-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZFJZFuf/ilo+sWdWrW/a6K9WdTqmCiuH67sOboRzx7L6dhHBt1rRYXrTDW/fobW+ g+abUmGPiyy/YsDqIVOWyQ== 0000950124-94-001427.txt : 19940906 0000950124-94-001427.hdr.sgml : 19940906 ACCESSION NUMBER: 0000950124-94-001427 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19940902 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS POWER CO CENTRAL INDEX KEY: 0000049816 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 370344645 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-55165 FILM NUMBER: 94547863 BUSINESS ADDRESS: STREET 1: 500 S 27TH ST STREET 2: C/O HARRIS TRUST & SAVINGS BANK CITY: DECATUR STATE: IL ZIP: 62525-1805 BUSINESS PHONE: 2174246600 FORMER COMPANY: FORMER CONFORMED NAME: ILLINOIS IOWA POWER CO DATE OF NAME CHANGE: 19660822 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS POWER CAPITAL L P CENTRAL INDEX KEY: 0000928690 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-55165-01 FILM NUMBER: 94547864 BUSINESS ADDRESS: STREET 1: C/O THE CORPORATION TRUST COMPANY STREET 2: 1209 ORANGE STREET CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 302-658-7581 MAIL ADDRESS: STREET 1: C/O THE CORPORATION TRUST CO STREET 2: 1209 ORANGE ST CITY: WILMINGTON STATE: DE ZIP: 19801 S-3/A 1 PRE-EFFECTIVE AMENDMENT NO.1 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1994 REGISTRATION NOS. 33-55165 33-55165-01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM S-3 PRE-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ ILLINOIS POWER COMPANY (Exact name of registrant as specified in its charter) ILLINOIS (State or other jurisdiction of incorporation or organization) 37-0344645 (I.R.S. Employer Identification No.) LARRY D. HAAB CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER ILLINOIS POWER COMPANY 500 SOUTH 27TH STREET DECATUR, ILLINOIS 62525 (217) 424-6600 ILLINOIS POWER CAPITAL, L.P. (Exact name of registrant as specified in Limited Partnership Agreement) DELAWARE (State or other jurisdiction of incorporation or organization) 37-1330733 (I.R.S. Employer Identification No.) C/O LARRY D. HAAB CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER ILLINOIS POWER COMPANY 500 SOUTH 27TH STREET DECATUR, ILLINOIS 62525 (217) 424-6600 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices and agent for service) PLEASE SEND COPIES OF ALL COMMUNICATIONS TO: ROBERT J. REGAN, ESQ. SCHIFF HARDIN & WAITE 7200 SEARS TOWER CHICAGO, ILLINOIS 60606 (312) 876-1000 KEVIN STACEY, ESQ. REID & PRIEST 40 WEST 57TH STREET NEW YORK, NEW YORK (212) 603-2144 ------------------ Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement. ------------------ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: / / IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF 1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX: /X/ ------------------ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 EXPLANATORY NOTE This Registration Statement contains two forms of Prospectus Supplement to the Prospectus included herein: the first form is to be used in connection with an offering by Illinois Power Capital, L.P. of fixed rate Cumulative Monthly Income Preferred Securities, and the second form is to be used in connection with an offering by Illinois Power Capital, L.P. of adjustable rate Cumulative Monthly Income Preferred Securities. 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1994 PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER , 1994 PREFERRED SECURITIES ILLINOIS POWER CAPITAL % CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES ("MIPS"*), SERIES A (LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY) GUARANTEED TO THE EXTENT ILLINOIS POWER CAPITAL HAS FUNDS AS SET FORTH HEREIN BY ILLINOIS POWER COMPANY ------------------------------ The % Cumulative Monthly Income Preferred Securities, Series A (the "Series A Preferred Securities"), representing the limited partner interests offered hereby, are being issued by Illinois Power Capital, L.P., a limited partnership formed under the laws of the State of Delaware ("Illinois Power Capital"). All of the general partner interests in Illinois Power Capital are owned by Illinois Power Company, an Illinois corporation (the "Company"). Illinois Power Capital exists for the sole purpose of issuing its partner interests and using the proceeds thereof to purchase certain debt securities of the Company. The proceeds of the Series A Preferred Securities will be used by Illinois Power Capital to purchase the Company's % Subordinated Deferrable Interest Debentures, Series A (the "Series A Subordinated Debentures"). The limited partner interests represented by the Series A Preferred Securities will have a preference with respect to cash distributions and amounts payable on liquidation over the general partner interests in Illinois Power Capital. Holders of the Series A Preferred Securities will be entitled to receive cumulative preferential cash distributions at an annual rate of % of the liquidation preference of $25 per Series A Preferred Security, accruing from the date of original issuance and payable monthly in arrears on the last day of each calendar month of each year, commencing , 1994 ("dividends"). The payment of dividends and payments on liquidation of Illinois Power Capital or the redemption of Series A Preferred Securities, to the extent that Illinois Power Capital has sufficient cash on hand to permit such payments and funds legally available therefor, are guaranteed by the Company to the extent set forth herein and in the accompanying Prospectus (the "Guarantee"). See "Description of the Guarantee" in the accompanying Prospectus. If the Company fails to make interest payments on the Series A Subordinated Debentures purchased by Illinois Power Capital with the proceeds of this offering, Illinois Power Capital will have insufficient funds to pay dividends on the Series A Preferred Securities. The Guarantee does not provide for payment by the Company directly of dividends for which Illinois Power Capital does not have sufficient funds available. In such event, the remedy of a holder of Series A Preferred Securities is to enforce Illinois Power Capital's rights under the Series A Subordinated Debentures purchased by Illinois Power Capital from the Company. The obligations of the Company under the Guarantee are subordinate and junior in right of payment to all liabilities of the Company, and the Company's obligations under the Series A Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined in the accompanying Prospectus) of the Company. At June 30, 1994, Senior Indebtedness of the Company aggregated approximately $2.2 billion. The Series A Preferred Securities are redeemable at the option of Illinois Power Capital, in whole or in part, from time to time, on or after , 1999, at $25 per Series A Preferred Security plus any accumulated and unpaid dividends thereon to the date fixed for redemption (the "Redemption Price"), and will be redeemed at such price from the proceeds of any repayment or redemption of the Series A Subordinated Debentures. See "Description of Series A Preferred Securities -- Optional Redemption" and "-- Mandatory Redemption." In addition, upon the occurrence of certain special events arising from a change in law or a change in legal interpretation, the Series A Preferred Securities are redeemable in whole at the Redemption Price at the option of the Company, in its capacity as the general partner of Illinois Power Capital (the "General Partner"), or the General Partner may dissolve Illinois Power Capital and cause Series A Subordinated Debentures to be distributed to the holders of the Series A Preferred Securities in liquidation of their interests in Illinois Power Capital. See "Description of Series A Preferred Securities -- Special Event Redemption or Distribution" and "Description of the Series A Subordinated Debentures." If the Series A Subordinated Debentures are so distributed, the Company will use its best efforts to have them listed on the same exchange on which the Series A Preferred Securities are then listed. In the event of the dissolution of Illinois Power Capital, the holders of Series A Preferred Securities will be entitled to a liquidation preference for each Series A Preferred Security of $25 plus any accumulated and unpaid dividends thereon to the date of payment, subject to certain limitations, unless, in connection with such dissolution, Series A Subordinated Debentures are distributed to the holders of the Series A Preferred Securities. See "Description of Series A Preferred Securities -- Liquidation Distribution Upon Dissolution." SEE "CERTAIN INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE SERIES A PREFERRED SECURITIES, INCLUDING THE PERIOD DURING WHICH AND CIRCUMSTANCES UNDER WHICH PAYMENT OF DIVIDENDS ON THE SERIES A PREFERRED SECURITIES MAY BE DEFERRED. Application will be made to list the Series A Preferred Securities on the New York Stock Exchange. ------------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INITIAL PUBLIC UNDERWRITING PROCEEDS TO ILLINOIS POWER OFFERING PRICE COMMISSION(1) CAPITAL(2)(3) -------------- ------------- -------------------------- Per Series A Preferred Security.................................. $ (2) $ Total............................................................ $ (2) $
- ------------------ (1) Illinois Power Capital and the Company have agreed to indemnify the several Underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) As the proceeds of the sale of the Series A Preferred Securities will be loaned to the Company, the Company has agreed in the Underwriting Agreement to pay to the Underwriters $ per Series A Preferred Security (or $ in the aggregate); provided that such payment will be $ per Series A Preferred Security sold to certain institutions. Therefore, to the extent that Series A Preferred Securities are sold to such institutions, the actual amount of Underwriters' compensation will be less than the amount specified in the preceding sentence and the Proceeds to Illinois Power Capital will be greater than the amount set forth in the table above. See "Underwriting." (3) Expenses of the offering which are payable by the Company are estimated to be $ . ------------------------------ The Series A Preferred Securities offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of certificates for the Series A Preferred Securities will be made only in book-entry form through the facilities of The Depository Trust Company on or about , 1994. - ------------------ * An application has been filed by Goldman, Sachs & Co. with the United States Patent and Trademark Office for the registration of the MIPS servicemark. GOLDMAN, SACHS & CO. The date of this Prospectus Supplement is , 1994. 4 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 5 CERTAIN INVESTMENT CONSIDERATIONS Prospective purchasers of Series A Preferred Securities should carefully review the information contained elsewhere in this Prospectus Supplement and in the accompanying Prospectus and should particularly consider the following matters. Capitalized terms used and not otherwise defined in this Prospectus Supplement shall have the meanings ascribed thereto in the accompanying Prospectus. SUBORDINATION OF GUARANTEE AND SERIES A SUBORDINATED DEBENTURES. The Company's obligations under the Guarantee are subordinate and junior in right of payment to all other liabilities of the Company. The obligations of the Company under the Series A Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness of the Company. At June 30, 1994, Senior Indebtedness of the Company aggregated approximately $2.2 billion. There are no terms in the Series A Preferred Securities, the Series A Subordinated Debentures or the Guarantee that limit the Company's ability to incur additional indebtedness, including indebtedness that ranks senior to the Series A Subordinated Debentures and the Guarantee. See "Description of the Guarantee -- Status of the Guarantee" and "Description of the Subordinated Debentures -- Subordination" in the accompanying Prospectus. OPTION TO EXTEND INTEREST PAYMENT PERIOD. The Company has the right under the Indenture to extend the interest payment period from time to time on the Series A Subordinated Debentures to a period not exceeding 60 consecutive months, and, as a consequence, monthly dividends on the Series A Preferred Securities would be deferred (but would continue to accrue with interest thereon) by Illinois Power Capital during any such extended interest payment period. In the event that the Company exercises this right, the Company may not declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock until the deferred interest on the Series A Subordinated Debentures is paid in full. Prior to the termination of any such extension period, the Company may further extend the interest payment period, provided that such extension period together with all such previous and further extensions thereof may not exceed 60 consecutive months. Upon the termination of any extension period and the payment of all amounts then due, the Company may select a new extension period, subject to the above requirements. The Company has no current intention of extending the interest payment period on the Series A Subordinated Debentures since it desires to continue the declaration and payment of dividends on its capital stock. See "Description of the Series A Preferred Securities -- Dividends" and "Description of the Series A Subordinated Debentures -- Option to Extend Interest Payment Period." Should an extended interest payment period occur, Illinois Power Capital will continue to accrue income for United States federal income tax purposes which will be allocated, but not distributed, to holders of record of Series A Preferred Securities. As a result, such a holder will include such interest in gross income for United States federal income tax purposes in advance of the receipt of cash, and will not receive the cash from Illinois Power Capital related to such income if such a holder disposes of his or her Series A Preferred Securities prior to the record date for payment of dividends. See "United States Taxation -- Potential Extension of Interest Payment Period." SPECIAL EVENT REDEMPTION OR DISTRIBUTION. Upon the occurrence of a Special Event (as defined herein), the General Partner will elect to either (i) redeem the Series A Preferred Securities in whole or (ii) dissolve Illinois Power Capital and cause Series A Subordinated Debentures to be distributed to the holders of the Series A Preferred Securities in liquidation of their interests in Illinois Power Capital. The Series A Subordinated Debentures will initially be issued at face value as a Global Security (as defined herein) and will be limited in aggregate principal amount to approximately $ million, such amount being the sum of the aggregate liquidation preference of the Series A Preferred Securities and the General Partnership Payment (as defined herein). In the case of a Tax Event (as defined herein), the General Partner may also elect to cause the Series A Preferred Securities to remain outstanding. See "Description of the Series A Preferred Securities -- Special Event Redemption or Distribution" and "Description of the Series A Subordinated Debentures -- General." Under current United States federal income tax law, the distribution of Series A Subordinated Debentures in connection with the dissolution of Illinois Power Capital would not be a taxable event to S-3 6 holders of the Series A Preferred Securities. Under a change in law, a change in legal interpretation or the other circumstances giving rise to a Special Event, however, the dissolution of Illinois Power Capital and the distribution of Series A Subordinated Debentures in connection with the dissolution of Illinois Power Capital could be a taxable event to holders of the Series A Preferred Securities. In the judgment of tax counsel to the Company and Illinois Power Capital, the series of events which would result in the recognition of taxable gain by holders of the Series A Preferred Securities, by reason of a dissolution of Illinois Power Capital in response to a Special Event, is unlikely to occur. There can be no assurance in this regard, however. See "United States Taxation - -- Receipt of Series A Subordinated Debentures Upon Dissolution of Illinois Power Capital." ILLINOIS POWER COMPANY The Company was incorporated under the laws of the State of Illinois on May 25, 1923. Effective May 27, 1994, the Company became a subsidiary of Illinova Corporation, an exempt holding company under the Public Utility Holding Company Act of 1935, as amended, pursuant to a merger in which each outstanding share of the Company's Common Stock was converted into one share of common stock of Illinova Corporation. The Company is engaged in the generation, transmission, distribution and sale of electric energy and the distribution and sale of natural gas in the State of Illinois. Its service area is a widely diversified industrial and agricultural area comprising approximately 15,000 square miles in northern, central and southern Illinois. Electric service is provided at retail to 309 incorporated municipalities, adjacent suburban and rural areas and numerous unincorporated municipalities having an aggregate population of approximately 1,283,000. Gas service is provided to 257 incorporated municipalities, adjacent suburban areas and numerous unincorporated municipalities having an aggregate population of approximately 935,000. The larger cities served include Decatur, East St. Louis (gas only), Champaign, Danville, Belleville, Granite City, Bloomington (electric only), Galesburg, Urbana and Normal (electric only). The executive offices of the Company are located at 500 South 27th Street, Decatur, Illinois 62525, and the Company's telephone number is (217) 424-6600. ILLINOIS POWER CAPITAL Illinois Power Capital is a limited partnership formed under the Delaware Revised Uniform Limited Partnership Act, as amended (the "Partnership Act"). Illinois Power Capital exists for the sole purpose of issuing its partner interests, including the Series A Preferred Securities, and using the proceeds thereof to purchase certain debt securities of the Company, including the Series A Subordinated Debentures. The Company is the sole general partner (the "General Partner") of Illinois Power Capital and will manage all of the business and affairs of Illinois Power Capital. Holders of Series A Preferred Securities will be limited partners of Illinois Power Capital. The Company, as the General Partner of Illinois Power Capital, will make capital contributions to Illinois Power Capital from time to time to the extent required so that the total contributions made by the General Partner shall at all times be at least equal to 3% of the total contributions made by all partners. The rights and obligations of the General Partner and the limited partners of Illinois Power Capital will be governed by the Partnership Act and by an Amended and Restated Agreement of Limited Partnership of Illinois Power Capital (the "Partnership Agreement") substantially in the form filed as an exhibit to the Registration Statement of which this Prospectus Supplement and the accompanying Prospectus form a part. USE OF PROCEEDS The proceeds to be received by Illinois Power Capital from the sale of the Series A Preferred Securities will be used to purchase Series A Subordinated Debentures of the Company and will be applied by the Company to the payment or provision for payment at maturity, the purchase or the redemption of outstanding securities of the Company and for general corporate purposes. S-4 7 SUMMARY FINANCIAL INFORMATION OF THE COMPANY (THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
12 MONTHS YEAR ENDED DECEMBER 31, ENDED -------------------------------------------------------------- JUNE 30, 1994 1989 1990 1991 1992 1993(A) (UNAUDITED)(A)(B) ---------- ---------- ---------- ---------- ---------- ----------------- INCOME STATEMENT DATA: Operating Revenues..... $1,393,778 $1,469,480 $1,474,905 $1,479,449 $1,581,190 $ 1,628,094 Net Income............. (288,432) (78,484) 109,244 122,088 (56,038) (42,031) Preferred Dividend Requirements......... 37,365 36,839 30,866 28,854 26,123 24,283 Net Income Applicable to Common Stock...... (325,797) (115,323) 78,378 93,234 (82,161) (66,314) Earnings Per Share of Common Stock......... (4.34) (1.53) 1.04 1.23 (1.08) (0.91) Ratio of Earnings to Fixed Charges(c)..... (0.52)(d) 0.70(d) 1.85 2.02 0.80(d) 0.93(d) Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(c)...... (0.45)(e) 0.60(e) 1.48 1.61 0.70(e) 0.82(e)
AMOUNT PERCENTAGE ---------- ---------- CAPITALIZATION AT JUNE 30, 1994: Long-Term Debt............................................................... $1,868,191 52.2% Preferred Stock (not subject to mandatory redemption)........................ 303,705 8.5 Preferred Stock (subject to mandatory redemption)............................ 36,000 1.0 Common Stock Equity.......................................................... 1,368,858 38.3 ---------- ---------- Total Capitalization..................................................... $3,576,754 100.0% ========= =========
- --------------- (a) Subsequent to the Company's merger with Illinova Corporation, net assets of Illinova Generating Company (formerly IP Group, Inc.) were transferred in the form of a dividend from the Company to Illinova Corporation. The income statement data contained herein has been restated to reflect the financial results of the Company's current operations. (b) In the opinion of the Company, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited twelve-month period ended June 30, 1994, have been made. (c) Earnings used in the calculation of the ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and preferred stock dividend requirements include the allowance for funds used during construction and the deferred financing costs associated with the Company's Clinton Power Station, and are before deduction of income taxes and fixed charges. Fixed charges include interest on long-term debt, related amortization of debt discount, premium, and expense, other interest and that portion of rent expense which is estimated to be representative of the interest component. Preferred stock dividend requirements have been increased to an amount representing the pre-tax earnings required to cover such dividend requirements. (d) The ratios of earnings to fixed charges for the twelve months ended June 30, 1994 and for the years ended December 31, 1993, 1990 and 1989 of 0.93, 0.80, 0.70 and (0.52), respectively, indicate that earnings were inadequate to cover fixed charges. The dollar amounts of the coverage deficiency for the twelve months ended June 30, 1994, and for the years ended 1993, 1990 and 1989 were approximately $13 million, $37 million, $68 million and $375 million, respectively. Excluding the loss on disallowed plant costs of $200 million, net of income taxes, recorded in the S-5 8 third quarter of 1993, the ratio of earnings to fixed charges would have been 2.42 for the twelve months ended June 30, 1994 and 2.25 for the year ended 1993. Excluding the loss on disallowed plant costs of $137 million, net of income taxes, recorded in the fourth quarter of 1990, the ratio of earnings to fixed charges would have been 1.41 for the year ended 1990. Excluding the loss on disallowed plant costs of $346 million, net of income taxes, recorded in the first quarter of 1989, the ratio of earnings to fixed charges would have been 1.31 for the year ended 1989. (e) The ratios of earnings to combined fixed charges and preferred stock dividend requirements for the twelve months ended June 30, 1994 and for the years ended December 31, 1993, 1990 and 1989 of 0.82, 0.70, 0.60 and (0.45), respectively, indicate that earnings were inadequate to cover combined fixed charges and preferred stock dividend requirements. The dollar amounts of the coverage deficiency for the twelve months ended June 30, 1994, and for the years ended 1993, 1990 and 1989 were approximately $38 million, $63 million, $105 million and $412 million, respectively. Excluding the loss on disallowed plant costs of $200 million, net of income taxes, recorded in the third quarter of 1993, the ratio of earnings to combined fixed charges and preferred stock dividend requirements would have been 1.98 for the twelve months ended June 30, 1994 and 1.83 for the year ended 1993. Excluding the loss on disallowed plant costs of $137 million, net of income taxes, recorded in the fourth quarter of 1990, the ratio of earnings to combined fixed charges and preferred stock dividend requirements would have been 1.09 for the year ended 1990. Excluding the loss on disallowed plant costs of $346 million, net of income taxes, recorded in the first quarter of 1989, the ratio of earnings to combined fixed charges and preferred stock dividend requirements would have been 1.06 for the year ended 1989. S-6 9 DESCRIPTION OF THE SERIES A PREFERRED SECURITIES GENERAL All of the partnership interests in Illinois Power Capital, other than the Series A Preferred Securities offered hereby, are owned by the General Partner. The Partnership Agreement authorizes and creates the Series A Preferred Securities, which represent limited partner interests in Illinois Power Capital (the "Preferred Securities"). Preferred Securities may be issued from time to time in one or more series as described in the accompanying Prospectus. The limited partner interests represented by the Series A Preferred Securities will have a preference with respect to dividends and amounts payable on liquidation over the General Partner's interest in Illinois Power Capital. The Partnership Agreement does not permit the issuance of any Preferred Securities ranking, as to participation in profits and dividends and in the assets of Illinois Power Capital, senior or junior to the Series A Preferred Securities or the incurrence of any indebtedness by Illinois Power Capital. The summary of certain terms and provisions of the Series A Preferred Securities set forth below does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Partnership Agreement and the Partnership Act. DIVIDENDS The dividends payable on each Series A Preferred Security will be fixed at a rate per annum of % of the liquidation preference of $25 per Preferred Security. Dividends in arrears for more than one month will bear interest thereon at the rate per annum of % thereof. The term "dividends" as used herein includes any such interest payable unless otherwise stated. The amount of dividends payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Dividends on the Series A Preferred Securities will be cumulative, will accrue from the date of initial issuance and will be payable monthly in arrears, on the last day of each calendar month of each year, commencing , 1994, when, as and if available and determined to be so payable by the General Partner, except as otherwise described below. The Company has the right under the Indenture to extend the interest payment period from time to time on the Series A Subordinated Debentures to a period not exceeding 60 consecutive months, and, as a consequence, monthly dividends on the Series A Preferred Securities would be deferred (but would continue to accrue with interest) by Illinois Power Capital during any such extended interest payment period. In the event that the Company exercises this right, the Company may not declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock. Prior to the termination of any such extension period, the Company may further extend the interest payment period, provided that such extension period together with all such previous and further extensions thereof may not exceed 60 consecutive months. Upon the termination of any extension period and the payment of all amounts then due, the Company may select a new extension period, subject to the above requirements. See "Description of the Series A Subordinated Debentures -- Interest" and "-- Option to Extend Interest Payment Period." Dividends on the Series A Preferred Securities must be paid on the dates payable to the extent that Illinois Power Capital has (i) funds legally available for the payment of such dividends and (ii) cash on hand sufficient to permit such payments. It is anticipated that Illinois Power Capital's earnings available for distribution to the holders of the Series A Preferred Securities will be limited to payments under the Series A Subordinated Debentures in which Illinois Power Capital will invest the proceeds from the issuance and sale of the Series A Preferred Securities and the General Partner's capital contribution. See "Description of the Series A Subordinated Debentures." The payment of dividends, out of moneys held by Illinois Power Capital, is guaranteed by the Company as set forth under "Description of the Guarantee" in the accompanying Prospectus. Dividends on the Series A Preferred Securities will be payable to the holders thereof as they appear on the books and records of Illinois Power Capital on the relevant record dates, which, as long as the Series A Preferred Securities remain in book-entry-only form, will be one Business Day (as defined below) prior to the relevant payment dates. Subject to any applicable laws and regulations and the provisions of the Partnership Agreement, each such payment will be made as described under S-7 10 "Book-Entry-Only Issuance -- The Depository Trust Company" below. In the event the Series A Preferred Securities shall not continue to remain in book-entry-only form, the General Partner shall have the right to select relevant record dates which shall be more than one Business Day prior to the relevant payment dates. In the event that any date on which dividends are payable on the Series A Preferred Securities is not a Business Day, then payment of the dividends payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. A "Business Day" shall mean any day other than a day on which banking institutions in The City of New York are authorized or required by law to close. CERTAIN RESTRICTIONS ON ILLINOIS POWER CAPITAL If dividends have not been paid in full on the Series A Preferred Securities, Illinois Power Capital shall not: (i) pay, or set aside for payment, any dividends on any other series of Preferred Securities, unless the amount of any dividends paid or set aside on any other series of Preferred Securities is paid or set aside on such other series of Preferred Securities and the Series A Preferred Securities on a pro rata basis on the date such dividends are paid or set aside on such other series of Preferred Securities, so that (x) the aggregate amount of dividends paid on the Series A Preferred Securities bears to the aggregate amount of dividends paid on such other series of Preferred Securities the same ratio as (y) the aggregate of all accumulated and unpaid dividends in respect of the Series A Preferred Securities bears to the aggregate of all accumulated and unpaid dividends in respect of such other series of Preferred Securities; or (ii) redeem, purchase or otherwise acquire any other Preferred Securities; until, in each case, such time as all accumulated and unpaid dividends on the Series A Preferred Securities shall have been paid in full for all dividend periods terminating on or prior to, in the case of clause (i), such payment and, in the case of clause (ii), the date of such redemption, purchase or acquisition. As of the date of this Prospectus Supplement, there are no series of Preferred Securities outstanding. OPTIONAL REDEMPTION The Series A Preferred Securities are redeemable, at the option of Illinois Power Capital, in whole or in part, from time to time, on or after , 1999, upon not less than 30 nor more than 60 days' notice, at the Redemption Price; provided, however, that prior to giving any such notice of redemption, Illinois Power Capital shall have received from the Company a notice of redemption of Series A Subordinated Debentures in an aggregate principal amount equal to the aggregate liquidation preference of the Series A Preferred Securities to be redeemed. In the event that fewer than all the outstanding Series A Preferred Securities are to be so redeemed, the Series A Preferred Securities to be redeemed will be selected as described under "Book-Entry-Only Issuance -- The Depository Trust Company" below. If a partial redemption would result in the delisting of the Series A Preferred Securities, Illinois Power Capital may only redeem the Series A Preferred Securities in whole. SPECIAL EVENT REDEMPTION OR DISTRIBUTION Subject to the next succeeding sentence, if a Tax Event or an Investment Company Event (each, as defined below, and, each, a "Special Event") shall occur and be continuing, the General Partner shall elect to either (i) cause Illinois Power Capital to redeem the Series A Preferred Securities in whole (and not in part), upon not less than 30 or more than 60 days' notice at the Redemption Price within 90 days S-8 11 following the occurrence of such Special Event; provided, that, if at the time there is available to the General Partner the opportunity to eliminate, within such 90-day period, the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure, which has no adverse effect on Illinois Power Capital or the General Partner, the General Partner will pursue such measure in lieu of redemption, or (ii) dissolve Illinois Power Capital and, after satisfaction of liabilities of creditors as required by the Partnership Act, cause Series A Subordinated Debentures to be distributed to the holders of the Series A Preferred Securities in liquidation of their interests in Illinois Power Capital, within 90 days following the occurrence of such Special Event. In the case of a Tax Event, the General Partner may also elect to cause the Series A Preferred Securities to remain outstanding. In the event of a distribution of Series A Subordinated Debentures as described in (ii) above, each holder of Series A Preferred Securities would receive Series A Subordinated Debentures in an aggregate principal amount equal to the aggregate liquidation preference of $25 per Series A Preferred Security on the Series A Preferred Securities held by it, with such Series A Subordinated Debentures bearing interest at a rate per annum equal to the dividend rate per annum on such Series A Preferred Securities from the last date on which dividends were paid. "Tax Event" means that the General Partner shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination on or after such date) or (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the generally accepted position on , 1994, which amendment or change is effective or such interpretation or pronouncement is announced on or after , 1994, there is more than an insubstantial risk that (i) Illinois Power Capital is subject to federal income tax with respect to interest received on the Series A Subordinated Debentures, (ii) interest payable to Illinois Power Capital on the Series A Subordinated Debentures will not be deductible for federal income tax purposes or (iii) Illinois Power Capital is subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Investment Company Event" means the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law") to the effect that Illinois Power Capital is or will be considered an "investment company" which is required to be registered under the Investment Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law becomes effective on or after , 1994; provided, that no Investment Company Event shall be deemed to have occurred if the General Partner obtains a written opinion of nationally recognized independent counsel experienced in practice under the 1940 Act to the effect that the General Partner has successfully issued an additional or supplemental irrevocable and unconditional guarantee (x) of accumulated and unpaid dividends (whether or not determined to be paid out of moneys legally available therefor) on the Series A Preferred Securities and (y) of the full amount of the Liquidation Distribution (as hereinafter defined) on the Series A Preferred Securities upon a liquidation of Illinois Power Capital (regardless of the amount of assets of Illinois Power Capital otherwise available for distribution in such liquidation) to avoid such Change in 1940 Act Law so that in the opinion of such counsel, notwithstanding such Change in 1940 Act Law, Illinois Power Capital is not required to be registered as an "investment company" within the meaning of the 1940 Act. After the date fixed for any distribution of Series A Subordinated Debentures, upon dissolution of Illinois Power Capital, (i) the Series A Preferred Securities will no longer be deemed to be outstanding, (ii) The Depository Trust Company (the "Depository" or "DTC") or its nominee, as the record holder of the Series A Preferred Securities, will receive a registered global certificate or certificates representing S-9 12 the Series A Subordinated Debentures to be delivered upon such distribution and (iii) any certificates representing Series A Preferred Securities not held by DTC or its nominee will be deemed to represent Series A Subordinated Debentures having a principal amount equal to the aggregate liquidation preference of such Series A Preferred Securities until such certificates are presented to the Company or its agent for transfer or reissuance. MANDATORY REDEMPTION Upon the repayment of the Series A Subordinated Debentures at maturity, or earlier, the proceeds from such repayment will be applied to redeem the Series A Preferred Securities, in whole, upon not less than 30 nor more than 60 days' notice, at the Redemption Price. REDEMPTION PROCEDURES Illinois Power Capital may not redeem fewer than all of the outstanding Series A Preferred Securities unless all accumulated and unpaid dividends have been paid on all Series A Preferred Securities for all monthly dividend periods terminating on or prior to the date of redemption. If Illinois Power Capital gives a notice of redemption in respect of Series A Preferred Securities (which notice will be irrevocable), then, by 12:00 noon, New York time, on the redemption date, Illinois Power Capital will irrevocably deposit with DTC funds sufficient to pay the applicable Redemption Price and will give DTC irrevocable instructions and authority to pay the Redemption Price to the holders of the Series A Preferred Securities. See "Book-Entry-Only Issuance -- The Depository Trust Company." If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of holders of such Series A Preferred Securities so called for redemption will cease, except the right of the holders of such Series A Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price. In the event that any date fixed for redemption of Series A Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of Series A Preferred Securities is improperly withheld or refused and not paid either by Illinois Power Capital or by the Company pursuant to the Guarantee described under "Description of the Guarantee" in the accompanying Prospectus, dividends on such Series A Preferred Securities will continue to accrue at the then applicable rate, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Company or its subsidiaries may at any time and from time to time purchase outstanding Series A Preferred Securities by tender, in the open market or by private agreement. LIQUIDATION DISTRIBUTION UPON DISSOLUTION In the event of any voluntary or involuntary dissolution, winding-up or termination of Illinois Power Capital, the holders of the Series A Preferred Securities at the time will be entitled to receive out of the assets of Illinois Power Capital available for distribution to partners, after satisfaction of liabilities of creditors as required by the Partnership Act, before any distribution of assets is made to the General Partner, but together with the holders of every other series of Preferred Securities outstanding, an amount equal to, in the case of holders of Series A Preferred Securities, the aggregate of the liquidation preference of $25 per Series A Preferred Security and all accumulated and unpaid dividends thereon to the date of payment (the "Liquidation Distribution"), unless, in connection with such dissolution, winding-up or termination, Series A Subordinated Debentures in an aggregate principal amount equal to $25 per Series A Preferred Security have been distributed on a pro rata basis to the holders of the Series A Preferred Securities. S-10 13 If, upon any such dissolution, the Liquidation Distribution can be paid only in part because Illinois Power Capital has insufficient assets available to pay in full the aggregate Liquidation Distribution and the aggregate maximum liquidation distributions on any other series of Preferred Securities, then the amounts payable directly by Illinois Power Capital on the Series A Preferred Securities and on such other series of Preferred Securities shall be paid on a pro rata basis, so that (i) the aggregate amount paid in respect of the Liquidation Distribution bears to the aggregate amount paid as liquidation distributions on the other series of Preferred Securities the same ratio as (ii) the aggregate Liquidation Distribution bears to the aggregate maximum liquidation distributions on the other series of Preferred Securities. Pursuant to the Partnership Agreement, Illinois Power Capital shall be dissolved and its affairs shall be wound up: (i) upon the expiration of the term of Illinois Power Capital on December 31, 2047, (ii) upon the bankruptcy or withdrawal of the General Partner, (iii) upon the assignment by the General Partner of its entire interest in Illinois Power Capital when the assignee is not admitted to Illinois Power Capital as a general partner of Illinois Power Capital in accordance with the Partnership Agreement, or the filing of a certificate of dissolution or its equivalent with respect to the General Partner, or the revocation of the General Partner's charter and the expiration of 90 days after the date of notice to the General Partner of revocation without a reinstatement of its charter, or any other event occurs which causes the General Partner to cease to be a general partner of Illinois Power Capital under the Partnership Act, unless the business of Illinois Power Capital is continued in accordance with the Partnership Act, (iv) in accordance with the provisions of the Series A Preferred Securities, (v) upon the entry of a decree of a judicial dissolution or (vi) upon the written consent of all partners of Illinois Power Capital. MERGER, CONSOLIDATION OR AMALGAMATION OF ILLINOIS POWER CAPITAL Illinois Power Capital may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except as described below. Illinois Power Capital may, without the consent of the holders of the Series A Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by a limited liability company, a limited partnership or a trust organized as such under the laws of any state of the United States; provided, that (i) such successor entity either (x) expressly assumes all of the obligations of Illinois Power Capital under the Series A Preferred Securities or (y) substitutes for the Series A Preferred Securities other securities having substantially the same terms as the Series A Preferred Securities (the "Successor Securities") so long as the Successor Securities rank, with respect to participation in the profits and dividends or in the assets of the successor entity, at least as high as the Series A Preferred Securities rank with respect to participation in the profits and dividends or in the assets of Illinois Power Capital, (ii) the Company expressly acknowledges such successor entity as the holder of the Series A Subordinated Debentures, (iii) the Series A Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Series A Preferred Securities are then listed, (iv) such merger, consolidation, amalgamation or replacement does not cause the Series A Preferred Securities to be downgraded by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Securities Act, or cause any Successor Securities to be rated lower than the Series A Preferred Securities immediately prior to such merger, consolidation, amalgamation or replacement, (v) such merger, consolidation, amalgamation or replacement does not adversely affect the powers, preferences and other special rights of the holders of the Series A Preferred Securities in any material respect, (vi) such successor entity has a purpose substantially identical to that of Illinois Power Capital and (vii) prior to such merger, consolidation, amalgamation or replacement, the Company has received an opinion of nationally recognized independent counsel to Illinois Power Capital experienced in such matters to the effect that (x) such successor entity will be treated as a partnership for federal income tax purposes, (y) following such merger, consolidation, amalgamation or replacement, the Company and such successor entity will be in compliance with the 1940 Act without registering thereunder as an investment company and (z) such S-11 14 merger, consolidation, amalgamation or replacement will not adversely affect the limited liability of the holders of the Series A Preferred Securities. VOTING RIGHTS Except as provided below and under "Description of the Guarantee -- Amendments and Assignment" in the accompanying Prospectus and as otherwise required by law and the Partnership Agreement, the holders of the Series A Preferred Securities will have no voting rights. If (i) Illinois Power Capital fails to pay dividends in full on the Series A Preferred Securities for 18 consecutive monthly dividend periods; (ii) an Event of Default (as defined in the Indenture) occurs and is continuing on the Series A Subordinated Debentures; or (iii) the Company is in default on any of its payment or other obligations under the Guarantee (as described under "Description of the Guarantee -- Certain Covenants of the Company" in the accompanying Prospectus), then the holders of the Series A Preferred Securities, together with the holders of any other series of Preferred Securities having the right to vote for the appointment of a special representative of Illinois Power Capital and the limited partners (a "Special Representative") in such event, acting as a single class, will be entitled by the majority vote of such holders to appoint and authorize a Special Representative to enforce Illinois Power Capital's creditor rights under the Series A Subordinated Debentures, to enforce the rights of the holders of the Series A Preferred Securities under the Guarantee and to enforce the rights of the holders of the Series A Preferred Securities to receive dividends on the Series A Preferred Securities. The Special Representative shall not be admitted as a partner in Illinois Power Capital or otherwise be deemed to be a partner in Illinois Power Capital and shall have no liability for the debts, obligations or liabilities of Illinois Power Capital. For purposes of determining whether Illinois Power Capital has failed to pay dividends in full for 18 consecutive monthly dividend periods, dividends shall be deemed to remain in arrears, notwithstanding any payments in respect thereof, until full cumulative dividends have been or contemporaneously are paid with respect to all monthly dividend periods terminating on or prior to the date of payment of such full cumulative dividends. Not later than 30 days after such right to appoint a Special Representative arises, the General Partner will convene a meeting for the purpose of appointing a Special Representative. If the General Partner fails to convene such meeting within such 30-day period, the holders of 10% in liquidation preference of the outstanding Preferred Securities will be entitled to convene such meeting. The provisions of the Partnership Agreement relating to the convening and conduct of the meetings of the partners will apply with respect to any such meeting. Any Special Representative so appointed shall cease to be a Special Representative of Illinois Power Capital and the limited partners if Illinois Power Capital (or the Company pursuant to the Guarantee) shall have paid in full all accumulated and unpaid dividends on the Preferred Securities or such default or breach, as the case may be, shall have been cured, and the General Partner shall continue the business of Illinois Power Capital without dissolution. Notwithstanding the appointment of any such Special Representative, the Company shall continue as General Partner and shall retain all rights under the Indenture, including the right to extend the interest payment period from time to time to a period not exceeding 60 consecutive months as provided under "Description of the Series A Subordinated Debentures -- Option to Extend Interest Payment Period." If any proposed amendment to the Partnership Agreement provides for, or the General Partner otherwise proposes to effect, (i) any action which would adversely affect the powers, preferences or special rights of the Series A Preferred Securities, whether by way of amendment to the Partnership Agreement or otherwise (including, without limitation, the authorization or issuance of any limited partner interests in Illinois Power Capital ranking, as to participation in the profits and dividends or in the assets of Illinois Power Capital, senior to the Series A Preferred Securities), or (ii) the dissolution, winding-up or termination of Illinois Power Capital, other than (x) in connection with the distribution of Series A Subordinated Debentures upon the occurrence of a Special Event or (y) as described under "Merger, Consolidation or Amalgamation of Illinois Power Capital" above, then the holders of outstanding Series A Preferred Securities will be entitled to vote on such amendment or proposal of the General Partner (but not on any other amendment or proposal) as a class with all other holders of series of Preferred Securities similarly affected, and such amendment or proposal shall not be effective except with the approval of the S-12 15 holders of 66 2/3% in liquidation preference of such outstanding Preferred Securities having a right to vote on the matter; provided, however, that no such approval shall be required if the dissolution, winding-up or termination of Illinois Power Capital is proposed or initiated upon the initiation of proceedings, or after proceedings have been initiated, for the dissolution, winding-up, liquidation or termination of the Company. The rights attached to the Series A Preferred Securities will be deemed not to be adversely affected by the creation or issue of, and no vote will be required for the creation of, any further limited partner interests of Illinois Power Capital ranking pari passu with the Series A Preferred Securities with regard to participation in the profits and dividends or in the assets of Illinois Power Capital. Holders of Series A Preferred Securities have no preemptive rights. So long as any Series A Subordinated Debentures are held by Illinois Power Capital, the General Partner shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or executing any trust or power conferred on the Trustee with respect to such series, (ii) waive any past default which is waivable under Section 6.06 of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Series A Subordinated Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture, where such consent shall be required, without, in each case, obtaining the prior approval of the holders of at least 66 2/3% in liquidation preference of all series of Preferred Securities affected thereby, acting as a single class; provided, however, that where a consent under the Indenture would require the consent of each holder affected thereby, no such consent shall be given by the General Partner without the prior consent of each holder of all series of Preferred Securities affected thereby. The General Partner shall not revoke any action previously authorized or approved by a vote of any series of Preferred Securities. The General Partner shall notify all holders of the Series A Preferred Securities of any notice of default received from the Trustee with respect to the Series A Subordinated Debentures. Any required approval of holders of Series A Preferred Securities may be given at a separate meeting of holders of Preferred Securities convened for such purpose, at a meeting of all of the partners in Illinois Power Capital or pursuant to written consent. Illinois Power Capital will cause a notice of any meeting at which holders of Series A Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be mailed to each holder of record of Series A Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the holders of Series A Preferred Securities will be required for Illinois Power Capital to redeem and cancel Series A Preferred Securities in accordance with the Partnership Agreement. Notwithstanding that holders of Series A Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Series A Preferred Securities and any other series of Preferred Securities that are entitled to vote or consent with such Series A Preferred Securities as a single class at such time that are owned by the Company or any entity owned more than 50% by the Company, either directly or indirectly, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. Holders of the Series A Preferred Securities will have no rights to remove or replace the General Partner. BOOK-ENTRY-ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY DTC will act as securities depository for the Series A Preferred Securities. The Series A Preferred Securities will be issued only as fully-registered securities registered in the name of Cede & Co. (DTC's nominee). One or more fully-registered global Series A Preferred Security certificates will be issued, S-13 16 representing in the aggregate the total number of Series A Preferred Securities, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and by The New York Stock Exchange, Inc. (the "New York Stock Exchange"), the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Commission. Purchases of Series A Preferred Securities within the DTC system must be made by or through Direct Participants, which will receive a credit for the Series A Preferred Securities on DTC's records. The ownership interest of each actual purchaser of each Series A Preferred Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Series A Preferred Securities. Transfers of ownership interests in the Series A Preferred Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series A Preferred Securities, except in the event that use of the book-entry system for the Series A Preferred Securities is discontinued. DTC has no knowledge of the actual Beneficial Owners of the Series A Preferred Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series A Preferred Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Series A Preferred Securities are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such series to be redeemed. Although voting with respect to the Series A Preferred Securities is limited, in those cases where a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to Series A Preferred Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to Illinois Power Capital as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series A Preferred Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Dividend payments on the Series A Preferred Securities will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on S-14 17 such payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices and will be the responsibility of such Participant and not of DTC, Illinois Power Capital or the Company, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of dividends to DTC is the responsibility of Illinois Power Capital, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series A Preferred Securities at any time by giving reasonable notice to Illinois Power Capital. Under such circumstances, in the event that a successor securities depository is not obtained, Series A Preferred Security certificates are required to be printed and delivered. Additionally, Illinois Power Capital (with the consent of the Company) may decide to discontinue use of the system of book-entry transfers through DTC (or a successor depository). In that event, certificates for the Series A Preferred Securities will be printed and delivered. In each of the above circumstances, the General Partner will appoint a paying agent with respect to the Series A Preferred Securities. