




                               THE AES CORPORATION
                           INCENTIVE STOCK OPTION PLAN

                         (as amended on April 16, 1996)

                                    ARTICLE I

                                     Purpose


         The AES Corporation  (the "Company")  desires to promote the growth and
prosperity of the Company by allowing certain  employees of the Company to share
in its ownership.  In order to effectuate  this purpose,  the Board of Directors
hereby  adopts The AES  Corporation  Incentive  Stock  Option Plan (the  "Plan")
effective June 1, 1991.


                                   ARTICLE II

Words and Phrases Used in the Plan


         2.01 Definitions.  Whenever used in the Plan, the words and phrases set
forth  below  shall  have the  following  meanings  unless the  contest  clearly
requires otherwise:


          (a)   "Board of  Directors"  shall mean the Board of  Directors of the
                Company.


          (b)   "Code" shall mean the Internal Revenue Code of 1986, as amended.


          (c)   "Committee"  shall mean (i) the Human  Resources  Committee,  as
                appointed by the Board of Directors from time to time,  provided
                that  each  member  of  the  Human  Resources   Committee  is  a
                "disinterested  person"  as  defined  in Rule  16b-3  under  the
                Securities Exchange Act of 1934, as amended, or (ii) if any such
                member is not a "disinterested  person", a committee  comprising
                such  members  of  the  Human   Resources   Committee   who  are
                "disinterested persons" as so defined.


          (d)   "Company"   shall   mean  The  AES   Corporation,   a   Delaware
                corporation, or its successor under the Plan.


          (e)   "Effective Date" shall mean June l, 1991.


          (f)   "Employee"  shall  mean any  person,  including  an  officer  or
                director,  who is a common law employee of the  Company,  of any
                subsidiary more than 50% of the voting capital stock of which is
                directly or indirectly owned by the Company.

          (g)   "Employer" shall mean the Company,  any subsidiary more than 50%
                of the voting  capital  stock of which is directly or indirectly
                owned by the Company.


          (h)   "Nonqualified Option" shall mean an option granted under Article
                V of the Plan which is designated by the Board as a Nonqualified
                Option.


          (i)   "Officer"  shall  mean  any  officer  of  the  Company  or  of a
                subsidiary of the Company whose office or duties  subject him to
                the  reporting  and  "short  swing"  transaction  provisions  of
                Sections 16(a) and 16(b) of the Securities Exchange Act of 1934,
                as amended.


          (j)   "Option"  shall mean the right to purchase  stock  granted to an
                Employee  under the Plan, or the writing  referred to in Section
                5.01 evidencing such right, as the contest may require.


          (k)   "Optionee"  shall mean any person who has the right to  purchase
                stock pursuant to an Option granted under the Plan.


          (1)   "Option  Shares"  shall  mean  shares of Stock  purchased  by an
                Optionee pursuant to an Option.


          (m)   "Plan"  shall mean The AES  Corporation  Incentive  Stock Option
                Plan.


          (n)   "Qualified  Option" shall mean an option granted under Article V
                of the Plan  which is  designated  by the  Board as a  Qualified
                Option.


          (o)   "Stock"  shall mean the Common Stock of the  Company,  par value
                $.01 per share.


          2.02 Word Usage.  Wherever  used in the Plan,  any word  denoting  the
masculine  shall  include the  feminine,  and any word denoting the plural shall
include the singular and vice versa unless the context indicates  otherwise.  As
used in the Plan, the word "herein,"  "hereafter,"  or "hereunder," or any other
compound of the word "here"  shall refer to the Plan in its  entirety and not to
any subpart, unless the contest indicates otherwise.


                                   ARTICLE III

The Committee


         3.01. Committee.  The Committee,  subject to the provisions of the Plan
and subject to such restrictions as the Board of Directors may make from time to
time,  shall  have  authority  to  prescribe,   amend,  and  rescind  rules  and
regulations  relating  to the  Plan,  to  construe  all Plan  provisions  and to
determine any and all  questions  arising  under the Plan.  The Committee  shall
determine the manner,  timing and amount of any Options granted  pursuant to the
Plan.  The  determination  of the  Committee  shall be conclusive on all persons
affected thereby.


