road Lenders Hefei and Sponsors: Anhui Province People's Republic of China Fax Number: (86-551) 363-7642 Attention: Long Wen Ming/ Susan Jie/ Chen Liang Bao Wuhu Energy Development Company Commercial Office Building West Huangshan Road Wuhu Anhui Province People's Republic of China Fax Number: (86-553) 382-3224 Attention: Zhai Dao Ping To the Borrower: Wuhu Shaoda Electric Power Development Company Limited Commercial Office Building West Huangshan Road Wuhu Anhui Province People's Republic of China Fax Number: (86-553) 382-3224 Attention: Zhai Dao Ping 19.02 Deemed Delivery. Any notice, demand or other communication so addressed to the relevant party shall be deemed to have been delivered (a) if given or made by letter, when actually delivered to the relevant address; (b) if given or made by telex, when dispatched with confirmed answerback and (c) if given or made by fax, when dispatched. 20. GOVERNING LAW AND JURISDICTION 20.01 Law. This Deed and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of England. 20.02 Jurisdiction. Each of the Junior Creditors and the Borrower agrees that any legal action or proceeding arising out of or relating to this Deed may be brought in the courts of England and irrevocably submit to the non-exclusive jurisdiction of such courts. 20.03 Process Agent. Each of the Junior Creditors and the Borrower irrevocably appoints Rowe & Maw (Attention: Mr. Bernd Ratzke) of 20 Blackfriars Lane London EC4V 6HT, England as its agent to receive and acknowledge on its behalf service of any writ, summons, order, judgment or other notice of legal process in England. If for any reason the agent named above (or its successor) no longer serves as agent of any Junior Creditor or the Borrower for this purpose, the relevant Junior Creditor or the Borrower (as the case may be) shall promptly appoint a successor agent satisfactory to the Senior Creditors and notify the Senior Creditors thereof, provided that until the Senior Creditors receive such notification, they shall be entitled to treat the agent named above (or its said successor) as the agent of such Junior Creditor and/or the Borrower (as the case may be) for the purposes of this Clause 20.03. Each of the Junior Creditors and the Borrower agrees that any such legal process shall be sufficiently served on it if delivered to such agent for service at its address for the time being in England whether or not such agent gives notice thereof to such Junior Creditor or the Borrower as applicable. 20.04 No Limitation on Right of Action. Nothing herein shall limit the right of the Senior Creditors to commence any legal action against the Junior Creditors or the Borrower and/or their property in any other jurisdiction or to serve process in any manner permitted by law, and the initiation of proceedings in any jurisdiction shall not preclude the initiation of proceedings in any other jurisdiction whether concurrently or not. 20.05 Waiver; Final Judgment Conclusive. Each of the Junior Creditors and the Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the choice of England as the venue of any legal action arising out of or relating to this Deed. Each of the Junior Creditors and the Borrower also agrees that a final judgment against it in any such legal action shall be final and conclusive and may be enforced in any other jurisdiction, and that a certified or otherwise duly authenticated copy of the judgment shall be conclusive evidence of the fact and amount of its indebtedness. 20.06 Waiver of Immunity. Each of the Junior Creditors and the Borrower irrevocably waives any immunity to which it or its property may at any time be or become entitled, whether characterized as sovereign immunity or otherwise, from any set-off or legal action in England or elsewhere, including immunity from service of process, immunity from jurisdiction of any court or tribunal, and immunity of any of its property from attachment prior to judgment or from execution of a judgment. IN WITNESS whereof each of the parties hereto have executed this Deed on the day and year first above written. THE GUARANTOR AND A SPONSOR - --------------------------- THE COMMON SEAL of ) CHINA POWER INTERNATIONAL ) HOLDING LIMITED ) was hereunto affixed ) in the presence of: ) THE JUNIOR LENDER AND A SPONSOR - ------------------------------- THE COMMON SEAL of ) AES CHINA HOLDING ) COMPANY (L) LIMITED ) was hereunto affixed ) in the presence of: ) THE JUNIOR SUBORDINATED LENDERS AND SPONSORS - -------------------------------------------- EXECUTED as, and DELIVERED as, a Deed ) by ANHUI LIYUAN ELECTRIC POWER ) DEVELOPMENT COMPANY LIMITED ) acting by its authorized signatory ) in the presence of: ) EXECUTED as, and DELIVERED as, a Deed ) by WUHU ENERGY DEVELOPMENT COMPANY ) acting by its authorized signatory ) in the presence of: ) THE BORROWER - ------------ EXECUTED as, and DELIVERED as, a Deed ) by WUHU SHAODA ELECTRIC POWER ) DEVELOPMENT COMPANY LIMITED ) acting by its authorized signatory ) in the presence of: ) 0 EX-10 6 EX. 10.36 Exhibit 10.36 WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED as Borrower and AES CHINA HOLDINGS COMPANY (L) LIMITED as Junior Lender SUBORDINATED INSURANCE ASSIGNMENT CHADBOURNE & PARKE LLP AMERICAN ATTORNEYS AT LAW SUITE 3704, PEREGRINE TOWER LIPPO CENTRE, 89 QUEENSWAY HONG KONG CONTENTS Number Clause Heading Page - ------ -------------- ---- 1. Interpretation.....................................................1 2. Assignment of Insurances...........................................2 3. Continuing Security................................................3 4. Representations and Warranties.....................................3 5. Undertakings.......................................................4 6. Borrower's Liability...............................................6 7. Proceeds of Insurances.............................................6 8. Taxes and Other Deductions.........................................7 9. Costs, Charges and Expenses........................................7 10. Indemnity..........................................................8 11. Further Assurance..................................................8 12. Power of Attorney..................................................9 13. Suspense Account...................................................9 14. Waiver and Severability............................................9 15. Miscellaneous.....................................................10 16. Assignment........................................................11 17. Notices...........................................................11 18. Governing Law and Jurisdiction....................................12 19. Subordinated Security.............................................13 Schedule 1 Form of Notice................................................14 Schedule 2 Form of Loss Payable and Notice of Cancellation Clause........16 Execution Block THIS DEED is made on the day of 1996 ---------------- ------------------------ BETWEEN: (1) WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED, an equity joint venture company formed under the Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment, with its registered office at Commercial Office Building, West Huangshan Road, Wuhu, Anhui Province, People's Republic of China (the "Borrower"); and (2) AES CHINA HOLDINGS COMPANY (L) LIMITED, a Labuan company of Lot A, Level 3, Wisma Oceanic, Jalan OKK Awang Besar, 87007, Federal Territory of Labuan, Malaysia (the "Junior Lender"). WHEREAS: (A) By the AES Loan Agreement (as defined below), the Junior Lender has agreed to make available to the Borrower a term loan facility of up to eighteen million Dollars (US$18,000,000), upon the terms set out therein. (B) It is a condition precedent to the Junior Lender making the Facility available to the Borrower that the Borrower enters into this Deed. NOW THIS DEED WITNESSES as follows: 1. INTERPRETATION 1.01 Definitions and Construction. In this Deed, unless the context requires otherwise: (a) terms and expressions defined in or construed for the purposes of the AES Loan Agreement shall have the same meanings or be construed in the same manner when used in this Deed; (b) "AES Loan Agreement" means the loan agreement dated -------- 1996 and made between the Junior Lender and the Borrower; (c) "Insurances" means all policies or contracts of insurance which are now or may hereafter be effected in respect of the Insured Assets or any part thereof (but expressly excluding any third party liability insurances and any other insurances arranged solely for the benefit of third parties) and all benefits and proceeds thereof, including all claims of whatever nature and returns of premiums; 1 (d) "Insured Assets" means the buildings, plant, equipment, machinery, spare parts and other assets owned by the Borrower and used in connection with the Project; and (e) "Junior Secured Indebtedness" means all and any sums (whether principal, interest, fees or otherwise) which are or at any time may become payable by the Borrower under the AES Loan Agreement or any Subordinated Security Document to which it is a party and all other monies hereby secured. 1.02 Successors and Assigns. The expressions "Borrower" and "Junior Lender" shall where the context permits include their respective successors and permitted assigns and any persons deriving title under them. 1.03 AES Loan Agreement. To the extent applicable and required by relevant law, the terms and conditions of the AES Loan Agreement shall be deemed to be incorporated into this Deed by reference and this Deed shall be read and construed as if such terms and conditions had been set out in full herein. 1.04 Miscellaneous. In this Deed, unless the context requires otherwise, references to statutory provisions shall be construed as references to those provisions as replaced, amended, modified or re-enacted from time to time; words importing the singular include the plural and vice versa and words importing a gender include every gender; references to this Deed, the AES Loan Agreement, any other Subordinated Security Document or any other document referred to herein shall be construed as references to such document as the same may be amended or supplemented (provided that any required consent or approval for such amendment or supplement has been obtained) from time to time; unless otherwise stated, references to Clauses are to clauses of this Deed. Clause headings are inserted for reference only and shall be ignored in construing this Deed. 2. ASSIGNMENT OF INSURANCES 2.01 Charge and Assignment. In consideration of the Facility being made available by the Junior Lender to the Borrower upon the terms and conditions of the AES Loan Agreement, the Borrower with full title guarantee assigns and grants to the Junior Lender a third-priority security interest in absolutely all the Borrower's right, title, interest and benefit in and to the Insurances upon the terms herein set out as a continuing security for the due and punctual payment of the Junior Secured Indebtedness and the due and punctual performance and observance by the Borrower of all other obligations of the Borrower contained in the AES Loan Agreement or any Subordinated Security Document to which it is a party. THIS ASSIGNMENT IS SUBORDINATE IN RIGHT TO THE CHARGES CREATED TO SECURE THE OBLIGATIONS OF THE 2 BORROWER UNDER THE SENIOR LOAN AGREEMENT, AND THE ENFORCEMENT OF THIS ASSIGNMENT SHALL BE LIMITED IN ACCORDANCE WITH THE PROVISIONS OF THE SENIOR SUBORDINATION AGREEMENT AND THE PRIORITY DEED. 2.02 Notice. The Borrower will, forthwith upon the execution of this Deed (or, if later, upon any policy or contract of insurance comprised in the Insurances coming into force), give notice of the assignment herein contained to and obtain an acknowledgment from the relevant insurers substantially in the form set out in Schedule 1 or, if not in that form, in a form satisfactory to the Junior Lender. 2.03 Dealings with Parties. Notwithstanding the assignment herein contained but otherwise subject to the terms of this Deed, the Junior Lender authorizes the Borrower to continue to deal with the other parties to the Insurances and each of them in relation thereto as if the Borrower remained solely entitled to all the rights, title, interest and benefits thereunder but, save as herein provided, not directly to receive any moneys payable under the Insurances, provided that if an Event of Default or prospective Event of Default occurs and the Junior Lender gives written notice thereof to the Borrower the foregoing authority shall immediately cease to have effect. 3. CONTINUING SECURITY This Deed shall be a continuing security and shall remain in full force and effect until the Junior Secured Indebtedness has been paid in full, notwithstanding the insolvency or liquidation or any incapacity or change in the constitution or status of the Borrower or any other person or any intermediate settlement of account or other matter whatsoever. This Deed is in addition to, and independent of, any Charge, guarantee or other security or right or remedy now or at any time hereafter held by or available to the Junior Lender. 4. REPRESENTATIONS AND WARRANTIES 4.01 Representations and Warranties. The Borrower represents and warrants to the Junior Lender that: (a) the Insurances are beneficially owned by the Borrower free from any Charge except as created (i) under or pursuant to this Deed, (ii) to secure the obligations of the Borrower under the Senior Loan Agreement and (iii) in respect of the Guarantee; (b) the Insurances are valid and in full force and effect and are not void or voidable; and 3 (c) all premiums and other monies (if any) payable in respect of the Insurances have been duly paid and all covenants, terms and conditions contained in the Insurances have been duly observed and performed. 4.02 Continuing Representation and Warranty. The Borrower also represents and warrants to and undertakes with the Junior Lender that the foregoing representations and warranties will be true and accurate throughout the continuance of this Deed with reference to the facts and circumstances existing from time to time. 5. UNDERTAKINGS The Borrower undertakes and agrees with the Junior Lender throughout the continuance of this Deed and so long as the Junior Secured Indebtedness or any part thereof remains owing that the Borrower will, unless the Junior Lender otherwise agrees in writing: (a) procure that a loss payable and notice of cancellation clause, substantially in the form of Schedule 2, and in any event in a form satisfactory to the Junior Lender, is included in each of the policies or contracts of insurance comprised in the Insurances; (b) procure that, on or prior to any policy or contract of insurance comprised in the Insurances coming into force (or, if later, the execution of this Deed), the insurance brokers and insurers in respect of such insurance give their written consent to the assignment pursuant to this Deed and their written undertaking to the Junior Lender: (i) promptly to advise the Junior Lender: (a) if any insurer cancels, purports to cancel or gives notice of cancellation of such insurance; (b) of any purported or actual alteration in or termination or expiry of such insurance; (c) of any default in the payment of any premium or call; and (d) of any act or omission or of any event of which that broker or insurer has knowledge which might invalidate or render unenforceable in whole or in part such insurance; and (ii) to make any payments in respect of such insurance in accordance with the loss payable provisions set out in Schedule 2; and 4 (iii) to hold all policies, cover notes and other relevant documents issued or hereafter to be issued in respect of such insurance for the benefit of the Junior Lender; (c) pay all premiums and other amounts due in respect of the Insurances (and provide the Junior Lender with receipts therefor) and deliver to the Junior Lender copies of all policies, cover notes and other relevant documents relating to the Insurances, provided that the Borrower shall arrange for the delivery of the originals of such documents to the Junior Lender as soon as all amounts owed to the Senior Financing Parties under the Senior Loan Agreement have been paid in full; (d) take all steps which may be necessary or expedient to keep the Insurances in full force and effect and protect the interests of the Borrower and the Junior Lender in the Insurances; (e) renew all policies or contracts of insurance comprised in the Insurances no later than fourteen (14) days before the expiry of such policies or contracts; (f) reimburse on demand to the Junior Lender any amount paid by the Junior Lender to any insurer of any of the Insurances in respect of any premium or other amount due to such insurer in respect of the Insurances, together with interest thereon from the date of payment to the date of reimbursement at the rate calculated in accordance with clause 15 of the AES Loan Agreement; (g) do or permit to be done every act or thing which the Junior Lender may from time to time require for the purpose of enforcing the rights of the Junior Lender hereunder; (h) contemporaneously with the making of any claim in excess of fifty thousand Dollars (US$50,000) under the Insurances, notify the Junior Lender in writing of the same, such notification to be accompanied by a certified true copy of any form(s) and document(s) submitted to the relevant insurer(s) in respect of such claim and provide such other details in connection with the claim as the Junior Lender may request; (i) not, without the prior written consent of the Junior Lender, waive, release, settle, compromise or abandon any claim under the Insurances or do or omit to do any other act or thing whereby the recovery in full of any amounts in respect of the Insurances as and when they become payable may be impeded; (j) not create or attempt or agree to create or permit to arise or exist any Charge over all or any part of the Insurances or any interest therein or otherwise assign, deal with or dispose of all or any part 5 of the Insurances (except under or pursuant to this Deed and to secure the obligations of the Borrower under the Senior Loan Agreement and the CPIL Security); (k) except for the relevant Charges created to secure the obligations of the Borrower under the Senior Loan Agreement and the CPIL Security, not do or cause or permit to be done anything which may in any way depreciate, jeopardize or otherwise prejudice the value of the Junior Lender's security hereunder. 