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Illinois Power Capital believes to be reliable, but Illinois Power Capital takes no responsibility for the accuracy thereof. REGISTRAR AND TRANSFER AGENT The Company will act as registrar and transfer agent for the Series A Preferred Securities. Registration of transfers of Series A Preferred Securities will be effected without charge by or on behalf of Illinois Power Capital, but upon payment (with the giving of such indemnity as Illinois Power Capital or the Company may require) in respect of any tax or other governmental charges which may be imposed in relation to it. Illinois Power Capital will not be required to register or cause to be registered the transfer of Series A Preferred Securities after such Series A Preferred Securities have been called for redemption. MISCELLANEOUS Application will be made to list the Series A Preferred Securities on the New York Stock Exchange. The General Partner is authorized and directed to conduct its affairs and to operate Illinois Power Capital in such a way that (i) Illinois Power Capital will not be deemed to be an "investment company" required to be registered under the 1940 Act, (ii) Illinois Power Capital will be taxed as a partnership for federal income tax purposes and (iii) the Series A Subordinated Debentures will be treated as indebtedness of the Company for federal income tax purposes. In this connection, the General Partner is authorized to take any action, not inconsistent with applicable law, the certificate of limited partnership or the Partnership Agreement, that the General Partner determines in its discretion to be necessary or desirable for such purposes, as long as such action does not adversely affect the interests of the holders of the Series A Preferred Securities. S-15 18 DESCRIPTION OF THE SERIES A SUBORDINATED DEBENTURES Set forth below is a description of the specific terms of the Series A Subordinated Debentures in which Illinois Power Capital will invest with the proceeds of the issuance and sale of (i) the Series A Preferred Securities and (ii) the General Partner's capital contribution with respect to the Series A Preferred Securities (the "General Partnership Payment"). This description supplements the description of the general terms and provisions of the Subordinated Debentures set forth in the accompanying Prospectus under the caption "Description of the Subordinated Debentures." The following description does not purport to be complete and is qualified in its entirety by reference to the description in the accompanying Prospectus and the Indenture between the Company and The First National Bank of Chicago, as Trustee, as supplemented by a First Supplemental Indenture (the Indenture, as so supplemented, is hereinafter referred to as the "Indenture"). Under certain circumstances involving the dissolution of Illinois Power Capital following the occurrence of a Special Event, Series A Subordinated Debentures may be distributed to the holders of the Series A Preferred Securities in liquidation of Illinois Power Capital. See "Description of the Series A Preferred Securities -- Special Event Redemption or Distribution." GENERAL The Series A Subordinated Debentures will be issued as a series of Subordinated Debentures under the Indenture. The Series A Subordinated Debentures will be limited in aggregate principal amount to approximately $ million, such amount being the sum of the aggregate liquidation preference of the Series A Preferred Securities and the General Partnership Payment. The entire principal amount of the Series A Subordinated Debentures will become due and payable, together with any accrued and unpaid interest thereon, including Additional Interest (as hereinafter defined), if any, on , 2043. The Series A Subordinated Debentures if distributed to holders of Series A Preferred Securities upon the dissolution of Illinois Power Capital will initially be so issued as a Global Security (as defined below). As described herein, under certain limited circumstances Series A Subordinated Debentures may be issued in certificated form in exchange for a Global Security. See "Book-Entry and Settlement" below. In the event that Series A Subordinated Debentures are issued in certificated form, such Series A Subordinated Debentures will be in denominations of $25 and integral multiples thereof and may be transferred or exchanged at the offices described below. Payments on Series A Subordinated Debentures issued as a Global Security will be made to DTC, as the depository for the Series A Subordinated Debentures. In the event Series A Subordinated Debentures are issued in certificated form, principal and interest will be payable, the transfer of the Series A Subordinated Debentures will be registrable and the Series A Subordinated Debentures will be exchangeable for Series A Subordinated Debentures of other denominations of a like aggregate principal amount at the corporate trust office of the Trustee in The City of New York; provided, that payment of interest may be made at the option of the Company by check mailed to the address of the persons entitled thereto. If the Series A Subordinated Debentures are distributed to the holders of Series A Preferred Securities upon the dissolution of Illinois Power Capital, the Company will use its best efforts to list the Series A Subordinated Debentures on the New York Stock Exchange or on such other exchange as the Series A Preferred Securities are then listed and traded on the same part of any such exchange. MANDATORY PREPAYMENT If Illinois Power Capital redeems Series A Preferred Securities in accordance with the terms thereof, the Series A Subordinated Debentures will become due and payable in a principal amount equal to the aggregate liquidation preference of the Series A Preferred Securities so redeemed, together with all accrued and unpaid interest, including Additional Interest, if any. Any payment pursuant to this provision S-16 19 shall be made prior to 12:00 noon, New York time, on the date of such redemption or at such other time on such earlier date as the parties thereto shall agree. OPTIONAL REDEMPTION The Company shall have the right to redeem the Series A Subordinated Debentures, in whole or in part, from time to time, on or after , 1999, upon not less than 30 nor more than 60 days' notice, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest, including Additional Interest, if any, to the redemption date. INTEREST Each Series A Subordinated Debenture will bear interest at the rate of % per annum from the original date of issuance until the principal of such Series A Debenture becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum, payable monthly in arrears on the last day of each calendar month of each year (each, an "Interest Payment Date"), commencing , 1994, to the person in whose name such Series A Subordinated Debenture is registered, subject to certain exceptions, at the close of business on the Business Day next preceding such Interest Payment Date. In the event the Series A Subordinated Debentures shall not continue to remain in book-entry-only form, the Company shall have the right to select record dates which shall be more than one Business Day prior to the Interest Payment Date. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months and for any period shorter than a full month on the basis of actual days elapsed in such period. In the event that any date on which interest is payable on the Series A Subordinated Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. OPTION TO EXTEND INTEREST PAYMENT PERIOD So long as the Company is not in default in the payment of interest on any series of Subordinated Debentures issued under the Indenture, the Company shall have the right at any time during the term of the Series A Subordinated Debentures to extend the interest payment period from time to time to a period not exceeding 60 consecutive months (the "Extension Period"), at the end of which Extension Period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Series A Subordinated Debentures to the extent permitted by applicable law); provided, that, during any such Extension Period, the Company shall not declare or pay any dividend on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or make any guarantee payments with respect to the foregoing (other than payments on the Guarantee); and provided further that any such extended interest payment period may only be selected with respect to the Series A Subordinated Debentures if an extended interest payment period of identical length is simultaneously selected for all Subordinated Debentures then outstanding under the Indenture. Prior to the termination of any such Extension Period, the Company may further extend the interest payment period, provided that such Extension Period together with all such previous and further extensions thereof may not exceed 60 consecutive months. Upon the termination of any Extension Period and the payment of all amounts then due, the Company may select a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. If Illinois Power Capital shall be the sole holder of the Series A Subordinated Debentures, the Company shall give Illinois Power Capital notice of its selection of such Extension Period one Business Day prior to the earlier of (i) the next succeeding date on which the dividends on the Series A Preferred Securities are payable or (ii) the date Illinois Power Capital is required to give notice to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Series A Preferred S-17 20 Securities of the record date or the date such dividend is payable, but in any event not less than one Business Day prior to such record date. The Company shall cause Illinois Power Capital to give notice of the Company's selection of such Extension Period to the holders of the Series A Preferred Securities. If Illinois Power Capital shall not be the sole holder of the Series A Subordinated Debentures, the Company shall give the holders of the Series A Subordinated Debentures notice of its selection of such Extension Period ten Business Days prior to the earlier of (i) the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice to the New York Stock Exchange or other applicable self-regulatory organization, or to holders of the Series A Subordinated Debentures, of the record or payment date of such related interest payment, but in any event not less than two Business Days prior to such record date. ADDITIONAL INTEREST So long as any Subordinated Debentures remain outstanding, if at any time Illinois Power Capital shall be required to pay any interest on dividends in arrears in respect of the Series A Preferred Securities pursuant to the terms thereof, then the Company will pay as interest to Illinois Power Capital as the holder of the Series A Subordinated Debentures ("Additional Interest") an amount equal to such interest on dividends in arrears. In addition, if Illinois Power Capital would be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, the Company also will pay as Additional Interest such amounts as shall be required so that the net amounts received and retained by Illinois Power Capital after paying any such taxes, duties, assessments or governmental charges will be not less than the amounts Illinois Power Capital would have received had no such taxes, duties, assessments or governmental charges been imposed. SET-OFF Notwithstanding anything to the contrary in the Indenture, the Company shall have the right to set-off any payment it is otherwise required to make thereunder with and to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee. EVENTS OF DEFAULT In the case any Event of Default (as defined in the Indenture) shall occur and be continuing, Illinois Power Capital will have the right to declare the principal of and the interest on the Series A Subordinated Debentures (including any Additional Interest) and any other amounts payable under the Indenture to be forthwith due and payable and to enforce its other rights as a creditor with respect to the Series A Subordinated Debentures. See "Enforcement of Certain Rights by Special Representative" below for a discussion of certain rights available to holders of the Series A Preferred Securities upon the occurrence of an Event of Default. ENFORCEMENT OF CERTAIN RIGHTS BY SPECIAL REPRESENTATIVE If (i) Illinois Power Capital fails to pay dividends in full on the Series A Preferred Securities for 18 consecutive monthly dividend periods; (ii) an Event of Default occurs and is continuing on the Series A Subordinated Debentures; or (iii) the Company is in default on any of its payment or other obligations under the Guarantee, under the terms of the Series A Preferred Securities, the holders of outstanding Series A Preferred Securities will have the rights referred to under "Description of the Series A Preferred Securities - -- Voting Rights," including the right to appoint a Special Representative, which Special Representative shall be authorized to exercise Illinois Power Capital's right to accelerate the principal amount of the Series A Subordinated Debentures and to enforce Illinois Power Capital's other creditor rights under the Series A Subordinated Debentures. Notwithstanding the appointment of any such Special Representative, the Company shall continue as General Partner and shall retain all rights under S-18 21 the Indenture, including the right to extend the interest payment period from time to time to a period not exceeding 60 consecutive months. BOOK-ENTRY AND SETTLEMENT If distributed to holders of Series A Preferred Securities in connection with the dissolution of Illinois Power Capital as a result of the occurrence of a Special Event, the Series A Subordinated Debentures will be issued in the form of one or more global certificates (each, a "Global Security") registered in the name of a nominee of DTC. Except under the limited circumstances described below, Series A Subordinated Debentures represented by the Global Security will not be exchangeable for, and will not otherwise be issuable as, Series A Subordinated Debentures in definitive form. The Global Securities described above may not be transferred except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or to a successor depository or its nominee. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in such a Global Security. Except as provided below, owners of beneficial interests in such a Global Security will not be entitled to receive physical delivery of Series A Subordinated Debentures in definitive form and will not be considered the Holders (as defined in the Indenture) thereof for any purpose under the Indenture, and no Global Security representing Series A Subordinated Debentures shall be exchangeable, except for another Global Security of like denomination and tenor to be registered in the name of DTC or its nominee or to a successor depository or its nominee. Accordingly, each beneficial owner must rely on the procedures of DTC and, if such person is not a Participant, on the procedures of the Participant through which such person owns its interest, to exercise any rights of a Holder under the Indenture. THE DEPOSITORY. DTC will act as security depository for the Series A Subordinated Debentures. For a description of DTC and the specific terms of the depository arrangements, see "Description of the Series A Preferred Securities - -- Book-Entry-Only Issuance -- The Depository Trust Company." As of the date of this Prospectus Supplement, the description therein of DTC's book-entry system and DTC's practices as they relate to purchases, transfers, notices and payments with respect to the Series A Preferred Securities applies in all material respects to any debt obligations represented by one or more Global Securities held by DTC. Neither the Company, the Trustee, any paying agent nor any other agent of the Company or the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security for such Series A Subordinated Debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. DISCONTINUANCE OF THE DEPOSITORY'S SERVICES. A Global Security shall be exchangeable for Series A Subordinated Debentures registered in the names of persons other than DTC or its nominee only if (i) DTC notifies the Company that it is unwilling or unable to continue as a depository for such Global Security and no successor depository shall have been appointed, or if any time DTC ceases to be a clearing agency registered under the Exchange Act at a time when DTC is required to be so registered to act as such depository, (ii) the Company in its sole discretion determines that such Global Security shall be so exchangeable or (iii) there shall have occurred an Event of Default with respect to such Series A Subordinated Debentures. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Series A Subordinated Debentures registered in such names as the Depository shall direct. It is expected that such instructions will be based upon directions received by the Depository from its Participants with respect to ownership of beneficial interests in such Global Security. S-19 22 MISCELLANEOUS For restrictions on certain actions of the General Partner with respect to Series A Subordinated Debentures held by Illinois Power Capital, see "Description of the Series A Preferred Securities -- Voting Rights." EFFECT OF OBLIGATIONS UNDER THE SERIES A SUBORDINATED DEBENTURES AND THE GUARANTEE As set forth in the Partnership Agreement, the sole purpose of Illinois Power Capital is to issue partner interests in Illinois Power Capital, including, without limitation, the Series A Preferred Securities, and to use the proceeds thereof to purchase the Series A Subordinated Debentures or other similar debt securities of the Company. As long as payments of interest and other payments are made when due on the Series A Subordinated Debentures, such payments will be sufficient to cover dividends and payments due on the Series A Preferred Securities primarily because (i) the aggregate principal amount of Series A Subordinated Debentures will be equal to the sum of the aggregate liquidation preference of the Series A Preferred Securities and the General Partnership Payment; (ii) the interest rate and interest and other payment dates on the Series A Subordinated Debentures will match the dividend rate and dividend and other payment dates for the Series A Preferred Securities; (iii) the Partnership Agreement provides that the Company, as General Partner, shall pay for all, and Illinois Power Capital shall not be obligated to pay, directly or indirectly, for any, costs and expenses of Illinois Power Capital; and (iv) the Partnership Agreement further provides that the General Partner shall not cause or permit Illinois Power Capital to, among other things, engage in any activity that is not consistent with the purposes of Illinois Power Capital. If the Company fails to make interest or other payments on the Series A Subordinated Debentures when due, the Partnership Agreement provides a mechanism whereby the holders of the Series A Preferred Securities may enforce the rights of Illinois Power Capital under the Series A Subordinated Debentures through the appointment of a Special Representative. Payments of dividends and other payments due on the Series A Preferred Securities out of moneys held by Illinois Power Capital are guaranteed by the Company to the extent set forth under "Description of the Guarantee" in the accompanying Prospectus. The Partnership Agreement also provides, and the Company, under the Guarantee, acknowledges, that a Special Representative may be appointed to enforce the Guarantee if the Company is in default on any of its payment obligations under the Guarantee. In addition, if the General Partner or the Special Representative fails to enforce the Guarantee, a holder of a Series A Preferred Security may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against Illinois Power Capital or any other person or entity. The Company and Illinois Power Capital believe that the above mechanisms and obligations, taken together, are substantially equivalent to a full and unconditional guarantee by the Company of payments due on the Series A Preferred Securities. UNITED STATES TAXATION GENERAL This section is a summary of certain United States federal income tax considerations that may be relevant to prospective purchasers of Series A Preferred Securities and represents the opinion of Schiff Hardin & Waite, tax counsel to the Company and Illinois Power Capital, insofar as it relates to matters of law and legal conclusions. This section is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations thereunder and current S-20 23 administrative rulings and court decisions, all of which are subject to change. Subsequent changes may cause tax consequences to vary substantially from the consequences described below. No attempt has been made in the following discussion to comment on all United States federal income tax matters affecting purchasers of Series A Preferred Securities. Moreover, the discussion focuses on holders of Series A Preferred Securities who are individual citizens or residents of the United States and has only limited application to corporations, estates, trusts or non-resident aliens. Accordingly, each prospective purchaser of Series A Preferred Securities should consult, and should depend on, his or her own tax advisor in analyzing the federal, state, local and foreign tax consequences of the purchase, ownership or disposition of Series A Preferred Securities. INCOME FROM SERIES A PREFERRED SECURITIES In the opinion of Schiff Hardin & Waite, Illinois Power Capital will be treated as a partnership for federal income tax purposes. Accordingly, each holder of Series A Preferred Securities (a "Preferred Securityholder") will be required to include in gross income such holder's distributive share of the net income of Illinois Power Capital. Such income will not exceed dividends received on such Series A Preferred Securities, except in limited circumstances as described below under "Potential Extension of Interest Payment Period." No portion of such income will be eligible for the dividends received deduction. DISPOSITION OF SERIES A PREFERRED SECURITIES Gain or loss will be recognized on a sale (including a redemption for cash) of Series A Preferred Securities in an amount equal to the difference between the amount realized and the Preferred Securityholder's tax basis for the Series A Preferred Securities sold. Gain or loss recognized by a Preferred Securityholder on the sale or exchange of a Series A Preferred Security held for more than one year will generally be taxable as long-term capital gain or loss. RECEIPT OF SERIES A SUBORDINATED DEBENTURES UPON DISSOLUTION OF ILLINOIS POWER CAPITAL Under certain circumstances, as described under the caption "Description of the Series A Preferred Securities -- Special Event Redemption or Distribution," Series A Subordinated Debentures may be distributed to the holders of the Series A Preferred Securities in connection with the dissolution of Illinois Power Capital. Under current United States federal income tax law, such a distribution would be treated as a non-taxable exchange to each holder of Series A Preferred Securities and would result in the holder of Series A Preferred Securities receiving an aggregate tax basis in the Series A Subordinated Debentures equal to such holder's aggregate tax basis in its Series A Preferred Securities. A holder's holding period in the Series A Subordinated Debentures so received in connection with the dissolution of Illinois Power Capital would include the period for which the Series A Preferred Securities were held by such holder. Under a change in law, a change in legal interpretation or the other circumstances giving rise to a Special Event, however, the dissolution of Illinois Power Capital and the distribution of Series A Subordinated Debentures in connection with the dissolution of Illinois Power Capital could be a taxable event to holders of the Series A Preferred Securities. In the judgment of tax counsel to the Company and Illinois Power Capital, the series of events which would result in the recognition of taxable gain by holders of the Series A Preferred Securities, by reason of a dissolution of Illinois Power Capital in response to a Special Event, is unlikely to occur. There can be no assurance in this regard, however. ILLINOIS POWER CAPITAL INFORMATION RETURNS AND AUDIT PROCEDURES The General Partner will furnish each Series A Preferred Securityholder with a Schedule K-1 each year setting forth such Preferred Securityholder's allocable share of income for the prior calendar year. The General Partner is required to furnish such schedules as soon as practicable following the end of the year, but in any event prior to March 31. Any person who holds Series A Preferred Securities as a nominee for another person is required to furnish to Illinois Power Capital (a) the name, address and taxpayer identification number of the S-21 24 beneficial owner and the nominee; (b) information as to whether the beneficial owner is (i) a person that is not a United States person, (ii) a foreign government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing, or (iii) a tax-exempt entity; (c) the amount and description of Series A Preferred Securities held, acquired or transferred for the beneficial owner; and (d) certain information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. Brokers and financial institutions are required to furnish additional information, including whether they are United States persons and certain information on Series A Preferred Securities they acquire, hold or transfer for their own accounts. A penalty of $50 per failure (up to a maximum of $100,000 per calendar year) is imposed by the Code for failure to report such information to Illinois Power Capital. The nominee is required to supply the beneficial owners of Series A Preferred Securities with the information furnished to Illinois Power Capital. POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD Under the terms of the Indenture, the Company has the right to extend from time to time the interest payment period on the Series A Subordinated Debentures to a period not exceeding 60 consecutive months. In the event that the Company exercises this right, the Company may not, among other things, declare or pay dividends on any of its capital stock. The Company has no current intention of extending the interest payment period on the Series A Subordinated Debentures since it desires to continue the declaration and payment of dividends on its capital stock. In the event that the interest payment period is extended, Illinois Power Capital will continue to accrue income equal to the amount of the interest payment due at the end of the Extension Period pursuant to the Code and Treasury Regulation provisions applicable to original issue discount. Accrued income will be allocated, but not distributed, to holders of record on the Business Day preceding the last day of each calendar month. As a result, holders of record during an Extension Period will include interest in gross income in advance of the receipt of cash, and any such holders who dispose of Series A Preferred Securities prior to the record date for the payment of dividends following such Extension Period will include interest in gross income but will not receive any cash related thereto from Illinois Power Capital. The tax basis of a Series A Preferred Security will be increased by the amount of any interest that is included in income without a receipt of cash, and will be decreased when and if such cash is subsequently received from Illinois Power Capital. The subsequent receipt of such cash will not be includible in gross income. UNITED STATES ALIEN HOLDERS For purposes of this discussion, a "United States Alien Holder" is any holder who or which is (i) a nonresident alien individual or (ii) a foreign corporation, partnership, estate or trust, in either case not subject to United States federal income tax on a net income basis in respect of a Series A Preferred Security. Under current United States federal income tax law, subject to the discussion below with respect to backup withholding, and assuming satisfaction by the Company of its withholding tax obligations, if any: (i) Payments by Illinois Power Capital or any of its paying agents to any holder of a Series A Preferred Security who or which is a United States Alien Holder will not be subject to United States federal withholding tax provided that (a) the beneficial owner of the Series A Preferred Security does not actually or constructively own 10% or more of the total combined voting power of all classes of capital stock of the Company, (b) the beneficial owner of the Series A Preferred Security is not a controlled foreign corporation that is related to the Company or Illinois Power Capital through stock ownership, and (c) either: (x) the beneficial owner of the Series A Preferred Security certifies to Illinois Power Capital or its agent, under penalties of perjury, that it is a United States Alien Holder and provides its name and address or (y) the holder of the Series A Preferred Security is a securities clearing organization, bank or other financial institution that holds customers' securities in S-22 25 the ordinary course of its trade or business (a "financial institution"), and such holder certifies to Illinois Power Capital or its agent, under penalties of perjury, that such statement has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes Illinois Power Capital or its agent with a copy thereof; and (ii) a United States Alien Holder of a Series A Preferred Security will generally not be subject to United States federal withholding tax on any gain realized on the sale or exchange of a Series A Preferred Security unless such holder is present in the United States for 183 days or more in the taxable year of sale and either has a "tax home" in the United States or certain other requirements are met. BACKUP WITHHOLDING AND INFORMATION REPORTING In general, information reporting requirements will apply to payments of the proceeds of the sale of Series A Preferred Securities within the United States to noncorporate United States holders, and "backup withholding" at a rate of 31% will apply to such payments if the United States holder fails to provide an accurate taxpayer identification number. Payments of the proceeds from the sale by a United States Alien Holder of Series A Preferred Securities made to or through a foreign office of a broker will not be subject to information reporting or backup withholding, except that, if the broker is a United States person, a controlled foreign corporation for United States tax purposes or a foreign person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period, information reporting may apply to such payments. Payments of the proceeds from the sale of Series A Preferred Securities to or through the United States office of a broker are subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its non-United States status or otherwise establishes an exemption from information reporting and backup withholding. S-23 26 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, Illinois Power Capital has agreed to sell to each of the several Underwriters named below, and each of the Underwriters, for whom Goldman, Sachs & Co. and are acting as Representatives, has severally agreed to purchase from Illinois Power Capital the respective number of Series A Preferred Securities set forth opposite its name below:
NUMBER OF SERIES A PREFERRED UNDERWRITER SECURITIES ----------------------------------------------------- ------------- Goldman, Sachs & Co. ................................ ------------- Total...................................... =============
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all such Series A Preferred Securities offered hereby, if any are taken. The Underwriters propose to offer the Series A Preferred Securities in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus Supplement, and in part to certain securities dealers at such price less a concession of $ per Series A Preferred Security. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per Series A Preferred Security to certain brokers and dealers. After the Series A Preferred Securities are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Representatives. As the proceeds of the sale of the Series A Preferred Securities will be loaned to the Company, the Company has agreed in the Underwriting Agreement to pay to the Underwriters $ per Series A Preferred Security ($ per Series A Preferred Security sold to certain institutions) for the accounts of the several Underwriters. The Company and Illinois Power Capital have agreed, during the period beginning from the date of the Underwriting Agreement and continuing to and including the earlier of (i) the date, after the closing date, on which the distribution of the Series A Preferred Securities ceases, as determined by the Underwriters, or (ii) 30 days after the closing date, not to offer, sell, contract to sell, or otherwise dispose of any Series A Preferred Securities, any limited partner interests of Illinois Power Capital, or any preferred stock or any other securities of Illinois Power Capital or the Company which are substantially similar to the Series A Preferred Securities, or any securities convertible into or exchangeable for Series A Preferred Securities, limited partner interests, preferred stock or such substantially similar securities of either Illinois Power Capital or the Company without the prior written consent of the Underwriters. Prior to this offering, there has been no public market for the Series A Preferred Securities. In order to meet one of the requirements for listing the Series A Preferred Securities on the New York Stock Exchange, the Underwriters will undertake to sell lots of 100 or more Series A Preferred Securities to a minimum of 400 beneficial holders. Illinois Power Capital and the Company have agreed to indemnify the Underwriters against certain civil liabilities, including liabilities under the Securities Act. Certain of the Underwriters engage in transactions with, and from time to time have performed services for, the Company and its affiliates in the ordinary course of business. S-24 27 LEGAL OPINIONS Certain legal matters will be passed upon for the Company and Illinois Power Capital by Schiff Hardin & Waite, Chicago, Illinois, and for the Underwriters by Reid & Priest, New York, New York. Certain matters of Delaware law relating to the validity of the Series A Preferred Securities will be passed upon by Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Company and Illinois Power Capital. Schiff Hardin & Waite and Reid & Priest may rely on the opinion of Richards, Layton & Finger, P.A. as to certain matters of Delaware law, Schiff Hardin & Waite may rely on the opinion of Reid & Priest as to all matters of New York law, and Reid & Priest may rely on the opinion of Schiff Hardin & Waite as to all matters of Illinois law. S-25 28 - ------------------------------------------------------ - ------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. ------------------ TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ---- Certain Investment Considerations.... S-3 Illinois Power Company............... S-4 Illinois Power Capital............... S-4 Use of Proceeds...................... S-4 Summary Financial Information of the Company........................ S-5 Description of the Series A Preferred Securities......................... S-7 Description of the Series A Subordinated Debentures............ S-16 Effect of Obligations under the Series A Subordinated Debentures and the Guarantee.................. S-20 United States Taxation............... S-20 Underwriting......................... S-24 Legal Opinions....................... S-25 PROSPECTUS Available Information................ 2 Incorporation of Certain Documents by Reference.......................... 2 Illinois Power Company............... 3 Illinois Power Capital............... 3 Use of Proceeds...................... 3 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements.............. 4 Description of the Preferred Securities......................... 5 Description of the Guarantee......... 5 Description of the Subordinated Debentures......................... 7 Plan of Distribution................. 12 Legal Opinions....................... 13 Experts.............................. 13
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ PREFERRED SECURITIES ILLINOIS POWER CAPITAL GUARANTEED TO THE EXTENT ILLINOIS POWER CAPITAL HAS FUNDS AS SET FORTH HEREIN BY [IP LOGO] ILLINOIS POWER COMPANY % CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES, SERIES A ------------------------ PROSPECTUS SUPPLEMENT ------------------------ GOLDMAN, SACHS & CO. REPRESENTATIVES OF THE UNDERWRITERS - ------------------------------------------------------ - ------------------------------------------------------ 29 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1994 PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER , 1994 PREFERRED SECURITIES ILLINOIS POWER CAPITAL CUMULATIVE ADJUSTABLE RATE MONTHLY INCOME PREFERRED SECURITIES ("MIPS"*), SERIES A (LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY) GUARANTEED TO THE EXTENT ILLINOIS POWER CAPITAL HAS FUNDS AS SET FORTH HEREIN BY ILLINOIS POWER COMPANY ------------------------------ The Cumulative Adjustable Rate Monthly Income Preferred Securities, Series A (the "Series A Preferred Securities"), representing the limited partner interests offered hereby, are being issued by Illinois Power Capital, L.P., a limited partnership formed under the laws of the State of Delaware ("Illinois Power Capital"). All of the general partner interests in Illinois Power Capital are owned by Illinois Power Company, an Illinois corporation (the "Company"). Illinois Power Capital exists for the sole purpose of issuing its partner interests and using the proceeds thereof to purchase certain debt securities of the Company. The proceeds of the Series A Preferred Securities will be used by Illinois Power Capital to purchase the Company's Adjustable Rate Subordinated Deferrable Interest Debentures, Series A (the "Series A Subordinated Debentures"). The limited partner interests represented by the Series A Preferred Securities will have a preference with respect to cash distributions and amounts payable on liquidation over the general partner interests in Illinois Power Capital. Holders of the Series A Preferred Securities will be entitled to receive cumulative cash distributions accruing from the date of original issuance and payable monthly in arrears on the last day of each calendar month of each year, commencing , 1994 ("dividends"). The dividend rate will be adjusted quarterly. The rate for the initial period from the date of initial issuance to , 1994 will be % per annum, which is equivalent to $ per Series A Preferred Security per annum. Thereafter, dividends on the Series A Preferred Securities will be payable at the "Applicable Rate" from time to time in effect. The Applicable Rate for any quarter will be equal to % of the highest of the "Treasury Bill Rate," the "Ten Year Constant Maturity Rate" and the "Thirty Year Constant Maturity Rate" determined in advance of such quarter. The Applicable Rate for any quarter will not be less than % per annum nor greater than % per annum. See "Description of the Series A Preferred Securities -- Dividends." The payment of dividends and payments on liquidation of Illinois Power Capital or the redemption of Series A Preferred Securities, to the extent that Illinois Power Capital has sufficient cash on hand to permit such payments and funds legally available therefor, are guaranteed by the Company to the extent set forth herein and in the accompanying Prospectus (the "Guarantee"). See "Description of the Guarantee" in the accompanying Prospectus. If the Company fails to make interest payments on the Series A Subordinated Debentures purchased by Illinois Power Capital with the proceeds of this offering, Illinois Power Capital will have insufficient funds to pay dividends on the Series A Preferred Securities. The Guarantee does not provide for payment by the Company directly of dividends for which Illinois Power Capital does not have sufficient funds available. In such event, the remedy of a holder of Series A Preferred Securities is to enforce Illinois Power Capital's rights under the Series A Subordinated Debentures purchased by Illinois Power Capital from the Company. The obligations of the Company under the Guarantee are subordinate and junior in right of payment to all liabilities of the Company, and the Company's obligations under the Series A Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined in the accompanying Prospectus) of the Company. At June 30, 1994, Senior Indebtedness of the Company aggregated approximately $2.2 billion. The Series A Preferred Securities are redeemable at the option of Illinois Power Capital, in whole or in part, from time to time, on or after , 1999, at $25 per Series A Preferred Security plus any accumulated and unpaid dividends thereon to the date fixed for redemption (the "Redemption Price"), and will be redeemed at such price from the proceeds of any repayment or redemption of the Series A Subordinated Debentures. See "Description of Series A Preferred Securities -- Optional Redemption" and "-- Mandatory Redemption." In addition, upon the occurrence of certain special events arising from a change in law or a change in legal interpretation, the Series A Preferred Securities are redeemable in whole at the Redemption Price at the option of the Company, in its capacity as the general partner of Illinois Power Capital (the "General Partner"), or the General Partner may dissolve Illinois Power Capital and cause Series A Subordinated Debentures to be distributed to the holders of the Series A Preferred Securities in liquidation of their interests in Illinois Power Capital. See "Description of Series A Preferred Securities -- Special Event Redemption or Distribution" and "Description of the Series A Subordinated Debentures." If the Series A Subordinated Debentures are so distributed, the Company will use its best efforts to have them listed on the same exchange on which the Series A Preferred Securities are then listed. In the event of the dissolution of Illinois Power Capital, the holders of Series A Preferred Securities will be entitled to a liquidation preference for each Series A Preferred Security of $25 plus any accumulated and unpaid dividends thereon to the date of payment, subject to certain limitations, unless, in connection with such dissolution, Series A Subordinated Debentures are distributed to the holders of the Series A Preferred Securities. See "Description of Series A Preferred Securities -- Liquidation Distribution Upon Dissolution." SEE "CERTAIN INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE SERIES A PREFERRED SECURITIES, INCLUDING THE PERIOD DURING WHICH AND CIRCUMSTANCES UNDER WHICH PAYMENT OF DIVIDENDS ON THE SERIES A PREFERRED SECURITIES MAY BE DEFERRED. Application will be made to list the Series A Preferred Securities on the New York Stock Exchange. ------------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INITIAL PUBLIC UNDERWRITING PROCEEDS TO ILLINOIS POWER OFFERING PRICE COMMISSION(1) CAPITAL(2)(3) -------------- ------------- -------------------------- Per Series A Preferred Security.................................. $ (2) $ Total............................................................ $ (2) $