         3.02.  Action by Committee.  A majority of the members of the Committee
constitute a quorum for the transaction of business. Any determination or action
of the  Committee  may be made or  taken by a  majority  of the  members  of the
Committee  present  at any  meeting  of the  Committee,  or without a meeting by
resolution or  instrument in writing  signed by a majority of the members of the
Committee.


         3.03.  Delegation of Powers.  The Committee may delegate its powers set
forth in  Sections  3.01 and 4.01 to each of the  Chairman  of the Board and the
President of the Company in respect of  determinations  of Options to be granted
to  Employees  who are not (a)  Officers  (b)  directors  of the  Company or (c)
beneficial  owners of more than 10% of the Stock or of any other class of equity
security of the Company  registered under Section 12 of the Securities  Exchange
Act of 1934, as amended.



                                   ARTICLE IV

Eligibility


         4.01.  Eligibility.  All  employees  shall be  eligible  to  receive an
Option.  The Committee  shall determine which Employees shall receive an Option.
In making this determination, the Committee may take into account the nature and
length of service  rendered by the  Employee,  his past,  present and  potential
contributions  to the  success of the Company  and such other  factors  that the
Committee,  in  its  sole  discretion,  shall  deem  relevant.  Subject  to  the
limitation  set forth in Section  5.02(d) in respect of Qualified  Options,  any
Employee  who has  been  granted  an  Option  under  the  Plan,  but has not yet
exercised that Option, shall be eligible to receive any additional Options which
the Committee may grant to him from time to time,  without regard to any Options
which have been previously granted to him.

                                    ARTICLE V

Grant of Options


          5.01. Grant of Options.  Each Qualified Option and Nonqualified Option
shall be in writing and shall specify the number of shares of Stock which may be
purchased pursuant to the Option,  the purchase price, any vesting periods,  the
period  during which the Option may be exercised and other  conditions,  if any,
under  which the  Option has been  granted.  Options  shall not be  granted  for
fractional shares of Stock.


          5.02. Limitations on Qualified Options. Each Qualified Option shall be
subject to the following limitations:


          (a) Each Qualified  Option shall be  exercisable  for a period of time
specified  in the Option,  which period shall not exceed ten (10) years from the
date it was granted, subject, however, to clause (c) below;


          (b) the price of Stock  purchased  pursuant to each  Qualified  Option
shall be equal to the "fair market value" (as defined below) of the Stock at the
time such Option is granted, subject, however, to clause (c) below;


          (c) if an Employee,  at the time an Option is granted,  owns more than
ten percent (10%) of the total combined  voting power of all classes of stock of
the Company or any parent or subsidiary  of the Company,  then (i) the price per
share for Stock which may be acquired pursuant to a Qualified Option shall equal
one hundred ten percent  (110%) of the "fair  market  value" of the Stock at the
time such  Option is  granted  and (ii) any  Qualified  Option  granted  to such
Employee shall not be  exercisable  more than five (5) years after such date the
Option is granted; and

         (d) in no event shall the aggregate fair market value (determined as of
the time  Qualified  Options are granted) of the Stock with respect to which any
Qualified  Options (and any other tax qualified  options  under other  incentive
stock  option plans of the Company or any parent or  subsidiary  of the Company)
are  exercisable  for the first time by an  Optionee  during any  calendar  year
exceed $100,000.


For the purpose of this Section  5.02,  the term "fair market  value" shall mean
the closing price of the Stock,  on the last trading day  immediately  preceding
the date of grant, on the National  Association of Securities  Dealers Automated
Quotation  ("NASDAQ")  National  Market  System,  or on any national  securities
exchange  on which the Stock at the time of grant  may be  listed.  If the Stock
ceases to be so quoted or listed,  the term fair market value" shall be the fair
market  value  as of the  date of  grant  as  determined  in good  faith  by the
Committee.


          5.03.  Maximum Shares  Authorized  Under the Plan. The total number of
shares of Stock for which  Options can be granted  pursuant to the Plan shall be
5,000,000 shares. In the event of a recapitalization of the Company, the maximum
number of  authorized  shares  shall be adjusted as provided in Article VII. The
Company shall reserve,  either from authorized but heretofore  unissued Stock or
from Stock  reacquired by the Company and held in its treasury,  the full number
of shares of Stock  necessary to satisfy all Options  that may be granted  under
the Plan.