6. BORROWER'S LIABILITY Notwithstanding the assignment herein contained, the Borrower shall remain liable under the Insurances to observe and perform all the obligations assumed by it thereunder and the Junior Lender shall have no obligation or liability thereunder. The Junior Lender shall not be obliged to make any enquiry as to the nature or sufficiency of any payment received by it or to make any claim or take any other action to collect any monies or to enforce any rights and benefits hereby assigned. 7. PROCEEDS OF INSURANCES If at the time when any insurance proceeds become due and payable, any Event of Default or prospective Event of Default has occurred, the Junior Lender shall have the right to apply such proceeds in or towards satisfaction of the Junior Secured Indebtedness in such manner as it may determine. If no Event of Default or prospective Event of Default has then occurred: (a) the proceeds of insurance in respect of a claim for an amount not exceeding five hundred thousand Dollars (US$500,000) (or the equivalent in any other currency) shall be payable to the Borrower or (if so required under the terms of the relevant policy) to Anhui Power and shall be applied by the Borrower or Anhui Power, as the case may be, in fully repairing, rebuilding or reinstating that part of the Insured Assets destroyed or damaged and, in any event, the Borrower shall be responsible for ensuring that such proceeds are so applied; and (b) the proceeds of insurance in respect of a claim for an amount exceeding five hundred thousand Dollars (US$500,000) (or the equivalent in any other currency) shall be payable to the Security Agent until such time as all amounts owed under the Senior Loan Agreement have been paid in full and to the Junior Lender thereafter. The Security Agent or the Junior Lender, as the case may be, shall release such proceeds to the Borrower for the purpose of repairing or reinstating the loss or damage in respect of which such proceeds were paid or, at the option of the Security 6 Agent or the Junior Lender, as the case may be, such proceeds shall be paid directly to the person who has made or is to make such repairs or reinstatement against invoices therefor. 8. TAXES AND OTHER DEDUCTIONS All sums payable by the Borrower under this Deed shall be paid in full without set-off or counterclaim or any restriction or condition and free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings of any nature. If the Borrower or any other person is required by any law or regulation to make any deduction or withholding (on account of tax (other than an Excluded Tax) or otherwise) from any payment for the account of the Junior Lender, the Borrower shall, together with such payment, pay such additional amount as will ensure that the Junior Lender receives (free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings) the full amount which it would have received if no such deduction or withholding had been required. The Borrower shall promptly forward to the Junior Lender copies of official receipts or other evidence showing that the full amount of any such deduction or withholding has been paid over to the relevant taxation or other authority. 9. COSTS, CHARGES AND EXPENSES The Borrower shall from time to time forthwith on demand pay to or reimburse the Junior Lender for: (a) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the Junior Lender in connection with the preparation, execution and registration of any amendment to or extension of, or the giving of any consent or waiver in connection with this Deed; and (b) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the Junior Lender in exercising any of its rights or powers hereunder or in suing for or seeking to recover any sums due hereunder or otherwise preserving or enforcing its rights hereunder or in defending any claims brought against it in respect of this Deed or in releasing or re-assigning this Deed upon payment of all monies hereby secured and until payment of the same in full, all such costs, charges and expenses shall be secured by this Deed. To the extent practicable, the Junior Lender shall consult the Borrower before incurring any major expenditure. 7 10. INDEMNITY 10.01 General Indemnity. The Borrower shall indemnify the Junior Lender against all losses, liabilities, damages, costs and expenses incurred by it in the execution or performance of the terms and conditions hereof and against all actions, proceedings, claims, demands, costs, charges and expenses which may be incurred, sustained or arise in respect of the non-performance or non-observance of any of the undertakings and agreements on the part of the Borrower herein contained or in respect of any matter or thing done or omitted, on the part of the Borrower, relating in any way whatsoever to the Insurances. 10.02 Currency Indemnity. Dollars shall be the currency of account and of payment in respect of sums payable under this Deed. If an amount is received in another currency, pursuant to a judgment or order or in the liquidation of the Borrower or otherwise, the Borrower's obligations under this Deed shall be discharged only to the extent that the Junior Lender may purchase Dollars with such other currency in accordance with normal banking procedures upon receipt of such amount. If the amount in Dollars which may be so purchased, after deducting any costs of exchange and any other related costs, is less than the relevant sum payable under this Deed, the Borrower shall indemnify the Junior Lender against the shortfall. This indemnity shall be an obligation of the Borrower independent of and in addition to its other obligations under this Deed and shall take effect notwithstanding any time or other concession granted to the Borrower or any judgment or order being obtained or the filing of any claim in the liquidation, dissolution or bankruptcy (or analogous process) of the Borrower. 10.03 Payment and Security. The Junior Lender may retain and pay out of any money in the Junior Lender's hands all sums necessary to effect the indemnity contained in this Clause 10.03 and all sums payable by the Borrower under this Clause 10.03 shall form part of the monies hereby secured. 11. FURTHER ASSURANCE 11.01 Further Assurance. The Borrower shall at any time and from time to time (whether before or after the security hereby created shall have become enforceable) execute such further legal or other mortgages, charges or assignments and do all such transfers, assurances, acts and things as the Junior Lender may require over or in respect of the Insurances to secure all monies, obligations and liabilities hereby covenanted to be paid or hereby secured or for the purposes of perfecting and completing any assignment of the Junior Lender's rights, benefits or obligations hereunder and the Borrower shall also give all notices, orders and directions which the Junior Lender may require. 8 11.02 Enforcement of Junior Lender's Rights. Subject to the Senior Subordination Agreement and the Priority Deed, the Borrower will do or permit to be done everything which the Junior Lender may from time to time require to be done for the purpose of enforcing the Junior Lender's rights hereunder and will allow the name of the Borrower to be used as and when required by the Junior Lender for that purpose. 12. POWER OF ATTORNEY The Borrower irrevocably appoints the Junior Lender by way of security to be its attorney-in-fact (with full power of substitution) and in its name or otherwise on its behalf and as its act and deed to sign, seal, execute, deliver, perfect and do all deeds, instruments, acts and things which may be required or which the Junior Lender shall think proper or expedient for carrying out any obligations imposed on the Borrower hereunder or for exercising any of the powers hereby conferred or for giving to the Junior Lender the full benefit of this security and so that the appointment hereby made shall operate to confer on the Junior Lender authority to do on behalf of the Borrower anything which it can lawfully do by an attorney-in-fact. The Borrower ratifies and confirms and agrees to ratify and confirm any deed, instrument, act or thing which such attorney-in-fact or substitute may execute or do. 13. SUSPENSE ACCOUNT The Junior Lender may place and keep any monies received by virtue of this Deed (whether before or after the insolvency or liquidation of the Borrower) to the credit of a suspense account for so long as the Junior Lender may think fit in order to preserve the rights of the Junior Lender to sue or prove for the whole amount of its claims against the Borrower or any other person. 14. WAIVER AND SEVERABILITY No failure or delay by the Junior Lender in exercising any right, power or remedy hereunder shall impair such right, power or remedy or operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. If at any time any provision of this Deed is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, the legality, validity and enforceability of such provision under the law of any other jurisdiction, and of the remaining provisions of this Deed, shall not be affected or impaired thereby. 9 15. MISCELLANEOUS 15.01 Continuing Obligations. The liabilities and obligations of the Borrower under this Deed shall remain in force notwithstanding any act, omission, event or circumstance whatsoever, until full, proper and valid payment of the Junior Secured Indebtedness. 15.02 Protective Clauses. Without limiting Clause 15.01, neither the liability of the Borrower nor the validity or enforceability of this Deed shall be prejudiced, affected or discharged by: (a) the granting of any time or indulgence to the Borrower or any other person; (b) any variation or modification of the AES Loan Agreement, any of the Subordinated Security Documents or any other document referred to therein; (c) the invalidity or unenforceability of any obligation or liability of the Borrower under the AES Loan Agreement or any of the Subordinated Security Documents to which it is a party; (d) any invalidity or irregularity in the execution of this Deed or the AES Loan Agreement or any of the other Subordinated Security Documents; (e) any deficiency in the powers of the Borrower to enter into or perform any of its obligations hereunder or under the AES Loan Agreement or any of the other Subordinated Security Documents to which it is a party or any irregularity in the exercise thereof or any lack of authority by any person purporting to act on behalf of the Borrower; (f) any other Security Document, Charge, guarantee or other security or right or remedy being or becoming held by or available to the Junior Lender or by any of the same being or becoming wholly or partly void, voidable, unenforceable or impaired or by the Junior Lender at any time releasing, refraining from enforcing, varying or in any other way dealing with any of the same or any power, right or remedy the Junior Lender may now or hereafter have from or against the Borrower or any other person; (g) any waiver, exercise, omission to exercise, compromise, renewal or release of any rights against the Borrower or any other person or any compromise, arrangement or settlement with any of the same; or (h) any act, omission, event or circumstance which would or may but for this provision operate to prejudice, affect or discharge this Deed or the liability of the Borrower hereunder. 10 15.03 Unrestricted Right of Enforcement. Subject to the Senior Subordination Agreement and the Priority Deed, this Deed may be enforced without the Junior Lender first having recourse to any other security or rights or taking any other steps or proceedings against the Borrower or any other person or may be enforced for any balance due after resorting to any one or more other means of obtaining payment or discharge of the monies obligations and liabilities hereby secured. 15.04 Discharges and Releases. Notwithstanding any discharge, release or settlement from time to time between the Junior Lender and the Borrower, if any security, disposition or payment granted or made to the Junior Lender in respect of the Junior Secured Indebtedness by the Borrower or any other person is avoided or set aside or ordered to be surrendered, paid away, refunded or reduced by virtue of any provision, law or enactment relating to bankruptcy, insolvency, liquidation, winding-up, composition or arrangement for the time being in force or for any other reason, the Junior Lender shall be entitled hereafter to enforce this Deed as if no such discharge, release or settlement had occurred. 15.05 Amendment. Any amendment or waiver of any provision of this Deed and any waiver of any default under this Deed shall only be effective if made in writing and signed by or on behalf of the party against whom the amendment or waiver is asserted. 16. ASSIGNMENT 16.01 The Borrower. The Borrower shall not assign any of its rights or obligations hereunder. 16.02 The Junior Lender. The Junior Lender may assign or grant participations in all or any part of their rights under this Deed in accordance with the provisions of clause 20 of the AES Loan Agreement. 17. NOTICES 17.01 Delivery. Each notice, demand or other communication to be given or made under this Deed shall be in writing and delivered or sent to the relevant party at its address or telex number or fax number set out below (or such other address or telex number or fax number as the addressee has by five (5) days' prior written notice specified to the other party): To the Borrower: Wuhu Shaoda Electric Power Development Company Limited Commercial Office Building West Huangshan Road Wuhu, Anhui Province People's Republic of China 11 Fax Number: (86-553) 382-3224 Attention: Zhai Dao Ping To the Junior Lender: AES China Holdings Company (L) Limited 9th Floor, Allied Capital Resources Building 32-38 Ice House Street Central, Hong Kong Fax Number: (852) 2530-1673 Attention: Jeff Safford Chief Financial Officer 17.02 Deemed Delivery. Any notice, demand or other communication so addressed to the relevant party shall be deemed to have been delivered (a) if given or made by letter, when actually delivered to the relevant address; (b) if given or made by telex, when dispatched with confirmed answerback and (c) if given or made by fax, when dispatched. 18. GOVERNING LAW AND JURISDICTION 18.01 Law. This Deed and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of England. 18.02 Jurisdiction. The Borrower agrees that any legal action or proceeding arising out of or relating to this Deed may be brought in the courts of England and irrevocably submits to the non-exclusive jurisdiction of such courts. 18.03 Process Agent. The Borrower irrevocably appoints Rowe & Maw (Attention: Mr. Bernd Ratzke) of 20 Blackfriars Lane, London EC4V 6HT, England as its agent to receive and acknowledge on its behalf service of any writ, summons, order, judgment or other notice of legal process in England. If for any reason the agent named above (or its successor) no longer serves as agent of the Borrower for this purpose, the Borrower shall promptly appoint a successor agent satisfactory to the Junior Lender and notify the Junior Lender thereof, provided that until the Junior Lender receives such notification, it shall be entitled to treat the agent named above (or its said successor) as the agent of the Borrower for the purposes of this Clause 18.03. The Borrower agrees that any such legal process shall be sufficiently served on it if delivered to such agent for service at its address for the time being in England whether or not such agent gives notice thereof to the Borrower. 18.04 No Limitation on Right of Action. Nothing herein shall limit the right of the Junior Lender to commence any legal action against the Borrower and/or its property in any other jurisdiction or to serve process in any manner 12 permitted by law, and the taking of proceedings in any jurisdiction shall not preclude the taking of proceedings in any other jurisdiction whether concurrently or not. 18.05 Waiver; Final Judgment Conclusive. The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the choice of England as the venue of any legal action arising out of or relating to this Deed. The Borrower also agrees that a final judgment against it in any such legal action shall be final and conclusive and may be enforced in any other jurisdiction, and that a certified or otherwise duly authenticated copy of the judgment shall be conclusive evidence of the fact and amount of its indebtedness. 