- ------------------ (1) Illinois Power Capital and the Company have agreed to indemnify the several Underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) As the proceeds of the sale of the Series A Preferred Securities will be loaned to the Company, the Company has agreed in the Underwriting Agreement to pay to the Underwriters $ per Series A Preferred Security (or $ in the aggregate); provided that such payment will be $ per Series A Preferred Security sold to certain institutions. Therefore, to the extent that Series A Preferred Securities are sold to such institutions, the actual amount of Underwriters' compensation will be less than the amount specified in the preceding sentence and the Proceeds to Illinois Power Capital will be greater than the amount set forth in the table above. See "Underwriting." (3) Expenses of the offering which are payable by the Company are estimated to be $ . ------------------------------ The Series A Preferred Securities offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of certificates for the Series A Preferred Securities will be made only in book-entry form through the facilities of The Depository Trust Company on or about , 1994. - ------------------ * An application has been filed by Goldman, Sachs & Co. with the United States Patent and Trademark Office for the registration of the MIPS servicemark. GOLDMAN, SACHS & CO. The date of this Prospectus Supplement is , 1994. 30 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 31 CERTAIN INVESTMENT CONSIDERATIONS Prospective purchasers of Series A Preferred Securities should carefully review the information contained elsewhere in this Prospectus Supplement and in the accompanying Prospectus and should particularly consider the following matters. Capitalized terms used and not otherwise defined in this Prospectus Supplement shall have the meanings ascribed thereto in the accompanying Prospectus. SUBORDINATION OF GUARANTEE AND SERIES A SUBORDINATED DEBENTURES. The Company's obligations under the Guarantee are subordinate and junior in right of payment to all other liabilities of the Company. The obligations of the Company under the Series A Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness of the Company. At June 30, 1994, Senior Indebtedness of the Company aggregated approximately $2.2 billion. There are no terms in the Series A Preferred Securities, the Series A Subordinated Debentures or the Guarantee that limit the Company's ability to incur additional indebtedness, including indebtedness that ranks senior to the Series A Subordinated Debentures and the Guarantee. See "Description of the Guarantee -- Status of the Guarantee" and "Description of the Subordinated Debentures -- Subordination" in the accompanying Prospectus. OPTION TO EXTEND INTEREST PAYMENT PERIOD. The Company has the right under the Indenture to extend the interest payment period from time to time on the Series A Subordinated Debentures to a period not exceeding 60 consecutive months, and, as a consequence, monthly dividends on the Series A Preferred Securities would be deferred (but would continue to accrue with interest thereon) by Illinois Power Capital during any such extended interest payment period. In the event that the Company exercises this right, the Company may not declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock until the deferred interest on the Series A Subordinated Debentures is paid in full. Prior to the termination of any such extension period, the Company may further extend the interest payment period, provided that such extension period together with all such previous and further extensions thereof may not exceed 60 consecutive months. Upon the termination of any extension period and the payment of all amounts then due, the Company may select a new extension period, subject to the above requirements. The Company has no current intention of extending the interest payment period on the Series A Subordinated Debentures since it desires to continue the declaration and payment of dividends on its capital stock. See "Description of the Series A Preferred Securities -- Dividends" and "Description of the Series A Subordinated Debentures -- Option to Extend Interest Payment Period." Should an extended interest payment period occur, Illinois Power Capital will continue to accrue income for United States federal income tax purposes which will be allocated, but not distributed, to holders of record of Series A Preferred Securities. As a result, such a holder will include such interest in gross income for United States federal income tax purposes in advance of the receipt of cash, and will not receive the cash from Illinois Power Capital related to such income if such a holder disposes of his or her Series A Preferred Securities prior to the record date for payment of dividends. See "United States Taxation -- Potential Extension of Interest Payment Period." SPECIAL EVENT REDEMPTION OR DISTRIBUTION. Upon the occurrence of a Special Event (as defined herein), the General Partner will elect to either (i) redeem the Series A Preferred Securities in whole or (ii) dissolve Illinois Power Capital and cause Series A Subordinated Debentures to be distributed to the holders of the Series A Preferred Securities in liquidation of their interests in Illinois Power Capital. The Series A Subordinated Debentures will initially be issued at face value as a Global Security (as defined herein) and will be limited in aggregate principal amount to approximately $ million, such amount being the sum of the aggregate liquidation preference of the Series A Preferred Securities and the General Partnership Payment (as defined herein). In the case of a Tax Event (as defined herein), the General Partner may also elect to cause the Series A Preferred Securities to remain outstanding. See "Description of the Series A Preferred Securities -- Special Event Redemption or Distribution" and "Description of the Series A Subordinated Debentures -- General." Under current United States federal income tax law, the distribution of Series A Subordinated Debentures in connection with the dissolution of Illinois Power Capital would not be a taxable event to S-3 32 holders of the Series A Preferred Securities. Under a change in law, a change in legal interpretation or the other circumstances giving rise to a Special Event, however, the dissolution of Illinois Power Capital and the distribution of Series A Subordinated Debentures in connection with the dissolution of Illinois Power Capital could be a taxable event to holders of the Series A Preferred Securities. In the judgment of tax counsel to the Company and Illinois Power Capital, the series of events which would result in the recognition of taxable gain by holders of the Series A Preferred Securities, by reason of a dissolution of Illinois Power Capital in response to a Special Event, is unlikely to occur. There can be no assurance in this regard, however. See "United States Taxation - -- Receipt of Series A Subordinated Debentures Upon Dissolution of Illinois Power Capital." ILLINOIS POWER COMPANY The Company was incorporated under the laws of the State of Illinois on May 25, 1923. Effective May 27, 1994, the Company became a subsidiary of Illinova Corporation, an exempt holding company under the Public Utility Holding Company Act of 1935, as amended, pursuant to a merger in which each outstanding share of the Company's Common Stock was converted into one share of common stock of Illinova Corporation. The Company is engaged in the generation, transmission, distribution and sale of electric energy and the distribution and sale of natural gas in the State of Illinois. Its service area is a widely diversified industrial and agricultural area comprising approximately 15,000 square miles in northern, central and southern Illinois. Electric service is provided at retail to 309 incorporated municipalities, adjacent suburban and rural areas and numerous unincorporated municipalities having an aggregate population of approximately 1,283,000. Gas service is provided to 257 incorporated municipalities, adjacent suburban areas and numerous unincorporated municipalities having an aggregate population of approximately 935,000. The larger cities served include Decatur, East St. Louis (gas only), Champaign, Danville, Belleville, Granite City, Bloomington (electric only), Galesburg, Urbana and Normal (electric only). The executive offices of the Company are located at 500 South 27th Street, Decatur, Illinois 62525, and the Company's telephone number is (217) 424-6600. ILLINOIS POWER CAPITAL Illinois Power Capital is a limited partnership formed under the Delaware Revised Uniform Limited Partnership Act, as amended (the "Partnership Act"). Illinois Power Capital exists for the sole purpose of issuing its partner interests, including the Series A Preferred Securities, and using the proceeds thereof to purchase certain debt securities of the Company, including the Series A Subordinated Debentures. The Company is the sole general partner (the "General Partner") of Illinois Power Capital and will manage all of the business and affairs of Illinois Power Capital. Holders of Series A Preferred Securities will be limited partners of Illinois Power Capital. The Company, as the General Partner of Illinois Power Capital, will make capital contributions to Illinois Power Capital from time to time to the extent required so that the total contributions made by the General Partner shall at all times be at least equal to 3% of the total contributions made by all partners. The rights and obligations of the General Partner and the limited partners of Illinois Power Capital will be governed by the Partnership Act and by an Amended and Restated Agreement of Limited Partnership of Illinois Power Capital (the "Partnership Agreement") substantially in the form filed as an exhibit to the Registration Statement of which this Prospectus Supplement and the accompanying Prospectus form a part. USE OF PROCEEDS The proceeds to be received by Illinois Power Capital from the sale of the Series A Preferred Securities will be used to purchase Series A Subordinated Debentures of the Company and will be applied by the Company to the payment or provision for payment at maturity, the purchase or the redemption of outstanding securities of the Company and for general corporate purposes. S-4 33 SUMMARY FINANCIAL INFORMATION OF THE COMPANY (THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
12 MONTHS YEAR ENDED DECEMBER 31, ENDED -------------------------------------------------------------- JUNE 30, 1994 1989 1990 1991 1992 1993(A) (UNAUDITED)(A)(B) ---------- ---------- ---------- ---------- ---------- ----------------- INCOME STATEMENT DATA: Operating Revenues..... $1,393,778 $1,469,480 $1,474,905 $1,479,449 $1,581,190 $ 1,628,094 Net Income............. (288,432) (78,484) 109,244 122,088 (56,038) (42,031) Preferred Dividend Requirements......... 37,365 36,839 30,866 28,854 26,123 24,283 Net Income Applicable to Common Stock...... (325,797) (115,323) 78,378 93,234 (82,161) (66,314) Earnings Per Share of Common Stock......... (4.34) (1.53) 1.04 1.23 (1.08) (0.91) Ratio of Earnings to Fixed Charges(c)..... (0.52)(d) 0.70(d) 1.85 2.02 0.80(d) 0.91(d) Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(c)...... (0.45)(e) 0.60(e) 1.48 1.61 0.70(e) 0.82(e)
AMOUNT PERCENTAGE ---------- ---------- CAPITALIZATION AT JUNE 30, 1994: Long-Term Debt............................................................... $1,868,191 52.2% Preferred Stock (not subject to mandatory redemption)........................ 303,705 8.5 Preferred Stock (subject to mandatory redemption)............................ 36,000 1.0 Common Stock Equity.......................................................... 1,368,858 38.3 ---------- ---------- Total Capitalization..................................................... $3,576,754 100.0% ========= =========
- --------------- (a) Subsequent to the Company's merger with Illinova Corporation, net assets of Illinova Generating Company (formerly IP Group, Inc.) were transferred in the form of a dividend from the Company to Illinova Corporation. The income statement data contained herein has been restated to reflect the financial results of the Company's current operations. (b) In the opinion of the Company, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited twelve-month period ended June 30, 1994, have been made. (c) Earnings used in the calculation of the ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and preferred stock dividend requirements include the allowance for funds used during construction and the deferred financing costs associated with the Company's Clinton Power Station, and are before deduction of income taxes and fixed charges. Fixed charges include interest on long-term debt, related amortization of debt discount, premium, and expense, other interest and that portion of rent expense which is estimated to be representative of the interest component. Preferred stock dividend requirements have been increased to an amount representing the pre-tax earnings required to cover such dividend requirements. (d) The ratios of earnings to fixed charges for the twelve months ended June 30, 1994 and for the years ended December 31, 1993, 1990 and 1989 of 0.93, 0.80, 0.70 and (0.52), respectively, indicate that earnings were inadequate to cover fixed charges. The dollar amounts of the coverage deficiency for the twelve months ended June 30, 1994, and for the years ended 1993, 1990 and 1989 were approximately $13 million, $37 million, $68 million and $375 million, respectively. Excluding the loss on disallowed plant costs of $200 million, net of income taxes, recorded in the S-5 34 third quarter of 1993, the ratio of earnings to fixed charges would have been 2.42 for the twelve months ended June 30, 1994 and 2.25 for the year ended 1993. Excluding the loss on disallowed plant costs of $137 million, net of income taxes, recorded in the fourth quarter of 1990, the ratio of earnings to fixed charges would have been 1.41 for the year ended 1990. Excluding the loss on disallowed plant costs of $346 million, net of income taxes, recorded in the first quarter of 1989, the ratio of earnings to fixed charges would have been 1.31 for the year ended 1989. (e) The ratios of earnings to combined fixed charges and preferred stock dividend requirements for the twelve months ended June 30, 1994 and for the years ended December 31, 1993, 1990 and 1989 of 0.82, 0.70, 0.60 and (0.45), respectively, indicate that earnings were inadequate to cover combined fixed charges and preferred stock dividend requirements. The dollar amounts of the coverage deficiency for the twelve months ended June 30, 1994, and for the years ended 1993, 1990 and 1989 were approximately $38 million, $63 million, $105 million and $412 million, respectively. Excluding the loss on disallowed plant costs of $200 million, net of income taxes, recorded in the third quarter of 1993, the ratio of earnings to combined fixed charges and preferred stock dividend requirements would have been 1.98 for the twelve months ended June 30, 1994 and 1.83 for the year ended 1993. Excluding the loss on disallowed plant costs of $137 million, net of income taxes, recorded in the fourth quarter of 1990, the ratio of earnings to combined fixed charges and preferred stock dividend requirements would have been 1.09 for the year ended 1990. Excluding the loss on disallowed plant costs of $346 million, net of income taxes, recorded in the first quarter of 1989, the ratio of earnings to combined fixed charges and preferred stock dividend requirements would have been 1.06 for the year ended 1989. S-6 35 DESCRIPTION OF THE SERIES A PREFERRED SECURITIES GENERAL All of the partnership interests in Illinois Power Capital, other than the Series A Preferred Securities offered hereby, are owned by the General Partner. The Partnership Agreement authorizes and creates the Series A Preferred Securities, which represent limited partner interests in Illinois Power Capital (the "Preferred Securities"). Preferred Securities may be issued from time to time in one or more series as described in the accompanying Prospectus. The limited partner interests represented by the Series A Preferred Securities will have a preference with respect to dividends and amounts payable on liquidation over the General Partner's interest in Illinois Power Capital. The Partnership Agreement does not permit the issuance of any Preferred Securities ranking, as to participation in profits and dividends and in the assets of Illinois Power Capital, senior or junior to the Series A Preferred Securities or the incurrence of any indebtedness by Illinois Power Capital. The summary of certain terms and provisions of the Series A Preferred Securities set forth below does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Partnership Agreement and the Partnership Act. DIVIDENDS Dividends on the Series A Preferred Securities will be cumulative, will accrue from the date of initial issuance thereof and will be payable monthly in arrears, on the last day of each calendar month of each year, commencing , 1994, when, as and if available and determined to be so payable by the Company, as the General Partner, except as otherwise described below. Dividends in arrears for more than one month will bear interest thereon at the rate per annum equal to the dividend rate during the period of arrearage. The term "dividends" as used herein includes any such interest payable unless otherwise stated. The amount of dividends payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The dividend rate will be adjusted quarterly. The rate for the initial period from the date of initial issuance to , 1994 will be % per annum, which is equivalent to $ per Series A Preferred Security per annum. Thereafter, dividends on the Series A Preferred Securities will be payable at the "Applicable Rate" (as defined below) from time to time in effect. The Company has the right under the Indenture to extend the interest payment period from time to time on the Series A Subordinated Debentures to a period not exceeding 60 consecutive months, and, as a consequence, monthly dividends on the Series A Preferred Securities would be deferred (but would continue to accrue with interest) by Illinois Power Capital during any such extended interest payment period. In the event that the Company exercises this right, the Company may not declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock. Prior to the termination of any such extension period, the Company may further extend the interest payment period, provided that such extension period together with all such previous and further extensions thereof may not exceed 60 consecutive months. Upon the termination of any extension period and the payment of all amounts then due, the Company may select a new extension period, subject to the above requirements. See "Description of the Series A Subordinated Debentures -- Interest" and "-- Option to Extend Interest Payment Period." Dividends on the Series A Preferred Securities must be paid on the dates payable to the extent that Illinois Power Capital has (i) funds legally available for the payment of such dividends and (ii) cash on hand sufficient to permit such payments. It is anticipated that Illinois Power Capital's earnings available for distribution to the holders of the Series A Preferred Securities will be limited to payments under the Series A Subordinated Debentures in which Illinois Power Capital will invest the proceeds from the issuance and sale of the Series A Preferred Securities and the General Partner's capital contribution. See "Description of the Series A Subordinated Debentures." The payment of dividends, out of moneys held by Illinois Power Capital, is guaranteed by the Company as set forth under "Description of the Guarantee" in the accompanying Prospectus. S-7 36 Dividends on the Series A Preferred Securities will be payable to the holders thereof as they appear on the books and records of Illinois Power Capital on the relevant record dates, which, as long as the Series A Preferred Securities remain in book-entry-only form, will be one Business Day (as defined below) prior to the relevant payment dates. Subject to any applicable laws and regulations and the provisions of the Partnership Agreement, each such payment will be made as described under "Book-Entry-Only Issuance -- The Depository Trust Company" below. In the event the Series A Preferred Securities shall not continue to remain in book-entry-only form, the General Partner shall have the right to select relevant record dates which shall be more than one Business Day prior to the relevant payment dates. In the event that any date on which dividends are payable on the Series A Preferred Securities is not a Business Day, then payment of the dividends payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. A "Business Day" shall mean any day other than a day on which banking institutions in The City of New York are authorized or required by law to close. Except as provided below in this paragraph, the "Applicable Rate" for any quarter (other than the initial period) will be equal to % of the Effective Rate (as defined below), but not less than % per annum nor more than % per annum. The "Effective Rate" for any quarter will be equal to the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate (each as defined below) for such quarter. The Applicable Rate will be rounded to the nearest five hundredths of a percent. In the event that Illinois Power Capital determines in good faith that for any reason: (i) any one of the Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Thirty Year Constant Maturity Rate cannot be determined for any quarter, then the Effective Rate for such quarter will be equal to the higher of whichever two of such rates can be so determined; (ii) only one of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate can be determined for any quarter, then the Effective Rate for such quarter will be equal to whichever such rate can be so determined; or (iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate can be determined for any quarter, then the Effective Rate for the preceding quarter will be continued for such quarter. Except as described below in this paragraph, the "Treasury Bill Rate" for each quarter will be the arithmetic average of the two most recent weekly per annum secondary market discount rates (or the one weekly per annum secondary market discount rate, if only one such rate is published during the relevant Calendar Period (as defined below)) for three-month U.S. Treasury bills, as published weekly by the Federal Reserve Board (as defined below) during the Calendar Period immediately preceding the last ten calendar days preceding the quarter for which the dividend rate on the Series A Preferred Securities is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum secondary market discount rate during any such Calendar Period, then the Treasury Bill Rate for such quarter will be the arithmetic average of the two most recent weekly per annum secondary market discount rates (or the one weekly per annum secondary market discount rate, if only one such rate is published during the relevant Calendar Period) for three-month U.S. Treasury bills, as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by Illinois Power Capital. In the event that a per annum secondary market discount rate for three-month U.S. Treasury bills is not published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such quarter will be the arithmetic average of the two most recent weekly per annum secondary market discount rates (or the one weekly per annum secondary market discount rate, if only one such rate is published during the relevant Calendar Period) for all of the U.S. Treasury bills then having remaining maturities of not less than 80 nor more than 100 days, as published during S-8 37 such Calendar Period by the Federal Reserve Board, or if the Federal Reserve Board does not publish such rates, by any Federal Reserve Bank or by any U.S. Government department or agency selected by Illinois Power Capital. In the event that Illinois Power Capital determines in good faith that for any reason no such U.S. Treasury bill rates are published as provided above during such Calendar Period, then the Treasury Bill Rate for such quarter will be the arithmetic average of the per annum secondary market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable non-interest-bearing U.S. Treasury securities with a remaining maturity of not less than 80 nor more than 100 days from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations are not generally available) to Illinois Power Capital by at least three recognized dealers in U.S. Government securities selected by Illinois Power Capital. In the event that Illinois Power Capital determines in good faith that for any reason Illinois Power Capital cannot determine the Treasury Bill Rate for any quarter as provided above in this paragraph, the Treasury Bill Rate for such quarter will be the arithmetic average of the per annum secondary market discount rate based upon the closing bids during such Calendar Period for each of the issues of marketable interest-bearing U.S. Treasury securities with a remaining maturity of not less than 80 nor more than 100 days, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations are not generally available) to Illinois Power Capital by at least three recognized dealers in U.S. Government securities selected by Illinois Power Capital. Except as described below in this paragraph, the "Ten Year Constant Maturity Rate" for each quarter will be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (as defined below) (or the one weekly per annum Ten Year Average Yield, if only one such yield is published during the relevant Calendar Period), as published weekly by the Federal Reserve Board during the Calendar Period immediately preceding the last ten calendar days preceding the quarter for which the dividend rate on the Series A Preferred Securities is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Ten Year Average Yield during such Calendar Period, then the Ten Year Constant Maturity Rate for such quarter will be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such yield is published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by Illinois Power Capital. In the event that a per annum Ten Year Average Yield is not published by the Federal Reserve Board or by the Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such quarter will be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield is published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities (as defined below)) then having remaining maturities of not less than eight nor more than twelve years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board does not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by Illinois Power Capital. In the event that Illinois Power Capital determines in good faith that for any reason Illinois Power Capital cannot determine the Ten Year Constant Maturity Rate for any quarter as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such quarter will be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight or more than twelve years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations are not generally available) to Illinois Power Capital by at least three recognized dealers in U.S. Government securities selected by Illinois Power Capital. Except as described below in this paragraph, the "Thirty Year Constant Maturity Rate" for each quarter will be the arithmetic average of the two most recent weekly per annum Thirty Year Average Yields (as defined below) (or the one weekly per annum Thirty Year Average Yield, if only one such yield is published during the relevant Calendar Period), as published weekly by the Federal Reserve Board S-9 38 during the Calendar Period immediately preceding the last ten calendar days preceding the quarter for which the dividend rate on the Series A Preferred Securities is being determined. In the event that the Federal Reserve Board does not publish such a weekly per annum Thirty Year Average Yield during such Calendar Period, then the Thirty Year Constant Maturity Rate for such quarter will be the arithmetic average of the two most recent weekly per annum Thirty Year Average Yields (or the one weekly per annum Thirty Year Average Yield, if only one such yield is published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by Illinois Power Capital. In the event that a per annum Thirty Year Average Yield is not published by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Thirty Year Constant Maturity Rate for such quarter will be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield is published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having remaining maturities of not less than twenty-eight nor more than thirty-two years, as published during such Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board does not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by Illinois Power Capital. In the event that Illinois Power Capital determines in good faith that for any reason Illinois Power Capital cannot determine the Thirty Year Constant Maturity Rate for any quarter as provided above in this paragraph, then the Thirty Year Constant Maturity Rate for such quarter will be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than twenty-eight nor more than thirty-two years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations are not generally available) to Illinois Power Capital by at least three recognized dealers in U.S. Government securities selected by Illinois Power Capital. The Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate will each be rounded to the nearest one hundredth of a percent. The Applicable Rate with respect to each quarter (other than the initial period) will be calculated as promptly as practicable by Illinois Power Capital according to the appropriate method described above. Illinois Power Capital will cause each Applicable Rate to be published in a newspaper of general circulation in New York City before the commencement of the quarter to which it applies and will cause notice of such Applicable Rate to be given to The Depository Trust Company (the "Depository" or "DTC"), New York, New York, the securities depository for the Series A Preferred Securities. See "Book-Entry-Only Issuance - -- The Depository Trust Company" below. As used above, the term "Calendar Period" means a period of fourteen calendar days; the term "Federal Reserve Board" means the Board of Governors of the Federal Reserve System; the term "Special Securities" means securities which can, at the option of the holder, be surrendered at face value in payment of any federal estate tax or which provide tax benefits to the holder and are priced to reflect such tax benefits or which were originally issued at a deep or substantial discount; the term "Ten Year Average Yield" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities adjusted to constant maturities of ten years; and the term "Thirty Year Average Yield" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities adjusted to constant maturities of thirty years. CERTAIN RESTRICTIONS ON ILLINOIS POWER CAPITAL If dividends have not been paid in full on the Series A Preferred Securities, Illinois Power Capital shall not: (i) pay, or set aside for payment, any dividends on any other series of Preferred Securities, unless the amount of any dividends paid or set aside on any other series of Preferred Securities is S-10 39 paid or set aside on such other series of Preferred Securities and the Series A Preferred Securities on a pro rata basis on the date such dividends are paid or set aside on such other series of Preferred Securities, so that (x) the aggregate amount of dividends paid on the Series A Preferred Securities bears to the aggregate amount of dividends paid on such other series of Preferred Securities the same ratio as (y) the aggregate of all accumulated and unpaid dividends in respect of the Series A Preferred Securities bears to the aggregate of all accumulated and unpaid dividends in respect of such other series of Preferred Securities; or (ii) redeem, purchase or otherwise acquire any other Preferred Securities; until, in each case, such time as all accumulated and unpaid dividends on the Series A Preferred Securities shall have been paid in full for all dividend periods terminating on or prior to, in the case of clause (i), such payment and, in the case of clause (ii), the date of such redemption, purchase or acquisition. As of the date of this Prospectus Supplement, there are no series of Preferred Securities outstanding. OPTIONAL REDEMPTION The Series A Preferred Securities are redeemable, at the option of Illinois Power Capital, in whole or in part, from time to time, on or after , 1999, upon not less than 30 nor more than 60 days' notice, at the Redemption Price; provided, however, that prior to giving any such notice of redemption, Illinois Power Capital shall have received from the Company a notice of redemption of Series A Subordinated Debentures in an aggregate principal amount equal to the aggregate liquidation preference of the Series A Preferred Securities to be redeemed. In the event that fewer than all the outstanding Series A Preferred Securities are to be so redeemed, the Series A Preferred Securities to be redeemed will be selected as described under "Book-Entry-Only Issuance -- The Depository Trust Company" below. If a partial redemption would result in the delisting of the Series A Preferred Securities, Illinois Power Capital may only redeem the Series A Preferred Securities in whole. SPECIAL EVENT REDEMPTION OR DISTRIBUTION Subject to the next succeeding sentence, if a Tax Event or an Investment Company Event (each, as defined below, and, each, a "Special Event") shall occur and be continuing, the General Partner shall elect to either (i) cause Illinois Power Capital to redeem the Series A Preferred Securities in whole (and not in part), upon not less than 30 or more than 60 days' notice at the Redemption Price within 90 days following the occurrence of such Special Event; provided, that, if at the time there is available to the General Partner the opportunity to eliminate, within such 90-day period, the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure, which has no adverse effect on Illinois Power Capital or the General Partner, the General Partner will pursue such measure in lieu of redemption, or (ii) dissolve Illinois Power Capital and, after satisfaction of liabilities of creditors as required by the Partnership Act, cause Series A Subordinated Debentures to be distributed to the holders of the Series A Preferred Securities in liquidation of their interests in Illinois Power Capital, within 90 days following the occurrence of such Special Event. In the case of a Tax Event, the General Partner may also elect to cause the Series A Preferred Securities to remain outstanding. In the event of a distribution of Series A Subordinated Debentures as described in (ii) above, each holder of Series A Preferred Securities would receive Series A Subordinated Debentures in an aggregate principal amount equal to the aggregate liquidation preference of $25 per Series A Preferred Security on the Series A Preferred Securities held by it, with such Series A Subordinated Debentures bearing interest at a rate per annum equal to the dividend rate per annum on such Series A Preferred Securities from the last date on which dividends were paid. S-11 40 "Tax Event" means that the General Partner shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination on or after such date) or (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the generally accepted position on , 1994, which amendment or change is effective or such interpretation or pronouncement is announced on or after , 1994, there is more than an insubstantial risk that (i) Illinois Power Capital is subject to federal income tax with respect to interest received on the Series A Subordinated Debentures, (ii) interest payable to Illinois Power Capital on the Series A Subordinated Debentures will not be deductible for federal income tax purposes or (iii) Illinois Power Capital is subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Investment Company Event" means the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law") to the effect that Illinois Power Capital is or will be considered an "investment company" which is required to be registered under the Investment Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law becomes effective on or after , 1994; provided, that no Investment Company Event shall be deemed to have occurred if the General Partner obtains a written opinion of nationally recognized independent counsel experienced in practice under the 1940 Act to the effect that the General Partner has successfully issued an additional or supplemental irrevocable and unconditional guarantee (x) of accumulated and unpaid dividends (whether or not determined to be paid out of moneys legally available therefor) on the Series A Preferred Securities and (y) of the full amount of the Liquidation Distribution (as hereinafter defined) on the Series A Preferred Securities upon a liquidation of Illinois Power Capital (regardless of the amount of assets of Illinois Power Capital otherwise available for distribution in such liquidation) to avoid such Change in 1940 Act Law so that in the opinion of such counsel, notwithstanding such Change in 1940 Act Law, Illinois Power Capital is not required to be registered as an "investment company" within the meaning of the 1940 Act. After the date fixed for any distribution of Series A Subordinated Debentures, upon dissolution of Illinois Power Capital, (i) the Series A Preferred Securities will no longer be deemed to be outstanding, (ii) The Depository Trust Company (the "Depository" or "DTC") or its nominee, as the record holder of the Series A Preferred Securities, will receive a registered global certificate or certificates representing the Series A Subordinated Debentures to be delivered upon such distribution and (iii) any certificates representing Series A Preferred Securities not held by DTC or its nominee will be deemed to represent Series A Subordinated Debentures having a principal amount equal to the aggregate liquidation preference of such Series A Preferred Securities until such certificates are presented to the Company or its agent for transfer or reissuance. MANDATORY REDEMPTION Upon the repayment of the Series A Subordinated Debentures at or earlier, the proceeds from such repayment will be applied to redeem the Series A Preferred Securities, in whole, upon not less than 30 nor more than 60 days' notice, at the Redemption Price. REDEMPTION PROCEDURES Illinois Power Capital may not redeem fewer than all of the outstanding Series A Preferred Securities unless all accumulated and unpaid dividends have been paid on all Series A Preferred Securities for all monthly dividend periods terminating on or prior to the date of redemption. S-12 41 If Illinois Power Capital gives a notice of redemption in respect of Series A Preferred Securities (which notice will be irrevocable), then, by 12:00 noon, New York time, on the redemption date, Illinois Power Capital will irrevocably deposit with DTC funds sufficient to pay the applicable Redemption Price and will give DTC irrevocable instructions and authority to pay the Redemption Price to the holders of the Series A Preferred Securities. See "Book-Entry-Only Issuance -- The Depository Trust Company." If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of holders of such Series A Preferred Securities so called for redemption will cease, except the right of the holders of such Series A Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price. In the event that any date fixed for redemption of Series A Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of Series A Preferred Securities is improperly withheld or refused and not paid either by Illinois Power Capital or by the Company pursuant to the Guarantee described under "Description of the Guarantee" in the accompanying Prospectus, dividends on such Series A Preferred Securities will continue to accrue at the then applicable rate, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Company or its subsidiaries may at any time and from time to time purchase outstanding Series A Preferred Securities by tender, in the open market or by private agreement. LIQUIDATION DISTRIBUTION UPON DISSOLUTION In the event of any voluntary or involuntary dissolution, winding-up or termination of Illinois Power Capital, the holders of the Series A Preferred Securities at the time will be entitled to receive out of the assets of Illinois Power Capital available for distribution to partners, after satisfaction of liabilities of creditors as required by the Partnership Act, before any distribution of assets is made to the General Partner, but together with the holders of every other series of Preferred Securities outstanding, an amount equal to, in the case of holders of Series A Preferred Securities, the aggregate of the liquidation preference of $25 per Series A Preferred Security and all accumulated and unpaid dividends thereon to the date of payment (the "Liquidation Distribution"), unless, in connection with such dissolution, winding-up or termination, Series A Subordinated Debentures in an aggregate principal amount equal to $25 per Series A Preferred Security have been distributed on a pro rata basis to the holders of the Series A Preferred Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because Illinois Power Capital has insufficient assets available to pay in full the aggregate Liquidation Distribution and the aggregate maximum liquidation distributions on any other series of Preferred Securities, then the amounts payable directly by Illinois Power Capital on the Series A Preferred Securities and on such other series of Preferred Securities shall be paid on a pro rata basis, so that (i) the aggregate amount paid in respect of the Liquidation Distribution bears to the aggregate amount paid as liquidation distributions on the other series of Preferred Securities the same ratio as (ii) the aggregate Liquidation Distribution bears to the aggregate maximum liquidation distributions on the other series of Preferred Securities. Pursuant to the Partnership Agreement, Illinois Power Capital shall be dissolved and its affairs shall be wound up: (i) upon the expiration of the term of Illinois Power Capital on December 31, 2047, (ii) upon the bankruptcy or withdrawal of the General Partner, (iii) upon the assignment by the General Partner of its entire interest in Illinois Power Capital when the assignee is not admitted to Illinois Power Capital as a general partner of Illinois Power Capital in accordance with the Partnership Agreement, or the filing of a certificate of dissolution or its equivalent with respect to the General Partner, or the revocation S-13 42 of the General Partner's charter and the expiration of 90 days after the date of notice to the General Partner of revocation without a reinstatement of its charter, or any other event occurs which causes the General Partner to cease to be a general partner of Illinois Power Capital under the Partnership Act, unless the business of Illinois Power Capital is continued in accordance with the Partnership Act, (iv) in accordance with the provisions of the Series A Preferred Securities, (v) upon the entry of a decree of a judicial dissolution or (vi) upon the written consent of all partners of Illinois Power Capital. MERGER, CONSOLIDATION OR AMALGAMATION OF ILLINOIS POWER CAPITAL Illinois Power Capital may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except as described below. Illinois Power Capital may, without the consent of the holders of the Series A Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by a limited partnership or a trust organized as such under the laws of any state of the United States; provided, that (i) such successor entity either (x) expressly assumes all of the obligations of Illinois Power Capital under the Series A Preferred Securities or (y) substitutes for the Series A Preferred Securities other securities having substantially the same terms as the Series A Preferred Securities (the "Successor Securities") so long as the Successor Securities rank, with respect to participation in the profits and dividends or in the assets of the successor entity, at least as high as the Series A Preferred Securities rank with respect to participation in the profits and dividends or in the assets of Illinois Power Capital, (ii) the Company expressly acknowledges such successor entity as the holder of the Series A Subordinated Debentures, (iii) the Series A Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Series A Preferred Securities are then listed, (iv) such merger, consolidation, amalgamation or replacement does not cause the Series A Preferred Securities to be downgraded by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Securities Act, or cause any Successor Securities to be rated lower than the Series A Preferred Securities immediately prior to such merger, consolidation, amalgamation or replacement, (v) such merger, consolidation, amalgamation or replacement does not adversely affect the powers, preferences and other special rights of the holders of the Series A Preferred Securities in any material respect, (vi) such successor entity has a purpose substantially identical to that of Illinois Power Capital and (vii) prior to such merger, consolidation, amalgamation or replacement, the Company has received an opinion of nationally recognized independent counsel to Illinois Power Capital experienced in such matters to the effect that (x) such successor entity will be treated as a partnership for federal income tax purposes, (y) following such merger, consolidation, amalgamation or replacement, the Company and such successor entity will be in compliance with the 1940 Act without registering thereunder as an investment company and (z) such merger, consolidation, amalgamation or replacement will not adversely affect the limited liability of the holders of the Series A Preferred Securities. VOTING RIGHTS Except as provided below and under "Description of the Guarantee -- Amendments and Assignment" in the accompanying Prospectus and as otherwise required by law and the Partnership Agreement, the holders of the Series A Preferred Securities will have no voting rights. If (i) Illinois Power Capital fails to pay dividends in full on the Series A Preferred Securities for 18 consecutive monthly dividend periods; (ii) an Event of Default (as defined in the Indenture) occurs and is continuing on the Series A Subordinated Debentures; or (iii) the Company is in default on any of its payment or other obligations under the Guarantee (as described under "Description of the Guarantee -- Certain Covenants of the Company" in the accompanying Prospectus), then the holders of the Series A Preferred Securities, together with the holders of any other series of Preferred Securities having the right to vote for the appointment of a special representative of Illinois Power Capital and the limited partners (a "Special Representative") in such event, acting as a single class, will be entitled by the majority vote of S-14 43 such holders to appoint and authorize