                                   ARTICLE VI

Exercise of Options


          6.01. Procedure for Exercising Options. Any Option may be exercised at
any time during the period commencing with either the date the Option is granted
or in accordance  with a vesting  schedule  established  by the  Committee,  and
ending with the  expiration  date of the  Option;  provided,  however,  that any
Option  granted  to (a) an  Officer,  (b) a  director  of the  Company  or (c) a
beneficial  owner of 10% or more of the  Stock or of any  other  class of equity
security of the  Company  registered  pursuant  to Section 12 of the  Securities
Exchange Act of 1934, as amended,  cannot be exercised until at least six months
and one day after the date the Option is granted.  An Optionee  may exercise his
Option for all or part of the number of shares of Stock  which he is eligible to
exercise under the terms of the Option.


The exercise of an Option shall be effective  only upon delivery to the Director
of Finance  and  Administration  of the  Company of (i)  written  notice of such
exercise on the form  prescribed  by the  Committee and (ii) payment of the full
purchase  price of the Option  Shares in respect of which  notice of exercise is
given.  The notice shall  specify the number of shares to be exercised and shall
be signed by the  Optionee.  Upon the exercise of any Option,  the Company shall
provide the Optionee with the notice required under Section 6039(a) of the Code.

          6.02.  Issuance of Option  Shares.  Promptly  after receipt of written
notice of exercise and full payment of the purchase  price for the Option Shares
being acquired,  the Director of Finance and Administration of the Company shall
instruct the Transfer  Agent and Registrar of the Company to issue Option Shares
in the name of, and deliver certificates  therefor to, the Optionee.  Until such
time as the issuance of Option  Shares in the name of the Optionee is registered
on the stockholders ledger of the Company,  the Optionee shall have no rights of
a stockholder of the Company, including without limitation the right to vote the
Option Shares or to receive any dividends  which are  attributable to the Option
Shares.


          6.03.  Disability.  In the  event  an  Optionee  becomes  totally  and
permanently disabled,  within the meaning of Section 22(e)(3) of the Code, while
in the  continuous  employ of the  Employer,  all Options held by such  Optionee
shall automatically  expire on the earlier of (a) the date the Option would have
expired had the Employee continued in the employ of the Employer and (b) one (1)
year after the date his  employment  with the  Employer  ceases  because of such
disability.


          6.04.  Death.  In the event of the death of an  Optionee  while in the
continuous  employ of the  Employer,  all Options  held by such  Optionee  shall
automatically expire on the earlier of (a) their normal expiration dates and (b)
one (1) year after such death.  Any such Option may be exercised by the personal
representative of the deceased  Optionee's estate or by the person or persons to
whom his rights  under such Option have passed  either by will or by the laws of
descent and distribution.  Any such Option is exercisable in the same manner and
subject to the same conditions (other than the expiration date) which would have
applied if the Optionee had exercised such Option before he died.


          6.05.  Incapacity.  In the event that an  Optionee  is  adjudged to be
mentally  incompetent while in the continuous employ of the Employer or during a
period of total and permanent disability which commenced while in the continuous
employ  of  the  Employer,  the  Optionee's  guardian,   conservator,  or  legal
representative  shall have the right to exercise on behalf of the  Optionee  any
Options granted to the Optionee.


          6.06.  Termination  of  Employment.  In the event  that an  Optionee's
employment  with the Employer  terminates for any reason other than the death or
disability   of  the  Optionee,   all  Options  held  by  such  Optionee   shall
automatically  expire  on the  earlier  of (a) the date the  Option  would  have
expired had the Employee  continued in the employ of the Employer and (b) thirty
(30) days  after  the date  that the  Optionee's  employment  with the  Employer
ceases.


          6.07. Transfer of Options.  Except to the extent that an Option may be
transferred by will or by the laws of descent and  distribution  as provided for
in Section  6.04,  no Option  granted  under the Plan  shall be sold,  assigned,
transferred,  conveyed,  pledged or otherwise  disposed of by the Optionee or by
any other person having or claiming to have any rights  thereto or therein,  and
no Option  shall be  subject to  bankruptcy  proceedings,  claims of  creditors,
attachment,  garnishment,  execution,  levy or other legal  process  against the
Optionee or any such other person or their property.