18.06 Waiver of Immunity. The Borrower irrevocably waives any immunity to which it or its property may at any time be or become entitled, whether characterized as sovereign immunity or otherwise, from any set-off or legal action in England or elsewhere, including immunity from service of process, immunity from jurisdiction of any court or tribunal, and immunity of any of its property from attachment prior to judgment or from execution of a judgment. 19. SUBORDINATED SECURITY Notwithstanding any other provision to the contrary, this Deed must be read and construed in all respects, and the exercise of any rights under this Deed and the enforcement of any rights under this Deed must be subject in each case to the terms of the: (a) Senior Subordination Agreement; and (b) Priority Deed. In the event of any conflict or inconsistency between the terms of this Deed of the one part and the Senior Subordination Agreement or the Priority Deed of the other part, the latter documents will prevail. IN WITNESS whereof the parties hereto have executed this Deed on the day and year first above written. 13 Schedule 1 Form of Notice To: [Name of Insurer] [Date] Dear Sirs, Re: [Specify relevant policy or contract of insurance] We refer to the above insurances (the "Insurances") effected by you in favor of Wuhu Shaoda Electric Power Development Company Limited and which are the subject of a Subordinated Insurance Assignment (the "Assignment") dated , 1996, a copy of which is attached hereto. We give you notice that by the Assignment we have assigned and granted to AES China Holdings Company (L) Limited (the "Junior Lender") (as that term is defined in the Assignment) a third-priority security interest in all our right, title, interest and benefit in and to the Insurances and all payments to be made by you thereunder. As stated above, this is a third-priority security interest and the Junior Lender's rights are subordinated and expressly subject to the Senior Subordinated Agreement and the Priority Deed. We instruct you that until further notice all payments in respect of any claim for an amount which you may be required to make pursuant to the terms of the Insurances should be made in accordance with the terms set out in the enclosed form of loss payable and notice of cancellation clause. These instructions may not be altered or revoked by us without the prior written consent of the Junior Lender. Please acknowledge these instructions by signing as indicated and returning to the Junior Lender the enclosed duplicate of this notice. Yours faithfully, For and on behalf of Wuhu Shaoda Electric Power Development Company Limited [Enclose form of Loss Payable and Notice of Cancellation Clause] 14 [on duplicate] To: AES China Holdings Company (L) Limited 9th Floor, Allied Capital Resources Building 32-38 Ice House Street Central, Hong Kong Attn: Mr. Jeff Safford (as Junior Lender) We acknowledge receipt of the above notice and confirm that a loss payable and notice of cancellation clause in the form enclosed with the notice has been included in the Insurances and that we will comply with the instructions contained therein. Dated . For and on behalf of [name of insurer] Authorized Signature(s) 15 Schedule 2 Form of Loss Payable and Notice of Cancellation Clause By an insurance assignment dated 1996 (the "Subordinated Insurance Assignment"), Wuhu Shaoda Electric Power Development Company Limited (the "Borrower") assigned and granted a third-priority security interest (which is subject to the Senior Subordination Agreement and the Priority Deed) in all its right, title, interest and benefit in and to this policy/contract of insurance and the benefits and proceeds hereof including all claims of whatever nature to AES China Holdings Company (L) Limited (the "Junior Lender"). Terms defined in the Subordinated Insurance Assignment shall have the same meanings hereunder. Until notice in writing to the contrary is received by the insurer or the insurance broker hereunder from the Security Agent, all proceeds of: (i) any settlements of claims hereunder in respect of an actual or constructive or compromised or arranged total loss of the Power Plant shall be paid to the Security Agent; (ii) any other settlements of such claims hereunder which do not exceed US$500,000 in any one case shall be paid to the claimant or its order (unless the Security Agent otherwise instructs the Company in writing), or the Security Agent or its order if the Security Agent shall notify the Company in writing that an event of default has occurred under the Agreement; and (iii) any other settlements of such claims hereunder exceeding US$500,000 in any one case shall be paid to the Security Agent. For the purposes of (ii) and (iii) above any claim or number of claims arising from the same occurrence shall be regarded as one claim. Until notice in writing to the contrary is received by the insurer or the insurance broker hereunder from the Junior Lender, the Junior Lender shall be advised: (i) if any insurer under this policy/contract gives notice of cancellation of any insurance hereunder, at least thirty (30) days before any such cancellation is to take effect; (ii) of any proposed alteration in or termination or expiry of any such insurance at least thirty (30) days before such alteration, termination or expiry is to take effect; (iii) promptly of any default in the payment of any premium or call; and (iv) promptly of any act or omission or of any event of which any insurer hereunder has knowledge and which might invalidate or render unenforceable in whole or in part such insurance. 16 No cancellation, termination or expiry of or alteration to any insurance hereunder shall be effective as against the Junior Lender unless the relevant provision of this clause have been complied with in full. The rights of the Junior Lender under this policy/contract of insurance shall not be prejudiced by any act or neglect of the Borrower or any other person nor by any proceedings in relation to the Insured Assets. 17 THE BORROWER - ------------ EXECUTED and DELIVERED as a Deed ) for and on behalf of ) WUHU SHAODA ELECTRIC POWER ) DEVELOPMENT COMPANY LIMITED ) by ) in the presence of: /s/ [SIGNATURE ILLEGIBLE] ) /s/ [SIGNATURE ILLEGIBLE] THE JUNIOR LENDER - ----------------- SIGNED for and on behalf of ) AES CHINA HOLDINGS ) COMPANY (L) LIMITED ) by ) in the presence of: /s/ [SIGNATURE ILLEGIBLE] ) /s/ [SIGNATURE ILLEGIBLE] 18 EX-10 7 EX. 10.37 Exhibit 10.37 WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED as Borrower and AES CHINA HOLDINGS COMPANY (L) LIMITED as Junior Lender SUBORDINATED BORROWER CHARGE OVER ACCOUNTS CHADBOURNE & PARKE LLP AMERICAN ATTORNEYS AT LAW SUITE 3704, PEREGRINE TOWER LIPPO CENTRE, 89 QUEENSWAY HONG KONG CONTENTS Number Clause Heading Page - ------ -------------- ---- 1. Interpretation..................................................1 2. Charge..........................................................2 3. Continuing Security.............................................3 4. Representations and Warranties..................................3 5. Undertakings....................................................3 6. Condition of Deposits...........................................4 7. Enforcement.....................................................4 8. Taxes and Other Deductions......................................5 9. Costs, Charges and Expenses.....................................5 10. Set-off.........................................................6 11. Indemnity.......................................................6 12. Further Assurance...............................................7 13. Power of Attorney...............................................7 14. Suspense Account................................................8 15. Waiver and Severability.........................................8 16. Miscellaneous...................................................8 17. Assignment.....................................................10 18. Notices........................................................10 19. Governing Law and Jurisdiction.................................10 20. Subordinated Security..........................................11 Schedule 1 Charged Accounts.......................................13 Schedule 2 Form of Notice and Acknowledgement.....................14 Execution Block THIS DEED is made on the day of 1996 ------------- ------------------------- BETWEEN: (1) WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED, an equity joint venture company formed under the Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment, with its registered office at Commercial Office Building, West Huangshan Road, Wuhu, Anhui Province, People's Republic of China (the "Borrower"); and (2) AES CHINA HOLDINGS COMPANY (L) LIMITED, a Labuan company of Lot A, Level 3, Wisma Oceanic, Jalan OKK Awang, 87007, Federal Territory of Labuan, Malaysia (the "Junior Lender"). WHEREAS: (A) By the AES Loan Agreement (as defined below), the Junior Lender has agreed to make available to the Borrower a term loan facility of up to eighteen million Dollars (US$18,000,000), upon the terms set out therein. (B) It is a condition precedent to the Junior Lender making the Facility available to the Borrower that the Borrower enters into this Deed. NOW THIS DEED WITNESSES as follows: 1. INTERPRETATION 1.01 Definitions and Construction. In this Deed, unless the context requires otherwise: (a) terms and expressions defined in or construed for the purposes of the AES Loan Agreement shall have the same meanings or be construed in the same manner when used in this Deed; (b) "AES Loan Agreement" means the loan agreement dated ------- 1996 and made between the Junior Lender and the Borrower; (c) "Bank" means Bank of China, Wuhu Branch at 233 Jiuhuashan Road, Wuhu, China; (d) the expression "Charge" shall include any right of set-off; (e) "Charged Accounts" means the Borrower RMB Revenue Account, the Borrower Dollar Retention Account and the Borrower Special Dividends Account (as defined in the Senior Loan Agreement), each held in the name of the Borrower with the Bank and as more particularly 1 described in Schedule 1, and all sums now or hereafter deposited in such accounts and all additions to or renewals or replacements of all or any part thereof (in whatever currency) and all interest or other sums which may accrue from time to time thereon; (f) "Junior Secured Indebtedness" means all and any sums (whether principal, interest, fees or otherwise) which are or at any time may become payable by the Borrower under the AES Loan Agreement or any Subordinated Security Document to which it is a party and all other monies hereby secured. 1.02 Successors and Assigns. The expressions "Borrower", "Security Agent" and "Junior Lender" shall where the context permits include their respective successors and permitted assigns and any persons deriving title under them. 1.03 AES Loan Agreement. To the extent applicable and required by relevant law, the terms and conditions of the AES Loan Agreement shall be deemed to be incorporated into this Deed by reference and this Deed shall be read and construed as if such terms and conditions had been set out in full herein. 1.04 Miscellaneous. In this Deed, unless the context requires otherwise, references to statutory provisions shall be construed as references to those provisions as replaced, amended, modified or re-enacted from time to time; words importing the singular include the plural and vice versa and words importing a gender include every gender; references to this Deed, the AES Loan Agreement, any other Subordinated Security Document or any other document referred to herein shall be construed as references to such document as the same may be amended or supplemented (provided that any required consent or approval for such amendment or supplement has been obtained) from time to time; unless otherwise stated, references to Clauses and the Schedules are to clauses of and the schedules to this Deed. Clause headings are inserted for reference only and shall be ignored in construing this Deed. 2. CHARGE 2.01 Charge and Assignment. In consideration of the Facility being made available by the Junior Lender to the Borrower upon the terms and conditions of the AES Loan Agreement, the Borrower with full title guarantee charges to the Junior Lender by way of third fixed charge and grants a third-priority security interest to the Junior Lender in each of the Charged Accounts as a continuing security for the due and punctual payment of the Junior Secured Indebtedness and the due and punctual performance and observance by the Borrower of all other obligations of the Borrower contained in the AES Loan Agreement or any Subordinated Security Document to which it is a party. THIS CHARGE IS SUBORDINATE IN RIGHT TO THE CHARGES CREATED TO SECURE THE OBLIGATIONS 2 OF THE BORROWER UNDER THE SENIOR LOAN AGREEMENT, AND THE ENFORCEMENT OF THIS CHARGE SHALL BE LIMITED IN ACCORDANCE WITH THE PROVISIONS OF THE SENIOR SUBORDINATION AGREEMENT AND THE PRIORITY DEED. 2.02 Notice to Bank. The Borrower will, forthwith upon execution of this Deed, give notice to and obtain an acknowledgement from the Bank in the form set out in Schedule 2. 3. CONTINUING SECURITY This Deed shall be a continuing security and shall remain in full force and effect until the Junior Secured Indebtedness has been paid in full, notwithstanding the insolvency or liquidation or any incapacity or change in the constitution or status of the Borrower or any other person or any intermediate settlement of account or other matter whatsoever. This Deed is in addition to, and independent of, any Charge, guarantee or other security or right or remedy now or at any time hereafter held by or available to the Junior Lender. 4. REPRESENTATIONS AND WARRANTIES 4.01 Representations and Warranties. The Borrower represents and warrants to the Junior Lender that: (a) each of the Charged Accounts is beneficially owned by the Borrower free from any Charge except as created (i) under or pursuant to this Deed, (ii) to secure the obligations of the Borrower under the Senior Loan Agreement or (iii) in respect of the Guarantee, subject to any rights arising by operation of law; and (b) the particulars of each of the Charged Accounts set out in Schedule 1 are accurate. 4.02 Continuing Representation and Warranty. The Borrower also represents and warrants to and undertakes with the Junior Lender that the foregoing representations and warranties will be true and accurate throughout the continuance of this Deed with reference to the facts and circumstances subsisting from time to time. 5. UNDERTAKINGS The Borrower undertakes and agrees with the Junior Lender throughout the continuance of this Deed and so long as the Junior Secured Indebtedness or any part thereof remains owing that the Borrower will not, unless the Junior Lender otherwise agrees in writing: 3 (a) withdraw or attempt to or be entitled to withdraw all or any part of the monies in each of the Charged Accounts except in accordance with the terms of the AES Loan Agreement; (b) create or attempt or agree to create or permit to arise or exist any Charge over all or any part of the Charged Accounts or any interest therein or otherwise assign, deal with or dispose of all or any part of the Charged Accounts (except as created (i) under or pursuant to this Deed, (ii) to secure the obligations of the Borrower under the Senior Loan Agreement and (iii) in respect of the Guarantee); and (c) do or cause or permit to be done anything which may in any way depreciate, jeopardize or otherwise prejudice the value of the Junior Lender's security hereunder except as permitted by the terms of this Deed and as created to secure the obligations of the Borrower under the Senior Loan Agreement and the CPIL Security. 6. CONDITION OF DEPOSIT Notwithstanding any other terms upon which monies may have been deposited in each of the Charged Accounts, throughout the continuance of this Deed it is a condition of such deposit that no monies shall be capable of being withdrawn from such Charged Accounts, neither the Charged Accounts nor any part thereof shall in any way be assignable or transferable and no Charge shall be capable of being created over or in respect of any of the Charged Accounts other than, in each case, in accordance with the terms of the AES Loan Agreement and the Senior Loan Agreement. 7. ENFORCEMENT 7.01 Events of Default. For the purposes of this Clause, each of the following events and circumstances shall be an Event of Default: (a) any event or circumstance which would constitute an Event of Default as that term is defined in the AES Loan Agreement; and (b) if the Borrower purports or attempts to create any Charge (except under this Deed or to secure the obligations of the Borrower under the Senior Loan Agreement) over all or any part of any of the Charged Accounts or any third party asserts a claim in respect thereof. 7.02 Enforcement of Security. Upon the occurrence of an Event of Default, the Junior Lender may, subject to Clause 7.03 and the provisions of the Senior Subordination Agreement and the Priority Deed, at any time or times thereafter and without further notice or restriction, procure the appropriation, transfer or set off all or any part of the monies in any 4 Charged Account in or towards the payment or discharge of the Junior Secured Indebtedness in such manner as the Junior Lender may think fit and, for this purpose, the Junior Lender may, at the expense of the Borrower, convert all or any part of such monies into other currencies. The above provisions apply notwithstanding that any such monies may have been deposited for a fixed period or be subject to a period of notice and that the fixed period or period of notice may not have expired or that notice or sufficient notice may not have been given. 