a Special Representative to enforce Illinois Power Capital's creditor rights under the Series A Subordinated Debentures, to enforce the rights of the holders of the Series A Preferred Securities under the Guarantee and to enforce the rights of the holders of the Series A Preferred Securities to receive dividends on the Series A Preferred Securities. The Special Representative shall not be admitted as a partner in Illinois Power Capital or otherwise be deemed to be a partner in Illinois Power Capital and shall have no liability for the debts, obligations or liabilities of Illinois Power Capital. For purposes of determining whether Illinois Power Capital has failed to pay dividends in full for 18 consecutive monthly dividend periods, dividends shall be deemed to remain in arrears, notwithstanding any payments in respect thereof, until full cumulative dividends have been or contemporaneously are paid with respect to all monthly dividend periods terminating on or prior to the date of payment of such full cumulative dividends. Not later than 30 days after such right to appoint a Special Representative arises, the General Partner will convene a meeting for the purpose of appointing a Special Representative. If the General Partner fails to convene such meeting within such 30-day period, the holders of 10% in liquidation preference of the outstanding Preferred Securities will be entitled to convene such meeting. The provisions of the Partnership Agreement relating to the convening and conduct of the meetings of the partners will apply with respect to any such meeting. Any Special Representative so appointed shall cease to be a Special Representative of Illinois Power Capital and the limited partners if Illinois Power Capital (or the Company pursuant to the Guarantee) shall have paid in full all accumulated and unpaid dividends on the Preferred Securities or such default or breach, as the case may be, shall have been cured, and the General Partner shall continue the business of Illinois Power Capital without dissolution. Notwithstanding the appointment of any such Special Representative, the Company shall continue as General Partner and shall retain all rights under the Indenture, including the right to extend the interest payment period from time to time to a period not exceeding 60 consecutive months as provided under "Description of the Series A Subordinated Debentures -- Option to Extend Interest Payment Period." If any proposed amendment to the Partnership Agreement provides for, or the General Partner otherwise proposes to effect, (i) any action which would adversely affect the powers, preferences or special rights of the Series A Preferred Securities, whether by way of amendment to the Partnership Agreement or otherwise (including, without limitation, the authorization or issuance of any limited partner interests in Illinois Power Capital ranking, as to participation in the profits and dividends or in the assets of Illinois Power Capital, senior to the Series A Preferred Securities), or (ii) the dissolution, winding-up or termination of Illinois Power Capital, other than (x) in connection with the distribution of Series A Subordinated Debentures upon the occurrence of a Special Event or (y) as described under "Merger, Consolidation or Amalgamation of Illinois Power Capital" above, then the holders of outstanding Series A Preferred Securities will be entitled to vote on such amendment or proposal of the General Partner (but not on any other amendment or proposal) as a class with all other holders of series of Preferred Securities similarly affected, and such amendment or proposal shall not be effective except with the approval of the holders of 66 2/3% in liquidation preference of such outstanding Preferred Securities having a right to vote on the matter; provided, however, that no such approval shall be required if the dissolution, winding-up or termination of Illinois Power Capital is proposed or initiated upon the initiation of proceedings, or after proceedings have been initiated, for the dissolution, winding-up, liquidation or termination of the Company. The rights attached to the Series A Preferred Securities will be deemed not to be adversely affected by the creation or issue of, and no vote will be required for the creation of, any further limited partner interests of Illinois Power Capital ranking pari passu with the Series A Preferred Securities with regard to participation in the profits and dividends or in the assets of Illinois Power Capital. Holders of Series A Preferred Securities have no preemptive rights. So long as any Series A Subordinated Debentures are held by Illinois Power Capital, the General Partner shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or executing any trust or power conferred on the Trustee with respect to such series, (ii) waive any past default which is waivable under Section 6.06 of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Series A Subordinated Debentures S-15 44 shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture, where such consent shall be required, without, in each case, obtaining the prior approval of the holders of at least 66 2/3% in liquidation preference of all series of Preferred Securities affected thereby, acting as a single class; provided, however, that where a consent under the Indenture would require the consent of each holder affected thereby, no such consent shall be given by the General Partner without the prior consent of each holder of all series of Preferred Securities affected thereby. The General Partner shall not revoke any action previously authorized or approved by a vote of any series of Preferred Securities. The General Partner shall notify all holders of the Series A Preferred Securities of any notice of default received from the Trustee with respect to the Series A Subordinated Debentures. Any required approval of holders of Series A Preferred Securities may be given at a separate meeting of holders of Preferred Securities convened for such purpose, at a meeting of all of the partners in Illinois Power Capital or pursuant to written consent. Illinois Power Capital will cause a notice of any meeting at which holders of Series A Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be mailed to each holder of record of Series A Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the holders of Series A Preferred Securities will be required for Illinois Power Capital to redeem and cancel Series A Preferred Securities in accordance with the Partnership Agreement. Notwithstanding that holders of Series A Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Series A Preferred Securities and any other series of Preferred Securities that are entitled to vote or consent with such Series A Preferred Securities as a single class at such time that are owned by the Company or any entity owned more than 50% by the Company, either directly or indirectly, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. Holders of the Series A Preferred Securities will have no rights to remove or replace the General Partner. BOOK-ENTRY-ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY DTC will act as securities depository for the Series A Preferred Securities. The Series A Preferred Securities will be issued only as fully-registered securities registered in the name of Cede & Co. (DTC's nominee). One or more fully-registered global Series A Preferred Security certificates will be issued, representing in the aggregate the total number of Series A Preferred Securities, and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and by The New York Stock Exchange, Inc. (the "New York Stock Exchange"), the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly S-16 45 ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the Commission. Purchases of Series A Preferred Securities within the DTC system must be made by or through Direct Participants, which will receive a credit for the Series A Preferred Securities on DTC's records. The ownership interest of each actual purchaser of each Series A Preferred Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Series A Preferred Securities. Transfers of ownership interests in the Series A Preferred Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series A Preferred Securities, except in the event that use of the book-entry system for the Series A Preferred Securities is discontinued. DTC has no knowledge of the actual Beneficial Owners of the Series A Preferred Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series A Preferred Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Series A Preferred Securities are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such series to be redeemed. Although voting with respect to the Series A Preferred Securities is limited, in those cases where a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to Series A Preferred Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to Illinois Power Capital as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series A Preferred Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Dividend payments on the Series A Preferred Securities will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices and will be the responsibility of such Participant and not of DTC, Illinois Power Capital or the Company, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of dividends to DTC is the responsibility of Illinois Power Capital, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series A Preferred Securities at any time by giving reasonable notice to Illinois Power Capital. Under such circumstances, in the event that a successor securities depository is not obtained, Series A Preferred Security certificates are required to be printed and delivered. Additionally, Illinois Power Capital (with the consent of the Company) may decide to discontinue use of the system of book-entry transfers through DTC (or a successor depository). In that event, certificates for the Series A Preferred Securities will be printed and delivered. In each of the above circumstances, the General Partner will appoint a paying agent with respect to the Series A Preferred Securities. S-17 46 The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Illinois Power Capital believes to be reliable, but Illinois Power Capital takes no responsibility for the accuracy thereof. REGISTRAR AND TRANSFER AGENT The Company will act as registrar and transfer agent for the Series A Preferred Securities. Registration of transfers of Series A Preferred Securities will be effected without charge by or on behalf of Illinois Power Capital, but upon payment (with the giving of such indemnity as Illinois Power Capital or the Company may require) in respect of any tax or other governmental charges which may be imposed in relation to it. Illinois Power Capital will not be required to register or cause to be registered the transfer of Series A Preferred Securities after such Series A Preferred Securities have been called for redemption. MISCELLANEOUS Application will be made to list the Series A Preferred Securities on the New York Stock Exchange. The General Partner is authorized and directed to conduct its affairs and to operate Illinois Power Capital in such a way that (i) Illinois Power Capital will not be deemed to be an "investment company" required to be registered under the 1940 Act, (ii) Illinois Power Capital will be taxed as a partnership for federal income tax purposes and (iii) the Series A Subordinated Debentures will be treated as indebtedness of the Company for federal income tax purposes. In this connection, the General Partner is authorized to take any action, not inconsistent with applicable law, the certificate of limited partnership or the Partnership Agreement, that the General Partner determines in its discretion to be necessary or desirable for such purposes, as long as such action does not adversely affect the interests of the holders of the Series A Preferred Securities. S-18 47 DESCRIPTION OF THE SERIES A SUBORDINATED DEBENTURES Set forth below is a description of the specific terms of the Series A Subordinated Debentures in which Illinois Power Capital will invest with the proceeds of the issuance and sale of (i) the Series A Preferred Securities and (ii) the General Partner's capital contribution with respect to the Series A Preferred Securities (the "General Partnership Payment"). This description supplements the description of the general terms and provisions of the Subordinated Debentures set forth in the accompanying Prospectus under the caption "Description of the Subordinated Debentures." The following description does not purport to be complete and is qualified in its entirety by reference to the description in the accompanying Prospectus and the Indenture between the Company and The First National Bank of Chicago, as Trustee, as supplemented by a First Supplemental Indenture (the Indenture, as so supplemented, is hereinafter referred to as the "Indenture"). Under certain circumstances involving the dissolution of Illinois Power Capital following the occurrence of a Special Event, Series A Subordinated Debentures may be distributed to the holders of the Series A Preferred Securities in liquidation of Illinois Power Capital. See "Description of the Series A Preferred Securities -- Special Event Redemption or Distribution." GENERAL The Series A Subordinated Debentures will be issued as a series of Subordinated Debentures under the Indenture. The Series A Subordinated Debentures will be limited in aggregate principal amount to approximately $ million, such amount being the sum of the aggregate liquidation preference of the Series A Preferred Securities and the General Partnership Payment. The entire principal amount of the Series A Subordinated Debentures will become due and payable, together with any accrued and unpaid interest thereon, including Additional Interest (as hereinafter defined), if any, on , 2043. The Series A Subordinated Debentures if distributed to holders of Series A Preferred Securities upon the dissolution of Illinois Power Capital will initially be so issued as a Global Security (as defined below). As described herein, under certain limited circumstances Series A Subordinated Debentures may be issued in certificated form in exchange for a Global Security. See "Book-Entry and Settlement" below. In the event that Series A Subordinated Debentures are issued in certificated form, such Series A Subordinated Debentures will be in denominations of $25 and integral multiples thereof and may be transferred or exchanged at the offices described below. Payments on Series A Subordinated Debentures issued as a Global Security will be made to DTC, as the depository for the Series A Subordinated Debentures. In the event Series A Subordinated Debentures are issued in certificated form, principal and interest will be payable, the transfer of the Series A Subordinated Debentures will be registrable and the Series A Subordinated Debentures will be exchangeable for Series A Subordinated Debentures of other denominations of a like aggregate principal amount at the corporate trust office of the Trustee in The City of New York; provided, that payment of interest may be made at the option of the Company by check mailed to the address of the persons entitled thereto. If the Series A Subordinated Debentures are distributed to the holders of Series A Preferred Securities upon the dissolution of Illinois Power Capital, the Company will use its best efforts to list the Series A Subordinated Debentures on the New York Stock Exchange or on such other exchange as the Series A Preferred Securities are then listed and traded on the same part of any such exchange. MANDATORY PREPAYMENT If Illinois Power Capital redeems Series A Preferred Securities in accordance with the terms thereof, the Series A Subordinated Debentures will become due and payable in a principal amount equal to the aggregate liquidation preference of the Series A Preferred Securities so redeemed, together with all accrued and unpaid interest, including Additional Interest, if any. Any payment pursuant to this provision S-19 48 shall be made prior to 12:00 noon, New York time, on the date of such redemption or at such other time on such earlier date as the parties thereto shall agree. OPTIONAL REDEMPTION The Company shall have the right to redeem the Series A Subordinated Debentures, in whole or in part, from time to time, on or after , 1999, upon not less than 30 nor more than 60 days' notice, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest, including Additional Interest, if any, to the redemption date. INTEREST Each Series A Subordinated Debenture shall bear interest at an interest rate which will be adjusted quarterly. The rate for the initial period from the date of initial issuance to , 1994 will be % per annum. Thereafter, interest on the Series A Subordinated Debentures will be payable at the "Applicable Rate" in effect from time to time. The Applicable Rate for any quarter will be equal to % of the highest of the "Treasury Bill Rate," the "Ten Year Constant Maturity Rate" and the "Thirty Year Constant Maturity Rate" determined in advance of such quarter. The Applicable Rate for any quarter will not be less % per annum nor greater than % per annum. The "Treasury Bill Rate," the "Ten Year Constant Maturity Rate" and the "Thirty Year Constant Maturity Rate" with respect to any quarter shall be determined by Illinois Power Capital in the same manner as, and consistent with its determinations with respect to, quarters for the purposes of dividends payable on the Series A Preferred Securities. See "Description of the Series A Preferred Securities -- Dividends." Such interest is payable monthly in arrears on the last day of each calendar month of each year (each, an "Interest Payment Date"), commencing , 1994, to the person in whose name such Series A Subordinated Debenture is registered, subject to certain exceptions, at the close of business on the Business Day next preceding such Interest Payment Date. In the event the Series A Subordinated Debentures shall not continue to remain in book-entry-only form, the Company shall have the right to select record dates which shall be more than one Business Day prior to the Interest Payment Date. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months and for any period shorter than a full month, on the basis of actual days elapsed in such period. In the event that any date on which interest is payable on the Series A Subordinated Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. OPTION TO EXTEND INTEREST PAYMENT PERIOD So long as the Company is not in default in the payment of interest on any series of Subordinated Debentures issued under the Indenture, the Company shall have the right at any time during the term of the Series A Subordinated Debentures to extend the interest payment period from time to time to a period not exceeding 60 consecutive months (the "Extension Period"), at the end of which Extension Period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Series A Subordinated Debentures to the extent permitted by applicable law); provided, that, during any such Extension Period, the Company shall not declare or pay any dividend on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or make any guarantee payments with respect to the foregoing (other than payments on the Guarantee); and provided further that any such extended interest payment period may only be selected with respect to the Series A Subordinated Debentures if an extended interest payment period of identical length is simultaneously selected for all Subordinated Debentures then outstanding under the Indenture. Prior to the termination of any such S-20 49 Extension Period, the Company may further extend the interest payment period, provided that such Extension Period together with all such previous and further extensions thereof may not exceed 60 consecutive months. Upon the termination of any Extension Period and the payment of all amounts then due, the Company may select a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. If Illinois Power Capital shall be the sole holder of the Series A Subordinated Debentures, the Company shall give Illinois Power Capital notice of its selection of such Extension Period one Business Day prior to the earlier of (i) the next succeeding date on which the dividends on the Series A Preferred Securities are payable or (ii) the date Illinois Power Capital is required to give notice to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Series A Preferred Securities of the record date or the date such dividend is payable, but in any event not less than one Business Day prior to such record date. The Company shall cause Illinois Power Capital to give notice of the Company's selection of such Extension Period to the holders of the Series A Preferred Securities. If Illinois Power Capital shall not be the sole holder of the Series A Subordinated Debentures, the Company shall give the holders of the Series A Subordinated Debentures notice of its selection of such Extension Period ten Business Days prior to the earlier of (i) the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice to the New York Stock Exchange or other applicable self- regulatory organization, or to holders of the Series A Subordinated Debentures, of the record or payment date of such related interest payment, but in any event not less than two Business Days prior to such record date. ADDITIONAL INTEREST So long as any Subordinated Debentures remain outstanding, if at any time Illinois Power Capital shall be required to pay any interest on dividends in arrears in respect of the Series A Preferred Securities pursuant to the terms thereof, then the Company will pay as interest to Illinois Power Capital as the holder of the Series A Subordinated Debentures ("Additional Interest") an amount equal to such interest on dividends in arrears. In addition, if Illinois Power Capital would be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, the Company also will pay as Additional Interest such amounts as shall be required so that the net amounts received and retained by Illinois Power Capital after paying any such taxes, duties, assessments or governmental charges will be not less than the amounts Illinois Power Capital would have received had no such taxes, duties, assessments or governmental charges been imposed. SET-OFF Notwithstanding anything to the contrary in the Indenture, the Company shall have the right to set-off any payment it is otherwise required to make thereunder with and to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee. EVENTS OF DEFAULT In the case any Event of Default (as defined in the Indenture) shall occur and be continuing, Illinois Power Capital will have the right to declare the principal of and the interest on the Series A Subordinated Debentures (including any Additional Interest) and any other amounts payable under the Indenture to be forthwith due and payable and to enforce its other rights as a creditor with respect to the Series A Subordinated Debentures. See "Enforcement of Certain Rights by Special Representative" below for a discussion of certain rights available to holders of the Series A Preferred Securities upon the occurrence of an Event of Default. S-21 50 ENFORCEMENT OF CERTAIN RIGHTS BY SPECIAL REPRESENTATIVE If (i) Illinois Power Capital fails to pay dividends in full on the Series A Preferred Securities for 18 consecutive monthly dividend periods; (ii) an Event of Default occurs and is continuing on the Series A Subordinated Debentures; or (iii) the Company is in default on any of its payment or other obligations under the Guarantee, under the terms of the Series A Preferred Securities, the holders of outstanding Series A Preferred Securities will have the rights referred to under "Description of the Series A Preferred Securities - -- Voting Rights," including the right to appoint a Special Representative, which Special Representative shall be authorized to exercise Illinois Power Capital's right to accelerate the principal amount of the Series A Subordinated Debentures and to enforce Illinois Power Capital's other creditor rights under the Series A Subordinated Debentures. Notwithstanding the appointment of any such Special Representative, the Company shall continue as General Partner and shall retain all rights under the Indenture, including the right to extend the interest payment period from time to time to a period not exceeding 60 consecutive months. BOOK-ENTRY AND SETTLEMENT If distributed to holders of Series A Preferred Securities in connection with the dissolution of Illinois Power Capital as a result of the occurrence of a Special Event, the Series A Subordinated Debentures will be issued in the form of one or more global certificates (each, a "Global Security") registered in the name of a nominee of DTC. Except under the limited circumstances described below, Series A Subordinated Debentures represented by the Global Security will not be exchangeable for, and will not otherwise be issuable as, Series A Subordinated Debentures in definitive form. The Global Securities described above may not be transferred except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or to a successor depository or its nominee. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in such a Global Security. Except as provided below, owners of beneficial interests in such a Global Security will not be entitled to receive physical delivery of Series A Subordinated Debentures in definitive form and will not be considered the Holders (as defined in the Indenture) thereof for any purpose under the Indenture, and no Global Security representing Series A Subordinated Debentures shall be exchangeable, except for another Global Security of like denomination and tenor to be registered in the name of DTC or its nominee or to a successor depository or its nominee. Accordingly, each beneficial owner must rely on the procedures of DTC and, if such person is not a Participant, on the procedures of the Participant through which such person owns its interest, to exercise any rights of a Holder under the Indenture. THE DEPOSITORY. DTC will act as security depository for the Series A Subordinated Debentures. For a description of DTC and the specific terms of the depository arrangements, see "Description of the Series A Preferred Securities - -- Book-Entry-Only Issuance -- The Depository Trust Company." As of the date of this Prospectus Supplement, the description therein of DTC's book-entry system and DTC's practices as they relate to purchases, transfers, notices and payments with respect to the Series A Preferred Securities applies in all material respects to any debt obligations represented by one or more Global Securities held by DTC. Neither the Company, the Trustee, any paying agent nor any other agent of the Company or the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security for such Series A Subordinated Debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. DISCONTINUANCE OF THE DEPOSITORY'S SERVICES. A Global Security shall be exchangeable for Series A Subordinated Debentures registered in the names of persons other than DTC or its nominee only if (i) DTC notifies the Company that it is unwilling or unable to continue as a depository for such Global S-22 51 Security and no successor depository shall have been appointed, or if any time DTC ceases to be a clearing agency registered under the Exchange Act at a time when DTC is required to be so registered to act as such depository, (ii) the Company in its sole discretion determines that such Global Security shall be so exchangeable or (iii) there shall have occurred an Event of Default with respect to such Series A Subordinated Debentures. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Series A Subordinated Debentures registered in such names as the Depository shall direct. It is expected that such instructions will be based upon directions received by the Depository from its Participants with respect to ownership of beneficial interests in such Global Security. MISCELLANEOUS For restrictions on certain actions of the General Partner with respect to Series A Subordinated Debentures held by Illinois Power Capital, see "Description of the Series A Preferred Securities -- Voting Rights." EFFECT OF OBLIGATIONS UNDER THE SERIES A SUBORDINATED DEBENTURES AND THE GUARANTEE As set forth in the Partnership Agreement, the sole purpose of Illinois Power Capital is to issue partner interests in Illinois Power Capital, including, without limitation, the Series A Preferred Securities, and to use the proceeds thereof to purchase the Series A Subordinated Debentures or other similar debt securities of the Company. As long as payments of interest and other payments are made when due on the Series A Subordinated Debentures, such payments will be sufficient to cover dividends and payments due on the Series A Preferred Securities primarily because (i) the aggregate principal amount of Series A Subordinated Debentures will be equal to the sum of the aggregate liquidation preference of the Series A Preferred Securities and the General Partnership Payment; (ii) the interest rate and interest and other payment dates on the Series A Subordinated Debentures will match the dividend rate and dividend and other payment dates for the Series A Preferred Securities; (iii) the Partnership Agreement provides that the Company, as General Partner, shall pay for all, and Illinois Power Capital shall not be obligated to pay, directly or indirectly, for any, costs and expenses of Illinois Power Capital; and (iv) the Partnership Agreement further provides that the General Partner shall not cause or permit Illinois Power Capital to, among other things, engage in any activity that is not consistent with the purposes of Illinois Power Capital. If the Company fails to make interest or other payments on the Series A Subordinated Debentures when due, the Partnership Agreement provides a mechanism whereby the holders of the Series A Preferred Securities may enforce the rights of Illinois Power Capital under the Series A Subordinated Debentures through the appointment of a Special Representative. Payments of dividends and other payments due on the Series A Preferred Securities out of moneys held by Illinois Power Capital are guaranteed by the Company to the extent set forth under "Description of the Guarantee" in the accompanying Prospectus. The Partnership Agreement also provides, and the Company, under the Guarantee, acknowledges, that a Special Representative may be appointed to enforce the Guarantee if the Company is in default on any of its payment obligations under the Guarantee. In addition, if the General Partner or the Special Representative fails to enforce the Guarantee, a holder of a Series A Preferred Security may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against Illinois Power Capital or any other person or entity. The Company and Illinois Power Capital believe that the above mechanisms and obligations, taken together, are substantially equivalent to a full and unconditional guarantee by the Company of payments due on the Series A Preferred Securities. S-23 52 UNITED STATES TAXATION GENERAL This section is a summary of certain United States federal income tax considerations that may be relevant to prospective purchasers of Series A Preferred Securities and represents the opinion of Schiff Hardin & Waite, tax counsel to the Company and Illinois Power Capital, insofar as it relates to matters of law and legal conclusions. This section is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations thereunder and current administrative rulings and court decisions, all of which are subject to change. Subsequent changes may cause tax consequences to vary substantially from the consequences described below. No attempt has been made in the following discussion to comment on all United States federal income tax matters affecting purchasers of Series A Preferred Securities. Moreover, the discussion focuses on holders of Series A Preferred Securities who are individual citizens or residents of the United States and has only limited application to corporations, estates, trusts or non-resident aliens. Accordingly, each prospective purchaser of Series A Preferred Securities should consult, and should depend on, his or her own tax advisor in analyzing the federal, state, local and foreign tax consequences of the purchase, ownership or disposition of Series A Preferred Securities. INCOME FROM SERIES A PREFERRED SECURITIES In the opinion of Schiff Hardin & Waite, Illinois Power Capital will be treated as a partnership for federal income tax purposes. Accordingly, each holder of Series A Preferred Securities (a "Preferred Securityholder") will be required to include in gross income such holder's distributive share of the net income of Illinois Power Capital. Such income will not exceed dividends received on such Series A Preferred Securities, except in limited circumstances as described below under "Potential Extension of Interest Payment Period." No portion of such income will be eligible for the dividends received deduction. DISPOSITION OF SERIES A PREFERRED SECURITIES Gain or loss will be recognized on a sale (including a redemption for cash) of Series A Preferred Securities in an amount equal to the difference between the amount realized and the Preferred Securityholder's tax basis for the Series A Preferred Securities sold. Gain or loss recognized by a Preferred Securityholder on the sale or exchange of a Series A Preferred Security held for more than one year will generally be taxable as long-term capital gain or loss. RECEIPT OF SERIES A SUBORDINATED DEBENTURES UPON DISSOLUTION OF ILLINOIS POWER CAPITAL Under certain circumstances, as described under the caption "Description of the Series A Preferred Securities -- Special Event Redemption or Distribution," Series A Subordinated Debentures may be distributed to the holders of the Series A Preferred Securities in connection with the dissolution of Illinois Power Capital. Under current United States federal income tax law, such a distribution would be treated as a non-taxable exchange to each holder of Series A Preferred Securities and would result in the holder of Series A Preferred Securities receiving an aggregate tax basis in the Series A Subordinated Debentures equal to such holder's aggregate tax basis in its Series A Preferred Securities. A holder's holding period in the Series A Subordinated Debentures so received in connection with the dissolution of Illinois Power Capital would include the period for which the Series A Preferred Securities were held by such holder. Under a change in law, a change in legal interpretation or the other circumstances giving rise to a Special Event, however, the dissolution of Illinois Power Capital and the distribution of Series A Subordinated Debentures in connection with the dissolution of Illinois Power Capital could be a taxable event to holders of the Series A Preferred Securities. In the judgment of tax counsel to the Company and Illinois Power Capital, the series of events which would result in the recognition of taxable gain by holders of the Series A Preferred Securities, by reason of a dissolution of Illinois Power Capital in response to a Special Event, is unlikely to occur. There can be no assurance in this regard, however. S-24 53 ILLINOIS POWER CAPITAL INFORMATION RETURNS AND AUDIT PROCEDURES The General Partner will furnish each Series A Preferred Securityholder with a Schedule K-1 each year setting forth such Preferred Securityholder's allocable share of income for the prior calendar year. The General Partner is required to furnish such schedules as soon as practicable following the end of the year, but in any event prior to March 31. Any person who holds Series A Preferred Securities as a nominee for another person is required to furnish to Illinois Power Capital (a) the name, address and taxpayer identification number of the beneficial owner and the nominee; (b) information as to whether the beneficial owner is (i) a person that is not a United States person, (ii) a foreign government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing, or (iii) a tax-exempt entity; (c) the amount and description of Series A Preferred Securities held, acquired or transferred for the beneficial owner; and (d) certain information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. Brokers and financial institutions are required to furnish additional information, including whether they are United States persons and certain information on Series A Preferred Securities they acquire, hold or transfer for their own accounts. A penalty of $50 per failure (up to a maximum of $100,000 per calendar year) is imposed by the Code for failure to report such information to Illinois Power Capital. The nominee is required to supply the beneficial owners of Series A Preferred Securities with the information furnished to Illinois Power Capital. POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD Under the terms of the Indenture, the Company has the right to extend from time to time the interest payment period on the Series A Subordinated Debentures to a period not exceeding 60 consecutive months. In the event that the Company exercises this right, the Company may not, among other things, declare dividends on any of its capital stock. The Company has no current intention of extending the interest payment period on the Series A Subordinated Debentures since it desires to continue the declaration and payment of dividends on its capital stock. In the event that the interest payment period is extended, Illinois Power Capital will continue to accrue income equal to the amount of the interest payment due at the end of the Extension Period pursuant to the Code and Treasury Regulation provisions applicable to original issue discount. Accrued income will be allocated, but not distributed, to holders of record on the Business Day preceding the last day of each calendar month. As a result, holders of record during an Extension Period will include interest in gross income in advance of the receipt of cash, and any such holders who dispose of Series A Preferred Securities prior to the record date for the payment of dividends following such Extension Period will include interest in gross income but will not receive any cash related thereto from Illinois Power Capital. The tax basis of a Series A Preferred Security will be increased by the amount of any interest that is included in income without a receipt of cash, and will be decreased when and if such cash is subsequently received from Illinois Power Capital. The subsequent receipt of such cash will not be includible in gross income. UNITED STATES ALIEN HOLDERS For purposes of this discussion, a "United States Alien Holder" is any holder who or which is (i) a nonresident alien individual or (ii) a foreign corporation, partnership, estate or trust, in either case not subject to United States federal income tax on a net income basis in respect of a Series A Preferred Security. Under current United States federal income tax law, subject to the discussion below with respect to backup withholding, and assuming satisfaction by the Company of its withholding tax obligations, if any: (i) Payments by Illinois Power Capital or any of its paying agents to any holder of a Series A Preferred Security who or which is a United States Alien Holder will not be subject to United States S-25 54 federal withholding tax provided that (a) the beneficial owner of the Series A Preferred Security does not actually or constructively own 10% or more of the total combined voting power of all classes of capital stock of the Company,(b) the beneficial owner of the Series A Preferred Security is not a controlled foreign corporation that is related to the Company or Illinois Power Capital through stock ownership, and (c) either: (x) the beneficial owner of the Series A Preferred Security certifies to Illinois Power Capital or its agent, under penalties of perjury, that it is a United States Alien Holder and provides its name and address or (y) the holder of the Series A Preferred Security is a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution"), and such holder certifies to Illinois Power Capital or its agent, under penalties of perjury, that such statement has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes Illinois Power Capital or its agent with a copy thereof; and (ii) a United States Alien Holder of a Series A Preferred Security will generally not be subject to United States federal withholding tax on any gain realized on the sale or exchange of a Series A Preferred Security unless such holder is present in the United States for 183 days or more in the taxable year of sale and either has a "tax home" in the United States or certain other requirements are met. BACKUP WITHHOLDING AND INFORMATION REPORTING In general, information reporting requirements will apply to payments of the proceeds of the sale of Series A Preferred Securities within the United States to noncorporate United States holders, and "backup withholding" at a rate of 31% will apply to such payments if the United States holder fails to provide an accurate taxpayer identification number. Payments of the proceeds from the sale by a United States Alien Holder of Series A Preferred Securities made to or through a foreign office of a broker will not be subject to information reporting or backup withholding, except that, if the broker is a United States person, a controlled foreign corporation for United States tax purposes or a foreign person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period, information reporting may apply to such payments. Payments of the proceeds from the sale of Series A Preferred Securities to or through the United States office of a broker are subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its non-United States status or otherwise establishes an exemption from information reporting and backup withholding. S-26 55 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, Illinois Power Capital has agreed to sell to each of the several Underwriters named below, and each of the Underwriters, for whom Goldman, Sachs & Co. and are acting as Representatives, has severally agreed to purchase from Illinois Power Capital the respective number of Series A Preferred Securities set forth opposite its name below:
NUMBER OF SERIES A PREFERRED UNDERWRITER SECURITIES ----------------------------------------------------- ------------- Goldman, Sachs & Co. ................................ ------------- Total...................................... =============
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all such Series A Preferred Securities offered hereby, if any are taken. The Underwriters propose to offer the Series A Preferred Securities in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus Supplement, and in part to certain securities dealers at such price less a concession of $ per Series A Preferred Security. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per Series A Preferred Security to certain brokers and dealers. After the Series A Preferred Securities are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Representatives. As the proceeds of the sale of the Series A Preferred Securities will be loaned to the Company, the Company has agreed in the Underwriting Agreement to pay to the Underwriters $ per Series A Preferred Security ($ per Series A Preferred Security sold to certain institutions) for the accounts of the several Underwriters. The Company and Illinois Power Capital have agreed, during the period beginning from the date of the Underwriting Agreement and continuing to and including the earlier of (i) the date, after the closing date, on which the distribution of the Series A Preferred Securities ceases, as determined by the Underwriters, or (ii) 30 days after the closing date, not to offer, sell, contract to sell, or otherwise dispose of any Series A Preferred Securities, any limited partner interests of Illinois Power Capital, or any preferred stock or any other securities of Illinois Power Capital or the Company which are substantially similar to the Series A Preferred Securities, or any securities convertible into or exchangeable for Series A Preferred Securities, limited partner interests, preferred stock or such substantially similar securities of either Illinois Power Capital or the Company without the prior written consent of the Underwriters. Prior to this offering, there has been no public market for the Series A Preferred Securities. In order to meet one of the requirements for listing the Series A Preferred Securities on the New York Stock Exchange, the Underwriters will undertake to sell lots of 100 or more Series A Preferred Securities to a minimum of 400 beneficial holders. Illinois Power Capital and the Company have agreed to indemnify the Underwriters against certain civil liabilities, including liabilities under the Securities Act. Certain of the Underwriters engage in transactions with, and from time to time have performed services for, the Company and its affiliates in the ordinary course of business. S-27 56 LEGAL OPINIONS Certain legal matters will be passed upon for the Company and Illinois Power Capital by Schiff Hardin & Waite, Chicago, Illinois, and for the Underwriters by Reid & Priest, New York, New York. Certain matters of Delaware law relating to the validity of the Series A Preferred Securities will be passed upon by Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Company and Illinois Power Capital. Schiff Hardin & Waite and Reid & Priest may rely on the opinion of Richards, Layton & Finger, P.A. as to certain matters of Delaware law. Schiff Hardin & Waite may rely on the opinion of Reid & Priest as to all matters of New York law, and Reid & Priest may rely on the opinion of Schiff Hardin & Waite as to all matters of Illinois law. S-28 57 - ------------------------------------------------------ - ------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. ------------------ TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ---- Certain Investment Considerations.... S-3 Illinois Power Company............... S-4 Illinois Power Capital............... S-4 Use of Proceeds...................... S-4 Summary Financial Information of the Company........................ S-5 Description of the Series A Preferred Securities......................... S-7 Description of the Series A Subordinated Debentures............ S-19 Effect of Obligations under the Series A Subordinated Debentures and the Guarantee.................. S-23 United States Taxation............... S-24 Underwriting......................... S-27 Legal Opinions....................... S-28 PROSPECTUS Available Information................ 2 Incorporation of Certain Documents by Reference.......................... 2 Illinois Power Company............... 3 Illinois Power Capital............... 3 Use of Proceeds...................... 3 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements.............. 4 Description of the Preferred Securities......................... 5 Description of the Guarantee......... 5 Description of the Subordinated Debentures......................... 7 Plan of Distribution................. 12 Legal Opinions....................... 13 Experts.............................. 13