                                   ARTICLE VII

Adjustments Upon Recapitalization


          7.01.  Recapitalization.  In the event of any  merger,  consolidation,
stock or other non-cash dividend, split-up, spin-off, combination or exchange of
shares or other  recapitalization  or change  in  capitalization  (collectively,
"recapitalization"),  the Stock  which an Optionee  would have been  entitled to
receive upon the exercise of an Option shall, without further action on the part
of the Optionee, be changed into the same or a different number of shares of the
same or  another  class or classes of stock,  or other  consideration,  that the
Optionee  would  have  received,  as a result of such  recapitalization,  if the
Optionee had exercised his Option in full immediately  prior to the date of such
recapitalization  and  had  not  subsequently  disposed  of his  Option  Shares;
provided,  however,  that no  fractional  share  shall be  issued  upon any such
exercise, and the aggregate price paid shall be appropriately reduced on account
of any fractional share not issued.

          7.02.  Change  in  Maximum  Authorized  Shares.  In the  event  of any
recapitalization  in which shares of Stock are converted into,  exchanged for or
entitled to a different number of shares of Stock or a different class of equity
security  of the  Company,  the  remaining  number  of shares of Stock for which
Options may be granted  under the Plan shall be equal to the number of shares of
Stock or the  number  of  shares  and class of such  equity  securities  which a
person,  to whom an Option for all remaining  available shares of Stock had been
granted  immediately  prior  to the  date of  such  recapitalization,  would  be
entitled  to  receive.  In the event of any other  recapitalization,  no further
Options shall be authorized to be granted under the Plan.


          7.03.  Termination Upon  Liquidation.  A liquidation or dissolution of
the Company shall cause all Options, to the extent not previously exercised,  to
terminate,  unless the plan or agreement of liquidation or dissolution  provides
otherwise.



<PAGE>




                                  ARTICLE VIII

Miscellaneous


          8.01.  Amendment and Termination of the Plan. The Plan shall terminate
no later than June 1, 2001.  Notwithstanding the immediately preceding sentence,
the Company reserves the right, by action of its Board of Directors,  to change,
amend,  modify or terminate the Plan at any time. Neither the termination of the
Plan  nor any  change,  amendment  or  modification  shall  have the  effect  of
changing,  modifying,  amending or  terminating  in any way any Option which has
been  granted  under the Plan prior to the  effective  date of any such  change,
amendment, modification or termination of the Plan.


          8.02.  Compliance with Securities Laws.  Options shall not be granted,
and Option Shares shall not be issued,  unless in the opinion of the Company all
such grants and issuances  shall comply with all relevant  provisions of federal
and state laws, including the Securities Act of 1933, as amended, the Securities
Exchange  Act of 1934,  as amended,  and any rules and  regulations  promulgated
thereunder,  and the requirements of any inter-dealer  quotation system or stock
exchange  upon which the Stock may then be quoted or  listed.  The  Company  may
require Optionees to deliver representations,  agreements and other documents at
the time of  exercise  of  Options,  necessary  to  comply  with any such  laws,
regulations and other requirements.


          8.03.  Legends. In the event the Stock issued pursuant to the Plan has
not been registered under the Securities Act of 1933, as amended, a legend shall
be placed on any certificates  representing  such Stock stating that such shares
have not been so registered and that the resale thereof is restricted.


          8.04.  No Contract of Employment  Intended.  Nothing in the Plan or in
any Option granted pursuant to the Plan shall confer upon any Employee any right
to continue in the employ of the Employer or interfere in any way with the right
of the Employer to terminate such Employee's employment at any time.


          8.05.  Headings  Not  Controlling.  The  titles  to  Articles  and the
headings of Sections in the Plan are placed herein for  convenience of reference
only and,  in the case of any  conflict,  the test of the Plan  rather than such
titles or headings shall control.


          8.06.  Governing  Law.  The Plan shall be  governed by the laws of the
State of Delaware and any  applicable  federal  law. It is the  intention of the
Company  that the Plan shall  comply with the  provisions  of Section 422 of the
Code and any other  applicable  federal  and state  laws,  and the Plan shall be
interpreted consistently with that end.