7.03 No Change in Name. Notwithstanding any other provision in this Deed, the Charged Accounts shall at all times be held in the name of the Borrower and the Junior Lender shall not at any time before or after enforcement or otherwise be entitled or otherwise able to change, or procure any change which would result in, any of the Charged Accounts being held otherwise than in the Borrower's name from time to time. 8. TAXES AND OTHER DEDUCTIONS All sums payable by the Borrower under this Deed shall be paid in full without set-off or counterclaim or any restriction or condition and free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings of any nature. If the Borrower or any other person is required by any law or regulation to make any deduction or withholding (on account of tax (other than an Excluded Tax) or otherwise) from any payment for the account of the Junior Lender, the Borrower shall, together with such payment, pay such additional amount as will ensure that the Junior Lender receives (free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings) the full amount which it would have received if no such deduction or withholding had been required. The Borrower shall promptly forward to the Junior Lender copies of official receipts or other evidence showing that the full amount of any such deduction or withholding has been paid over to the relevant taxation or other authority. 9. COSTS, CHARGES AND EXPENSES The Borrower shall from time to time forthwith on demand pay to or reimburse the Junior Lender for: (a) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the Junior Lender in connection with the preparation, execution and registration of any amendment to or extension of, or the giving of any consent or waiver in connection with this Deed; and (b) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the Junior Lender in exercising any of its 5 rights or powers hereunder or in suing for or seeking to recover any sums due hereunder or otherwise preserving or enforcing its rights hereunder or in defending any claims brought against it in respect of this Deed or in releasing or re-assigning this Deed upon payment of all monies hereby secured and until payment of the same in full, all such costs, charges and expenses shall be secured by this Deed. To the extent practicable, the Junior Lender shall consult the Borrower before incurring any major expenditure. 10. SET-OFF Notwithstanding Clause 7 and/or any provision hereof, the Borrower agrees that the Junior Lender shall (without prejudice to any general or lender's lien, right of set-off or any other right to which it may be entitled) have the right, without notice to the Borrower or any other person, at any time to set off and apply any credit balance on any Charged Account (whether subject to notice or not and whether matured or not and in whatever currency) and any other indebtedness owing by the Junior Lender to the Borrower, against the Junior Secured Indebtedness in accordance with the provisions of clause 16.03 of the AES Loan Agreement and the Junior Lender is authorized to purchase with the monies standing to the credit of any such accounts such other currencies as may be necessary for this purpose. 11. INDEMNITY 11.01 General Indemnity. The Borrower shall indemnify the Junior Lender against all losses, liabilities, damages, costs and expenses incurred by it in the execution or performance of the terms and conditions hereof and against all actions, proceedings, claims, demands, costs, charges and expenses which maybe incurred, sustained or arise in respect of the non-performance or non-observance of any of the undertakings and agreements on the part of the Borrower herein contained or in respect of any matter or thing done or omitted relating in any way whatsoever to the Charged Accounts. 11.02 Currency Indemnity. Dollars shall be the currency of account and of payment in respect of sums payable under this Deed. If an amount is received in another currency, pursuant to a judgment or order or in the liquidation of the Borrower or otherwise, the Borrower's obligations under this Deed shall be discharged only to the extent that the Junior Lender may purchase Dollars with such other currency in accordance with normal banking procedures upon receipt of such amount. If the amount in Dollars which may be so purchased, after deducting any costs of exchange and any other related costs, is less than the relevant sum payable under this Deed, the Borrower shall indemnify the Junior Lender against the shortfall. This indemnity shall be an obligation of the Borrower independent of and 6 in addition to its other obligations under this Deed and shall take effect notwithstanding any time or other concession granted to the Borrower or any judgment or order being obtained or the filing of any claim in the liquidation, dissolution or bankruptcy (or analogous process) of the Borrower. 11.03 Payment and Security. The Junior Lender may retain and pay out of any money in the Junior Lender's hands all sums necessary to effect the indemnity contained in this Clause 11 and all sums payable by the Borrower under this Clause 11 shall form part of the monies hereby secured. 12. FURTHER ASSURANCE 12.01 Further Assurance. The Borrower shall at any time and from time to time (whether before or after the security hereby created shall have become enforceable) execute such further legal or other mortgages, charges or assignments and do all such transfers, assurances, acts and things as the Junior Lender may require over or in respect of the Charged Accounts to secure all monies, obligations and liabilities hereby covenanted to be paid or hereby secured or for the purposes of perfecting and completing any assignment of the Junior Lender's rights, benefits or obligations hereunder and the Borrower shall also give all notices, orders and directions which the Junior Lender may require. 12.02 Enforcement of Junior Lender's Rights. Subject to the Senior Subordination Agreement and the Priority Deed, the Borrower will do or permit to be done everything which the Junior Lender may from time to time require to be done for the purpose of enforcing the Junior Lender's rights hereunder and will allow the name of the Borrower to be used as and when required by the Junior Lender for that purpose. 13. POWER OF ATTORNEY The Borrower irrevocably appoints the Junior Lender by way of security to be its attorney-in-fact (with full power of substitution) and in its name or otherwise on its behalf and as its act and deed to sign, seal, execute, deliver, perfect and do all deeds, instruments, acts and things which may be required or which the Junior Lender shall think proper or expedient for carrying out any obligations imposed on the Borrower hereunder or for exercising any of the powers hereby conferred or for giving to the Junior Lender the full benefit of this security and so that the appointment hereby made shall operate to confer on the Junior Lender authority to do on behalf of the Borrower anything which it can lawfully do by an attorney-in-fact. The Borrower ratifies and confirms and agrees to ratify and confirm any deed, instrument, act or thing which such attorney-in-fact or substitute may execute or do. 7 14. SUSPENSE ACCOUNT The Junior Lender may place and keep any monies received by virtue of this Deed (whether before or after the insolvency or liquidation of the Borrower) to the credit of a suspense account for so long as the Junior Lender may think fit in order to preserve the rights of the Junior Lender to sue or prove for the whole amount of its claims against the Borrower or any other person. 15. WAIVER AND SEVERABILITY No failure or delay by the Junior Lender in exercising any right, power or remedy hereunder shall impair such right, power or remedy or operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. If at any time any provision of this Deed is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, the legality, validity and enforceability of such provision under the law of any other jurisdiction, and of the remaining provisions of this Deed, shall not be affected or impaired thereby. 16. MISCELLANEOUS 16.01 Continuing Obligations. The liabilities and obligations of the Borrower under this Deed shall remain in force notwithstanding any act, omission, event or circumstance whatsoever, until full, proper and valid payment of the Junior Secured Indebtedness. 16.02 Protective Clauses. Without limiting Clause 16.01, neither the liability of the Borrower nor the validity or enforceability of this Deed shall be prejudiced, affected or discharged by: (a) the granting of any time or indulgence to the Borrower or any other person; (b) any variation or modification of the AES Loan Agreement, any of the Subordinated Security Documents or any other document referred to therein; (c) the invalidity or unenforceability of any obligation or liability of the Borrower under the AES Loan Agreement or this Deed or any of the Subordinated Security Documents to which it is a party; (d) any invalidity or irregularity in the execution of this Deed or the AES Loan Agreement or any of the other Subordinated Security Documents; 8 (e) any deficiency in the powers of the Borrower to enter into or perform any of its obligations under the AES Loan Agreement or any of the other Subordinated Security Documents to which it is a party or any irregularity in the exercise thereof or any lack of authority by any person purporting to act on behalf of the Borrower; (f) any other Subordinated Security Document, Charge, guarantee or other security or right or remedy being or becoming held by or available to the Junior Lender or by any of the same being or becoming wholly or partly void, voidable, unenforceable or impaired or by the Junior Lender at any time releasing, refraining from enforcing, varying or in any other way dealing with any of the same or any power, right or remedy the Junior Lender may now or hereafter have from or against the Borrower or any other person; (g) any waiver, exercise, omission to exercise, compromise, renewal or release of any rights against the Borrower or any other person or any compromise, arrangement or settlement with any of the same; (h) any act, omission, event or circumstance which would or may but for this provision operate to prejudice, affect or discharge this Deed or the liability of the Borrower hereunder. 16.03 Unrestricted Right of Enforcement. Subject to the Senior Subordination Agreement and the Priority Deed, this Deed may be enforced without the Junior Lender first having recourse to any other security or rights or taking any other steps or proceedings against the Borrower or any other person or may be enforced for any balance due after resorting to any one or more other means of obtaining payment or discharge of the monies obligations and liabilities hereby secured. 16.04 Discharges and Releases. Notwithstanding any discharge, release or settlement from time to time between the Junior Lender and the Borrower, if any security, disposition or payment granted or made to the Junior Lender in respect of the Junior Secured Indebtedness by the Borrower or any other person is avoided or set aside or ordered to be surrendered, paid away, refunded or reduced by virtue of any provision, law or enactment relating to bankruptcy, insolvency, liquidation, winding-up, composition or arrangement for the time being in force or for any other reason, the Junior Lender shall be entitled hereafter to enforce this Deed as if no such discharge, release or settlement had occurred. 16.05 Amendment. Any amendment or waiver of any provision of this Deed and any waiver of any default under this Deed shall only be effective if made in writing and signed by or on behalf of the party against whom the amendment or waiver is asserted. 9 17. ASSIGNMENT 17.01 The Borrower. The Borrower shall not assign any of its rights or obligations hereunder. 17.02 The Junior Lender. The Junior Lender may assign or grant participations in all or any part of its rights under this Deed in accordance with the provisions of clause 20 of the AES Loan Agreement. 18. NOTICES 18.01 Delivery. Each notice, demand or other communication to be given or made under this Deed shall be in writing and delivered or sent to the relevant party at its address or telex number or fax number set out below (or such other address or telex number or fax number as the addressee has by five (5) days' prior written notice specified to the other party): To the Borrower: Wuhu Shaoda Electric Power Development Company Limited Commercial Office Building West Huangshan Road Wuhu, Anhui Province People's Republic of China Fax Number: (86-553) 382-3224 Attention: Zhai Dao Ping To the Junior Lender: AES China Holdings Company (L) Limited 9th Floor, Allied Capital Resources Building 32-38 Ice House Street Central, Hong Kong Fax Number: (852) 2530-1673 Attention: Jeff Safford Chief Financial Officer 18.02 Deemed Delivery. Any notice, demand or other communication so addressed to the relevant party shall be deemed to have been delivered (a) if given or made by letter, when actually delivered to the relevant address; (b) if given or made by telex, when dispatched with confirmed answerback and (c) if given or made by fax, when dispatched. 19. GOVERNING LAW AND JURISDICTION 19.01 Law. This Deed and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of England. 10 19.02 Jurisdiction. The Borrower agrees that any legal action or proceeding arising out of or relating to this Deed may be brought in the courts of England and irrevocably submits to the non-exclusive jurisdiction of such courts. 19.03 Process Agent. The Borrower irrevocably appoints Messrs. Rowe & Maw (Attention: Mr. Bernd Ratzke) of 20 Blackfriars Lane, London EC4V 6HT, England as its agent to receive and acknowledge on its behalf service of any writ, summons, order, judgment or other notice of legal process in England. If for any reason the agent named above (or its successor) no longer serves as agent of the Borrower for this purpose, the Borrower shall promptly appoint a successor agent satisfactory to the Junior Lender and notify the Junior Lender thereof, provided that until the Junior Lender receives such notification, it shall be entitled to treat the agent named above (or its said successor) as the agent of the Borrower for the purposes of this Clause 19.03. The Borrower agrees that any such legal process shall be sufficiently served on it if delivered to such agent for service at its address for the time being in England whether or not such agent gives notice thereof to the Borrower. 19.04 No Limitation on Right of Action. Nothing herein shall limit the right of the Junior Lender to commence any legal action against the Borrower and/or its property in any other jurisdiction or to serve process in any manner permitted by law, and the taking of proceedings in any jurisdiction shall not preclude the taking of proceedings in any other jurisdiction whether concurrently or not. 19.05 Waiver; Final Judgment Conclusive. The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the choice of England as the venue of any legal action arising out of or relating to this Deed. The Borrower also agrees that a final judgment against it in any such legal action shall be final and conclusive and may be enforced in any other jurisdiction, and that a certified or otherwise duly authenticated copy of the judgment shall be conclusive evidence of the fact and amount of its indebtedness. 19.06 Waiver of Immunity. The Borrower irrevocably waives any immunity to which it or its property may at any time be or become entitled, whether characterized as sovereign immunity or otherwise, from any set-off or legal action in England or elsewhere, including immunity from service of process, immunity from jurisdiction of any court or tribunal, and immunity of any of its property from attachment prior to judgment or from execution of a judgment. 20. SUBORDINATED SECURITY Notwithstanding any other provision to the contrary, this Deed must be read and construed in all respects, and the exercise of any rights under 11 this Deed and the enforcement of any rights under this Deed must be subject in each case to the terms of the: (a) Senior Subordination Agreement; and (b) Priority Deed. In the event of any conflict or inconsistency between the terms of this Deed of the one part and the Senior Subordination Agreement or the Priority Deed of the other part, the latter documents will prevail. IN WITNESS whereof the parties hereto have executed this Deed on the day and year first above written. 