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ PREFERRED SECURITIES ILLINOIS POWER CAPITAL GUARANTEED TO THE EXTENT ILLINOIS POWER CAPITAL HAS FUNDS AS SET FORTH HEREIN BY [IP LOGO] ILLINOIS POWER COMPANY CUMULATIVE ADJUSTABLE RATE MONTHLY INCOME PREFERRED SECURITIES, SERIES A ------------------------ PROSPECTUS SUPPLEMENT ------------------------ GOLDMAN, SACHS & CO. REPRESENTATIVES OF THE UNDERWRITERS - ------------------------------------------------------ - ------------------------------------------------------ 58 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there by any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1994 $100,000,000 ILLINOIS POWER CAPITAL PREFERRED SECURITIES GUARANTEED TO THE EXTENT ILLINOIS POWER CAPITAL HAS FUNDS AS SET FORTH HEREIN BY ILLINOIS POWER COMPANY ------------------ Illinois Power Capital, L.P. ("Illinois Power Capital"), a Delaware limited partnership, all of the general partner interests in which are owned by Illinois Power Company (the "Company"), may offer, from time to time, its preferred securities, representing limited partner interests ("Preferred Securities"), in one or more series. The payment of periodic cash distributions ("dividends") with respect to Preferred Securities of any series, out of funds held by Illinois Power Capital and legally available therefor, and payments on liquidation or redemption with respect to the Preferred Securities are guaranteed by the Company to the extent described herein (the "Guarantee"). The Company's obligations under the Guarantee are subordinate and junior in right of payment to all other liabilities of the Company. Subordinated Deferrable Interest Debentures of the Company ("Subordinated Debentures") will also be issued and sold from time to time in one or more series by the Company to Illinois Power Capital in connection with the investment of the proceeds from the offering of Preferred Securities. Subordinated Debentures subsequently may be distributed to holders of Preferred Securities in connection with a dissolution of Illinois Power Capital upon the occurrence of certain events as may be described in an accompanying Prospectus Supplement (a "Prospectus Supplement"). The Subordinated Debentures will be unsecured and subordinate and junior in right of payment to all present and future Senior Indebtedness of the Company. The specific designation, number of Preferred Securities, dividend rate (or method of determination thereof), and any other rights, preferences, privileges, limitations and restrictions relating to the Preferred Securities of the particular series in respect of which this Prospectus is being delivered will be set forth in a Prospectus Supplement pertaining to such series. The Preferred Securities may be offered in amounts, at prices and on terms to be determined at the time of offering; provided, however, that the aggregate initial public offering price of all Preferred Securities offered hereby shall not exceed $100,000,000. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------ The Preferred Securities may be sold to or through underwriters or dealers as designated from time to time. See "Plan of Distribution." The names of any such underwriters or dealers involved in the sale of the Preferred Securities of the particular series in respect of which this Prospectus is being delivered, the number of Preferred Securities to be purchased by any such underwriters or dealers and any applicable commissions or discounts will be set forth in the Prospectus Supplement. The net proceeds to the Company will also be set forth in the Prospectus Supplement. ------------------ The date of this Prospectus is September , 1994. 59 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661 and at 13th Floor, Seven World Trade Center, New York, New York 10048. Copies of such material may be obtained from the public reference section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and other information concerning the Company may also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005 and the Chicago Stock Exchange, 440 South LaSalle Street, Chicago, Illinois 60605, on which exchanges certain of the Company's securities are listed. In addition, such reports, proxy statements and other information concerning the Company can be inspected at the principal office of the Company, 500 South 27th Street, Decatur, Illinois 62525. This Prospectus does not contain all the information set forth in the Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement"), which the Company and Illinois Power Capital have filed with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). Statements contained or incorporated by reference herein concerning the provisions of documents are necessarily summaries of such documents, and each statement is qualified in its entirety by reference to the Registration Statement. No separate financial statements of Illinois Power Capital have been included herein. The Company and Illinois Power Capital do not consider that such financial statements would be material to holders of Preferred Securities because Illinois Power Capital is a newly formed special purpose entity, has no operating history and no independent operations and is not engaged in, and does not propose to engage in, any activity other than as set forth below. See "Illinois Power Capital." INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents heretofore filed by the Company with the Commission pursuant to the Exchange Act are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K for the year ended December 31, 1993; 2. The Company's Current Reports on Form 8-K dated February 9, 1994 and May 27, 1994; and 3. The Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994. All documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Preferred Securities offered hereby, shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein or in the Prospectus Supplement modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE WHICH HAVE BEEN OR MAY BE INCORPORATED IN THIS PROSPECTUS BY REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THE PROSPECTUS INCORPORATES. REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO MR. ALEC G. DREYER, CONTROLLER, ILLINOIS POWER COMPANY, 500 SOUTH 27TH STREET, DECATUR, ILLINOIS 62525, TELEPHONE NUMBER: (217) 424-6600. 2 60 ILLINOIS POWER COMPANY The Company was incorporated under the laws of the State of Illinois on May 25, 1923. Effective May 27, 1994, the Company became a subsidiary of Illinova Corporation, an exempt holding company under the Public Utility Holding Company Act of 1935, as amended, pursuant to a merger in which each outstanding share of the Company's Common Stock was converted into one share of common stock of Illinova Corporation. The Company is engaged in the generation, transmission, distribution and sale of electric energy and the distribution and sale of natural gas in the State of Illinois. Its service area is a widely diversified industrial and agricultural area comprising approximately 15,000 square miles in northern, central and southern Illinois. Electric service is provided at retail to 309 incorporated municipalities, adjacent suburban and rural areas and numerous unincorporated municipalities having an aggregate population of approximately 1,283,000. Gas service is provided to 257 incorporated municipalities, adjacent suburban areas and numerous unincorporated municipalities having an aggregate population of approximately 935,000. The larger cities served include Decatur, East St. Louis (gas only), Champaign, Danville, Belleville, Granite City, Bloomington (electric only), Galesburg, Urbana and Normal (electric only). The executive offices of the Company are located at 500 South 27th Street, Decatur, Illinois 62525, and the Company's telephone number is (217) 424-6600. ILLINOIS POWER CAPITAL Illinois Power Capital is a limited partnership formed under the Delaware Revised Uniform Limited Partnership Act, as amended (the "Partnership Act"). Illinois Power Capital exists for the sole purpose of issuing its partner interests and using the proceeds thereof to purchase certain debt securities of the Company. The Company is the sole general partner (the "General Partner") of Illinois Power Capital and will manage all of the business and affairs of Illinois Power Capital. Holders of Preferred Securities will be limited partners of Illinois Power Capital. The Company, as the General Partner of Illinois Power Capital, will make capital contributions to Illinois Power Capital from time to time to the extent required so that the total contributions made by the General Partner shall at all times be at least equal to 3% of the total contributions made by all partners. The rights and obligations of the General Partner and the limited partners of Illinois Power Capital will be governed by the Partnership Act and by an Amended and Restated Agreement of Limited Partnership of Illinois Power Capital (the "Partnership Agreement") substantially in the form filed as an exhibit to the Registration Statement of which this Prospectus and the accompanying Prospectus Supplement form a part. Illinois Power Capital's principal place of business and registered office in the State of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, telephone: (302) 658-7581. USE OF PROCEEDS The proceeds to be received by Illinois Power Capital from the sale of the Preferred Securities will be used to purchase Subordinated Debentures of the Company and, unless otherwise specified in any Prospectus Supplement, will be applied by the Company to the payment or provision for payment at maturity, the purchase or the redemption of outstanding securities of the Company and for general corporate purposes. 3 61 RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
YEAR ENDED DECEMBER 31, 12 MONTHS ------------------------------------------------ ENDED 1989 1990 1991 1992 1993(A) JUNE 30, 1994(A) ----- ---- ---- ---- ------- ---------------- Ratio of Earnings to Fixed Charges(b).................. (0.52)(c) 0.70(c) 1.85 2.02 0.80(c) 0.93(c) Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(b)............. (0.45)(d) 0.60(d) 1.48 1.61 0.70(d) 0.82(d)
- --------------- (a) Subsequent to the Company's merger with Illinova Corporation, net assets of Illinova Generating Company (formerly IP Group, Inc.) were transferred in the form of a dividend from the Company to Illinova Corporation. The information contained herein has been restated to reflect the financial results of the Company's current operations. (b) Earnings used in the calculation of the ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and preferred stock dividend requirements include the allowance for funds used during construction and the deferred financing costs associated with the Company's Clinton Power Station, and are before deduction of income taxes and fixed charges. Fixed charges include interest on long-term debt, related amortization of debt discount, premium, and expense, other interest and that portion of rent expense which is estimated to be representative of the interest component. Preferred stock dividend requirements have been increased to an amount representing the pre-tax earnings required to cover such dividend requirements. (c) The ratios of earnings to fixed charges for the twelve months ended June 30, 1994 and for the years ended December 31, 1993, 1990 and 1989 of 0.93, 0.80, 0.70 and (0.52), respectively, indicate that earnings were inadequate to cover fixed charges. The dollar amounts of the coverage deficiency for the twelve months ended June 30, 1994, and for the years ended 1993, 1990 and 1989 were approximately $13 million, $37 million, $68 million and $375 million, respectively. Excluding the loss on disallowed plant costs of $200 million, net of income taxes, recorded in the third quarter of 1993, the ratio of earnings to fixed charges would have been 2.42 for the twelve months ended June 30, 1994 and 2.25 for the year ended 1993. Excluding the loss on disallowed plant costs of $137 million, net of income taxes, recorded in the fourth quarter of 1990, the ratio of earnings to fixed charges would have been 1.41 for the year ended 1990. Excluding the loss on disallowed plant costs of $346 million, net of income taxes, recorded in the first quarter of 1989, the ratio of earnings to fixed charges would have been 1.31 for the year ended 1989. (d) The ratios of earnings to combined fixed charges and preferred stock dividend requirements for the twelve months ended June 30, 1994 and for the years ended December 31, 1993, 1990 and 1989 of 0.82, 0.70, 0.60 and (0.45), respectively, indicate that earnings were inadequate to cover combined fixed charges and preferred stock dividend requirements. The dollar amounts of the coverage deficiency for the twelve months ended June 30, 1994, and for the years ended 1993, 1990 and 1989 were approximately $38 million, $63 million, $105 million and $412 million, respectively. Excluding the loss on disallowed plant costs of $200 million, net of income taxes, recorded in the third quarter of 1993, the ratio of earnings to combined fixed charges and preferred stock dividend requirements would have been 1.98 for the twelve months ended June 30, 1994 and 1.83 for the year ended 1993. Excluding the loss on disallowed plant costs of $137 million, net of income taxes, recorded in the fourth quarter of 1990, the ratio of earnings to combined fixed charges and preferred stock dividend requirements would have been 1.09 for the year ended 1990. Excluding the loss on disallowed plant costs of $346 million, net of income taxes, recorded in the first quarter of 1989, the ratio of earnings to combined fixed charges and preferred stock dividend requirements would have been 1.06 for the year ended 1989. 4 62 DESCRIPTION OF THE PREFERRED SECURITIES Illinois Power Capital may issue, from time to time, Preferred Securities, in one or more series, having terms described in the Prospectus Supplement relating thereto. The limited partnership agreement of Illinois Power Capital will be amended and restated (as so amended and restated, the "Partnership Agreement") to authorize the establishment of one or more series of Preferred Securities, having such terms, including dividends, redemption, voting, liquidation rights and such other preferred, deferred or other special rights or such restrictions as shall be set forth therein or otherwise established by the General Partner pursuant thereto. Reference is made to the Prospectus Supplement relating to the Preferred Securities of a particular series for specific terms, including (i) the distinctive designation of such series which shall distinguish it from other series; (ii) the number of Preferred Securities included in such series, which number may be increased or decreased from time to time unless otherwise provided by the General Partner in creating the series; (iii) the annual dividend rate (or method of determining such rate) for Preferred Securities of such series and the date or dates upon which such dividends shall be payable; provided, however, dividends on any series of Preferred Securities shall be payable on a monthly basis to holders of such series of Preferred Securities as of a record date in each month during which such series of Preferred Securities are outstanding; (iv) whether dividends on Preferred Securities of such series shall be cumulative, and, in the case of Preferred Securities of any series having cumulative dividend rights, the date or dates or method of determining the date or dates from which dividends on Preferred Securities of such series shall be cumulative; (v) the amount or amounts which shall be paid out of the assets of Illinois Power Capital to the holders of Preferred Securities of such series upon voluntary or involuntary dissolution, winding-up or termination of Illinois Power Capital; (vi) the price or prices at which, the period or periods within which and the terms and conditions upon which Preferred Securities of such series may be redeemed or purchased, in whole or in part, at the option of Illinois Power Capital or the General Partner; (vii) the obligation, if any, of Illinois Power Capital to purchase or redeem Preferred Securities of such series and the price or prices at which, the period or periods within which and the terms and conditions upon which Preferred Securities of such series shall be purchased or redeemed, in whole or in part, pursuant to such obligation; (viii) the voting rights, if any, of Preferred Securities of such series in addition to those required by law, including the number of votes per Preferred Security and any requirement for the approval by the holders of Preferred Securities, or of Preferred Securities of one or more series, or of both, as a condition to specified action or amendments to the Partnership Agreement; and (ix) any other relative rights, preferences, privileges, limitations or restrictions of Preferred Securities of the series not inconsistent with the Partnership Agreement or with applicable law. All Preferred Securities offered hereby will be guaranteed by the Company to the extent set forth below under "Description of the Guarantee." Any applicable federal income tax considerations applicable to any offering of Preferred Securities will be described in the Prospectus Supplement relating thereto. DESCRIPTION OF THE GUARANTEE Set forth below is a summary of information concerning the Guarantee which will be executed and delivered by the Company for the benefit of the holders from time to time of Preferred Securities. The summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Guarantee, which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL The Company will irrevocably and unconditionally agree, to the extent set forth herein, to pay in full, to the holders of the Preferred Securities of each series, the Guarantee Payments (as defined below) (except to the extent paid by Illinois Power Capital), as and when due, regardless of any defense, right of set-off or counterclaim which Illinois Power Capital may have or assert. The following payments with respect to any series of Preferred Securities to the extent not paid by Illinois Power Capital (the "Guarantee Payments") will be subject to the Guarantee (without duplication): (i) any accumulated and unpaid dividends which are required to be paid on the Preferred Securities of such series, to the 5 63 extent Illinois Power Capital shall have sufficient cash on hand to permit such payment and funds legally available therefor, (ii) the redemption price, including all accumulated and unpaid dividends (the "Redemption Price"), payable with respect to any Preferred Securities called for redemption by Illinois Power Capital to the extent Illinois Power Capital shall have sufficient cash on hand to permit such payment and funds legally available therefor, and (iii) upon a liquidation of Illinois Power Capital, the lesser of (a) the aggregate of the liquidation preference and all accumulated and unpaid dividends on the Preferred Securities of such series to the date of payment and (b) the amount of assets of Illinois Power Capital remaining available for distribution to holders of Preferred Securities of such series in liquidation of Illinois Power Capital. The Company's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Company to the holders of Preferred Securities or by causing Illinois Power Capital to pay such amounts to such holders. CERTAIN COVENANTS OF THE COMPANY In the Guarantee, the Company will covenant that, so long as any Preferred Securities remain outstanding, the Company will not declare or pay any dividend on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or make any guarantee payment with respect to the foregoing if at such time the Company shall be in default with respect to its payment or other obligations under the Guarantee or there shall have occurred and is continuing any event that would constitute an Event of Default under the Indenture. AMENDMENTS AND ASSIGNMENT Except with respect to any changes which do not adversely affect the rights of holders of Preferred Securities (in which case no vote will be required), the Guarantee may be changed only with the prior approval of the holders of not less than 66 2/3% in liquidation preference of the outstanding Preferred Securities of each affected series (voting together as one class). The manner of obtaining any such approval of holders of the Preferred Securities of each series will be as set forth in an accompanying Prospectus Supplement. All guarantees and agreements contained in the Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the holders of the Preferred Securities then outstanding. TERMINATION OF THE GUARANTEE The Guarantee will terminate and be of no further force and effect as to the Preferred Securities of any series upon full payment of the Redemption Price of all Preferred Securities of such series, and will terminate completely upon full payment of the amounts payable upon liquidation of Illinois Power Capital. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of Preferred Securities of any series must restore payment of any sums paid under such series of Preferred Securities or the Guarantee. STATUS OF THE GUARANTEE The Guarantee will constitute an unsecured obligation of the Company and will rank (i) subordinate and junior in right of payment to all liabilities of the Company, (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Company and with any guarantee now or hereafter entered into by the Company in respect of any preferred or preference stock of any affiliate of the Company and (iii) senior to the Company's Common Stock. The Partnership Agreement provides that each holder of Preferred Securities by acceptance thereof agrees to the subordination provisions and other terms of the Guarantee. The Guarantee will constitute a guarantee of payment and not of collection. The Guarantee will be deposited with the General Partner to be held for the benefit of the holders of each series of the Preferred Securities. In the event of the appointment of a Special Representative to, among other things, enforce the Guarantee, the Special Representative may take possession of the Guarantee for such purpose. If no 6 64 Special Representative has been appointed to enforce the Guarantee, the General Partner has the right to enforce the Guarantee on behalf of the holders of each series of the Preferred Securities. The holders of not less than 10% in aggregate liquidation preference of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available in respect of the Guarantee, including the giving of directions to the General Partner or the Special Representative, as the case may be. If the General Partner or the Special Representative fails to enforce the Guarantee as above provided, any holder of Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee, without first instituting a legal proceeding against Illinois Power Capital or any other person or entity. The Guarantee will not be discharged except by payment of the Guarantee Payments in full to the extent not paid by Illinois Power Capital and by complete performance of all obligations under the Guarantee. GOVERNING LAW The Guarantee will be governed by and construed in accordance with the laws of the State of Illinois. DESCRIPTION OF THE SUBORDINATED DEBENTURES Subordinated Debentures may be issued from time to time in one or more series under an Indenture, (the "Indenture"), between the Company and The First National Bank of Chicago, as Trustee (the "Trustee"). The following summary does not purport to be complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference to, the Indenture, which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. Whenever particular provisions or defined terms in the Indenture are referred to herein, such provisions or defined terms are incorporated by reference herein. Section and Article references used herein are references to provisions of the Indenture unless otherwise noted. GENERAL The Subordinated Debentures will be unsecured, subordinated obligations of the Company. The Indenture does not limit the aggregate principal amount of Subordinated Debentures which may be issued thereunder and provides that the Subordinated Debentures may be issued thereunder from time to time in one or more series. The Subordinated Debentures are issuable in one or more series pursuant to an indenture supplemental to the Indenture or a resolution of the Company's Board of Directors or an authorized committee thereof (each, a "Supplemental Indenture"). The aggregate principal amount of Subordinated Debentures relating to Preferred Securities of any series will be set forth in the Prospectus Supplement for such series and will be equal to the sum of the aggregate liquidation preference of the Preferred Securities for such series and the General Partner's capital contribution with respect to the Preferred Securities for such series. Subordinated Debentures relating to Preferred Securities of any series subsequently may be distributed pro rata to holders of Preferred Securities of such series in connection with the dissolution of Illinois Power Capital upon the occurrence of certain events described in the Prospectus Supplement relating to the Preferred Securities of such series. The Restated Articles of Incorporation, as amended, of the Company limit the amount of unsecured indebtedness that the Company may issue or assume, without the consent of the holders of a majority of the total number of shares of preferred stock then outstanding, to 20% of the aggregate of the total principal amount of all outstanding bonds or other securities representing secured indebtedness of the Company and the capital and surplus of the Company as then stated on the Company's books. At July 31, 1994, the Company could have issued approximately $210 million of unsecured indebtedness (such as the Subordinated Debentures) without violating this provision. Reference is made to the Prospectus Supplement which will accompany this Prospectus for the following terms of the series of Subordinated Debentures being offered thereby: (i) the specific title of 7 65 such Subordinated Debentures; (ii) any limit on the aggregate principal amount of such Subordinated Debentures; (iii) the date or dates on which the principal of such Subordinated Debentures is payable or the method of determination of such date or dates; (iv) the rate or rates at which such Subordinated Debentures will bear interest or the method of determination of such rate or rates (including the rates at which overdue principal shall bear interest, if different, and, if applicable, the rate or rates at which overdue premiums or interest shall bear interest, if any); (v) the date or dates from which such interest shall accrue, the interest payment dates on which such interest will be payable or the manner of determination of such interest payment dates and the record dates for the determination of holders to whom interest is payable on any such interest payment dates; (vi) the right, if any, to extend the interest payment periods and the maximum duration of any such extension; (vii) the period or periods within which, the price or prices at which and the terms and conditions upon which such Subordinated Debentures may be redeemed, in whole or in part, at the option of the Company; (viii) the obligation, if any, of the Company to redeem or purchase such Subordinated Debentures pursuant to any sinking fund or analogous provisions or at the option of the holder thereof and the period or periods, the price or prices at which, and the terms and conditions upon which, such Subordinated Debentures shall be redeemed or purchased, in whole or part, pursuant to such obligation; (ix) the form of such Subordinated Debentures; (x) if other than denominations of $25 or any integral multiple thereof, the denominations in which such Subordinated Debentures shall be issuable; (xi) any and all other terms with respect to such series; and (xii) whether such Subordinated Debentures are issuable as a global security, and in such case, the identity of the depository. The Indenture does not contain any provisions that afford holders of Subordinated Debentures protection in the event of a highly leveraged transaction involving the Company. SUBORDINATION The Indenture provides that the Subordinated Debentures are subordinate and junior in right of payment to all Senior Indebtedness (as defined below) of the Company as provided in the Indenture. No payment of principal of (including redemption and sinking fund payments), premium, if any, or interest on, the Subordinated Debentures may be made if any Senior Indebtedness is not paid when due, any applicable grace period with respect to such default has ended and such default has not been cured or waived or has ceased to exist, or if the maturity of any Senior Indebtedness has been accelerated because of a default. Upon any distribution of assets of the Company to creditors upon any dissolution, winding-up, liquidation or reorganization, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all principal of, and premium, if any, and interest due or to become due on, all Senior Indebtedness must be paid in full before the holders of the Subordinated Debentures are entitled to receive or retain any payment. The rights of the holders of the Subordinated Debentures will be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions applicable to Senior Indebtedness until all amounts owing on the Subordinated Debentures are paid in full. The term "Senior Indebtedness" shall mean the principal of, premium, if any, interest on and any other payment due pursuant to any of the following, whether outstanding at the date of execution of the Indenture or thereafter incurred, created or assumed: (a) all indebtedness of the Company (other than non-recourse indebtedness and indebtedness issued under the Indenture) evidenced by notes, debentures, bonds or other securities sold by the Company for money; (b) all indebtedness of others of the kinds described in the preceding clause (a) assumed by or guaranteed in any manner by the Company (other than the Guarantee) or in effect guaranteed by the Company by an agreement to purchase, contingent or otherwise; and (c) all renewals, extensions or refundings of indebtedness of the kinds described in either of the preceding clauses (a) and (b) unless, in the case of any particular indebtedness, renewal, extension or refunding, the instrument creating or evidencing the same or the assumption or 8 66 guarantee of the same expressly provides that such indebtedness, renewal, extension or refunding is not superior in right of payment to or is pari passu with the Subordinated Debentures. Such Senior Indebtedness shall continue to be Senior Indebtedness and to be entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness. The Indenture does not limit the aggregate amount of Senior Indebtedness which may be issued. As of June 30, 1994, Senior Indebtedness of the Company aggregated approximately $2.2 billion. CERTAIN COVENANTS OF THE COMPANY The Company will covenant that it will not declare or pay any dividend on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its capital stock, if at such time (i) there shall have occurred and be continuing any event that would constitute an Event of Default under any Indenture, (ii) the Company shall be in default with respect to its payment or any obligations under the Guarantee or (iii) the Company shall have given notice of its selection of an extended interest payment period as provided in the Indenture and such period, or any extension thereof, shall be continuing. The Company will also covenant (i) to remain the sole general partner of Illinois Power Capital and maintain 100% ownership of the general partner interests thereof; provided, that any permitted successor of the Company under the Indenture may succeed to the Company's duties as General Partner, (ii) to contribute capital to the extent required to maintain its capital at an amount equal to at least 3% of the total capital contributions to Illinois Power Capital, (iii) not to voluntarily dissolve, wind-up or terminate Illinois Power Capital, except in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities in liquidation of Illinois Power Capital and in connection with certain mergers, consolidations or amalgamations permitted by the Partnership Agreement, (iv) to timely perform all of its duties as the general partner in Illinois Power Capital (including the duty to pay dividends on the Preferred Securities) and (v) to use its reasonable efforts to cause Illinois Power Capital to remain a limited partnership and otherwise continue to be treated as a partnership for United States federal income tax purposes. FORM, EXCHANGE, REGISTRATION AND TRANSFER Subordinated Debentures of each series will be issued in registered form and either will be in certificated form or will be represented by one or more global securities. If not represented by one or more global securities, Subordinated Debentures may be presented for registration of transfer (with the form of transfer endorsed thereon duly executed) or exchange, at the office of the Debenture Registrar, without service charge and upon payment of any taxes and other governmental charges. Such transfer or exchange will be effected upon the Company or the Debenture Registrar being satisfied with the documents of title and identity of the person making the request. The Company has appointed the Trustee as Debenture Registrar with respect to the Subordinated Debentures. The Company shall not be required to (i) issue, register the transfer of or exchange any Subordinated Debenture during a period beginning at the opening of business 15 days before any mailing of Notice of Redemption of less than all the outstanding Subordinated Debentures of the series of which such Subordinated Debenture is a part, and ending at the close of business on the day of such mailing or (ii) register the transfer of or exchange any Subordinated Debentures called for redemption. PAYMENT AND PAYING AGENTS Payment of principal of and premium, if any, on any Subordinated Debenture will be made only against surrender to the Paying Agent of such Subordinated Debenture. Principal of and any premium and interest, if any, on Subordinated Debentures will be payable, subject to any applicable laws and regulations, at the office of such Paying Agent or Paying Agents as the Company may designate from time to time, except that at the option of the Company payment of any interest may be made by check mailed to the address of the person entitled thereto as such address shall appear in the Debenture 9 67 Register with respect to such Subordinated Debentures. Payment of interest on a Subordinated Debenture on any Interest Payment Date will be made to the person in whose name such Subordinated Debenture (or Predecessor Security) is registered at the close of business on the Regular Record Date for such interest payment. The Company will act as Paying Agent with respect to the Subordinated Debentures. The Company may at any time designate additional Paying Agents or rescind the designation of any Paying Agents or approve a change in the office through which any Paying Agent acts, except that the Company will be required to maintain a Paying Agent in each Place of Payment for each series of the respective Subordinated Debentures. All moneys paid by the Company to a Paying Agent for the payment of the principal of or premium or interest, if any, on any Subordinated Debenture of any series which remain unclaimed at the end of two years after such principal, premium, if any, or interest shall have become due and payable will be repaid to the Company and the holder of such Subordinated Debenture will thereafter look only to the Company for payment thereof. GLOBAL DEBENTURES If any Subordinated Debentures of a series are represented by one or more global securities, the applicable Prospectus Supplement will describe the circumstances, if any, under which beneficial owners of interests in any such Global Debenture may exchange such interests for Subordinated Debentures of such series and of like tenor and principal amount in any authorized form and denomination. Principal of and any premium and interest on a Global Debenture will be payable in the manner described in the applicable Prospectus Supplement. The specific terms of the depository arrangement with respect to any portion of a series of Subordinated Debentures to be represented by a Global Debenture will be described in the applicable Prospectus Supplement. MODIFICATION OF THE INDENTURE The Indenture contains provisions permitting the Company and the Trustee, with consent of the holders of not less than a majority in principal amount of the Subordinated Debentures of each series which are affected by the modification, to modify the Indenture or any Supplemental Indenture affecting that series or the rights of the holders of that series of Subordinated Debentures; provided, that no such modification may, without the consent of the holder of each outstanding Subordinated Debenture affected thereby, (i) extend the fixed maturity of any Subordinated Debentures of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the holder of each Subordinated Debenture so affected or (ii) reduce the percentage of Subordinated Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Subordinated Debenture then outstanding and affected thereby. In addition, the Company and the Trustee may execute, without the consent of any holder of Subordinated Debentures, any Supplemental Indenture for certain other usual purposes including the creation of any new series of Subordinated Debentures. 10 68 EVENTS OF DEFAULT The Indenture provides that any one or more of the following described events, which has occurred and is continuing, constitutes an "Event of Default" with respect to each series of Subordinated Debentures: (a) failure for 10 days to pay interest on the Subordinated Debentures of that series, including any Additional Interest in respect thereof, when due, provided that a valid extension of an interest payment period by the Company in accordance with a Supplemental Indenture shall not constitute a failure to pay interest for this purpose; or (b) failure to pay principal or premium, if any, on the Subordinated Debentures of that series when due, whether at maturity, upon redemption by declaration or otherwise, or to make any sinking fund payment with respect to that series; or (c) failure to observe or perform any other covenant (other than those specifically relating to another series) contained in the Indenture for 90 days after notice; or (d) the dissolution, winding-up or termination of Illinois Power Capital, except in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities in liquidation of Illinois Power Capital and in connection with certain mergers, consolidations or amalgamations permitted by the Partnership Agreement; or (e) certain events in bankruptcy, insolvency or reorganization of the Company or Illinois Power Capital. The holders of a majority in aggregate outstanding principal amount of any series of the Subordinated Debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee for that series. The Trustee or the holders of not less than 25% in aggregate outstanding principal amount of any particular series of the Subordinated Debentures (unless the principal of all of the Subordinated Debentures of that series has been declared due and payable) may declare the principal due and payable immediately on default with respect to such series, but the holders of a majority in aggregate outstanding principal amount of such series may annul such declaration and waive the default if the default has been cured and a sum sufficient to pay all matured installments of interest and principal and any premium has been deposited with the Trustee. The holders of a majority in aggregate outstanding principal amount of all series of the Subordinated Debentures affected thereby may, on behalf of the holders of all of the Subordinated Debentures of such series, waive any past default, except a default in the payment of principal, premium, if any, or interest. The Company is required to file annually with the Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants under the Indenture. CONSOLIDATION, MERGER AND SALE The Indenture does not contain any covenant which restricts the Company's ability to merge or consolidate with or into any other corporation, sell or convey all or substantially all of its assets to any person, firm or corporation or otherwise engage in restructuring transactions. DEFEASANCE AND DISCHARGE Under the terms of the Indenture, the Company will be discharged from any and all obligations in respect of the Subordinated Debentures of any series (except in each case for certain obligations to register the transfer or exchange of Subordinated Debentures, replace stolen, lost or mutilated Subordinated Debentures, maintain paying agencies and hold moneys for payment in trust) if the Company deposits with the Trustee, in trust, moneys or Government Obligations, in an amount sufficient to pay all the principal of, and interest on, the Subordinated Debentures of such series on the dates such payments are due in accordance with the terms of such Subordinated Debentures. 11 69 GOVERNING LAW The Indenture and the Subordinated Debentures will be governed by, and construed in accordance with, the laws of the State of New York. INFORMATION CONCERNING THE TRUSTEE The Trustee shall have and be subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to such provision, the Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Trustee is not required to expand or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. The Company maintains a deposit account and banking relationship with the Trustee. MISCELLANEOUS The Company will have the right at all times to assign any of its rights or obligations under the Indenture to a direct or indirect wholly-owned subsidiary of the Company; provided, that, in the event of any such assignment, the Company will remain liable for all such obligations. Subject to the foregoing, the Indenture will be binding upon and inure to the benefit of the parties thereto and their respective successors and assigns. The Indenture provides that it may not otherwise be assigned by the parties thereto. PLAN OF DISTRIBUTION Illinois Power Capital may offer or sell Preferred Securities to one or more underwriters for public offering and sale by them. Illinois Power Capital may sell Preferred Securities as soon as practicable after effectiveness of the Registration Statement, provided that favorable market conditions exist. Any such underwriter involved in the offer and sale of the Preferred Securities will be named in an applicable Prospectus Supplement. Underwriters may offer and sell the Preferred Securities at a fixed price or prices, which may be changed, or from time to time at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In connection with the sale of Preferred Securities, underwriters may be deemed to have received compensation from the Company and/or Illinois Power Capital in the form of underwriting discounts or commissions. Underwriters may sell Preferred Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters. Any underwriting compensation paid by the Company and/or Illinois Power Capital to underwriters in connection with the offering of Preferred Securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in an applicable Prospectus Supplement. Underwriters and dealers participating in the distribution of the Preferred Securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the Preferred Securities may be deemed to be underwriting discounts and commissions, under the Securities Act. Underwriters and dealers may be entitled, under agreement with the Company or Illinois Power Capital, to indemnification against and contribution toward certain civil liabilities, including liabilities under the Securities Act, and to reimbursement by the Company and/or Illinois Power Capital for certain expenses. Underwriters and dealers may engage in transactions with, or perform services for, the Company and/or Illinois Power Capital and/or any of their affiliates in the ordinary course of business. 12 70 Each series of Preferred Securities will be a new issue of securities and will have no established trading market. Any underwriters to whom Preferred Securities are sold by Illinois Power Capital for public offering and sale may make a market in such Preferred Securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without notice. The Preferred Securities may or may not be listed on a national securities exchange. No assurance can be given as to the liquidity of or the trading markets for any Preferred Securities. LEGAL OPINIONS Certain legal matters will be passed upon for the Company and Illinois Power Capital by Schiff Hardin & Waite, Chicago, Illinois, and for any underwriters by Reid & Priest, New York, New York. Certain matters of Delaware law relating to the validity of the Preferred Securities will be passed upon by Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Company and Illinois Power Capital. Schiff Hardin & Waite and Reid & Priest may rely on the opinion of Richards, Layton & Finger, P.A. as to certain matters of Delaware law. Schiff Hardin & Waite may rely on the opinion of Reid & Priest as to all matters of New York law, and Reid & Priest may rely on the opinion of Schiff Hardin & Waite as to all matters of Illinois law. EXPERTS The financial statements incorporated in this Prospectus by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 have been so incorporated in reliance on the report (which contains an explanatory paragraph relating to the Company's change in its method of accounting for income taxes, as discussed in Note 1 to the financial statements) of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 13 71 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission registration fee........................ $ 34,483* New York Stock Exchange listing fees....................................... 45,000 Printing expenses.......................................................... 50,000 Legal fees and expenses.................................................... 125,000 Independent accountant's fees and expenses................................. 15,000 Blue Sky and legal investment fees and expenses............................ 15,000 Rating agencies fees and expenses.......................................... 50,000 Indenture Trustee fees and expenses........................................ 5,000 Miscellaneous.............................................................. 10,517 -------- Total.................................................................... $350,000 ========
- --------------- * Actual. All other expenses are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under Section 8.75 of the Illinois Business Corporation Act of 1983, the Company is empowered, subject to the procedures and limitations stated therein, to indemnify any person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed action, suit or proceeding to which such person is made a party or threatened to be made a party by reason of such person being or having been a director, officer, employee or agent of the Company, or serving or having served at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Section 8.75 further provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise, and that such indemnification shall continue as to a director, officer, employee or agent of the Company who has ceased to serve in such capacity, and shall inure to the benefit of the heirs, executors and administrators of such a person. The Company's By-Laws provide, in substance, that the Company shall indemnify any person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which such person is made a party or threatened to be made a party by reason of such person being or having been a director, officer, employee or agent of the Company, or serving or having served at the request of the Company in one or more of the foregoing capacities with another corporation, partnership, joint venture, trust or other enterprise. The indemnification is not exclusive of other rights and shall continue as to a person who has ceased to be a director, officer, employer or agent and shall inure to the benefit of his heirs, executors and administrators. The Company presently has an insurance policy which, among other things, includes liability insurance coverage for officers and directors under which officers and directors are covered against any "loss" arising from any claim or claims made against them by reason of any "wrongful act" in their respective capacities of directors or officers. "Loss" is specifically defined to exclude fines and penalties, as well as matters deemed uninsurable under the law pursuant to which the insurance policy shall be construed. The policy also contains other specific exclusions, including illegally obtained personal profit or advantages, and dishonesty. The policy also provides for reimbursement to the Company for loss 72 incurred by having indemnified officers or directors as authorized by state statute, the Company's By-Laws or any other agreement. The Partnership Agreement provides, in part, as follows: "Section 9.6 Indemnification. To the fullest extent permitted by applicable law, the Partnership shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Partnership and in a manner reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence or willful misconduct, with respect to such acts or omissions; provided, however, that any indemnity under this Section 9.6 shall be provided out of and to the extent of Partnership assets only, and no Covered Person shall have any personal liability on account thereof. To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Partnership prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Partnership of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 9.6." Applicable Delaware partnership law provides authority for limited partnerships to indemnify under certain circumstances any partner or other person from and against any and all claims and demands. The foregoing rights of indemnification shall apply to any liability of any director or officer, partner or other person (or his legal representatives) arising under any of the provisions of the Securities Act of 1933, as amended, only to the extent that such rights of indemnification may be determined to be valid by a court of competent jurisdiction. ITEM 16. LIST OF EXHIBITS. The exhibits to this Registration Statement are listed in the Exhibit Index elsewhere herein. ITEM 17. UNDERTAKINGS. The undersigned registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (b) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (c) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs 1(a) and 1(b) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrants pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are incorporated by reference in this Registration Statement; II-2 73 (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and (4) That for purposes of determining any liability under the Securities Act, each filing of the Company's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrants pursuant to the provisions referred to in Item 15 above, or otherwise, the registrants have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrants hereby further undertake that: (1) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 74 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Illinois Power Company has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Decatur, and State of Illinois on the 2nd of September, 1994. ILLINOIS POWER COMPANY (Registrant) By: /s/ LARRY F. ALTENBAUMER ------------------------------------ Larry F. Altenbaumer Senior Vice President and Chief Financial Officer 75 Pursuant to the requirements of the Securities Act of 1933, Illinois Power Capital, L.P. has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Decatur, and State of Illinois on the 2nd day of September, 1994. ILLINOIS POWER CAPITAL, L.P. (Registrant) By: Illinois Power Company, its general partner By: /s/ LARRY F. ALTENBAUMER ------------------------------------ Larry F. Altenbaumer Senior Vice President and Chief Financial Officer 76 Pursuant to the requirements of the Securities Act of 1933, this amendment to registration statement has been signed below on behalf of each of Illinois Power Company and Illinois Power Capital, L.P. by the following persons in their capacities as officers or directors, as indicated below, of Illinois Power Company and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------- ----------------------------------- ------------------ LARRY D. HAAB* Chairman, President, Chief - ------------------------------------- Executive Larry D. Haab Officer and Director (Principal Executive Officer) /s/ LARRY F. ALTENBAUMER Senior Vice President and Chief - ------------------------------------- Financial Officer Larry F. Altenbaumer (Principal Financial Officer) September 2, 1994 /s/ ALEC G. DREYER Controller - ------------------------------------- Alec G. Dreyer (Controller) RICHARD R. BERRY* Director - ------------------------------------- Richard R. Berry DONALD E. LASATER* Director - ------------------------------------- Donald E. Lasater DONALD S. PERKINS* Director - ------------------------------------- Donald S. Perkins
77
SIGNATURE TITLE DATE - ------------------------------------- ----------------------------------- ------------------ ROBERT M. POWERS* Director - ------------------------------------- Robert M. Powers WALTER D. SCOTT* Director - ------------------------------------- Walter D. Scott RONALD L. THOMPSON* Director - ------------------------------------- Ronald L. Thompson WALTER M. VANNOY* Director - ------------------------------------- Walter M. Vannoy September 2, 1994 MARILOU VON FERSTEL* Director - ------------------------------------- Marilou von Ferstel CHARLES W. WELLS* Director - ------------------------------------- Charles W. Wells JOHN D. ZEGLIS* Director - ------------------------------------- John D. Zeglis Director - ------------------------------------- Vernon K. Zimmerman *By: /s/ LARRY F. ALTENBAUMER - ------------------------------------- Larry F. Altenbaumer as Attorney-in-Fact
78 EXHIBIT INDEX
EXHIBITS DESCRIPTION PAGE --------- ------------------------------------------------------------------- ---- 1 Form of Underwriting Agreement. 3(a) Restated Articles of Incorporation of the Company, as amended through April 19, 1984. Filed as Exhibit 19 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1984. File No. 1-3004.* 3(b) Amendment to the Restated Articles of Incorporation of the Company dated April 19, 1989. Filed as Exhibit 19 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1989. File No. 1-3004.* 3(c) Statement of Resolution Establishing the Series of Serial Preferred Stock, without par value, designated as Cumulative Preferred Stock, Adjustable Rate Series B. Filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1985. File No. 1-3004.* 3(d) Statement of Resolution Establishing the Series of Serial Preferred Stock, $50 par value, designated as 8.00% Cumulative Preferred Stock. Filed as Exhibit 3(f) to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1986. File No. 1-3004.* 3(e) Statement of Resolution Establishing the Series of Serial Preferred Stock, $50 par value, designated as 7.75% Cumulative Preferred Stock. Filed as Exhibit 3(g) to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1986. File No. 1-3004.* 3(f) By-Laws of the Company, as amended. Filed as Exhibit 3(f) to the Company's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1993. File No. 1-3004.* 4(a) Certificate of Limited Partnership of Illinois Power Capital, L.P.** 4(b) Agreement of Limited Partnership of Illinois Power Capital, L.P.** 4(c) Revised Form of Amended and Restated Agreement of Limited Partnership of Illinois Power Capital, L.P. 4(d) Revised Form of Action of the Company, as the General Partner of Illinois Power Capital, L.P., Creating Series A Preferred Securities. 4(e) Form of Indenture between the Company and The First National Bank of Chicago.** 4(e)(1) Cross-reference sheet showing the location in the Indenture of the provisions of Sections 310 through 318(a) of the Trust Indenture Act of 1939, as amended.** 4(f) Form of Supplemental Indenture to Indenture to be used in connection with the issuance of Subordinated Debentures and fixed rate Preferred Securities.** 4(g) Form of Supplemental Indenture to Indenture to be used in connection with the issuance of Subordinated Debentures and adjustable rate Preferred Securities.** 4(h) Form of Preferred Security Certificate (contained in the Form of Amended and Restated Agreement of Limited Partnership of Illinois Power Capital filed as Exhibit 4(c) to this Registration Statement).**
- --------------- * Incorporated herein by reference. ** Previously filed. 79 4(i) Form of Subordinated Debenture (contained in the Form of Indenture filed as Exhibit 4(e) to this Registration Statement).** 4(j) Form of Guarantee Agreement with respect to the Preferred Securities.** 5(a) Opinion of Schiff Hardin & Waite.** 5(b) Opinion of Richards, Layton & Finger, P.A.** 8 Tax opinion of Schiff Hardin & Waite (contained in its opinion filed as Exhibit 5(a) to this Registration Statement).** 12 Statement of Computations of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements.** 23(a) Consent of Schiff Hardin & Waite (contained in its opinion filed as Exhibit 5(a) to this Registration Statement).** 23(b) Consent of Richards, Layton & Finger, P.A. (contained in its opinion filed as Exhibit 5(b) to this Registration Statement).** 23(c) Consent of Price Waterhouse, LLP.** 24 Powers of Attorney (set forth on the signature page of this Registration Statement).** 25 Statement of Eligibility of Trustee under the Trust Indenture Act of 1939, as amended.**
- --------------- ** Previously filed. EX-1 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1 ILLINOIS POWER CAPITAL, L.P. CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES, SERIES A (LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY) GUARANTEED BY ILLINOIS POWER COMPANY Underwriting Agreement ______________, 1994 Goldman, Sachs & Co. [INSERT NAMES OF CO-MANAGERS] [As Representatives of the Several Underwriters] c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Ladies and Gentlemen: Illinois Power Capital, L.P., a limited partnership formed under the laws of the State of Delaware (the "Partnership"), and Illinois Power Company, an Illinois corporation, as guarantor (the "Guarantor") and provider of certain Guarantor Securities (as defined below), propose, subject to the terms and conditions stated herein, that the Partnership issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of __________ limited partner interests of the Partnership of a series designated the Cumulative Monthly Income Preferred Securities, Series A (liquidation preference $25 per Preferred Security) (the "Preferred Securities"), guaranteed pursuant to the Guarantee Agreement of the Guarantor (the "Guarantee"), as to the payment of dividends, as, if, and when declared and as to payments on liquidation or redemption and entitled to the benefits of the Guarantor Securities (as defined below) described in the Final Supplemented Prospectus (as defined in Section 1(a) hereof) provided by the Guarantor. The proceeds from the sale of the Preferred Securities will be used by the Partnership to purchase subordinated debentures (the "Debentures") issued by the Guarantor pursuant to the Subordinated Indenture (the "Indenture"), dated as of __________, 1994, between the Guarantor and The First National Bank of Chicago, as trustee (the "Trustee"). The Debentures and the Guarantee are hereinafter referred to collectively as the "Guarantor Securities," and the Preferred Securities and the Guarantor Securities are hereinafter referred to collectively as the "Securities." 2 1. Each of the Partnership and the Guarantor jointly and severally represents and warrants to, and agrees with, each of the Underwriters that: (a) The Guarantor meets the requirement for use of Form S-3 under the Securities Act of 1933, as amended (the "Act"), and a registration statement on Form S-3 (File No. 33-__________) in respect of the Securities has been filed with the Securities and Exchange Commission (the "Commission") under the Act; such registration statement and any post-effective amendment thereto, each in the form heretofore delivered or to be delivered to the Underwriters, and to you for each of the other Underwriters (except that copies of the registration statement and any post-effective amendment delivered to you for each of the other Underwriters need not include exhibits but shall include all documents incorporated by reference therein), have been declared effective by the Commission in such form; no other document included or incorporated by reference in the registration statement has heretofore been filed, or transmitted for filing, with the Commission; and no stop order suspending the effectiveness of such registration statement has been issued and no proceeding for that purpose has been initiated or threatened by the Commission (any preliminary prospectus, as supplemented by a preliminary prospectus supplement, included in such registration statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act, being hereinafter called a "Preliminary Prospectus"; the various parts of such registration statement, including all exhibits thereto and the documents then incorporated by reference therein, each as amended at the time such part of the registration statement became effective, being hereinafter called the "Registration Statement"; the prospectus relating to the Securities, in the form in which it was included in the Registration Statement at the time it became effective, being hereinafter called the "Prospectus"; any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Guarantor filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the Registration Statement that is incorporated by reference in the Registration Statement; and the Prospectus as supplemented on __________, 1994, in the form in which it was filed with the Commission pursuant to Rule 424(b) under the Act, including any -2- 3 documents incorporated by reference therein as of the date of such filing, being hereinafter called the "Preliminary Supplemented Prospectus;" and the Prospectus as amended or supplemented in final form in the form in which it is filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof, including any documents incorporated by reference therein as of the date of such filing, being hereinafter called the "Final Supplemented Prospectus"); (b) The documents incorporated by reference in the Registration Statement or Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and as of such time none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Partnership or the Guarantor by an Underwriter through you expressly for use in the Preliminary Supplemented Prospectus or the Final Supplemented Prospectus; (c) Each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Partnership or the Guarantor by an Underwriter through you expressly for use therein; (d) The Registration Statement, the Prospectus and, to the extent not used to confirm sales of the Securities, the Preliminary Supplemented Prospectus, conform, and the Final Supplemented Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus, when any such -3- 4 post-effective amendments are declared effective or supplements are filed with the Commission, as the case may be, will conform, in all material respects to the requirements of the Act, the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and the rules and regulations of the Commission thereunder and do not and will not, (i) as of the applicable effective date as to the Registration Statement and any amendment thereto, (ii) as of the filing date of the Preliminary Supplemented Prospectus, and (iii) as of the applicable filing date as to the Final Supplemented Prospectus and any Prospectus as further amended or supplemented, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that neither the Guarantor nor the Partnership makes any representations and warranties as to (A) that part of the Registration Statement which shall constitute the Statement of Eligibility (Form T-1) under the Trust Indenture Act (the "Form T-1"), or (B) the information contained in or omitted from the Registration Statement or the Final Supplemented Prospectus in reliance upon and in conformity with information furnished in writing to the Partnership or the Guarantor by an Underwriter through you expressly for use therein; (e) The Partnership has no subsidiaries. Neither the Partnership, the Guarantor nor any of the Guarantor's other subsidiaries has sustained, since the date of the latest audited financial statements included or incorporated by reference in the Final Supplemented Prospectus, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Final Supplemented Prospectus, and, since the respective dates as of which information is given in the Registration Statement and the Final Supplemented Prospectus there has not been any material change in the capital stock or long-term debt of the Guarantor or any of its subsidiaries (determined on a consolidated basis) or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Guarantor and its subsidiaries (taken as a whole), otherwise than as set forth or contemplated in the Final Supplemented Prospectus; (f) The Order of the Illinois Commerce Commission (the "ICC") approving the purchase by the Guarantor of a general partner interest in the Partnership in connection with the issue and sale of the Preferred Securities, the issuance of the Debentures and the execution of the Guarantee (the "Order") has been duly issued and remains in full force and effect without amendment or modification, and is not the subject of any appeal or other proceeding; -4- 5 (g) The Partnership has been duly formed and is validly existing in good standing as a limited partnership under the laws of the State of Delaware, with power and authority to own its properties and conduct its business as described in the Preliminary Supplemented Prospectus and the Final Supplemented Prospectus, and has been duly qualified as a foreign limited partnership for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; (h) The Guarantor has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Illinois, with power and authority (corporate and other) to own its properties and conduct its business as described in the Preliminary Supplemented Prospectus and Final Supplemented Prospectus and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each subsidiary of the Guarantor (other than the Partnership) has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; (i) The Guarantor has no significant subsidiaries within the meaning of Regulation S-X; all of the outstanding shares of common stock of the Guarantor are owned by Illinova Corporation, an Illinois corporation (the "Parent"); (j) The Preferred Securities have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein and in the Partnership Agreement (as defined below), will be duly and validly issued and fully paid and nonassessable limited partner interests in the Partnership and will conform as to legal matters to the description thereof contained in the Final Supplemented Prospectus; (k) The issuance and delivery of the Debentures have been duly authorized and, when issued and delivered and when the Debentures have been duly executed, authenticated, issued and delivered in accordance with this Agreement, the Indenture and the Debentures will constitute valid and legally binding obligations of the Guarantor entitled to the benefits provided by the Indenture; subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; the Indenture will have been duly authorized, executed and delivered and, at the Time of Delivery (as defined below), the Indenture will be duly qualified under the Trust Indenture Act and -5- 6 will constitute a valid and legally binding obligation of the Guarantor, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; the Debentures and the Indenture conform as to legal matters to the descriptions thereof in the Final Supplemented Prospectus; and the Indenture will be substantially in the form filed as an exhibit to the Registration Statement; (l) The Amended and Restated Agreement of Limited Partnership of the Partnership dated the date hereof (the "Partnership Agreement") has been duly authorized by the Guarantor and constitutes a legal, valid and binding agreement of the Guarantor and is enforceable against the Guarantor in accordance with its terms, subject, as to enforcement, to the effect upon the Partnership Agreement of (1) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance and other similar laws relating to or affecting the rights and remedies of creditors generally, and (2) principles of equity (regardless of whether considered and applied in a proceeding in equity or at law); (m) The issuance of the Guarantee has been duly authorized by the Guarantor and, when executed and delivered by the Guarantor, will constitute a valid and legally binding obligation of the Guarantor, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; the Guarantee will conform as to legal matters to the description thereof in the Final Supplemented Prospectus; (n) All of the issued general partner interests of the Partnership are owned by the Guarantor and have been duly and validly authorized and validly issued, and the interest of the Guarantor is free and clear of all liens, encumbrances, equities or claims; and the Partnership is not a party to or otherwise bound by any agreement other than this Agreement, the Partnership Agreement and the agreements contemplated by the Final Supplemented Prospectus; (o) The Partnership is not in violation of its Certificate of Limited Partnership or the Partnership Agreement, or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, agreement or other instrument to which it is a party or by which it may be bound, the effect of which is material to the Partnership, and neither the execution or delivery of this Agreement, the consummation of the transactions herein contemplated, the fulfillment of the terms hereof, nor compliance with the terms and provisions hereof will conflict with, or result -6- 7 in a breach or violation of, or constitute a default under (i) its Certificate of Limited Partnership or the Partnership Agreement, or any contract, agreement or other instrument to which the Partnership is a party or by which it may be bound or (ii) any statute, order, rule or regulation applicable to the Partnership of any court or any federal or state governmental agency or body having jurisdiction over the Partnership or over any of its properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required solely as a result of the issuance and sale or delivery by the Partnership of the Securities pursuant to this Agreement, the execution, delivery and performance by the Partnership of this Agreement, or the consummation of the transactions contemplated in this Agreement, except as set forth in Section 1(f) above and except for the registration under the Act of the Securities, the qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase of the Preferred Securities and the distribution of the Securities by the Underwriters; (p) The Guarantor is not in violation of its Restated Articles of Incorporation, as amended (the "Restated Articles"), or its By-Laws, as amended (the "By-Laws"), or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, agreement or other instrument to which it is a party or by which it may be bound, the effect of which is material to the Guarantor, and neither the execution or delivery of this Agreement, the consummation of the transactions herein contemplated, the fulfillment of the terms hereof, nor compliance with the terms and provisions hereof will conflict with, or result in a breach or violation of, or constitute a default under (i) the Restated Articles, the By-Laws, or any contract, agreement or other instrument to which the Guarantor is a party or by which it may be bound or (ii) any statute, order, rule or regulation applicable to the Guarantor of any court or any federal or state governmental agency or body having jurisdiction over the Guarantor or over its properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issuance and sale or delivery of the Securities or the consummation by the Guarantor of the transactions contemplated by this Agreement, except as set forth in Section 1(f) above and except for the registration under the Act of the Securities, the qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase of the Preferred Securities and the distribution of the Securities by the Underwriters; -7- 8 (q) Other than as set forth in the Final Supplemented Prospectus, there are no legal or governmental proceedings pending to which the Guarantor or any of its subsidiaries is a party or of which any property of the Guarantor or any of its subsidiaries is the subject which, if determined adversely to the Guarantor or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the consolidated position, stockholders' equity or results of operations of the Guarantor and its subsidiaries taken as a whole; and, to the best of the Guarantor's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (r) Price Waterhouse LLP, who have audited certain financial statements of the Guarantor and its other subsidiaries, are independent certified public accountants with respect to the Guarantor as required by the Act and the rules and regulations of the Commission thereunder; (s) There are no contracts or documents of the Partnership or the Guarantor or any of the Guarantor's subsidiaries that are required to be filed as exhibits to the Registration Statement or to any of the documents incorporated by reference therein by the Act, the Trust Indenture Act or the Exchange Act or by the rules and regulations of the Commission thereunder that have not been so filed; (t) There are no contracts, agreements or understandings between the Partnership or the Guarantor and any person granting such person the right to require the Partnership or the Guarantor to file a registration statement under the Act with respect to any partnership interest of the Partnership or any preferred stock of the Guarantor owned or to be owned by such person or to require the Partnership or the Guarantor to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Partnership or the Guarantor under the Act; (u) Neither the Partnership nor the Guarantor nor any of the Guarantor's other subsidiaries is and, after giving effect to the offering and sale of the Preferred Securities, will be an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); and (v) The Partnership is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended ("PUHCA"); the Parent is a "holding company" as defined in PUHCA by reason of its ownership of all the outstanding shares of common stock of the Guarantor, and the Guarantor is a "holding company," but the Guarantor and Parent are each exempt from PUHCA, except for the provisions of Section 9(a)(2) thereof, by virtue of -8- 9 Section 3(a)(2) thereof and Section 3(a)(1) thereof and Rule 2 thereunder, respectively. 2. Subject to the terms and conditions herein set forth, the Partnership agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Partnership, at a purchase price per Preferred Security of $__________, the number of Preferred Securities set forth opposite the name of such Underwriter in Schedule I hereto. The Guarantor agrees to issue the Guarantor Securities concurrently with the issuance and sale of the Preferred Securities as contemplated herein. The Guarantor hereby guarantees the timely performance by the Partnership of its obligations under this Section 2, Section 6 and Section 11. As the proceeds of the sale of the Preferred Securities will be loaned to the Guarantor, the Guarantor hereby agrees to pay at the Time of Delivery (as defined in Section 4 hereof) to Goldman, Sachs & Co. for the accounts of the several Underwriters, an amount equal to $__________ per Preferred Security for the Preferred Securities to be delivered by the Partnership hereunder at the Time of Delivery; provided, however, that such compensation will be an amount equal to $__________ per Preferred Security for Preferred Securities sold to certain institutions and to be delivered by the Partnership hereunder at the Time of Delivery. The Underwriters shall inform the Guarantor in writing, not later than the business day prior to the Time of Delivery, of the number of Preferred Securities sold to such institutions. 3. Upon the authorization by you of the release of the Preferred Securities, the several Underwriters propose to offer the Preferred Securities for sale upon the terms and conditions set forth in the Final Supplemented Prospectus. 4. A certificate or certificates in definitive form for the Preferred Securities to be purchased by each Underwriter hereunder, and in such denominations and registered in such names as Goldman, Sachs & Co. may request upon at least forty-eight hours prior notice to the Partnership, shall be delivered by or on behalf of the Partnership to the Depository (as defined below) for the account of each such Underwriter, against payment by such Underwriter or on its behalf of the purchase price therefor by certified or official bank check or checks or wire transfer in New York Clearing House (next day) funds. The time, date and location of such delivery and payment shall be 9:30 a.m. New York time, on _________, 1994, or at such other time and date as you and the Partnership or the Guarantor may agree upon in writing at the offices of Reid & Priest, 40 West 57th Street, New York, New York 10019. Such time and date for delivery of the Preferred Securities is herein called the "Time of Delivery." Such certificates will be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery at the office of The Depository -9- 10 Trust Company (the "Depository"), 55 Water Street, New York, New York 10004. At the Time of Delivery, the Guarantor will pay, or cause to be paid, the compensation payable to the Underwriters under Section 2 hereof by certified or official bank check or checks or wire transfer in New York Clearing House (next day) funds. 5. Each of the Partnership and the Guarantor jointly agrees with each of the Underwriters: (a) To prepare the Final Supplemented Prospectus in a form approved by you and to file such Final Supplemented Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 424(b) under the Act; (ii) to make no further amendment or any supplement to the Registration Statement or Final Supplemented Prospectus prior to the Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; (iii) to advise you promptly of any such amendment or supplement after the Time of Delivery and furnish you with copies thereof; (iv) in the case of the Guarantor, to file promptly all reports and any definitive proxy or information statements required to be filed by the Guarantor with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act for so long as the delivery of a prospectus is required in connection with the offering or sale of the Securities and during such same period to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed with the Commission, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any prospectus relating to the Securities, of the suspension of the qualification of such Securities for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and (v) in the event of the issuance of any stop order or of any such order preventing or suspending the use of any prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; (b) Promptly, from time to time, to take such action as you may reasonably request to qualify the Securities for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Securities, provided that in connection therewith neither the -10- 11 Partnership nor the Guarantor shall be required to qualify as a foreign partnership or corporation or to file a general consent to service of process in any jurisdiction or to comply with any other requirement of such laws reasonably deemed by the Guarantor to be unduly burdensome; (c) To furnish the Underwriters with copies of the Final Supplemented Prospectus in such quantities as you may from time to time reasonably request, and, if the delivery of a prospectus is required at any time in connection with the offering or sale of the Securities and if at such time any event shall have occurred as a result of which the Final Supplemented Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made when such Final Supplemented Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Final Supplemented Prospectus or to file under the Exchange Act any document incorporated by reference in the Final Supplemented Prospectus in order to comply with the Act or the Exchange Act or the Trust Indenture Act and the rules and regulations of the Commission thereunder, to notify you and to file such document and to prepare and furnish without charge to each Underwriter and any dealer in securities as many copies as you may from time to time reasonably request of an amended Final Supplemented Prospectus or a supplement to the Final Supplemented Prospectus which will correct such statement or omission or effect such compliance; (d) In the case of the Guarantor, to make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Guarantor and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Guarantor, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the earlier of (i) the termination of trading restrictions for the Securities, as notified to the Partnership and the Guarantor by you, and (ii) the date which is 30 days after Time of Delivery, each of the Partnership and the Guarantor agrees not to offer, sell, contract to sell or otherwise dispose of any Preferred Securities, any limited partnership interests of the Partnership, or any preferred stock of the Guarantor or any other securities of the Partnership or the Guarantor which are substantially similar to the Preferred Securities, or any securities convertible into or exchangeable for, or that represent the right to receive Preferred Securities, limited partnership interests, preferred stock or any such substantially similar securities (other than pursuant to employee -11- 12 stock option plans existing on, or upon the conversion of convertible or exchangeable securities outstanding as of the date hereof) of either the Partnership or the Guarantor, without your prior written consent; and (f) To use its best efforts to list, subject to notice of issuance, the Preferred Securities on the New York Stock Exchange. 6. The Partnership and the Guarantor jointly and severally covenant and agree with the several Underwriters that the Partnership and the Guarantor will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Partnership's and the Guarantor's counsel and accountants in connection with the registration of the Securities under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus, the Prospectus, the Preliminary Supplemented Prospectus, the Final Supplemented Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement Among Underwriters, this Agreement, the Indenture, any Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Securities; (iii) all expenses in connection with the qualification of the Securities for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky Memorandum; (iv) any fees charged by securities rating services for rating the Securities; (v) any fees and expenses in connection with the listing the Securities on the New York Stock Exchange; (vi) the cost of preparing certificates for the Securities; (vii) the fees and expenses of the Trustee and any agent of the Trustee and the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Debentures; (viii) the cost and charges of any transfer agent or registrar; (ix) the cost of qualifying the Securities with the Depository; and (x) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, transfer taxes on resale of any of the Securities by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder shall be subject, in their discretion, to the condition that all representations and warranties and other statements of each of the Partnership and the Guarantor herein are, at and as of the Time of Delivery, true and correct, the condition that each of the -12- 13 Partnership and the Guarantor shall have performed all of their obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Final Supplemented Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or contemplated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Reid & Priest, counsel for the Underwriters, shall have furnished to you such opinion or opinions, dated the Time of Delivery, with respect to: the incorporation of the Guarantor and the formation of the Partnership; insofar as the federal laws of the United States and the laws of the States of New York, Delaware and Illinois are concerned, the validity of the Guarantor Securities; this Agreement; the Preferred Securities; the Indenture; the Registration Statement; the Final Supplemented Prospectus; and other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; provided, that in rendering such opinion, Reid & Priest may rely upon the opinion of Schiff Hardin & Waite delivered pursuant to subsection (c) hereof as to all matters of Illinois law and upon the opinion of Richards, Layton & Finger, P.A. delivered pursuant to subsection (e) hereof as to matters of Delaware law relating to the Partnership, the Preferred Securities and the Partnership Agreement; (c) Schiff Hardin & Waite, counsel to the Guarantor, shall have furnished to you its written opinion, dated the Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Partnership has been duly qualified as a foreign limited partnership for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; (ii) The Guarantor has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Illinois, with power and authority (corporate and other) to own its properties and conduct its business as described in the Preliminary Supplemented -13- 14 Prospectus and Final Supplemented Prospectus and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in the foregoing clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Guarantor, provided that such counsel shall state that he believes that both you and he are justified in relying upon such opinions and certificates); (iii) All of the issued general partner interests in the Partnership have been duly and validly authorized and validly issued, are fully paid and nonassessable and are owned by the Guarantor, free and clear of all liens, encumbrances, equities or claims; and the Partnership is not a party to or otherwise bound by any agreement other than this Agreement, the Partnership Agreement and the agreements contemplated by the Final Supplemented Prospectus; and the Preferred Securities conform as to legal matters to the description thereof contained in the Final Supplemented Prospectus; (iv) To the best knowledge of such counsel there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving the Partnership, the Guarantor or any of the Guarantor's subsidiaries or any property of the Guarantor or any of its subsidiaries, of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Final Supplemented Prospectus, and there is no contract or other document of a character required to be described in the Registration Statement or Final Supplemented Prospectus, or to be filed as an exhibit, which is not described in the Final Supplemented Prospectus or filed as required; and the statements included or incorporated in the Final Supplemented Prospectus describing any legal proceedings or material contracts or agreements relating to the Partnership or the Guarantor fairly summarize such matters; (v) The Preferred Securities have been validly issued and, subject to the qualifications set forth herein, are fully paid and nonassessable limited partner interests in the Partnership, as to which, assuming that the limited partners of the Partnership who have purchased Preferred Securities (the "Preferred Security Holders"), as limited partners of the Partnership, do not participate in the control of the business of the Partnership, the Preferred Security Holders, as limited partners of the Partnership, will have no -14- 15 liability in excess of their obligations to make payments provided for in the Partnership Agreement and their share of the Partnership's assets and undistributed profits (subject to the obligation of a Preferred Security Holder to repay any funds wrongfully distributed to it); and the Preferred Securities conform as to legal matters to the descriptions thereof in the Final Supplemented Prospectus; (vi) The issuance and delivery of the Debentures have been duly authorized, and the Debentures have been duly executed, authenticated, issued and delivered in accordance with the Indenture, and the Debentures constitute valid and legally binding obligations of the Guarantor entitled to the benefits provided by the Indenture; subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; the Indenture has been duly authorized, executed and delivered and has been duly qualified under the Trust Indenture Act and constitutes a valid and legally binding obligation of the Guarantor, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; and the Debentures and the Indenture conform as to legal matters to the descriptions thereof in the Final Supplemented Prospectus; (vii) The issuance of the Guarantee has been duly authorized and the Guarantee has been duly executed and delivered by the Guarantor and constitutes a valid and legally binding obligation of the Guarantor, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; and the Guarantee conforms as to legal matters to the description thereof in the Final Supplemented Prospectus; (viii) The Partnership Agreement has been duly authorized and constitutes a legal, valid and binding agreement of the Guarantor and is enforceable against the Guarantor in accordance with its terms, subject, as to enforcement, (A) to the effect upon the Partnership Agreement of (1) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance and other similar laws relating to or affecting the rights and remedies of creditors generally, and (2) principles of equity (regardless of whether considered and applied in a proceeding in equity or at law), and (B) to the fact that no opinion is expressed on the effect upon the Partnership Agreement of applicable law relating to fiduciary duties; -15- 16 (ix) This Agreement has been duly authorized, executed and delivered by each of the Partnership and the Guarantor; (x) The Order has been duly issued and remains in full force and effect without amendment or modification, and is not the subject of any appeal or other proceeding; (xi) The issuance and sale by the Partnership of the Preferred Securities, the issuance and sale of the Debentures by the Guarantor, the compliance by the Partnership and the Guarantor with all of the provisions of this Agreement, the execution, delivery and performance by the Guarantor of the Guarantee and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any agreement or instrument known to such counsel to which the Partnership or the Guarantor is a party or by which the Partnership or the Guarantor is bound or to which any of the property of the Partnership or the Guarantor is subject, the Certificate of Limited Partnership and the Partnership Agreement, the Restated Articles or By-laws of the Guarantor, or any statute, order, rule or regulation known to such counsel of any court or any federal or state governmental body having jurisdiction over the Partnership, the Guarantor or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body is required solely as a result of the issuance, sale or delivery of the Securities or the consummation of the transactions contemplated by this Agreement, except for (i) the Order, (ii) the registration under the Act of the Securities, (iii) the qualification of the Indenture under the Trust Indenture Act and (iv) such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase of the Preferred Securities and the distribution of the Securities by the Underwriters; (xii) The Partnership is not a "holding company" within the meaning of PUHCA; the Parent is a "holding company" as defined in PUHCA by reason of its ownership of all the outstanding shares of common stock of the Guarantor, and the Guarantor is a "holding company," but the Guarantor and the Parent are each exempt from PUHCA, except for the provisions of Section 9(a)(2) thereof, by virtue of Section 3(a)(2) thereof and Section 3(a)(1) thereof and Rule 2 thereunder, respectively; (xiii) Neither the Partnership nor the Guarantor is and, after giving effect to the offering and sale of the Preferred Securities, will be an "investment company" or an -16- 17 entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act; (xiv) Each part of the Registration Statement when such part became effective and the Final Supplemented Prospectus as of its date and any amendments or supplements thereto made by the Guarantor and the Partnership prior to the Time of Delivery as of the date of such amendment or supplement complied as to form in all material respects with the requirements of the Act and the Trust Indenture Act and the rules and regulations thereunder; such counsel has no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Guarantor and the Partnership prior to the Time of Delivery contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Final Supplemented Prospectus and any further amendment or supplement thereto made by the Guarantor and the Partnership prior to the Time of Delivery, contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or that, as of the Time of Delivery, either the Registration Statement or the Final Supplemented Prospectus as amended or supplemented or any further amendment or supplement thereto made by the Guarantor and the Partnership prior to the Time of Delivery contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, that such counsel need not express any belief (A) as to the financial statements and related schedules in or incorporated by reference in the Registration Statement and the Final Supplemented Prospectus, (B) as to any information contained therein that was furnished to the Partnership or the Guarantor in writing by any Underwriter through you expressly for use therein or (C) as to any statements contained in the Form T-1 filed as an exhibit to the Registration Statement; and such counsel does not know of any amendment to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be incorporated by reference into the Final Supplemented Prospectus as amended or supplemented or required to be described in the Registration Statement or the Final Supplemented Prospectus as amended or supplemented which are not filed or incorporated by reference or described as required; and (xv) The documents incorporated by reference in the Final Supplemented Prospectus or any amendment or supplement -17- 18 thereto (other than the financial statements and related schedules therein, as to which such counsel need express no opinion), when they became effective under the Act or were filed with the Commission under the Exchange Act, as the case may be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; and such counsel has no reason to believe that any of such documents, when such documents became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or, in the case of other documents which were filed under the Act or the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made when such documents were so filed, not misleading. In addition, Schiff Hardin & Waite shall include advice that it confirms its opinion as set forth under "United States Taxation" in the Final Supplemented Prospectus. The foregoing opinions may be limited to the laws of New York, Delaware and the State of Illinois and federal securities laws. In rendering its opinion, such counsel may rely, as to matters of Delaware law relating to the Partnership, the Preferred Securities and the Partnership Agreement, upon the opinion of Richards, Layton & Finger, P.A., delivered pursuant to subsection (d) hereof, and as to matters of New York law relating to the Debentures and the Indenture, upon the opinion of Reid & Priest, delivered pursuant to subsection (b) hereof; (d) Richards, Layton & Finger, P.A., special Delaware counsel to the Partnership and the Guarantor, shall have furnished to you their opinion, dated the Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Partnership has been duly formed and is validly existing in good standing as a limited partnership under the laws of the State of Delaware; (ii) Under the Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act, 6 Del. Code Section 17-101, et seq. (the "Delaware Act"), the Partnership has all necessary partnership power and authority to own its properties and conduct its business, all as described in the Final Supplemented Prospectus; -18- 19 (iii) The general partner interests in the Partnership issued to the Guarantor have been duly and validly authorized and are validly issued; (iv) The Preferred Securities have been duly and validly authorized and are validly issued and, subject to the qualifications set forth herein, are fully paid and nonassessable limited partner interests in the Partnership, as to which, assuming that the limited partners of the Partnership who have purchased Preferred Securities (the "Preferred Security Holders"), as limited partners of the Partnership, do not participate in the control of the business of the Partnership, the Preferred Security Holders, as limited partners of the Partnership, will have no liability in excess of their obligations to make payments provided for in the Partnership Agreement and their share of the Partnership's assets and undistributed profits (subject to the obligation of a Preferred Security Holder to repay any funds wrongfully distributed to it); (v) There are no provisions in the Partnership Agreement the inclusion of which, subject to the terms and conditions therein, or, assuming that the Preferred Security Holders, as limited partners of the Partnership, take no action other than actions permitted by the Partnership Agreement, the exercise of which, in accordance with the terms and conditions therein, would cause the Preferred Security Holders, as limited partners of the Partnership, to be deemed to be participating in the control of the business of the Partnership; (vi) The Partnership Agreement constitutes a legal, valid and binding agreement of the Guarantor, and is enforceable against the Guarantor, in accordance with its terms, subject, as to enforcement, (A) to the effect upon the Partnership Agreement of (1) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance and other similar laws relating to or affecting the rights and remedies of creditors generally, and (2) principles of equity (regardless of whether considered and applied in a proceeding in equity or at law), and (B) to the fact that no opinion is expressed on the effect upon the Partnership Agreement of applicable law relating to fiduciary duties; (vii) Under the Partnership Agreement and the Delaware Act, the Partnership has all necessary partnership power and authority to execute and deliver, and to perform its obligations under, this Agreement; (viii) Under the Partnership Agreement and the Delaware Act, the execution and delivery by the Partnership of -19- 20 this Agreement, and the performance by the Partnership of its obligations hereunder, have been duly authorized by all necessary partnership action on the part of the Partnership; (ix) The issuance and sale by the Partnership of the Preferred Securities pursuant to this Agreement and the execution, delivery and performance by the Partnership of this Agreement will not violate (a) any Delaware statute, rule or regulation, (b) the Certificate of Limited Partnership of the Partnership or the Partnership Agreement; (x) No consent, approval, authorization, order, registration or qualification of or with any Delaware court or Delaware governmental agency or body is required solely as a result of the issuance, sale or delivery by the Partnership of the Preferred Securities pursuant to this Agreement, the execution, delivery and performance by the Partnership of this Agreement or the consummation of the transaction contemplated in this Agreement; (xi) Such counsel has reviewed the statements in the Final Supplemented Prospectus under the caption "Illinois Power Capital" and, insofar as it contains statements of Delaware law, such statements are fairly presented; and (xii) Assuming that the Partnership is treated as a partnership for federal income tax purposes, and assuming that the Partnership derives no income from or connected with sources within the State of Delaware and has no assets, activities (other than the maintenance of a registered office and registered agent in the State of Delaware and the filing of documents with the Delaware Secretary of State) or employees in the State of Delaware, the Preferred Security Holders (other than those Preferred Security Holders who reside or are domiciled in the State of Delaware), will have no liability for income taxes imposed by the State of Delaware solely as a result of their participation in the Partnership, and the Partnership will not be liable for any income tax imposed by the State of Delaware. (e) On the date of this Agreement and at the Time of Delivery, Price Waterhouse LLP shall have furnished to you a letter, dated the date of delivery thereof, to the effect set forth in Annex I hereto, and with respect to such letter dated the Time of Delivery, as to such other matters as you may reasonably request and in form and substance satisfactory to you; (f) (i) Neither the Partnership, the Guarantor nor any of the Guarantor's other subsidiaries shall have sustained, since the date of the latest audited financial statements included or incorporated by reference in the Final Supplemented Prospectus, any loss or interference with its business from fire, explosion, flood -20- 21 or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Final Supplemented Prospectus, and, (ii) since the respective dates as of which information is given in the Final Supplemented Prospectus there shall not have been any change in the capital stock or long-term debt of the Guarantor or any of its subsidiaries (determined on a consolidated basis) or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Guarantor and its subsidiaries, otherwise than as set forth or contemplated in the Final Supplemented Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or delivery of the Securities on the terms and in the manner contemplated in the Final Supplemented Prospectus; (g) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Preferred Securities or any of the Guarantor's debt securities or preferred stock (including the Guarantee) by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Partnership's or the Guarantor's debt securities or preferred stock. (h) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange; (ii) a suspension or material limitation in trading in the Guarantor's securities on the New York Stock Exchange; (iii) a general moratorium on commercial banking activities declared by either federal or New York State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iv) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Preferred Securities on the terms and in the manner contemplated in the Final Supplemented Prospectus; (i) The Preferred Securities shall have been duly listed, subject to notice of issuance, on the New York Stock Exchange; (j) The Guarantor shall have furnished or caused to be furnished to you at the Time of Delivery, a certificate or certificates of the general partner of the Partnership and a -21- 22 certificate or certificates of officers of the Guarantor, respectively, satisfactory to you as to (i) the accuracy of the representations and warranties of the Partnership and the Guarantor herein at and as of the Time of Delivery, (ii) the performance by each of the Partnership and the Guarantor of all of their obligations hereunder to be performed at or prior to the Time of Delivery, (iii) the matters set forth in subsections (a) and (g) of this Section and (iv) such other matters as you may reasonably request; and (k) A Special Event (as defined in the Final Supplemented Prospectus) shall not have occurred and be continuing. 