12 Schedule 1 Charged Accounts Borrower RMB Revenue Account 018250012407 Borrower Dollar Retention Account 148250028606 Borrower Special Dividends Account 148250032607 13 Schedule 2 Form of Notice and Acknowledgement To: Bank of China, Wuhu Branch Dear Sirs, Re: Account Nos. [ ] We give you notice that by a subordinated charge over bank account dated------- 1996 (the "Charge") we have charged and assigned by way of a third fixed charge in favour of AES China Holdings Company (L) Limited (the "Junior Lender") the above accounts (the "Charged Accounts") and a third-priority security interest in all our right, title, interest and benefit therein and thereto upon the terms and conditions therein contained. This charge is subordinated and is a third ranking security. All the rights of the Junior Lender under this Charge are subject to the Senior Subordination Agreement and the Senior Priority Deed. We enclose a copy of the Charge with this notice. Please note that under the terms of the Charge, we are not entitled to withdraw any monies from any Charged Account except in accordance with the terms of the AES Loan Agreement. Until notice in writing to the contrary is provided by the Security Agent, we authorize and instruct you from time to time, upon receipt of instructions from the Security Agent and subject to the Senior Subordination Agreement and the Priority Deed: (a) to pay to the Security Agent, or as it may direct, any or all monies standing to the credit of any Charged Account in accordance with such instructions; (b) to disclose to the Security Agent such information relating to any Charged Account as the Security Agent may request. We agree that you shall not be bound to enquire whether the right of the Security Agent to withdraw any monies from any Charged Account has arisen or be concerned with the propriety or regularity of the exercise thereof or be concerned with notice to the contrary or be concerned with or responsible for the application of any monies received by the Security Agent. These instructions shall not be revoked or varied without the prior written consent of the Junior Lender. 14 Please acknowledge this notice by signing as indicated and returning to the Junior Lender the enclosed duplicate of this notice. Yours faithfully, For and on behalf of Wuhu Shaoda Electric Power Development Company Limited Name: Title: 15 [on duplicate] To: Bank of China, Anhui Branch on its own behalf and as security agent for the Senior Financing Parties We acknowledge receipt of the above notice and confirm that we will comply with the terms thereof. We agree that we will neither claim to set off to your prejudice any monies standing to the credit of any Charged Account against any claim we may have against Wuhu Shaoda Electric Power Development Company Limited howsoever arising nor exercise or attempt to exercise any right of set-off or consolidation or combination of accounts or similar right in respect of or in relation to any Charged Account unless, in each case, at your instructions or with your consent. Dated: For and on behalf of Bank of China, Wuhu Branch Name: Title: 16 THE BORROWER - ------------ EXECUTED as and DELIVERED as a Deed ) by ) WUHU SHAODA ELECTRIC POWER ) DEVELOPMENT COMPANY LIMITED ) ( ) ) acting by its authorized signatory ) in the presence of: /s/ [SIGNATURE ILLEGIBLE] ) /s/ [SIGNATURE ILLEGIBLE] THE JUNIOR LENDER - ----------------- SIGNED for and on behalf of ) AES CHINA HOLDINGS ) COMPANY (L) LIMITED ) by ) in the presence of: /s/ [SIGNATURE ILLEGIBLE] ) /s/ [SIGNATURE ILLEGIBLE] 17 EX-10 8 EX. 10.38 Exhibit 10.38 WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED as Borrower and AES CHINA HOLDINGS COMPANY (L) LIMITED as Junior Lender SUBORDINATED PROJECT CONTRACTS ASSIGNMENT CHADBOURNE & PARKE LLP AMERICAN ATTORNEYS AT LAW SUITE 3704, PEREGRINE TOWER LIPPO CENTRE, 89 QUEENSWAY HONG KONG CONTENTS Number Clause Heading Page - ------ -------------- ---- 1. Interpretation......................................................1 2. Assignment of Project Contracts.....................................3 3. Continuing Security.................................................4 4. Representations and Warranties......................................4 5. Undertakings........................................................4 6. Borrower's Liability................................................5 7. Events of Default...................................................5 8. Application of Receipts.............................................6 9. Taxes and Other Deductions..........................................6 10. Costs, Charges and Expenses.........................................6 11. Indemnity...........................................................7 12. Further Assurance...................................................8 13. Power of Attorney...................................................8 14. Suspense Account....................................................8 15. Waiver and Severability.............................................9 16. Miscellaneous.......................................................9 17. Assignment.........................................................10 18. Notices............................................................11 19. Governing Law and Jurisdiction.....................................11 20. Subordinated Security..............................................12 Schedule Form of Notice............................................14 Execution Block THIS DEED is made on the day of 1996 ----------- ------------------------- BETWEEN: (1) WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED, an equity joint venture company formed under the Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment, with its registered office at Commercial Office Building, West Huangshan Road, Wuhu, Anhui Province, People's Republic of China (the "Borrower"); and (2) AES CHINA HOLDINGS COMPANY (L) LIMITED, a Labuan company of Lot A, Level 3, Wisma Oceanic, Jalan OKK Awang, 87007, Federal Territory of Labuan, Malaysia (the "Junior Lender"). WHEREAS: (A) By the AES Loan Agreement (as defined below), the Junior Lender has agreed to make available to the Borrower a term loan facility of up to eighteen million Dollars (US$18,000,000), upon the terms set out therein. (B) It is a condition precedent to the Junior Lender making the Facility available to the Borrower that the Borrower enters into this Deed. NOW THIS DEED WITNESSES as follows: 1. INTERPRETATION 1.01 Definitions and Construction. In this Deed, unless the context requires otherwise: (a) terms and expressions defined in or construed for the purposes of the AES Loan Agreement shall have the same meanings or be construed in the same manner when used in this Deed; (b) "AES Chigen Limited Guarantee" means the limited guarantee dated April 22, 1996 issued by AES Chigen in favor of the Borrower; (c) "AES Loan Agreement" means the loan agreement dated -------- 1996 and made between the Junior Lender and the Borrower; (d) "Anhui Liyuan Loan Agreement" means the loan agreement dated April 22, 1996 and made between Anhui Liyuan and the Borrower; (e) "Conversion Agreement" means the agreement dated April 22, 1996 and made between the Borrower and the Conversion Bank; 1 (f) "EPC Contract" means the engineering, procurement and construction services contract dated April 22, 1996 and made between the Borrower and Anhui Power in connection with the Power Plant; (g) "Event of Default" means any event specified as such in Clause 7; and "prospective Event of Default" means any event with which the giving of notice and/or the passage of time and/or the fulfilment of any other condition would be an Event of Default; (h) "Interconnection Contract" means the contract dated April 22, 1996 and made between the Borrower and Anhui Power for the purpose of connecting the Power Plant to the Anhui grid; (i) "Junior Secured Indebtedness" means all and any sums (whether principal, interest, fees or otherwise) which are or at any time may become payable by the Borrower under the AES Loan Agreement or any Subordinated Security Document to which it is a party and all other monies hereby secured; (j) "Operation and Offtake Contract" means the contract dated April 22, 1996 and made between the Borrower and Anhui Power for the operation of the Power Plant and the sale and purchase of electricity; (k) "Performance Guarantee" means the performance guarantee dated April 22, 1996 issued by East China Power in connection with Anhui Power's obligations under the EPC Contract; (l) "Project Contracts" means the EPC Contract, the Operation and Offtake Agreement, the Interconnection Agreement, the Performance Guarantee, the Anhui Liyuan Loan Agreement, the Wuhu Loan Agreement, the AES Chigen Limited Guarantee and the Conversion Agreement, including all enclosures, amendments and supplements thereto and all benefits thereof including, without limitation: (i) the right to receive any and all moneys due or to become due to the Borrower under or pursuant to the Project Contracts; (ii) all claims in respect of any breach of the Project Contracts; (iii)the right (but not the obligation) of the Borrower to perform and to compel performance of the Project Contracts; and (iv) any right of the Borrower to rescind or otherwise terminate the Project Contracts; and (m) "Wuhu Loan Agreement" means the loan agreement dated April 22, 1996 and made between Wuhu and the Borrower. 2 1.02 Successors and Assigns. The expressions "Borrower" and "Junior Lender" shall where the context permits include their respective successors and permitted assigns and any persons deriving title under them. 1.03 AES Loan Agreement. To the extent applicable and required by relevant law, the terms and conditions of the AES Loan Agreement shall be deemed to be incorporated into this Deed by reference and this Deed shall be read and construed as if such terms and conditions had been set out in full herein. 1.04 Miscellaneous. In this Deed, unless the context requires otherwise, references to statutory provisions shall be construed as references to those provisions as replaced, amended, modified or re-enacted from time to time; words importing the singular include the plural and vice versa and words importing a gender include every gender; references to this Deed, the AES Loan Agreement, any other Subordinated Security Document, any Project Contract or any other document referred to herein shall be construed as references to such document as the same may be amended or supplemented (provided that any required consent or approval for such amendment or supplement has been obtained) from time to time; unless otherwise stated, references to Clauses and Schedules are to clauses of and schedules to this Deed. Clause headings are inserted for reference only and shall be ignored in construing this Deed. 2. ASSIGNMENT OF PROJECT CONTRACTS 2.01 Charge and Assignment. In consideration of the Facility being made available by the Junior Lender to the Borrower upon the terms and conditions of the AES Loan Agreement, the Borrower with full title guarantee assigns and grants to the Junior Lender a third-priority security interest in absolutely all the Borrower's right, title, interest and benefit in and to the Project Contracts upon the terms herein set out as a continuing security for the due and punctual payment of the Junior Secured Indebtedness and the due and punctual performance and observance by the Borrower of all other obligations of the Borrower contained in the AES Loan Agreement or any Subordinated Security Document to which it is a party. THIS ASSIGNMENT IS SUBORDINATE IN RIGHT TO THE CHARGES CREATED TO SECURE THE OBLIGATIONS OF THE BORROWER UNDER THE SENIOR LOAN AGREEMENT, AND THE ENFORCEMENT OF THIS ASSIGNMENT SHALL BE LIMITED IN ACCORDANCE WITH THE PROVISIONS OF THE SENIOR SUBORDINATION AGREEMENT AND THE PRIORITY DEED. 2.02 Notice. The Borrower will, forthwith upon the execution of this Deed, give notice of the assignment herein contained to and obtain an acknowledgment from each of the other parties to the Project Contracts in 3 the form set out in the Schedule or, if not in that form, in a form satisfactory to the Junior Lender. 2.03 Dealing with Parties. Notwithstanding the assignment herein contained but otherwise subject to the terms of this Deed, the Junior Lender hereby authorizes the Borrower to continue to deal with the other parties to the Project Contracts in relation to the Project Contracts as if the Borrower remained solely entitled to all the rights, title, interest and benefits thereunder but, save as herein provided, not directly to waive, amend, vary or otherwise modify any provision of any Project Contract, provided that if an Event of Default or prospective Event of Default occurs the foregoing authority shall immediately cease to have effect. 3. CONTINUING SECURITY This Deed shall be a continuing security and shall remain in full force and effect until the Junior Secured Indebtedness has been paid in full, notwithstanding the insolvency or liquidation or any incapacity or change in the constitution or status of the Borrower or any other person or any intermediate settlement of account or other matter whatsoever. This Deed is in addition to, and independent of, any Charge, guarantee or other security or right or remedy now or at any time hereafter held by or available to the Junior Lender. 4. REPRESENTATIONS AND WARRANTIES 4.01 Representation and Warranty. Except for the relevant Charges created under this Deed and to secure the obligations of the Borrower under the Senior Loan Agreement and the CPIL Security, the Borrower hereby represents and warrants to the Junior Lender that no Charge exists, and the Borrower has not created or agreed to create any Charge over, all or any of its rights, title and interest in and to the Project Contracts other than rights arising by operation of law. 4.02 Continuing Representation and Warranty. The Borrower also represents and warrants to and undertakes with the Junior Lender that the foregoing representation and warranty will be true and accurate throughout the continuance of this Deed with reference to the facts and circumstances existing from time to time. 5. UNDERTAKINGS The Borrower undertakes and agrees with the Junior Lender throughout the continuance of this Deed and so long as the Junior Secured Indebtedness or any part thereof remains owing that the Borrower will, unless the Junior Lender otherwise agrees in writing: 4 (a) take all steps which may be necessary or expedient to keep the Project Contracts in full force and effect and protect the interests of the Borrower and the Junior Lender therein and shall do or permit to be done every act or thing which the Junior Lender may from time to time require for the purpose of enforcing the rights of the Junior Lender hereunder; (b) not waive, release, settle, compromise or abandon any claim or the liability of any person under the Project Contracts or do or omit to do any other act or thing whereby the recovery in full of any moneys payable thereunder as and when they become payable may be impeded; (c) not amend, vary or otherwise modify any provision of any Project Contract; (d) except for the relevant Charges created under this Deed and to secure the obligations of the Borrower under the Senior Loan Agreement and the CPIL Security, not hereafter create or agree to create or permit to arise or exist any Charge over the Project Contracts; and (e) provide to the Junior Lender copies of all material notices and material documents issued by the other parties to the Project Contracts relating to the Project Contracts forthwith upon the Borrower receiving the same. 6. BORROWER'S LIABILITY Notwithstanding the assignment herein contained, the Borrower shall remain liable to observe and perform all the obligations assumed by it in relation to the Project Contracts and the Junior Lender shall have no obligation or liability thereunder. The Junior Lender shall not be obliged to make any enquiry as to the nature or sufficiency of any payment received by it or to make any claim or take any other action to collect any moneys or to enforce any rights and benefits hereby assigned. 7. EVENTS OF DEFAULT Each of the following events and circumstances shall be an Event of Default: (a) any event or circumstance which would constitute an Event of Default as that term is defined in the AES Loan Agreement; (b) the Borrower purports or attempts to create any Charge over all or any part of the Project Contracts or any third party asserts a claim 5 (other than a frivolous or vexatious claim) in respect thereof unless contested in good faith and through appropriate means; and (c) the security hereby created or any part thereof fails or ceases for any reason to be in full force and effect or is terminated or jeopardized or becomes invalid or unenforceable or if there is any dispute regarding the same or if there is any purported termination of the same or it becomes impossible or unlawful for the Borrower to perform any of its obligations hereunder or for the Junior Lender to exercise all or any of its rights, powers and remedies hereunder. 8. APPLICATION OF RECEIPTS After the occurrence of an Event of Default, all monies received by the Junior Lender hereunder may be applied in or towards satisfaction of the Junior Secured Indebtedness in such manner as is provided for in the AES Loan Agreement and subject to the provisions of the Senior Subordination Agreement and the Priority Deed. 9. TAXES AND OTHER DEDUCTIONS All sums payable by the Borrower under this Deed shall be paid in full without set-off or counterclaim or any restriction or condition and free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings of any nature. If the Borrower or any other person is required by any law or regulation to make any deduction or withholding (on account of tax (other than an Excluded Tax) or otherwise) from any payment for the account of the Junior Lender, the Borrower shall, together with such payment, pay such additional amount as will ensure that the Junior Lender receives (free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings) the full amount which it would have received if no such deduction or withholding had been required. The Borrower shall promptly forward to the Junior Lender copies of official receipts or other evidence showing that the full amount of any such deduction or withholding has been paid over to the relevant taxation or other authority. 