8. (a) The Partnership and the Guarantor will jointly and severally indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement, the Prospectus, the Preliminary Supplemented Prospectus, the Final Supplemented Prospectus or any other prospectus relating to the Securities, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that neither the Partnership nor the Guarantor shall be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement, the Prospectus, the Preliminary Supplemented Prospectus, the Final Supplemented Prospectus or any other prospectus relating to the Securities or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Partnership or the Guarantor through you expressly for use therein; (b) Each Underwriter will indemnify and hold harmless the Partnership and the Guarantor against any losses, claims, damages or liabilities to which the Partnership or the Guarantor may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement, the Prospectus, the Preliminary Supplemented Prospectus, the Final Supplemented Prospectus and any other prospectus relating to the Securities, or -22- 23 any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement, the Prospectus, the Preliminary Supplemented Prospectus, the Final Supplemented Prospectus and any other prospectus relating to the Securities, or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Partnership or the Guarantor by such Underwriter through you expressly for use therein; and will reimburse the Partnership and the Guarantor for any legal or other expenses reasonably incurred by the Partnership or the Guarantor in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but that the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnifying party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include any statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any indemnified party. -23- 24 (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Partnership and the Guarantor on the one hand and the Underwriters on the other from the offering of the Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Partnership and the Guarantor on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Partnership and the Guarantor on the one hand and such Underwriters on the other shall be deemed to be in the same proportions as the total net proceeds from the offering (before deducting expenses) received by the Partnership and the Guarantor bear to the total underwriting discounts and commissions received by such Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Partnership and the Guarantor on the one hand or such Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Partnership, the Guarantor and the Underwriters agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged -24- 25 omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of the Underwriters in this subsection (d) to contribute are several in proportion to their respective underwriting obligations with respect to the Securities and not joint. (e) The obligations of the Partnership and the Guarantor under this Section 8 shall be in addition to any liability which the Partnership and the Guarantor may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Partnership and the Guarantor and to each person, if any, who controls the Partnership or the Guarantor within the meaning of the Act. 9. (a) If any Underwriter shall default in its obligation to purchase the Preferred Securities which it has agreed to purchase hereunder, you may, in your discretion, arrange for you or another party or other parties to purchase such Preferred Securities on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Preferred Securities, then the Partnership and the Guarantor shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Preferred Securities on such terms. In the event that, within the respective prescribed periods, you notify the Partnership and the Guarantor that you have so arranged for the purchase of such Preferred Securities, or the Partnership or the Guarantor notifies you that it has so arranged for the purchase of the Preferred Securities, you or the Partnership and the Guarantor shall have the right to postpone the Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Final Supplemented Prospectus, or in any other documents or arrangements, and the Partnership and the Guarantor agree to file promptly any amendments or supplements to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Preferred Securities. (b) If, after giving effect to any arrangements for the purchase of the Preferred Securities of a defaulting Underwriter or Underwriters by you and the Partnership and the Guarantor as provided in subsection (a) above, the aggregate number of such Preferred Securities which remains unpurchased does not exceed one- -25- 26 eleventh of the aggregate number of all the Preferred Securities, then the Partnership and the Guarantor shall have the right to require each non-defaulting Underwriter to purchase the number of Preferred Securities which such Underwriter agreed to purchase hereunder and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Preferred Securities which such Underwriter agreed to purchase hereunder) of the Preferred Securities of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Preferred Securities of a defaulting Underwriter or Underwriters by you, the Partnership and the Guarantor as provided in subsection (a) above, the aggregate principal amount of the Preferred Securities which remains unpurchased exceeds one-eleventh of the aggregate number of the Preferred Securities, or if the Partnership and the Guarantor shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Preferred Securities of a defaulting Underwriter or Underwriters, then this Agreement shall thereupon terminate, without liability on the part of any non-defaulting Underwriter, the Partnership or the Guarantor, except for the expenses to be borne by the Partnership, the Guarantor and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Partnership, the Guarantor, and of the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Partnership, the Guarantor or any officer or director or controlling person of the Partnership or the Guarantor, and shall survive delivery of and payment for the Preferred Securities. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, neither the Partnership nor the Guarantor shall then be under any liability to any Underwriter except as provided in Section 6 and Section 8 hereof; but, if for any other reason, the Preferred Securities are not delivered by or on behalf of the Partnership or the related Guarantor Securities issuable by the Guarantor are not concurrently issued by the Guarantor as provided herein, the Partnership and the Guarantor will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, -26- 27 reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Preferred Securities (or Guarantor Securities not so issued), but the Partnership and the Guarantor shall then be under no further liability to any Underwriter except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the representatives. All statements, requests, notices, and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you in care of Goldman, Sachs & Co.; and if to the Partnership or the Guarantor shall be delivered or sent by mail, telex or facsimile transmission to the address of the Guarantor set forth in the Registration Statement, Attention: Controller; provided, however, that any notice to any Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Partnership or the Guarantor upon your request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the parties hereto and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Partnership and the Guarantor and each person who controls the Partnership and the Guarantor or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Preferred Securities from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us __ counterparts hereof, -27- 28 and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, on the one hand, and the Partnership and the Guarantor, on the other hand. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement Among Underwriters, the form of which shall be submitted to the Partnership and the Guarantor for examination, upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, ILLINOIS POWER CAPITAL, L.P. By:_________________________________ ILLINOIS POWER COMPANY, as General Partner ILLINOIS POWER COMPANY By:_________________________________ Name: Title: Accepted as of the date hereof: [ ] By:____________________________ Goldman, Sachs & Co. On behalf of each of the several Underwriters -28- 29 SCHEDULE I Total Number of Preferred Securities Underwriter to be Purchased Goldman, Sachs & Co. $ --------------- Total . . . . . . . . . . . . . . . . . . . . $ =============== 30 ANNEX I Pursuant to Section 7(e) of the Underwriting Agreement, Price Waterhouse LLP shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Guarantor and its subsidiaries within the meaning of the Act and the published rules and regulations of the Commission thereunder; (ii) In their opinion, the financial statements and any supplementary financial information and schedules examined by them and included or incorporated by reference in the Registration Statement or the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and the related published rules and regulations thereunder; (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Guarantor's quarterly reports on Form 10-Q incorporated by reference into the Prospectus; and on the basis of specified procedures including inquiries of officials of the Guarantor who have responsibility for financial and accounting matters regarding whether the unaudited condensed consolidated financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations thereunder, nothing came to their attention that caused them to believe that the unaudited condensed consolidated financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations thereunder; (iv) The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Guarantor for the five most recent fiscal years included in the Prospectus and included or incorporated by reference in Item 6 of the Guarantor's Annual Report on Form 10-K for the most recent fiscal year agrees with the corresponding amounts (after restatement where applicable) in the audited consolidated financial statements for such five fiscal years which were included or incorporated by reference in the Guarantor's Annual Reports on Form 10-K for such fiscal years; (v) They have compared the information in the Prospectus under the caption "Ratio of Earnings to Fixed Charges 31 ANNEX I Page 2 and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements" with the disclosure requirements of item 503(d) of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that such information does not conform in all material respects with the disclosure requirements of item 503(d) of Regulation S-K; (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Guarantor and its subsidiaries, inspection of the minute books of the Guarantor and its subsidiaries since the date of the latest audited financial statements included or incorporated by reference in the Prospectus, inquiries of officials of the Guarantor and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Guarantor's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act and the related published rules and regulations thereunder, or (ii) any material modifications should be made to the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Guarantor's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus, for them to be in conformity with generally accepted accounting principles; (B) the unaudited income statement data and balance sheet items included in the Prospectus under the caption "Summary Financial Information of the Company" do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included or incorporated by reference in the Guarantor's Annual Report on Form 10-K for the most recent fiscal year; 32 ANNEX I Page 3 (C) the unaudited financial statements which were not included in the Prospectus but from which were derived (i) the unaudited condensed financial statements referred to in clause (A) and (ii) the unaudited income statement data and balance sheet items included in the Prospectus under the caption "Summary Financial Information of the Company" and referred to in Clause (B) were not determined on a basis substantially consistent with the basis for the audited financial statements included or incorporated by reference in the Guarantor's Annual Report on Form 10-K for the most recent fiscal year; (D) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock or any increase in the consolidated long-term debt of the Guarantor and its subsidiaries, or any decreases in consolidated current assets or stockholders' equity, in each case as compared with amounts shown in the latest balance sheet included or incorporated by reference in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (E) for the period from the date of the latest income statement included or incorporated by reference in the Prospectus to the specified date referred to in Clause (D) there were any decreases in consolidated revenues or operating income or the total or per share amounts of consolidated net income of the Guarantor and its subsidiaries, in each case as compared with the comparable period of the preceding year, except in each case for increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vii) In addition to the examination referred to in their report included or incorporated by reference in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (vi) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the representatives of the Underwriters (the "Representatives") which are derived from the general accounting records of the Guarantor and its subsidiaries, which appear in the Prospectus (excluding documents incorporated by reference), or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives or in 33 ANNEX I Page 4 documents incorporated by reference in the Prospectus specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Guarantor and its subsidiaries and have found them to be in agreement. For purposes of this letter, all references in this Annex I to the Prospectus shall be deemed to the Final Supplemented Prospectus in the form in which it is proposed to be filed but otherwise as defined in the Underwriting Agreement (including all documents incorporated by reference therein) as of the date of the letter delivered on the date of the Underwriting Agreement and to the Final Supplemented Prospectus as defined in the Underwriting Agreement (including all documents incorporated by reference therein), or, if the Prospectus has at such time been further amended or supplemented, to the Prospectus as so further amended or supplemented, as of the date of the letter delivered at the Time of Delivery. EX-4.C 3 AMENDED AND RESTATED AGREEMENT OF LMTD PARTNERSHIP 1 EXHIBIT 4(C) AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ILLINOIS POWER CAPITAL, L.P. 2 TABLE OF CONTENTS ARTICLE I FORMATION AND CONTINUATION OF THE PARTNERSHIP; ADMISSION OF PREFERRED SECURITY HOLDERS; RETURN OF INITIAL LIMITED PARTNER'S CAPITAL CONTRIBUTION Section 1.1. Formation and Continuation of the Partnership . . . . . . . . . . . . . . . . . . . 1 Section 1.2. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.3. Business of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.4. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.5. Registered Agent and Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.6. Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.7. Name and Business Address of General Partner . . . . . . . . . . . . . . . . . . . 2 Section 1.8. Admission of Holders of Preferred Securities . . . . . . . . . . . . . . . . . . . 2 ARTICLE II DEFINED TERMS Section 2.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.2. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE III CAPITAL CONTRIBUTIONS, REPRESENTATION OF PREFERRED SECURITY HOLDER'S INTEREST; CAPITAL ACCOUNTS Section 3.1. Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3.2. Preferred Security Holder's Interest Represented by Preferred Securities . . . . . 8 Section 3.3. Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3.4. Interest on Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3.5. Withdrawal and Return of Capital Contributions . . . . . . . . . . . . . . . . . . 9 ARTICLE IV ALLOCATIONS Section 4.1. Profits and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 4.2. Other Allocation Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 4.3. Allocations for Income Tax Purposes . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4.4. Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-i- 3 ARTICLE V DIVIDENDS Section 5.1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 5.2. Limitations on Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE VI ISSUANCE OF PREFERRED SECURITIES Section 6.1. General Provisions Regarding Preferred Securities . . . . . . . . . . . . . . . . . 12 Section 6.2. Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.3. Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE VII BOOKS OF ACCOUNT, RECORDS AND REPORTS Section 7.1. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 7.2. Accounting Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VIII POWERS, RIGHTS AND DUTIES OF THE LIMITED PARTNERS Section 8.1. Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 8.2. Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 8.3. Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE IX POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER Section 9.1. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 9.2. Powers and Duties of General Partner . . . . . . . . . . . . . . . . . . . . . . . 19 Section 9.3. Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 9.4. Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 9.5. Fiduciary Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 9.6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.7. Outside Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.8. Limits on General Partner's Powers . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 9.9. Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 9.10. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-ii- 4 ARTICLE X TRANSFERS OF INTERESTS BY PARTNERS Section 10.1. Transfer of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 10.2. Transfer of LP Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 10.3. Persons Deemed Preferred Security Holders . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 10.4. Book Entry Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 10.5. Notices to Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 10.6. Appointment of Successor Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 10.7. Definitive LP Certificates; Appointment of Paying Agent(s) . . . . . . . . . . . . . . . 24 ARTICLE XI WITHDRAWAL; DISSOLUTION; LIQUIDATION AND DISTRIBUTION OF ASSETS Section 11.1. Withdrawal of Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 11.2. Dissolution of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 11.3. Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 11.4. Distribution in Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 11.5. Rights of Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 11.6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE XII AMENDMENTS AND MEETINGS Section 12.1. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 12.2. Amendment of Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 12.3. Meetings of the Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE XIII MISCELLANEOUS Section 13.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 13.2. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 13.3. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 13.4. Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 13.5. Pronouns and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 13.6. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 13.7. Partial Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 13.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 13.9. Waiver of Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 13.10. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-iii- 5 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ILLINOIS POWER CAPITAL, L.P. This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of Illinois Power Capital, L.P. (the "Partnership"), dated as of _____________, 1994, among Illinois Power Company, an Illinois corporation ("Illinois Power"), as the general partner, Illinova Corporation, an Illinois corporation, as the initial limited partner (the "Initial Limited Partner") and such other Persons (as defined herein) who become Limited Partners (as defined herein) as provided herein; WITNESSETH: WHEREAS, Illinois Power and the Initial Limited Partner entered into an Agreement of Limited Partnership, dated as of August 17, 1994, (the "Original Limited Partnership Agreement"); WHEREAS, the Certificate of Limited Partnership of the Partnership was filed with the Office of the Secretary of State of the State of Delaware on August 17, 1994; and WHEREAS, the Partners (as defined herein) desire to continue the Partnership as a limited partnership under the Act (as defined herein) and to amend and restate the Original Limited Partnership Agreement in its entirety; NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend and restate the Original Limited Partnership Agreement in its entirety and hereby agree as follows: ARTICLE I FORMATION AND CONTINUATION OF THE PARTNERSHIP; ADMISSION OF PREFERRED SECURITY HOLDERS; RETURN OF INITIAL LIMITED PARTNER'S CAPITAL CONTRIBUTION Section 1.1. Formation and Continuation of the Partnership. The Partnership was formed as a limited partnership under the Act by the filing by the General Partner (as defined herein) of the Certificate (as defined herein) with the Office of the Secretary of State of the State of Delaware on August 17, 1994 and the entering into by the General Partner and the Initial Limited Partner of the Original Limited Partnership Agreement. The parties hereto agree to continue the Partnership as a limited partnership under the Act. The General Partner, for itself and as agent for the Limited Partners, shall make every reasonable effort to assure that all certificates and documents are properly executed and shall accomplish all filing, recording, publishing and other acts necessary or appropriate for compliance with all the requirements for the continuation of the Partnership as a limited partnership under the Act and under all other laws of -1- 6 the State of Delaware or such other jurisdictions in which the General Partner determines that the Partnership may conduct business. The rights, liabilities and duties of the Partners shall be as provided in the Act except as modified by this Agreement. Where not otherwise specified in this Agreement, the Act governs the rights and obligations of the parties to this Agreement. Section 1.2. Name. The name of the Partnership is "Illinois Power Capital, L.P.", as such name may be modified from time to time by the General Partner following written notice to the Limited Partners. The Partnership business may be conducted under the name of the Partnership or any other name deemed advisable by the General Partner. Section 1.3. Business of the Partnership. The sole purpose of the Partnership is (a) to issue partnership interests in the Partnership, including, without limitation, Preferred Securities (as defined herein), and to use the proceeds thereof to purchase Subordinated Debentures (as defined herein) or other similar debt securities of Illinois Power and (b) except as otherwise limited herein, to enter into, make and perform all contracts and other undertakings, and engage in all activities and transactions as the General Partner may reasonably deem necessary or advisable to the carrying out of the foregoing purpose of the Partnership. Section 1.4. Term. The term of the Partnership commenced on the date the Certificate was filed with the Secretary of State of the State of Delaware and shall continue until December 31, 2047, unless the Partnership is dissolved before such date in accordance with the provisions of this Agreement. Section 1.5. Registered Agent and Office. The Partnership's registered agent and office in the State of Delaware shall be The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. At any time, and from time to time, the General Partner may designate another registered agent and/or registered office. Section 1.6. Principal Place of Business. The principal place of business of the Partnership shall be at c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. Upon 10 days written notice to the Limited Partners, the General Partner may change the location of the Partnership's principal place of business. Section 1.7. Name and Business Address of General Partner. The name and business address of the General Partner are as follows: Illinois Power Company 500 South 27th Street Decatur, Illinois 62525 Attention: President The General Partner may change its name or business address from time to time, in which event the General Partner shall promptly notify the Limited Partners of any such change. Section 1.8. Admission of Holders of Preferred Securities. (a) Without the necessity of executing this Agreement, upon receipt by a Person of an LP Certificate (as defined herein) and payment of the Purchase Price (as defined herein) for the Preferred Securities represented by such LP Certificate in connection with the initial issuance by the -2- 7 Partnership of such Preferred Securities, which shall be deemed to constitute a request by such Person that the books and records of the Partnership reflect such Person's admission as a Limited Partner, such Person shall be admitted to the Partnership as a Limited Partner and shall become bound by this Agreement. (b) Following the first admission of a Preferred Security Holder (as defined herein) to the Partnership as a Limited Partner pursuant to paragraph (a) above, the Initial Limited Partner shall receive the return of his capital contribution without interest or deduction, but will continue to be a limited partner of the Partnership. While the Initial Limited Partner shall continue to be a limited partner of the Partnership, the Initial Limited Partner shall only have such rights, if any, as are expressly provided to the Initial Limited Partner pursuant to this Agreement. (c) The name and mailing address of each Partner and the amount contributed by such Partner to the capital of the Partnership shall be listed on the books and records of the Partnership. The General Partner shall be required to update the books and records from time to time as necessary to accurately reflect the information therein. ARTICLE II DEFINED TERMS Section 2.1. Definitions. Unless the context otherwise requires, the terms defined in this Article II shall, for the purposes of this Agreement, have the meanings herein specified. "Act" means the Delaware Revised Uniform Limited Partnership Act, 6 Del.C. Section 17-101, et seq., as amended from time to time. "Action" has the meaning set forth in Section 6.1(b). "Adjusted Capital Account" has the meaning set forth in Section 4.2(d)(i). "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person, (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, (d) a partnership in which the specified Person is a general partner, (e) any officer or director of the specified Person, and (f) if the specified Person is an officer, director, general partner or employee, any other entity for which the specified Person acts in any such capacity. "Agreement" means this Amended and Restated Agreement of Limited Partnership of the Partnership, as amended, modified, supplemented or restated from time to time. "Book Entry Interests" means a beneficial interest in the LP Certificates, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 10.4. -3- 8 "Business Day" means any day other than a day on which banking institutions in The City of New York are authorized or required by law to close. "Capital Account" has the meaning set forth in Section 3.3. "Certificate" means the Certificate of Limited Partnership of the Partnership filed with the Secretary of State of the State of Delaware on August 17, 1994, and any and all amendments thereto and restatements thereof. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depository for the Preferred Securities and in whose name shall be registered a global LP Certificate and which shall undertake to effect book entry transfers and pledges of the Preferred Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any corresponding federal tax statute enacted after the date of this Agreement. A reference to a specific section (Section ) of the Code refers not only to such specific section but also to any corresponding provision of any federal tax statute enacted after the date of this Agreement, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Agreement containing such reference. "Covered Person" means any Partner, any Affiliate of a Partner or any officers, directors, shareholders, partners, members, employees, representatives or agents of a Partner or its respective Affiliates, or any employee or agent of the Partnership or its Affiliates or any Special Representative. "Definitive LP Certificates" has the meaning set forth in Section 10.4. "Dividends" means the distributions of income paid or payable to any Limited Partner who is a Preferred Security Holder pursuant to the terms of the Preferred Securities held by such Limited Partner, including any interest payable in respect of arrears. "DTC" means The Depository Trust Company, the initial Clearing Agency. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fiscal Year" means (i) the period commencing upon the formation of the Partnership and ending on December 31, 1994, and (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31. "General Partner" means Illinois Power, in its capacity as general partner of the Partnership, and any additional or successor general partner in the Partnership admitted as a general partner of the Partnership pursuant to this Agreement. "Guarantee" means the Guarantee Agreement dated as of ________________, 1994 of Illinois Power in respect of the Preferred Securities. -4- 9 "Holders" means, with respect to a series of Preferred Securities, Preferred Security Holders in whose name an LP Certificate representing Preferred Securities of such series is registered. "Illinois Power" has the meaning set forth in the forepart of this Agreement. "Indemnified Person" means the General Partner, any Special Representative, any Affiliate of the General Partner or any Special Representative, or any officers, directors, shareholders, partners, members, employees, representatives or agents of the General Partner or any Special Representative, or any employee or agent of the Partnership or its Affiliates. "Indenture" means the Indenture dated as of _____________, 1994 between Illinois Power and The First National Bank of Chicago, as trustee (the "Trustee"), pursuant to which the Subordinated Debentures are issued in one or more series. "Initial Limited Partner" means Illinova Corporation. "Initial Preferred Limited Partners" means the Persons admitted as Limited Partners pursuant to Section 1.8(a) in connection with the initial issuance by the Partnership of Preferred Securities. "Interest" means the entire ownership interest of a Partner in the Partnership at any particular time, including, without limitation, its interest in the capital, profits, losses and distributions of the Partnership. "Investment Company Event" means the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 40 Act Law") to the effect that the Partnership is or will be considered an "investment company" which is required to be registered under the Investment Company Act of 1940, as amended (the "1940 Act"), which Change in 40 Act Law becomes effective on or after __________________, 1994; provided, however, that no Investment Company Event shall be deemed to have occurred if the General Partner obtains a written opinion of nationally recognized independent counsel to the Partnership experienced in practice under the 1940 Act to the effect that the General Partner has successfully issued an additional or supplemental irrevocable and unconditional guarantee (i) of accrued and unpaid dividends (whether or not determined to be paid out of monies legally available therefor) on the Preferred Securities and (ii) of the full amount of the Liquidation Distribution on the Preferred Securities upon a liquidation of the Partnership (regardless of the amount of assets of the Partnership otherwise available for distribution in such liquidation) to avoid such Change in 40 Act Law so that in the opinion of such counsel, notwithstanding such Change in 40 Act Law, the Partnership is not required to be registered as an "investment company" within the meaning of the 1940 Act. "Limited Partner" means any Person who is admitted to the Partnership as a limited partner of the Partnership pursuant to the terms of this Agreement, including the Preferred Security Holders, in each such Person's capacity as a limited partner of the Partnership. "Liquidation Distribution" has the meaning set forth in the applicable Action relating to a series of Preferred Securities. -5- 10 "Loss Carried Forward Amount" means as of the first day of any month for any series, an amount equal to the excess of (x) all Net Loss allocated to the Holders of such series of Preferred Securities from the date of issuance of such series of Preferred Securities through and including the day prior to the first day of such month pursuant to Section 4.1(b)(ii) over (y) the amount of Net Income allocated to the Holders of such series of Preferred Securities pursuant to Section 4.1(a)(ii) in all prior calendar months. "LP Certificate" means a certificate of partnership interest substantially in the form attached hereto as Annex A, evidencing the Preferred Securities held by a Limited Partner, with such modifications to such form as may be necessary to reflect the specific terms and provisions of a particular series of Preferred Securities. "Majority in liquidation preference of the Preferred Securities" means Holder(s) of a series of Preferred Securities or, as the context may require, Holder(s) of more than one series of Preferred Securities voting as a class, who are the record owners of Preferred Securities whose liquidation preference (including the preference amount that would be paid on redemption or maturity, plus accumulated and unpaid dividends, whether or not declared, to the date upon which the voting percentages are determined) represents more than 50% of the above liquidation preference of all Preferred Securities of such series or, as applicable, multiple series. "Net Income" and "Net Loss", respectively, for any period means the income and loss, respectively, of the Partnership for such period as determined in accordance with the method of accounting followed by the Partnership for federal income tax purposes, including, for all purposes, any income exempt from tax and any expenditures of the Partnership which are described in Code Section 705(a)(2)(B); provided, however, that any item allocated under Section 4.2 shall be excluded from the computation of Net Income and Net Loss. "Partners" means the General Partner and the Limited Partners, collectively, where no distinction is required by the context in which the term is used. "Partnership" means the limited partnership heretofore formed and continued under this Agreement under the name "Illinois Power Capital, L.P." "Paying Agent" has the meaning set forth in Section 10.7. "Person" means any individual, corporation, limited liability company, association, partnership, trust or other entity. "Preferred Securities" means the limited partner interests in the Partnership described in Article VI. "Preferred Security Holder" has the meaning set forth in Section 10.3. "Preferred Security Owner" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). -6- 11 "Purchase Price" for any Preferred Security means the amount paid for such Preferred Security in the initial sale by the Partnership of such Preferred Security. "Regulations" means the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time. "Securities Act" means the Securities Act of 1933, as amended. "66-2/3% in liquidation preference of the Preferred Securities" means Holder(s) of a series of Preferred Securities or, as the context may require, Holder(s) of more than one series of Preferred Securities voting as a class, who are the record owners of Preferred Securities whose liquidation preference (including the preference amount that would be paid on redemption or maturity, plus accumulated and unpaid dividends, whether or not declared, to the date upon which the voting percentages are determined) represents more than 66-2/3% of the above liquidation preference of all Preferred Securities of such series or, as applicable, multiple series. "Special Event" means a Tax Event or an Investment Company Act Event. "Special Representative" has the meaning specified in Section 6.2. "Subordinated Debentures" means any series of subordinated debentures issued by Illinois Power under the Indenture. "Successor Securities" has the meaning specified in Section 6.3. "Tax Event" means that the General Partner shall have obtained an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination on or after such date), or (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the generally accepted position on _____________ _______, 1994, which amendment or change is effective or such interpretation or pronouncement is announced on or after _______________, 1994, there is more than an insubstantial risk that (i) the Partnership is subject to federal income tax with respect to interest received on the Subordinated Debentures, (ii) interest payable to the Partnership on the Subordinated Debentures will not be deductible by the payor for federal income tax purposes or (iii) the Partnership is subject to more than a de minimus amount of other taxes, duties or other governmental charges. "Tax Matters Partner" means the General Partner designated as such in Section 9.9. "10% in liquidation preference of the Preferred Securities" means Holders(s) of a series of Preferred Securities or, as the context may require, Holder(s) of more than one series of Preferred Securities voting as a class, who are the record owners of Preferred Securities whose liquidation preference (including the preference amount that would be paid on redemption or maturity, plus accumulated and unpaid dividends, whether or not declared, to the date upon which the voting percentages are determined) represents more than 10% of the above liquidation preference of all Preferred Securities of such series or, as applicable, multiple series. -7- 12 "Underwriting Agreement" means an Underwriting Agreement among the Partnership and the underwriters named therein relating to the issuance and sale of the Preferred Securities. Section 2.2. Headings. The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. ARTICLE III CAPITAL CONTRIBUTIONS, REPRESENTATION OF PREFERRED SECURITY HOLDER'S INTEREST; CAPITAL ACCOUNTS Section 3.1. Capital Contributions. (a) The General Partner has, on or prior to the date hereof, contributed an aggregate of $_______________ to the capital of the Partnership, which amount is equal to at least 3% of the total capital contributions to the Partnership on the date hereof, after taking into account the contribution of the Initial Preferred Limited Partners referred to in paragraph (c) of this Section 3.1. Subject to Section 4.1(c), the General Partner shall from time to time make such additional capital contributions as are necessary to maintain its Capital Account balance at least equal to 3% of the aggregate positive Capital Account balances of all Partners. (b) The Initial Limited Partner has, prior to the date hereof, contributed the amount of $1 to the capital of the Partnership which amount is being returned to the Initial Limited Partner. (c) With respect to each of the Initial Preferred Limited Partners, there has been, on the date hereof, contributed to the capital of the Partnership an amount equal to the Purchase Price for the Preferred Securities acquired by it (such amount being such Person's capital contribution to the Partnership). (d) After the date hereof with respect to each Person who is issued a Preferred Security by the Partnership in connection with the initial issuance by the Partnership of such Preferred Security, there shall be contributed to the capital of the Partnership an amount equal to the Purchase Price for such Preferred Security (such amount being such Person's capital contribution to the Partnership). (e) No Limited Partner shall at any time be required to make any additional capital contributions to the Partnership. Section 3.2. Preferred Security Holder's Interest Represented by Preferred Securities. A Preferred Security Holder's interest in the Partnership shall be represented by the Preferred Securities held by such Preferred Security Holder. Each Preferred Security Holder's respective Preferred Securities shall be set forth on the books and records of the Partnership. Each Limited Partner, including a Preferred Security Holder, hereby agrees that its interest in the Partnership and in its Preferred Securities shall for all purposes be personal property. No Limited Partner, including a Preferred Security Holder, shall have an interest in specific Partnership property. -8- 13 Section 3.3. Capital Accounts. An individual capital account (a "Capital Account") shall be established and maintained on the books of the Partnership for each Partner in compliance with Section Section 1.704-1(b)(2)(iv) and 1.704-2 of the Regulations. Subject to the preceding sentence, each Capital Account will be credited with the capital contributions made and the profits allocated to such Partner (or predecessor in interest) and debited by the distributions made and losses allocated to the Partner (or predecessor thereof). Section 3.4. Interest on Capital Contributions. No Partner shall be entitled to interest on or with respect to any capital contribution to the Partnership. Section 3.5. Withdrawal and Return of Capital Contributions. No Partner shall be entitled to withdraw any part of such Partner's capital contribution to the Partnership or to receive any distributions from the Partnership, except as provided in this Agreement. ARTICLE IV ALLOCATIONS Section 4.1. Profits and Losses. Except as provided in Section 4.2, (a) the Partnership's Net Income for each calendar month shall be allocated as follows: (i) First, to the Holders of each series of Preferred Securities as of the record date in such calendar month for the payment of Dividends on such series of Preferred Securities in an amount equal to the excess of (x) all Dividends accumulated on such series of Preferred Securities (in accordance with the Action creating such series) from their date of issuance through and including the close of such calendar month over (y) the amount of Net Income allocated to the Holders of such series of Preferred Securities pursuant to this Section 4.1(a)(i) in all prior calendar months; provided, however, that (A) as to any series of Preferred Securities as to which Dividends are not cumulative, no Dividend shall be deemed to accumulate until the Partnership has actually paid (or set aside money to pay) such Dividend and (B) Dividends as to Preferred Securities that are cumulative and are not payable at the end of each calendar month shall be deemed to accumulate in a manner consistent with the Action creating such Preferred Securities. Amounts allocated to all Holders of any series of Preferred Securities shall be allocated among such Holders in proportion to the number of Preferred Securities of such series held by such Holders. (ii) Second, 100% to the Holders of any series of Preferred Securities up to an amount equal to the Loss Carried Forward Amount for such series as of the first day of such month. Amounts allocated to all Holders of any series of Preferred Securities shall be allocated among such Holders in proportion to the number of Preferred Securities of such series held by such Holders. (iii) Any remaining Net Income