10. COSTS, CHARGES AND EXPENSES The Borrower shall from time to time forthwith on demand pay to or reimburse the Junior Lender for: (a) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the Junior Lender in connection with the preparation, execution and registration of any amendment to or extension of, or the giving of any consent or waiver in connection with this Deed; and 6 (b) all reasonable costs, charges and expenses (including legal and other fees on a full indemnity basis and out of pocket expenses) reasonably incurred by the Junior Lender in exercising any of its rights or powers hereunder or in suing for or seeking to recover any sums due hereunder or otherwise preserving or enforcing its rights hereunder or in defending any claims brought against it in respect of this Deed or in releasing or re-assigning this Deed upon payment of all monies hereby secured and until payment of the same in full, all such costs, charges and expenses shall be secured by this Deed. To the extent practicable, the Junior Lender shall consult the Borrower before incurring any major expenditure. 11. INDEMNITY 11.01 General Indemnity. The Borrower shall indemnify the Junior Lender against all losses, liabilities, damages, costs and expenses incurred by it in the execution or performance of the terms and conditions hereof and against all actions, proceedings, claims, demands, costs, charges and expenses which may be incurred, sustained or arise in respect of the non-performance or non-observance of any of the undertakings and agreements on the part of the Borrower herein contained or in respect of any matter or thing done or omitted, on the part of the Borrower, relating in any way whatsoever to the Project Contracts. 11.02 Currency Indemnity. Dollars shall be the currency of account and of payment in respect of sums payable under this Deed. If an amount is received in another currency, pursuant to a judgment or order or in the liquidation of the Borrower or otherwise, the Borrower's obligations under this Deed shall be discharged only to the extent that the Junior Lender may purchase Dollars with such other currency in accordance with normal banking procedures upon receipt of such amount. If the amount in Dollars which may be so purchased, after deducting any costs of exchange and any other related costs, is less than the relevant sum payable under this Deed, the Borrower shall indemnify the Junior Lender against the shortfall. This indemnity shall be an obligation of the Borrower independent of an in addition to its other obligations under this Deed and shall take effect notwithstanding any time or other concession granted to the Borrower or any judgment or order being obtained or the filing of any claim in the liquidation, dissolution or bankruptcy (or analogous process) of the Borrower. 11.03 Payment and Security. The Junior Lender may retain and pay out of any money in the Junior Lender's hands all sums necessary to effect the indemnity contained in this Clause 11 and all sums payable by the Borrower under this Clause 11 shall form part of the monies hereby secured. 7 12. FURTHER ASSURANCE 12.01 Further Assurance. Subject to the Senior Subordination Agreement and the Priority Deed, the Borrower shall at any time and from time to time (whether before or after the security hereby created shall have become enforceable) execute such further legal or other mortgages, charges or assignments and do all such transfers, assurances, acts and things as the Junior Lender may require over or in respect of the Project Contracts to secure all monies, obligations and liabilities hereby covenanted to be paid or hereby secured or for the purposes of perfecting and completing any assignment of the Junior Lender's rights, benefits or obligations hereunder and the Borrower shall also give all notices, orders and directions which the Junior Lender may require. 12.02 Enforcement of the Junior Lender's Rights. The Borrower will do or permit to be done everything which the Junior Lender may from time to time require to be done for the purpose of enforcing the Junior Lender's rights hereunder and will allow the name of the Borrower to be used as and when required by the Junior Lender for that purpose. 13. POWER OF ATTORNEY The Borrower irrevocably appoints the Junior Lender by way of security to be its attorney-in-fact (with full power of substitution) and in its name or otherwise on its behalf and as its act and deed to sign, seal, execute, deliver, perfect and do all deeds, instruments, acts and things which may be required or which the Junior Lender shall think proper or expedient for carrying out any obligations imposed on the Borrower hereunder or for exercising any of the powers hereby conferred or for giving to the Junior Lender the full benefit of this security and so that the appointment hereby made shall operate to confer on the Junior Lender authority to do on behalf of the Borrower anything which it can lawfully do by an attorney-in-fact. The Borrower ratifies and confirms and agrees to ratify and confirm any deed, instrument, act or thing which such attorney-in-fact or substitute may execute or do. 14. SUSPENSE ACCOUNT The Junior Lender may place and keep any monies received by virtue of this Deed (whether before or after the insolvency or liquidation of the Borrower) to the credit of a suspense account for so long as the Junior Lender may think fit in order to preserve the rights of the Junior Lender to sue or prove for the whole amount of its claims against the Borrower or any other person. 8 15. WAIVER AND SEVERABILITY No failure or delay by the Junior Lender in exercising any right, power or remedy hereunder shall impair such right, power or remedy or operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. If at any time any provision of this Deed is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, the legality, validity and enforceability of such provision under the law of any other jurisdiction, and of the remaining provisions of this Deed, shall not be affected or impaired thereby. 16. MISCELLANEOUS 16.01 Continuing Obligations. The liabilities and obligations of the Borrower under this Deed shall remain in force notwithstanding any act, omission, event or circumstance whatsoever, until full, proper and valid payment of the Junior Secured Indebtedness. 16.02 Protective Clauses. Without limiting Clause 16.01, neither the liability of the Borrower nor the validity or enforceability of this Deed shall be prejudiced, affected or discharged by: (a) the granting of any time or indulgence to the Borrower or any other person; (b) any variation or modification of the AES Loan Agreement, any of the Subordinated Security Documents or any other document referred to therein; (c) the invalidity or unenforceability of any obligation or liability of the Borrower under the AES Loan Agreement or any of the Subordinated Security Documents to which it is a party; (d) any invalidity or irregularity in the execution of this Deed or the AES Loan Agreement or any of the other Subordinated Security Documents; (e) any deficiency in the powers of the Borrower to enter into or perform any of its obligations under the AES Loan Agreement or any of the other Subordinated Security Documents to which it is a party or any irregularity in the exercise thereof or any lack of authority by any person purporting to act on behalf of the Borrower; (f) any other Security Document, Charge, guarantee or other security or right or remedy being or becoming held by or available to the Junior Lender or by any of the same being or becoming wholly or partly 9 void, voidable, unenforceable or impaired or by the Junior Lender at any time releasing, refraining from enforcing, varying or in any other way dealing with any of the same or any power, right or remedy the Junior Lender may now or hereafter have from or against the Borrower or any other person; (g) any waiver, exercise, omission to exercise, compromise, renewal or release of any rights against the Borrower or any other person or any compromise, arrangement or settlement with any of the same; or (h) any act, omission, event or circumstance which would or may but for this provision operate to prejudice, affect or discharge this Deed or the liability of the Borrower hereunder. 16.03 Unrestricted Right of Enforcement. Subject to the Senior Subordination Agreement and the Priority Deed, this Deed may be enforced without the Junior Lender first having recourse to any other security or rights or taking any other steps or proceedings against the Borrower or any other person or may be enforced for any balance due after resorting to any one or more other means of obtaining payment or discharge of the monies obligations and liabilities hereby secured. 16.04 Discharges and Releases. Notwithstanding any discharge, release or settlement from time to time between the Junior Lender and the Borrower, if any security, disposition or payment granted or made to the Junior Lender in respect of the Junior Secured Indebtedness by the Borrower or any other person is avoided or set aside or ordered to be surrendered, paid away, refunded or reduced by virtue of any provision, law or enactment relating to bankruptcy, insolvency, liquidation, winding-up, composition or arrangement for the time being in force or for any other reason, the Junior Lender shall be entitled hereafter to enforce this Deed as if no such discharge, release or settlement had occurred. 16.05 Amendment. Any amendment or waiver of any provision of this Deed and any waiver of any default under this Deed shall only be effective if made in writing and signed by or on behalf of the party against whom the amendment or waiver is asserted. 17. ASSIGNMENT 17.01 The Borrower. The Borrower shall not assign any of its rights or obligations hereunder. 17.02 The Junior Lender. The Junior Lender may assign or grant participations in all or any part of their rights under this Deed in accordance with the provisions of clause 20 of the AES Loan Agreement. 10 18. NOTICES 18.01 Delivery. Each notice, demand or other communication to be given or made under this Deed shall be in writing and delivered or sent to the relevant party at its address or telex number or fax number set out below (or such other address or telex number or fax number as the addressee has by five (5) days' prior written notice specified to the other party): To the Borrower: Wuhu Shaoda Electric Power Development Company Limited Commercial Office Building West Huangshan Road Wuhu, Anhui Province People's Republic of China Fax Number: (86-553) 382-3224 Attention: Zhai Dao Ping To the Junior Lender: AES China Holdings Company (L) Limited 9th Floor, Allied Capital Resources Building 32-38 Ice House Street Central, Hong Kong Fax Number: (852) 2530-1673 Attention: Jeff Safford Chief Financial Officer 18.02 Deemed Delivery. Any notice, demand or other communication so addressed to the relevant party shall be deemed to have been delivered (a) if given or made by letter, when actually delivered to the relevant address; (b) if given or made by telex, when dispatched with confirmed answerback and (c) if given or made by fax, when dispatched. 19. GOVERNING LAW AND JURISDICTION 19.01 Law. This Deed and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of England. 19.02 Jurisdiction. The Borrower agrees that any legal action or proceeding arising out of or relating to this Deed may be brought in the courts of England and irrevocably submits to the non-exclusive jurisdiction of such courts. 19.03 Process Agent. The Borrower irrevocably appoints Rowe & Maw (Attention: Mr. Bernd Ratzke) of 20 Blackfriars Lane, London EC4V 6HT, England as its agent to receive and acknowledge on its behalf service of any writ, summons, order, judgment or other notice of legal process in England. If 11 for any reason the agent named above (or its successor) no longer serves as agent of the Borrower for this purpose, the Borrower shall promptly appoint a successor agent satisfactory to the Junior Lender and notify the Junior Lender thereof provided that until the Junior Lender receives such notification, it shall be entitled to treat the agent named above (or its said successor) as the agent of the Borrower for the purposes of this Clause 19.03. The Borrower agrees that any such legal process shall be sufficiently served on it if delivered to such agent for service at its address for the time being in England whether or not such agent gives notice thereof to the Borrower. 19.04 No Limitation on Right of Action. Nothing herein shall limit the right of the Junior Lender to commence any legal action against the Borrower and/or its property in any other jurisdiction or to serve process in any manner permitted by law, and the taking of proceedings in any jurisdiction shall not preclude the taking of proceedings in any other jurisdiction whether concurrently or not. 19.05 Waiver; Final Judgment Conclusive. The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the choice of England as the venue of any legal action arising out of or relating to this Deed. The Borrower also agrees that a final judgment against it in any such legal action shall be final and conclusive and may be enforced in any other jurisdiction, and that a certified or otherwise duly authenticated copy of the judgment shall be conclusive evidence of the fact and amount of its indebtedness. 19.06 Waiver of Immunity. The Borrower irrevocably waives any immunity to which it or its property may at any time be or become entitled, whether characterized as sovereign immunity or otherwise, from any set-off or legal action in England or elsewhere, including immunity from service of process, immunity from jurisdiction of any court or tribunal, and immunity of any of its property from attachment prior to judgment or from execution of a judgment. 20. SUBORDINATED SECURITY Notwithstanding any other provision to the contrary this Deed must be read and construed in all respects, and the exercise of any rights under this Deed and the enforcement of any rights under this Deed must be subject in each case to the terms of the: (a) Senior Subordination Agreement; and (b) Priority Deed. 12 In the event of any conflict or inconsistency between the terms of this Deed of the one part and the Senior Subordinated Agreement or the Priority Deed of the other part, the latter documents will prevail. IN WITNESS WHEREOF the parties hereto have executed this Deed on the day and year first above written. 13 Schedule Form of Notice To: [ ] [Date] Dear Sirs, Re: [Name of Contract(s)] We hereby give you notice that by an assignment dated -----------1996 we have assigned and granted to AES China Holdings Company (L) Limited (the "Junior Lender") a third-priority security interest in all our rights, title and interest in and to the above [name of Contract(s)] and all benefits and proceeds thereof. We hereby instruct you that upon receiving written notice from the Junior Lender, all payments which you may be required to make under the [name of Contract(s)] are to be made directly to the Junior Lender. Until such notice is received, you shall make all such payments in accordance with the terms of the [name of Contract(s)]. In all other respects, and until you receive written notice to the contrary from the Junior Lender, you shall continue to deal with us in respect of the above [name of Contract(s)], save that no waiver shall be given and no amendment, variation or other modification shall occur with respect to any provision of any Project Contracts without the consent of the Junior Lender. Please acknowledge this notice by signing as indicated and returning to the Junior Lender the enclosed duplicate of this notice. Yours faithfully, for and on behalf of Wuhu Shaoda Electric Power Development Company Limited 14 [on duplicate:] To: [ ] We acknowledge receipt of the above notice. We confirm that we consent to the assignment referred to above, that we have no notice of any existing Charge over the [name of Contract(s)] and that we will comply with the terms of the above notice. Dated: Authorized Signature(s) [ ] 15 THE BORROWER - ------------ EXECUTED and DELIVERED ) for and on behalf of ) WUHU SHAODA ELECTRIC POWER ) DEVELOPMENT COMPANY LIMITED ) by ) in the presence of: [SIGNATURE ILLEGIBLE] ) [SIGNATURE ILLEGIBLE] THE JUNIOR LENDER - ----------------- SIGNED for and on behalf of ) AES CHINA HOLDINGS ) COMPANY (L) LIMITED ) by ) in the presence of: [SIGNATURE ILLEGIBLE] ) [SIGNATURE ILLEGIBLE] 16 EX-10 9 EX. 10.39 Exhibit 10.39 WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED as Mortgagor and AES CHINA HOLDINGS COMPANY (L) LIMITED as Mortgagee SUBORDINATED MORTGAGE CONTRACT CHADBOURNE & PARKE LLP AMERICAN ATTORNEYS AT LAW SUITE 3704, PEREGRINE TOWER LIPPO CENTRE, 89 QUEENSWAY HONG KONG CONTENTS Number Clause Heading Page - ------ -------------- ---- 1. Definitions.....................................................1 2. Loan............................................................2 3. Interest........................................................2 4. Repayment and Term..............................................3 5. Charge..........................................................3 6. Custody of Title Documents......................................3 7. Management of the Equipment.....................................4 8. Insurance of the Equipment......................................4 9. Discharge of Mortgage...........................................5 10. Mortgagor's Representations and Warranties......................5 11. Further Assurance...............................................6 12. Mortgagor's Undertakings........................................6 13. Events of Default...............................................8 14. Disposition of the Charged Assets...............................8 15. Indemnities....................................................10 16. Deduction......................................................10 17. Evidence of Debt...............................................11 18. Suspense Account...............................................11 19. Expenses.......................................................11 20. Power of Attorney..............................................12 21. Notice.........................................................12 22. Governing Law and Dispute Settlement...........................13 23. Miscellaneous..................................................13 24. Validity of Contract...........................................14 25. Subordinated Security..........................................14 Execution Block Appendix 1 Equipment.............................................16 Appendix 2 Buildings.............................................17 THIS SUBORDINATED MORTGAGE CONTRACT (hereinafter referred to as the "Contract") is made on the day of 1996 -------- -------------------- BETWEEN: (1) WUHU SHAODA ELECTRIC POWER DEVELOPMENT COMPANY LIMITED, an equity joint venture company formed under the laws of the People's Republic of China, with its legal address at Commercial Office Building, West Huangshan Road, Wuhu, Anhui Province, People's Republic of China (hereinafter referred to as the "Mortgagor"); and (2) AES CHINA HOLDINGS COMPANY (L) LIMITED, a Labuan company of Lot A, Level 3, Wisma Oceanic, Jalan OKK Awang Besar, 87007, Federal Territory of Labuan, Malaysia (hereinafter referred to as the "Mortgagee"). WHEREAS: (1) By the AES Loan Agreement (as defined below), the Mortgagee has agreed to make available to the Mortgagor a loan facility of up to US$18,000,000, the proceeds of which shall be used by the Mortgagor in accordance with the purposes set out in clause 2 of the AES Loan Agreement. (2) It is a condition precedent to the Mortgagee making the Facility available to the Mortgagor that the Mortgagor enters into this Contract with the Mortgagee. IN WITNESS WHEREOF, the Mortgagor and the Mortgagee shall enter into this Contract to set forth the respective rights and obligations of both parties. 1. DEFINITIONS 1.01 Unless the context requires otherwise, the following terms and expressions used in this Contract shall have the same meanings as follows: (1) "AES Loan Agreement" means the US$18,000,000 loan agreement entered into between the Mortgagor and the Mortgagee dated the date hereof; (2) "Cash" means the currency of any country from time to time held by the Mortgagor, including cash and deposits of any kind (including interest) that are kept in a bank or other financial institution in China or any other country; 1 (3) "Charged Assets" means all or any part of the property, assets and rights of the Mortgagor hereby charged including, without limitation, the Receivables, Cash, Equipment, buildings (see Appendix 2 for details) and Inventory; (4) "Equipment" means all items of equipment purchased or from time to time purchased by the Mortgagor including, without limitation, all equipment listed in Appendix 1, all equipment purchased, imported or installed by the Mortgagor and any additions, unused components and users' manuals and technical documents relating to any of the foregoing; (5) "Event of Default" means any event of default specified under Clause 13 herein; (6) "Inventory" means raw materials purchased for the production of electricity by the Mortgagor; (7) "Junior Secured Indebtedness" means all or any sums (whether principal, interest, fees or other expenses) now or at any time hereafter due, owing or incurred by the Mortgagor under the AES Loan Agreement or any Subordinated Security Document to which it is a party and all other monies hereby secured; (8) "Receivables" means the payment arising from time to time in the ordinary course of business but are still due and owing to the Mortgagor; and (9) "Subordinated Security Documents" means all or any security document defined under the AES Loan Agreement. 1.02 Unless defined herein otherwise or the context herein requires otherwise, the terms and expressions used in this Contract shall have the same meanings as those in the AES Loan Agreement. 2. LOAN The Mortgagee shall provide the Mortgagor with a loan facility not exceeding US$18,000,000 the terms of which shall be governed in all respects by the AES Loan Agreement. 3. INTEREST The Mortgagor undertakes to pay interest on the loan fully and punctually in accordance with the AES Loan Agreement. Details on the calculation and payment of interest shall be governed by the AES Loan Agreement. 2 4. REPAYMENT AND TERM The Mortgagor undertakes to repay the loan principal and to pay all other amounts due and owing under the AES Loan Agreement fully and punctually in accordance with the AES Loan Agreement. Details on the timing and amounts of principal repayments and other payments shall be governed by the AES Loan Agreement. 5. CHARGE 5.01 In consideration of the Mortgagee agreeing to make the Facility available to the Mortgagor upon the terms and conditions of the AES Loan Agreement and the punctual observance and performance by the Mortgagor of all other obligations of the Mortgagor contained in the AES Loan Agreement or any Subordinated Security Document to which it is a party, the Mortgagor as sole legal beneficial owner grants to the Mortgagee a third-priority mortgage of and security interest in all the undertakings, property, assets and rights of the Mortgagor whatsoever and wheresoever both present and future including, without limitation, the Receivables, Cash, Equipment, Inventory and buildings and all its related rights and its uncalled capital for the due and punctual payment of the Junior Secured Indebtedness in full when due. THIS MORTGAGE IS SUBORDINATE IN RIGHT TO THE CHARGES CREATED TO SECURE THE OBLIGATIONS OF THE BORROWER UNDER THE SENIOR LOAN AGREEMENT, AND THE ENFORCEMENT OF THIS MORTGAGE SHALL BE LIMITED IN ACCORDANCE WITH THE PROVISIONS OF THE SENIOR SUBORDINATION AGREEMENT AND THE PRIORITY DEED. 5.02 This Contract shall be a continuing security and shall remain in full force and effect until the Junior Secured Indebtedness has been paid in full, notwithstanding the change in the constitution or status of the Mortgagor, insolvency or liquidation or any incapacity to act as a company or any intermediate settlement of account or other matter whatsoever. This Contract is in addition to (and independent of) any Charge, guarantee or other right or claim now or at any time hereafter held by the Mortgagee. This Contract shall not be rendered ineffective by any change or amendment made between the Mortgagor and Mortgagee to the AES Loan Agreement. 6. CUSTODY OF TITLE DOCUMENTS The Mortgagor shall deliver to the Facility Agent with copies to the Mortgagee the purchase contract(s) for the Equipment, warranties from the manufacturers, insurance receipts, import and customs clearing documents and any other subsidiary documents reasonably requested by the Mortgagee for safekeeping and custody, provided that the Mortgagor 3 shall arrange for the delivery of the originals of such documents to the Mortgagee as soon as all amounts owed to the Senior Financing Parties under the Senior Loan Agreement have been paid in full. All relevant and reasonable custody fees shall be borne by the Mortgagor. 7. MANAGEMENT OF THE EQUIPMENT 7.01 The Equipment shall be possessed, owned and used by the Mortgagor. The Mortgagor shall use the Equipment reasonably and the Equipment shall be used in a way permitted by the laws of the People's Republic of China and the provisions of the AES Loan Agreement. 7.02 Without written consent from the Mortgagee, the Mortgagor shall not structurally change, disassemble or remove any Equipment, except for daily maintenance. Any additional facilities and installations made to the Equipment in contravention of this sub-clause shall automatically become part of the Equipment. 7.03 The Mortgagee shall not be responsible for any loss or damage arising from any defect (whether apparent or latent) of the Equipment. The Mortgagee shall not bear any responsibility if a third party claims against the Mortgagor for loss or damage. If the Mortgagee suffers any loss, the Mortgagor shall forthwith compensate the Mortgagee for such loss. 8. INSURANCE OF THE EQUIPMENT 8.01 Prior to the first drawing under the AES Loan Agreement, the Mortgagor shall insure the Equipment on such terms and in amounts as specified in the Subordinated Insurance Assignment, in each case with such insurance company as appointed or agreed by the Mortgagee. The benefits of the policies shall be assigned to the Mortgagee until the Junior Secured Indebtedness is paid in full. Prior to the repayment of the Junior Secured Indebtedness, the Mortgagor shall not for whatsoever reason discontinue or materially change the insurance. If the Mortgagor discontinues or materially changes the insurance, the Mortgagee shall have the right but not the obligation to insure the same on its behalf, any reasonable fee or actual loss arising shall be unconditionally reimbursed by the Mortgagor. 8.02 The originals of the insurance policies shall be delivered to the Facility Agent for safe-keeping, the cost of which shall be borne by the Mortgagor, provided that the Mortgagor shall arrange for the delivery of such originals to the Mortgagee as soon as all amounts owed to the Senior Financing Parties under the Senior Loan Agreement have been paid in full. 8.03 In accordance with the Subordinated Insurance Assignment, the Mortgagor shall irrevocably appoint the Facility Agent as its duly authorized 4 representative to receive and handle the compensation monies paid under the insurances until all amounts owed to the Senior Financing Parties under the Senior Loan Agreement have been paid in full. 8.04 If any Event of Default occurs or is still existing and the aforesaid compensation monies under the insurances are not sufficient to cover the Junior Secured Indebtedness, the Mortgagee shall have the right of recourse to the Mortgagor until the Mortgagor repays all its indebtedness in full. 9. DISCHARGE OF MORTGAGE Upon payment in full of all the Junior Secured Indebtedness and performance of all the obligations and responsibilities hereunder and under the AES Loan Agreement and the Subordinated Security Documents, the Mortgagee shall, at the request of the Mortgagor and at a reasonable fee to be paid by the Mortgagor, discharge the security over the Charged Assets created by this Contract and assist the Mortgagor to cancel the registration of the Charge hereunder at the appropriate inland customs office and other relevant departments and return all the title documents of the relevant Charged Assets possessed by the Mortgagee for safe-keeping to the Mortgagor. 10. MORTGAGOR'S REPRESENTATIONS AND WARRANTIES 10.01 The Mortgagor represents and warrants to the Mortgagee that: (1) the obligations of the Mortgagor under this Contract are legal, valid and binding; (2) the Mortgagor is the sole legal and beneficial owner of the Charged Assets and has full power to mortgage the same to the Mortgagee. Except for (i) the relevant Charges created to secure the obligations of the Borrower under the Senior Loan Agreement, (ii) the Charge created herein, (iii) the CPIL Security, (iv) any lien set up to provide goods for the Mortgagor, (v) any lien arising from the exercise of legal rights in the ordinary course of business and (vi) any Charge that has been notified to the Mortgagee in writing and which has been approved by the Mortgagee, the Charged Assets are free from any Charge or other guarantee. The Charged Assets are also free from any third party's lease, right to use or other rights; (3) the Mortgagor has already obtained all necessary approvals and permits, if any, from the relevant government authorities in the People's Republic of China for or in connection with the execution and performance of this Contract; 5 (4) the whole purchase price, maintenance fees and other tax and fees of the Charged Assets have been punctually paid in full; (5) the Mortgagor is not in default under any law, regulation or contractual terms in relation to the Charged Assets; and (6) no litigation, arbitration or administrative proceeding is currently taking place or pending or threatened in relation to the Charged Assets. 10.02 The Mortgagor also represents and warrants to the Mortgagee that the foregoing representations and warranties will be true and accurate throughout the continuance of this Contract. 11. FURTHER ASSURANCE 11.01 In performance or satisfaction of the Charge hereunder enjoyed by the Mortgagee over the Charged Assets or to facilitate the assignment of its rights and obligations hereunder by the Mortgagee, the Mortgagor undertakes to comply with all reasonable instructions of the Mortgagee in full (whether the Charge hereunder has been effective). The relevant assignment fees shall be borne by the Mortgagor. 11.02 The Mortgagor undertakes to comply with all reasonable instructions from the Mortgagee to handle at any time relevant matters that are necessary for the rights hereunder (or suffers the Mortgagee to handle the same) and the Mortgagor also undertakes that the Mortgagee can act at any time in the name of the Mortgagor in accordance with the laws and the provisions of this Contract. 12. MORTGAGOR'S UNDERTAKINGS 12.01 Unless the Mortgagee otherwise agrees in writing, the Mortgagor undertakes: (1) to keep all its Charged Assets in good repair and in good working condition; if there is any damage (wear and tear excepted), the Mortgagor shall forthwith notify the Mortgagee and carry out repairs to its best endeavors, and prevent further damage; (2) to comply with all the relevant laws and provisions of this Contract in connection with the proper use of the Charged Assets and the Mortgagor shall, upon the request of the Mortgagee, forthwith reimburse the Mortgagee for any reasonable sums and fees for the performance of the aforesaid obligations; 6 (3) to permit the Mortgagee or any other person appointed by the Mortgagee at all reasonable times to view the state and condition of the Charged Assets; (4) the Mortgagee may, upon the occurrence of an Event of Default, appoint a valuer to appraise the value of any asset at all reasonable times, the reasonable cost of which shall be borne by the Mortgagor; (5) upon receipt of any notice, order or other documents issued by the Chinese government authorities in connection with the Charged Assets, the Mortgagor shall take every necessary steps to comply with the aforesaid notice, order or other documents within the time limit set out by law or fourteen (14) days after the receipt of such documents (whichever is earlier), and take all necessary steps to send a copy of such document to the Mortgagee within the aforesaid period of time; (6) to promptly inform the Mortgagee of the occurrence of any Event of Default and any litigation, arbitration or administrative proceeding (including any actual or prospective litigation, arbitration or administrative proceeding); (7) to pay all the taxes, management fee and other fees in connection with the Charged Asset in accordance with the relevant laws and the provisions of this Contract; (8) in accordance with all the reasonable instructions of the Mortgagee, assist the Mortgagee in handling the approvals, consents and relevant legal procedures in connection with this Contract; (9) to notify the Mortgagee within fourteen (14) days of the purchase of new Equipment; and (10) promptly register this Contract as a third-priority mortgage with all appropriate governmental authorities in China and maintain all such registration(s). 12.02 Unless the Mortgagee otherwise agrees in writing, the Mortgagor undertakes not to do any of the following: (1) except for (i) the relevant Charges created to secure the obligations of the Borrower under the Senior Loan Agreement, (ii) the Charge created herein, (iii) the CPIL Security, (iv) any lien set up to provide goods for the Mortgagor and (v) any lien arising from the exercise of legal rights in the ordinary course of business and bearing no relationship to borrowings, mortgage or charge over the Charged Assets or any part thereof (whether or not in priority over the Charge hereunder); 7 (2) with or without consideration, lease, sub-let, license, share, sell, assign, appoint a trustee or in any other way deal with the Charged Assets or any part thereof; (3) use the Charged Assets for purposes other than the ordinary course of business; (4) do or cause to be done any act (including negligent behavior) which may in any way significantly increase the insurance premium or render the insurance invalid; and (5) permit the use of the Charged Assets to do any act which is contrary to the relevant laws and the provisions of this Contract. 13. EVENTS OF DEFAULT 13.01 Each of the following events shall be an Event of Default: (1) the Mortgagor fails to pay any sum payable under this Contract or any other Subordinated Security Document to which it is a party when due or otherwise in accordance with the provisions hereof or thereof; (2) the Mortgagor fails duly and punctually to perform or comply with any of its other obligations or undertakings hereunder or under any of the other Subordinated Security Documents; and (3) an Event of Default or prospective Event of Default has occurred and is continuing under the AES Loan Agreement. 13.02 If any Event of Default under Clause 13.01 herein has occurred, the Mortgagee shall have the right to request the Mortgagor to repay forthwith the whole Junior Secured Indebtedness and shall also have the right to dispose of the Charged Assets in accordance with laws and provisions of this Contract and subject to the provisions of the Senior Subordination Agreement. Any losses to the Mortgagor arising from the exercise of the aforesaid rights of the Mortgagee shall not be borne by the Mortgagee. 14. DISPOSITION OF THE CHARGED ASSETS 14.01 Subject to the provisions of the Senior Subordination Agreement and the Priority Deed, upon the occurrence of any Event of Default under Clause 13 herein, the Mortgagee shall forthwith have all the rights and power under the laws of the People's Republic of China and this Contract, including (without limitation) the right to: 8 (1) immediately possess and enjoy the Charged Assets or any part thereof in accordance with laws; (2) sell by public auction or sell or lease the Charged Assets or any part thereof by any means legally permissible and receive reasonable rent or proceeds and, with respect to leasing, for a term as determined by the actual market situation with respect to the Charged Assets; and (3) employ a receiver to deal with the aforesaid matter, such receiver's reasonable salary and remuneration for the account of the Mortgagor. Such receiver shall be regarded as the agent of the Mortgagor and the Mortgagor shall be wholly responsible for the acts and omissions of such receiver. 14.02 In accordance with laws, the receiver may: (1) request the tenant to pay the rent or the use fees, issue effective leases and receipts or litigate, initiate legal proceedings, detain assets or use other means to recover rent or fees; such requests, receipts and claims shall be issued in the name of the Mortgagor or Mortgagee and no enquiry as to the scope of power of the receiver is required for payment to the receiver; and (2) upon written notice from the Mortgagee, apply the monies received under any insurance in respect of the Charged Assets towards its repair or continued operation. 14.03 Upon the occurrence of an Event of Default and subject to the provisions of the Senior Subordination Agreement and the Priority Deed, the Mortgagee shall have the power to dispose of any Charged Assets or any part thereof in accordance with laws without the consent of the Mortgagor or other persons. The Mortgagee shall have the power to execute all documents relating to the sale and lease of the Charged Assets (including the related cancellation document) and any loss arising shall not be borne by the Mortgagee. 14.04 The Mortgagee can dispose of the Charged Assets or appoint a receiver to dispose of the Charged Assets in accordance with this Clause 14 and, subject to the provisions of the Senior Subordination Agreement and the Priority Deed, can apply the monies received from the disposition of Charged Assets in the following order of priority: (1) firstly, in payment of all reasonable costs in the disposition of the Charged Assets, including (but without limitation) the fees and remuneration of the receiver; (2) secondly, in payment of all the custom duties and other taxes required by law in connection with the Charged Assets; 9 (3) thirdly, in satisfaction of the Junior Secured Indebtedness; and the remaining balance, after the above deductions, shall be paid to the Mortgagor and other persons entitled to the above sum in full by the Mortgagee. If the monies received by the Mortgagee from the disposal of the Charged Assets does not satisfy the Junior Secured Indebtedness in full, the Mortgagor shall reimburse the Mortgagee for any shortfall. 14.05 The Mortgagee shall not be responsible for any loss to the Mortgagor arising from the exercise of the Mortgagee's powers and rights in accordance with law or the provisions of this Contract. 15. INDEMNITIES 15.01 The Mortgagor shall bear, pay for and compensate the Mortgagee for all fees, damages, expenditures, legal responsibilities, legal costs and other claims of the Mortgagee arising from an Event of Default under Clause 13 herein. The Mortgagor's indemnity undertaking shall be separated from this Contract and shall be independent from the obligations hereunder. This obligation shall be effective notwithstanding any judgment or order obtained by the Mortgagor during winding-up, liquidation or bankruptcy and notwithstanding any relaxation of the time limit or concession made in respect of any claim. 15.02 Payment hereunder shall be in US Dollars. If a judgment or order or part payment received during the winding up of the Mortgagor is not paid in US Dollars, the Mortgagee may, on receipt of such payment, purchase US Dollars through normal banking procedures with such payments received. 15.03 If the amount of the US Dollars which may be so purchased (after deducting any costs of exchange and any other related costs) is less than the amount due, the Mortgagor shall indemnify the Mortgagee against the shortfall. 16. DEDUCTION All sums payable by the Mortgagor under this Contract shall be paid in full without set-off, deduction or counterclaim or any restriction or condition and free and clear of any tax (other than an Excluded Tax) or other deductions or withholdings of any nature. The Mortgagor shall be responsible for paying the full amount of any such deduction or withholding to the relevant taxation or other authority. If the Mortgagor is required by any law or regulation to make any deduction or withholding, the Mortgagor shall compensate for such additional amount as will ensure that the Mortgagee receives the full amount which it would have received if no such deduction or withholding had been required. 10 17. EVIDENCE OF DEBT Any statement of account showing a sum payable by the Mortgagor hereunder and signed as correct by an authorized officer of the Mortgagee shall, in the absence of manifest error, be conclusive evidence of the amount so due. 18. SUSPENSE ACCOUNT 18.01 The Mortgagee may place and keep any monies received hereunder to the credit of a suspense account for a period not exceeding six (6) months (or if the liquidation or winding-up proceeding has been commenced by the Mortgagor who is liable for such payment, the period shall be so long as the Mortgagee may think fit) in order to preserve the rights of the Mortgagee to sue or prove for the whole amount of its claims against the Mortgagor. Prior to actual use of such sums for the repayment of the Junior Secured Indebtedness in full or in part, no interest shall be payable for such sums that are placed to the credit of the suspense account. 19. EXPENSES 19.01 The Mortgagor shall pay or be required to pay all the stamp duty, other taxes, notary fees and registration (including registration of mortgage) fees and all other similar fees under this Contract or documents referred to under this Contract, and the Mortgagor shall, upon the request of the Mortgagee, reimburse the Mortgagee for all the reasonable expenses (including legal fees, translation fees, travelling or other miscellaneous expenses) in connection with the negotiation, preparation, execution of this Contract, the exercise of its right and power hereunder and enforcement of this Contract. 19.02 If the Mortgagor does not punctually repay the Junior Secured Indebtedness in full, the Mortgagor shall be responsible for all reasonable expenses incurred by the Mortgagee in enforcing its rights hereunder (including, without limitation, any administration fee, management fee, insurance fee or any other cost related to the disposition of the Charged Assets). 19.03 In the event the Mortgagor has not paid any tax or fee in accordance with the AES Loan Agreement or this Contract and the Mortgagee elects to make payment thereof on behalf of the Mortgagor, the Mortgagor shall repay such sum and pay interest on such sum to the Mortgagor, and the interest shall be calculated in accordance with clause 15.01 of the AES Loan Agreement from the time the payment is due to the time the Mortgagee receives such payment in full. 11 20. POWER OF ATTORNEY The Mortgagor irrevocably appoints the Mortgagee to be its attorney-in-fact. At the time any Event of Default specified under Clause 13 herein occurs and subject to the provisions of the Senior Subordination Agreement, the Mortgagee shall sign any document or do any act in the name of or otherwise on behalf of the Mortgagor that the Mortgagee reasonably considers necessary to carry out any obligations imposed on the Mortgagor hereunder or to exercise any of the powers hereby conferred or in connection with any disposition of the Charged Assets or the exercise of any rights in respect thereof or to give to the Mortgagee the full benefit of this security. The Mortgagor ratifies and confirms and agrees to ratify and confirm any instrument and act which such attorney-in-fact may execute or do. 21. NOTICE 21.01 Each notice, demand or other communication to be given or made under this Contract shall be in writing and delivered or sent to the relevant party at its address or telex number or fax number set out below (or such other address or telex number or fax number as the addressee has by five (5) days' prior written notice specified to the other party): To the Mortgagor: Wuhu Shaoda Electric Power Development Company Limited Commercial Office Building West Huangshan Road Wuhu, Anhui Province People's Republic of China Fax Number: (86-553) 382-3224 Attention: Zhai Dao Ping To the Mortgagee: AES China Holdings Company (L) Limited 9th Floor, Allied Capital Resources Building 32-38 Ice House Street Central, Hong Kong Fax Number: (852) 2530-1673 Attention: Jeff Safford Chief Financial Officer Any notice, demand or other communication so addressed to the relevant party shall be deemed to have been delivered (1) if given or made by telex, when dispatched with confirmed answerback, (2) if given or made by letter, when actually delivered to the relevant address and (3) if given or made by 12 fax, when dispatched. 21.02 Any correspondence and documents between the Mortgagee and the Mortgagor shall be written in English. 22. GOVERNING LAW AND DISPUTE SETTLEMENT 22.01 This Contract and its Appendix shall be governed by and construed in accordance with the laws of the People's Republic of China. 22.02 The Mortgagee shall have the right to dispose of the Charged Assets and request payment from the Mortgagor through litigation or enforcement of a judgment in Hong Kong, China or any other jurisdictions where the Mortgagor has a place of business or owns assets. The Mortgagor acknowledges that this Contract is protected under the laws of the People's Republic of China and at the same time protected under the jurisdictions aforesaid. 22.03 The Borrower irrevocably waives any immunity to which it or its property may at any time be or become entitled (whether characterized as sovereign immunity or otherwise) from any set-off or legal action in China or elsewhere, including immunity from service of process, immunity from jurisdiction of any court of tribunal, and immunity of any of its property from attachment prior to judgment or from execution of a judgment. 23. MISCELLANEOUS 23.01 Any amendment, alteration, supplement or cancellation of the provisions of this Contract shall not be made orally unless it is confirmed and signed by both the Mortgagee and the Mortgagor. 23.02 No failure or delay by the Mortgagee in exercising any right, power or remedy hereunder shall impair such right, power or remedy or operate as a waiver thereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. The exercise of the aforesaid rights, powers and remedies herein provided by the Mortgagee may be at the same time, separate or cumulative, and the Mortgagee may exercise any other rights, powers and remedies provided by law. 23.03 The Mortgagee shall have the right to assign all or part of its interests hereunder to another party without the consent of the Mortgagor. The Mortgagor shall not assign any of its rights and obligations hereunder. 23.04 The Mortgagee shall include its successors and assignees. The Mortgagor shall include its successors and permitted assignees. 13 23.05 The illegality, invalidity and unenforceability of any provisions of this Contract shall not affect the validity of any other provision of this Contract. The Mortgagor agrees to perform all of its obligations under this Contract. In the event that such situation arises, the Mortgagee has the right to terminate this Contract and forthwith request payment for the Junior Secured Indebtedness. 24. VALIDITY OF CONTRACT 24.01 This Contract shall be signed by the authorized representatives of each party at-------------- Municipality. 24.02 This Contract is executed in Chinese in six (6) originals of each, all of which are equally effective; three (3) copies of which shall be given to the Mortgagee, one (1) copy to the Mortgagor and one (1) each to a notary public in Beijing and Beijing Inland Customs. 25. SUBORDINATED SECURITY Notwithstanding any other provision to the contrary, this Deed must be read and construed in all respects, and the exercise of any rights under this Deed and the enforcement of any rights under this Deed must be subject in each case to the terms of the: (a) Senior Subordination Agreement; and (b) Priority Deed. 14 In the event of any conflict or inconsistency between the terms of this Deed of the one part and the Senior Subordinated Agreement or the Senior Priority Deed of the other part, the latter documents will prevail. Mortgagor: Wuhu Shaoda Electric Power Development Company Limited Signature: /s/ [SIGNATURE ILLEGIBLE] Company Chop: Representative: Occupation: Date: Witness: /s/ [SIGNATURE ILLEGIBLE] Mortgagee: AES China Holdings Company (L) Limited Signature: /s/ [SIGNATURE ILLEGIBLE] Company Chop: Representative: Occupation: Date: Witness: /s/ [SIGNATURE ILLEGIBLE] 15 Appendix 1 Equipment [Please see attached.] 16 Appendix 2 Buildings [Please see attached.] 17 EX-11 10 EX. 11 Exhibit 11a AES CHINA GENERATING CO. LTD. STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share amounts) Three Months Ended Three Months Ended August 31, 1996 August 31, 1995 ------------------------ ----------------------- PRIMARY Weighted Average Number of Shares of Common Stock Outstanding 15,634 17,299 Net Effect of Dilutive Stock Options Based on the Treasury Stock Method Using 30 - Average Market Price ------------------------ ----------------------- Weighted Average Shares Outstanding 15,664 17,299 ======================== ======================= Net Income US$ 1,037 576 ======================== ======================= Per Share Amount US$ 0.06 0.03 ======================== ======================= FULLY DILUTED Weighted Average Number of Shares of Common 15,634 17,299 Stock Outstanding Net Effect of Dilutive Stock Options Based on the Treasury Stock Method Using Ending Market Price 30 - ------------------------ ----------------------- Weighted Average Shares Outstanding 15,664 17,299 ======================== ======================= Net Income US$ 1,037 576 ======================== ======================= Per Share Amount US$ 0.06 0.03 ======================== =======================
Exhibit 11b AES CHINA GENERATING CO. LTD. STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share amounts) Nine Months Ended Nine Months Ended August 31, 1996 August 31, 1995 ------------------------ ----------------------- PRIMARY Weighted Average Number of Shares of Common Stock Outstanding 15,638 17,487 Net Effect of Dilutive Stock Options Based on the Treasury Stock Method Using 11 - Average Market Price ------------------------ ----------------------- Weighted Average Shares Outstanding 15,649 17,487 ======================== ======================= Net Income US$ 1,947 1,569 ======================== ======================= Per Share Amount US$ 0.12 0.09 ======================== ======================= FULLY DILUTED Weighted Average Number of Shares of Common 15,638 17,487 Stock Outstanding Net Effect of Dilutive Stock Options Based on the Treasury Stock Method Using Ending Market Price 11 - ------------------------ ----------------------- Weighted Average Shares Outstanding 15,649 17,487 ======================== ======================= Net Income US$ 1,947 1,569 ======================== ======================= Per Share Amount US$ 0.12 0.09 ======================== =======================
EX-27 11
5 THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED AUGUST 31, 1996 AND THE CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS NOV-30-1996 AUG-31-1996 92,043 12,568 139 0 956 111,415 136,005 2,221 270,302 14,400 33,982 0 0 156 187,964 270,302 6,553 6,953 3,867 3,867 0 0 679 2,620 455 0 0 0 0 1,947 0.12 0
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