shall be allocated to the General Partner. (b) The Partnership's Net Loss for any Fiscal Year shall be allocated as follows: -9- 14 (i) First, to the General Partner until the General Partner's Capital Account is reduced to zero; provided, however, that the aggregate amount of Net Losses allocated to the General Partner pursuant to this Section 4.1(b)(i) shall not exceed the sum of 3% of the total capital contributions of all Partners plus the aggregate Net Income allocated to the General Partner pursuant to Section 4.1. (ii) Second, to the Holders of each series of Preferred Securities in proportion to the aggregate Capital Account balances of the Holders of such series of Preferred Securities (calculated taking into account only contributions, distributions and allocations related to such series), until the Capital Account balances of such Holders are reduced to zero; provided, however, that the General Partner shall make appropriate adjustments in these allocations, in accordance with Section 4.1(c) with respect to any Preferred Securities as to which Net Income has been allocated with respect to Dividends that accrued but were not paid. Amounts allocated to the Holders of any series of Preferred Securities shall be allocated among such Holders in proportion to the number of Preferred Securities of such series held by such Holders. (iii) Any remaining Net Loss shall be allocated to the General Partner. (c) The General Partner shall make such changes to the allocations in Sections 4.1(a) and 4.1(b) in the year of the Partnership's liquidation as it deems reasonably necessary so that amounts distributed to the Preferred Security Holders in such year in accordance with Section 11.4(a)(ii) shall equal their Liquidation Distributions; provided, however, that no allocation pursuant to this Section 4.1(c) may result in the General Partner being required to make any Capital Contributions pursuant to Section 3.1. Section 4.2. Other Allocation Provisions. (a) For purposes of determining the profits, losses or any other items allocable to any period, profits, losses and any such other items shall be determined on a daily, monthly or other basis, as determined by the General Partner using any method that is permissible under Section 706 of the Code and the Regulations. (b) The Partners are aware of the income tax consequences of the allocations made by this Article IV and hereby agree to be bound by the provisions of this Article IV in reporting their shares of Partnership income and loss for income tax purposes. (c) Notwithstanding anything to the contrary that may be expressed or implied in this Article IV, the interest of the General Partner in each item of income, gain, loss, deduction and credit will be equal to at least (i) at any time that aggregate capital contributions to the Partnership are equal to or less than $50,000,000, 1% of each such item and (ii) at any time that aggregate capital contributions to the Partnership are greater than $50,000,000, at least 1%, multiplied by a fraction (not exceeding one and not less than 0.2), the numerator of which is $50,000,000 and the denominator of which is the lesser of the aggregate Capital Account balances of the Capital Accounts of all Partners at such time and the aggregate capital contributions to the Partnership of all Partners at such time, of such item. (d) (i) If during any taxable year, a Partner unexpectedly receives an adjustment, allocation or distribution described in Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, which causes or increases a deficit balance in the Partner's Adjusted Capital Account -10- 15 (as defined below), there shall be allocated to the Partner items of Partnership income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain for such year) in an amount and manner sufficient to eliminate such deficit. The foregoing is intended to be a "qualified income offset" provision as described in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted and applied in all respects in accordance with that Regulation. A Partner's "Adjusted Capital Account" at any time shall equal the Partner's Capital Account at such time (x) increased by the sum of (A) the amount of the Partner's share of Partnership minimum gain (as defined in Section Section 1.704-2(g)(1) and (3) of the Regulations) and (B) the amount of the Partner's share of the minimum gain attributable to a "partner non-recourse debt" (as defined in Regulations Section 1.704-2(i)(5)) and (y) decreased by reasonably excepted adjustments, allocations and distributions described in Section Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. (ii) While this Agreement does not contain certain provisions required by Section Section 1.704-1(b) and 1.704-2 of the Regulations because those provisions apply to transactions that are not expected to occur, the Partners intend that the allocations under Section 4.1 conform to Section Section 1.704-1(b) and 1.704-2 of the Regulations (including, without limitation, the minimum gain chargeback, chargeback of partner nonrecourse debt minimum gain and partner nonrecourse debt provisions of such Regulation), and the General Partner shall make such changes in the allocations under Section 4.1 as it believes are reasonably necessary to meet the requirements of such Regulations. (e) Solely for the purpose of adjusting the Capital Accounts of the Partners, and not for tax purposes, if any property is distributed in kind to any Partner, the difference between its fair market value and its book value at the time of distribution shall be treated as gain or loss recognized by the Partnership and allocated pursuant to the provisions of Section 4.1; provided, however, that Net Income and Net Loss allocated as a result of the distribution of any series of Subordinated Debentures to the Holders of any series of Preferred Securities or to the General Partner (or both) shall be allocated to the Partner receiving the Subordinated Debentures in proportion to the amount of Subordinated Debentures distributed to them. For this purpose, the fair market value of any property shall be determined by the General Partner in its sole discretion, provided, however, that the value of any Subordinated Debenture shall at all times be treated as equal to the value of any Preferred Security if the interest rate on and principal amount of the Subordinated Debenture is the same as the Dividend payable on and the liquidation preference with respect to the Preferred Security. Section 4.3. Allocations for Income Tax Purposes. The income, gains, losses, deductions and credits of the Partnership shall be allocated in the same manner as the items entering into the computation of Net Income and Net Loss were allocated under Sections 4.1 and 4.2; provided, however, that solely for federal, state and local income and franchise tax purposes and not for book or Capital Account purposes, income, gain, loss and deduction with respect to any property properly carried on the Partnership's books at a value other than the tax basis of such property shall be allocated in a manner determined in the General Partner's discretion, so as to take into account (consistently with Code Section 704(c) principles) the difference between such property's book value and its tax basis. Section 4.4. Withholding. The Partnership shall comply with withholding requirements under federal, state and local law and shall remit amounts withheld to and file required forms with applicable jurisdictions. To the extent that the Partnership is required to -11- 16 withhold and pay over any amounts to any authority with respect to distributions or allocations to any Partner, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Partner. In the event of any claimed over-withholding, Partners shall be limited to an action against the applicable jurisdiction. If the amount withheld was not withheld from actual distributions, the Partnership may reduce subsequent distributions by the amount of such withholding. Each Partner agrees to furnish the Partnership with any representations and forms as shall reasonably be requested by the Partnership to assist it in determining the extent of, and in fulfilling, its withholding obligations. ARTICLE V DIVIDENDS Section 5.1. Dividends. Limited Partners shall receive periodic Dividends, if any, redemption payments and Liquidation Distributions in accordance with the applicable terms of the Preferred Securities. Subject to the rights of the Preferred Securities, all remaining cash shall be distributed to the General Partner at such time as the General Partner shall determine. Section 5.2. Limitations on Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Partnership shall not make a distribution to any Partner on account of its interest in the Partnership if such distribution would violate Section 17-607 of the Act or other applicable law. ARTICLE VI ISSUANCE OF PREFERRED SECURITIES Section 6.1. General Provisions Regarding Preferred Securities. (a) The aggregate number of Preferred Securities which the Partnership shall have authority to issue is unlimited. (b) The designations, powers, rights, preferences, privileges, limitations and other terms and provisions of the Preferred Securities shall be as follows: (i) The payment of Dividends and payments on dissolution of the Partnership or on redemption in respect of Preferred Securities shall be guaranteed by Illinois Power pursuant to the Guarantee. The Preferred Security Holders hereby authorize the General Partner to hold the Guarantee on behalf of the Preferred Security Holders. In the event of the appointment of a Special Representative to, among other things, enforce the Guarantee, the Special Representative may take possession of the Guarantee for such purpose. If no Special Representative has been appointed to enforce the Guarantee, the General Partner has the right to enforce the Guarantee on behalf of the Preferred Security Holders. The Holders of not less than 10% in liquidation preference of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available in respect of the Guarantee including the giving of directions to the General Partner or the Special Representative, as the case may be. If the General Partner or the Special Representative fails to enforce the Guarantee as above provided, a -12- 17 Preferred Security Holder may institute a legal proceeding directly against the Guarantor to enforce its rights under the Guarantee, without first instituting a legal proceeding against the Partnership or any other Person. The Preferred Security Holders, by acceptance of such Preferred Securities, hereby agree to the subordination provisions and other terms of the Guarantee; (ii) The General Partner on behalf of the Partnership is authorized to issue from time to time limited partner interests in the Partnership (the "Preferred Securities") in one or more series having such designations, powers, rights, preferences, privileges, limitations and other terms and provisions as may from time to time be established in the written action or actions (each, an "Action") of the General Partner providing for the issue of that series. In connection with the foregoing, the General Partner is expressly authorized, prior to issuance, to set forth in an Action or Actions providing for the issue of such series, the following: (A) the distinctive designation of such series which shall distinguish it from other series; (B) the number of Preferred Securities included in such series, which number may be increased or decreased from time to time unless otherwise provided by the General Partner in creating the series; (C) the annual Dividend rate (or method of determining such rate) for Preferred Securities of such series and the date or dates upon which such Dividends shall be payable, provided, however, Dividends on any series of Preferred Securities shall be payable on a monthly basis to Holders of such series of Preferred Securities as of a record date in each month during which such series of Preferred Securities are outstanding; (D) whether Dividends on the Preferred Securities of such series shall be cumulative, and, in the case of Preferred Securities of any series having cumulative Dividend rights, the date or dates or method of determining the date or dates from which Dividends on the Preferred Securities of such series shall be cumulative; (E) the amount or amounts which shall be paid out of the assets of the Partnership to the Holders of the Preferred Securities of such series upon voluntary or involuntary dissolution, winding up or termination of the Partnership; (F) the price or prices at which, the period or periods within which and the terms and conditions upon which the Preferred Securities of such series may be redeemed or purchased, in whole or in part, at the option of the Partnership or the General Partner; (G) the obligation, if any, of the Partnership to purchase or redeem Preferred Securities of such series and the price or prices at which, the period or periods within which and the terms and conditions upon which the Preferred Securities of such series shall be purchased or redeemed, in whole or in part, pursuant to such obligation; -13- 18 (H) the voting rights, if any, of the Preferred Securities of such series in addition to those required by law, including the number of votes per Preferred Security and any requirement for the approval by the Holders of Preferred Securities, or of the Preferred Securities of one or more series, or of both, as a condition to specified action or amendments to this Agreement; and (I) any other relative rights, powers, preferences or limitations of the Preferred Securities of the series not inconsistent with this Agreement or with applicable law. In connection with the foregoing and without limiting the generality thereof, the General Partner is hereby expressly authorized, without the vote or approval of any Preferred Security Holder, (i) to take any Action to create under the provisions of this Agreement a series of Preferred Securities that was not previously outstanding and (ii) to admit Preferred Security Holders as limited partners of the Partnership. Without the vote or approval of any Preferred Security Holder, the General Partner may execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection with the issue from time to time of Preferred Securities in one or more series as shall be necessary, convenient or desirable to reflect the issue of such series. The General Partner shall do all things it deems to be appropriate or necessary to comply with the Act and is authorized and directed to do all things it deems to be necessary or permissible in connection with any future issuance, including compliance with any statute, rule, regulation or guideline of any federal, state or other governmental agency or any securities exchange. Any Action or Actions taken by the General Partner pursuant to the provisions of this paragraph (ii) shall be deemed an amendment and supplement to and part of this Agreement. (iii) The proceeds received by the Partnership from the issuance of any series of Preferred Securities, together with the proceeds of any capital contribution of the General Partner made at the time of such issuance, shall be invested by the Partnership in Subordinated Debentures with (A) an aggregate principal amount equal to such aggregate proceeds and (B) an interest rate equal to the Dividend rate of such series of Preferred Securities. (iv) So long as any series of Subordinated Debentures are held by the Partnership, the General Partner shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to such series, (ii) waive any past default which is waivable under Section 6.06 of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures of such series shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture without, in each case, obtaining the prior approval of the Holders of at least 66-2/3% in liquidation preference of all series of Preferred Securities affected thereby, acting as a single class; provided, however, that where a consent under the Indenture would require the consent of each holder of Subordinated Debentures affected thereby, no such consent shall be given by the General Partner without the prior consent of each Holder of all series of Preferred Securities affected thereby. The General Partner shall not revoke any action previously authorized or approved by a vote of any series of Preferred Securities affected thereby. The General Partner shall notify all Holders of any series of Preferred Securities -14- 19 of any notice of default received from the Trustee with respect to the related series of Subordinated Debentures. (v) The Partnership may not issue any limited partner interests in the Partnership, unless such series of Preferred Securities ranks pari passu with each other series of Preferred Securities then outstanding as regards (A) participation in profits and Dividends of the Partnership and (B) participation in the assets of the Partnership. All Preferred Securities shall rank senior to the General Partner's Interest in respect of the right to receive Dividends and the right to receive payments out of the assets of the Partnership upon voluntary or involuntary dissolution, winding up or termination of the Partnership. All Preferred Securities redeemed, purchased or otherwise acquired by the Partnership (including Preferred Securities surrendered for conversion or exchange) shall be canceled. (vi) No Holder of a Preferred Security shall be entitled as a matter of right to subscribe for or purchase, or have any preemptive right with respect to, any part of any new or additional issue of Preferred Securities of any class whatsoever, or of securities convertible into any Preferred Securities of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of a Dividend. Section 6.2. Voting Rights. If (i) the Partnership fails to pay Dividends in full on the Preferred Securities for 18 consecutive monthly Dividend periods, (ii) an event of default occurs and is continuing on the Subordinated Debentures or (iii) Illinois Power is in default on any of its payment or other obligations under the Guarantee, then the Holders of any series of the Preferred Securities having the right to vote for the appointment of a special representative of the Partnership and the Limited Partners (the "Special Representative") in such event, acting as a single class, will be entitled by the majority vote of such Holders to appoint and authorize a Special Representative to enforce the Partnership's creditor rights under the Subordinated Debentures, enforce the rights of the Preferred Security Holders under the Guarantee and enforce the rights of the Preferred Security Holders to receive Dividends on Preferred Securities. Illinois Power agrees to execute and deliver such documents as may be necessary, appropriate or convenient for the Special Representative to enforce such rights and obligations. In furtherance of the foregoing, and without limiting the powers of any Special Representative so appointed and for the avoidance of any doubt concerning the powers of the Special Representative, any Special Representative, in its own name and as Special Representative of the Partnership, may institute a proceeding, including, without limitation, any suit in equity, an action at law or other judicial or administrative proceeding, to enforce the Partnership's rights directly against Illinois Power, or any other obligor on behalf of the Partnership, and may prosecute such proceeding to judgment or final decree, and enforce the same against Illinois Power or any other obligor and collect, out of the property, wherever situated, of Illinois Power or any such other obligor upon its obligations, the monies adjudged or decreed to be payable in the manner provided by law. The Special Representative shall not be admitted as a Partner or otherwise be deemed to be a Partner and shall have no liability for the debts, obligations or liabilities of the Partnership. For purposes of determining whether the Partnership has failed to pay Dividends in full for 18 consecutive monthly Dividend periods, Dividends shall be deemed to remain in arrears, notwithstanding any payments in respect thereof, until full cumulative Dividends have been or contemporaneously are declared and paid with respect to all monthly Dividend periods terminating on or prior to the date of payment of such full cumulative Dividends. Not later than -15- 20 30 days after such right to appoint a Special Representative arises, the General Partner will convene a meeting for the purpose of appointing a Special Representative. If the General Partner fails to convene such meeting within such 30-day period, the Holders of 10% in liquidation preference of the Preferred Securities will be entitled to convene such meeting. The provisions of Section 12.3 relating to the convening and conduct of meetings of the Partners will apply with respect to any such meeting. Any Special Representative so appointed shall cease to be a representative of the Partnership and the Limited Partners if the Partnership (or Illinois Power pursuant to the Guarantee) shall have paid in full all accumulated and unpaid Dividends on the Preferred Securities or such default or breach, as the case may be, shall have been cured, and Illinois Power, as the General Partner, is hereby authorized to and shall continue the business of the Partnership without dissolution. Notwithstanding the appointment of any such Special Representative, Illinois Power retains all rights under the Indenture, including the right to extend the interest payment period, and shall continue to be a General Partner. If any proposed amendment of this Agreement provides for, or the General Partner otherwise proposes to effect (pursuant to an Action or otherwise), (x) any action which would adversely affect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment of this Agreement or otherwise (including, without limitation, the authorization or issuance of any interests ranking, as to participation in the profits and Dividends or in the assets of the Partnership, senior or junior to the Preferred Securities), or (y) the dissolution, winding up or termination of the Partnership, other than (A) a dissolution, winding up or termination in connection with which the Partnership distributes the Subordinated Debentures to the Preferred Security Holders upon the occurrence of a Special Event or (B) as described in Section 6.3 below, then the Preferred Security Holders will be entitled to vote on such amendment or proposal of the General Partner (but not on any other amendment or proposal) as a class with all other Holders of Preferred Securities similarly affected, and such amendment or proposal shall not be effective except with the approval of Holders of 66-2/3% in liquidation preference of such Preferred Securities having a right to vote on the matter; provided however, that no such approval shall be required if the dissolution, winding up or termination of the Partnership is proposed or initiated pursuant to Section 11.2 hereof or upon the initiation of proceedings, or after proceedings have been initiated, for the dissolution, winding up or termination of Illinois Power. The rights attached to the Preferred Securities will be deemed not to be adversely affected by the creation or issue of, and no vote will be required for the creation of, any further Preferred Securities ranking pari passu with, the Preferred Securities with regard to participation in the profits and Dividends or in the assets of the Partnership. Any required approval of Holders of Preferred Securities may be given at a separate meeting of such Holders convened for such purpose, at a meeting of all of the Partners or pursuant to written consent. The Partnership will cause a notice of any meeting at which Limited Partners holding Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any matter on which such Holders are entitled to vote or upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of Preferred Securities will be required for the Partnership to redeem and cancel Preferred Securities in accordance with this Agreement. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any Preferred Securities that are owned by Illinois -16- 21 Power or any entity owned more than 50% by Illinois Power, either directly or indirectly, shall not be entitled to vote or consent and shall, for the purposes of such vote or consent, be treated as if they were not outstanding. Section 6.3. Mergers. The Partnership shall not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except as described below. The Partnership may, without the consent of the Holders of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by a limited liability company, a limited partnership or a trust organized as such under the laws of any state of the United States; provided, that (i) such successor entity either (x) expressly assumes all of the obligations of the Partnership under the Preferred Securities or (y) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank, with respect to participation in the profits and Dividends or in the assets of the successor entity, at least as high as the Preferred Securities rank with respect to participation in the profits and Dividends or in the assets of the Partnership, (ii) Illinois Power expressly acknowledges such successor entity as the Holder of the Subordinated Debentures, (iii) the Preferred Securities or the Successor Securities are listed, or will be listed on notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed, (iv) such merger, consolidation, amalgamation or replacement does not cause the Preferred Securities to be downgraded by any nationally recognized statistical rating organization, as that term is defined by the Securities and Exchange Commission for purposes of Rule 436(g)(2) under the Securities Act, or cause any Successor Securities to be rated lower than the Preferred Securities immediately prior to such merger, consolidation, amalgamation or replacement, (v) such merger, consolidation, amalgamation or replacement does not adversely affect the powers, preferences and special rights of Holders of Preferred Securities in any material respect, (vi) such successor entity has a purpose substantially identical to that of the Partnership and (vii) prior to such merger, consolidation, amalgamation or replacement, Illinois Power has received an opinion of nationally recognized independent counsel to the Partnership experienced in such matters to the effect that (x) such successor entity will be treated as a partnership for Federal income tax purposes, (y) following such merger, consolidation, amalgamation or replacement, Illinois Power and such successor entity will be in compliance with the 1940 Act without registering thereunder as an investment company, and (z) such merger, consolidation, amalgamation or replacement will not adversely affect the limited liability of Holders of Preferred Securities. ARTICLE VII BOOKS OF ACCOUNT, RECORDS AND REPORTS Section 7.1. Books and Records. (a) Proper and complete records and books of account of the Partnership shall be kept by the General Partner in which shall be entered fully and accurately all transactions and other matters relative to the Partnership's business as are usually entered into records and books of account maintained by Persons engaged in businesses of a like character, including a Capital Account for each Partner. The books and records of the Partnership, together with a copy of this Agreement and a certified copy of the Certificate, shall at all times be maintained at the principal office of the Partnership and shall be open to the inspection and examination of the Limited -17- 22 Partners or their duly authorized representatives for any purpose reasonably related to their Interests during reasonable business hours. (b) Notwithstanding any other provision of this Agreement, the General Partner may, to the maximum extent permitted by applicable law, keep confidential from the Partners any information the disclosure of which the General Partner reasonably believes is not in the best interests of the Partnership or is adverse to the interests of the Partnership or which the Partnership or the General Partner is required by law or by an agreement with any Person to keep confidential. (c) Within three months after the close of each Fiscal Year, the General Partner shall transmit to each Partner, a statement indicating such Partner's share of each item of Partnership income, gain, loss, deduction or credit for such Fiscal Year for federal income tax purposes. Section 7.2. Accounting Method. For both financial and tax reporting purposes and for purposes of determining profits and losses, the books and records of the Partnership shall be kept on the accrual method of accounting applied in a consistent manner and shall reflect all Partnership transactions and be appropriate and adequate for the Partnership's business. ARTICLE VIII POWERS, RIGHTS AND DUTIES OF THE LIMITED PARTNERS Section 8.1. Limitations. The Limited Partners shall not participate in the management or control of the Partnership's business, property or other assets nor shall the Limited Partners transact any business for the Partnership, nor shall the Limited Partners have the power to act for or bind the Partnership, said powers being vested solely and exclusively in the General partner. The Limited Partners shall have such rights as are set forth in this Agreement or in any Action, and as are set forth in the Guarantee and the Indenture. The Limited Partners shall have no interest in the properties or assets of the General Partner, or any equity therein, or in any proceeds of any sales thereof (which sales shall not be restricted in any respect), by virtue of acquiring or owning an Interest. Section 8.2. Liability. Subject to the provisions of the Act, no Limited Partner shall be liable for the repayment, satisfaction or discharge of any debts or other obligations of the Partnership in excess of the Capital Account balance of such Limited Partner. Section 8.3. Priority. No Limited Partner shall have priority over any other Limited Partner as to Partnership allocations or distributions. -18- 23 ARTICLE IX POWERS, RIGHTS AND DUTIES OF THE GENERAL PARTNER Section 9.1. Authority. Subject to the limitations provided in this Agreement, the General Partner shall have exclusive and complete authority and discretion to manage the operations and affairs of the Partnership and to make all decisions regarding the business of the Partnership. Any action taken by the General Partner shall constitute the act of and serve to bind the Partnership. In dealing with the General Partner acting on behalf of the Partnership, no Person shall be required to inquire into the authority of the General Partner to bind the Partnership. Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of the General Partner as set forth in this Agreement. Section 9.2. Powers and Duties of General Partner. Except as otherwise specifically provided herein, the General Partner shall have all rights and powers of a general partner under the Act, and shall have all authority, rights and powers in the management of the Partnership business to do any and all other acts and things necessary, proper, convenient or advisable to effectuate the purposes of this Agreement, including by way of illustration but not by way of limitation, the following: (a) to secure the necessary goods and services required in performing the General Partner's duties for the Partnership; (b) to exercise all powers of the Partnership, on behalf of the Partnership, in connection with enforcing the Partnership's rights and interest under the Subordinated Debentures and the Guarantee; (c) to issue Preferred Securities, and series thereof, in accordance with this Agreement; (d) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including with respect to Dividends and voting rights and to make determinations as to the payment of Dividends, and make all other required payments to Preferred Security Holders and to the General Partner as the Partnership's paying agent; (e) to open, maintain and close bank accounts and to draw checks and other orders for the payment of money; (f) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Partnership; (g) to deposit, withdraw, invest, pay, retain and distribute the Partnership's funds in a manner consistent with the provisions of this Agreement; (h) to take all action which may be necessary or appropriate for the preservation and the continuation of the Partnership's valid existence, rights, franchises and privileges as a limited partnership under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Limited Partners or to enable the Partnership to conduct the business in which it is engaged; -19- 24 (i) to take all action not inconsistent with applicable law, the Certificate or this Agreement as long as such action does not adversely affect the interests of the Preferred Security Holders, necessary to conduct its affairs and to operate the Partnership in such a way that (x) the Partnership would not be deemed an "investment company" required to be registered under the 1940 Act, (y) the Partnership will be taxed as a partnership for federal income tax purposes, and (z) the Subordinated Debentures will be treated as indebtedness of Illinois Power for federal income tax purposes; (j) to cause the Partnership to enter into and perform, on behalf of the Partnership Underwriting Agreements and to cause the Partnership to purchase the Subordinated Debentures without any further act, vote or approval of any Partner; and (k) to execute and deliver any and all documents or instruments, perform all duties and powers and do all things for and on behalf of the Partnership in all matters necessary or desirable or incidental to the foregoing. Section 9.3. Liability. Except as expressly set forth in this Agreement, (a) the General Partner shall not be personally liable for the return of any portion of the capital contributions (or any return thereon) of the Limited Partners; (b) the return of such capital contributions (or any return thereon) shall be made solely from assets of the Partnership; and (c) the General Partner shall not be required to pay to the Partnership or to any Limited Partner any deficit in any Limited Partner's Capital Account upon dissolution or otherwise. Section 9.4. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Partnership or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Partnership and in a manner reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Agreement or by law except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Partnership and upon such information, opinions, reports or statements presented to the Partnership by any Person as to matters the Indemnified Person reasonably believes are within such other Persons's professional or expert competence and who has been selected with reasonable care by or on behalf of the Partnership, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which distributions to Partners might properly be paid. Section 9.5. Fiduciary Duty. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or to any other Covered Person, an Indemnified Person acting under this Agreement shall not be liable to the Partnership or to any other Covered Person for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. -20- 25 (b) Unless otherwise expressly provided herein, (i) whenever a conflict of interest exists or arises between Covered Persons, or (ii) whenever this Agreement or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Partnership or any Partner, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Agreement or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Agreement an Indemnified Person is permitted or required to make a decision (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Partnership or any other Person, or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or other applicable law. Section 9.6. Indemnification. (a) To the fullest extent permitted by applicable law, the Partnership shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Partnership and in a manner reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence or willful misconduct with respect to such acts or omissions; provided, however, that any indemnity under this Section 9.6 shall be provided out of and to the extent of Partnership assets only, and no Covered Person shall have any personal liability on account thereof. (b) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Partnership prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Partnership of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 9.6(a). Section 9.7. Outside Businesses. Any Covered Person may engage in or possess an interest in other business ventures of any nature of description, independently or with others, similar or dissimilar to the business of the Partnership, and the Partnership and the Partners shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper. No Covered Person shall be obligated to present any particular investment opportunity to the Partnership even if such opportunity is of a character that, if presented to the Partnership, could be taken by the Partnership, -21- 26 and any Covered Person shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity. Section 9.8. Limits on General Partner's Powers. Anything in this Agreement to the contrary notwithstanding, the General Partner shall not cause or permit the Partnership to (a) acquire any assets other than as expressly provided herein, (b) possess Partnership property for other than a Partnership purpose; (c) admit a Person as a Partner, except as expressly provided in this Agreement; (d) make any loans to the General Partner or its Affiliates, other than loans represented by the Subordinated Debentures or other similar debt instruments of Illinois Power; (e) perform any act that would subject any Limited Partner to liability as a general partner in any jurisdiction; (f) engage in any activity that is not consistent with the purposes of the Partnership, as set forth in Section 1.3; (g) confess a judgment against the Partnership; (h) without the written consent of 66-2/3% in liquidation preference of the Preferred Securities have an order for relief entered with respect to the Partnership or commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of the Partnership's property, or make any assignment for the benefit of creditors of the Partnership; it being understood that nothing in this paragraph (h) is to effect the ability of the Partnership to dissolve pursuant to this Agreement; or (i) subject to Section 1.3, borrow money or become liable for the borrowings of any third party or to engage in any financial or other trade or business. Section 9.9. Tax Matters Partner. (a) For purposes of Code Section 6231(a)(7), the "Tax Matters Partner" shall be Illinois Power as long as it remains the general partner of the Partnership. The Tax Matters Partner shall keep the Limited Partners fully informed of any inquiry, examination or proceeding involving any taxing authority. (b) The General Partner shall not make an election in accordance with Section 754 of the Code. (c) The General Partner and the Preferred Security Holders acknowledge that they intend, for United States federal income tax purposes, that the Partnership shall be treated as a partnership and that the General Partner and the Preferred Security Holders shall be treated as Partners of such Partnership for such purposes. Section 9.10. Expenses. The General Partner shall pay for all, and the Partnership shall not be obligated to pay, directly or indirectly, for any, costs and expenses of the Partnership -22- 27 (including, but not limited to, costs and expenses relating to the organization of, and offering of limited partner interests in, the Partnership and costs and expenses relating to the operation of the Partnership, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and costs and expenses incurred in connection with the acquisition, financing, and disposition of Partnership assets). ARTICLE X TRANSFERS OF INTERESTS BY PARTNERS Section 10.1. Transfer of Interests. (a) Preferred Securities shall be freely transferable by a Preferred Security Holder. (b) The General Partner may not assign its interest in the Partnership in whole or in part under any circumstances except to a successor of Illinois Power by virtue of operation of law and, even then, only to the extent permitted by the Indenture. The admission of such successor as a general partner of the Partnership shall be effective upon the filing of an amendment to the Certificate with the Secretary of State of the State of Delaware which indicates that such successor has been admitted as a general partner in the Partnership. If the General Partner assigns its entire Interest to a successor of Illinois Power in accordance with this Agreement, the General Partner shall cease to be a general partner in the Partnership simultaneously with the admission of the successor as a general partner in the Partnership. Any such successor general partner in the Partnership is hereby authorized to and shall continue the business of the Partnership without dissolution. (c) No Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Agreement. Any transfer or purported transfer of any Interest not made in accordance with this Agreement shall be null and void. Section 10.2. Transfer of LP Certificates. The General Partner shall provide for the registration of LP Certificates and of transfers of LP Certificates. Upon surrender for registration of transfer of any LP Certificate, the General Partner shall cause one or more new LP Certificates to be issued in the name of the designated transferee or transferees. Every LP Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the General Partner duly executed by the Preferred Security Holder or his or her attorney duly authorized in writing. Each LP Certificate surrendered for registration of transfer shall be canceled by the General Partner. A transferee of an LP Certificate shall be admitted to the Partnership as a Limited Partner and shall be entitled to the rights and subject to the obligations of a Preferred Security Holder hereunder upon the receipt by a transferee of an LP Certificate. By acceptance of an LP Certificate, each transferee shall be deemed to have requested admission as a Limited Partner and to have agreed to be bound by this Agreement. The transferor of an LP Certificate, in whole, shall cease to be a Limited Partner at the time that the transferee of such LP Certificate is admitted to the Partnership as a Limited Partner in accordance with this Section 10.2. Section 10.3. Persons Deemed Preferred Security Holders. The Partnership may treat the Person in whose name any LP Certificate shall be registered on the books and records of the Partnership as the sole holder of such LP Certificate and of the Preferred Securities represented -23- 28 by such LP Certificate (the "Preferred Security Holder") for purposes of receiving Dividends and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such LP Certificate or in the Preferred Securities represented by such LP Certificate on the part of any other Person, whether or not the Partnership shall have actual or other notice thereof. Section 10.4. Book Entry Interests. The LP Certificates, on original issuance, will be issued in the form of a global LP Certificate or LP Certificates representing the Book Entry Interests, to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Partnership. Such LP Certificate or LP Certificates shall initially be registered on the books and records of the Partnership in the name of Cede & Co., the nominee of DTC, and no Preferred Security Owner will receive a definitive LP Certificate representing such Preferred Security Owner's interests in such LP Certificate, except as provided in Section 10.7. Unless and until definitive, fully registered LP Certificates (the "Definitive LP Certificates") have been issued to the Preferred Security Owners pursuant to Section 10.7: (i) The provisions of this Section shall be in full force and effect; (ii) The Partnership and the General Partner shall be entitled to deal with the Clearing Agency for all purposes of this Agreement (including the payment of Dividends on the LP Certificates and receiving approvals, votes or consents hereunder) as the Preferred Security Holder and the sole holder of the LP Certificates and shall have no obligation to the Preferred Security Owners; (iii) To the extent that the provisions of this Section conflict with any other provisions of this Agreement, the provisions of this Section shall control; and (iv) The rights of the Preferred Security Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Preferred Security Owners and the Clearing Agency and/or the Clearing Agency Participants. DTC will make book entry transfers among the Clearing Agency Participants and receive and transmit payments of Dividends on the LP Certificates to such Clearing Agency Participants. Section 10.5. Notices to Clearing Agency. Whenever a notice or other communication to the Preferred Security Holders is required under this Agreement, unless and until Definitive LP Certificates shall have been issued to the Preferred Security Owners pursuant to Section 10.7, the General Partner shall give all such notices and communications specified herein to be given to the Preferred Security Holders to the Clearing Agency, and shall have no obligations to the Preferred Security Owners. Section 10.6. Appointment of Successor Clearing Agency. If any Clearing Agency elects to discontinue its services as securities depository with respect to the Preferred Securities, the General Partner may, in its sole discretion, appoint a successor Clearing Agency with respect to the Preferred Securities. Section 10.7. Definitive LP Certificates; Appointment of Paying Agent(s). If (i) a Clearing Agency elects to discontinue its services as securities depository with respect to the Preferred Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 10.6 or (ii) the Partnership elects to terminate the book entry -24- 29 system through the Clearing Agency, then (a) Definitive LP Certificates shall be prepared by the Partnership and (b) the General Partner shall authorize one or more Persons (each, a "Paying Agent") to pay Dividends, redemption payments or liquidation payments on behalf of the Partnership with respect to the Preferred Securities. Upon surrender of the global LP Certificate or LP Certificates representing the Book Entry Interests by the Clearing Agency, accompanied by registration instructions, the General Partner shall cause Definitive LP Certificates to be delivered to Preferred Security Owners in accordance with the instructions of the Clearing Agency. Neither the General Partner nor the Partnership shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Any Person receiving a Definitive LP Certificate in accordance with this Article X shall be admitted to the Partnership as a Limited Partner upon receipt of such Definitive LP Certificate and shall be registered on the books and records of the Partnership as a Preferred Security Holder. The Clearing Agency or the nominee of the Clearing Agency, as the case may be, shall cease to be a Limited Partner under this Section 10.7 at the time that at least one additional Person is admitted to the Partnership as a Limited Partner in accordance with this Section 10.7. The Definitive LP Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the General Partner, as evidenced by its execution thereof. ARTICLE XI WITHDRAWAL; DISSOLUTION; LIQUIDATION AND DISTRIBUTION OF ASSETS Section 11.1. Withdrawal of Partners. Subject to the further provisions of this Section 11.1 and except as provided in Article X, no Partner shall at any time withdraw from the Partnership. Any Partner withdrawing in contravention of this Section 11.1, shall indemnify, defend and hold harmless the Partnership and the other Partners from and against any losses, expenses, judgments, fines, settlements or damages suffered or incurred by the Partnership or such other Partners arising out of or resulting from such withdrawal. No permitted transfer of all or any portion of a Partner's Interest in the Partnership in accordance with Article X shall constitute a withdrawal in violation of this Section 11.1. Further, the withdrawal of a Holder in connection with the redemption of its entire Interest in the Partnership, in accordance with the terms hereof, or of an Action, shall not constitute a violation of this Section 11.1. Section 11.2. Dissolution of the Partnership. (a) The Partnership shall not be dissolved by the admission of additional or successor Partners in accordance with the terms of this Agreement. The death, withdrawal, bankruptcy or dissolution of a Limited Partner, or the occurrence of any other event which terminates the Interest of a Limited Partner in the Partnership, shall not, in and of itself, cause the Partnership to be dissolved and its affairs wound up. To the fullest extent permitted by applicable law, upon the occurrence of such event, the General Partner may, without any further act, vote or approval of any Partner, admit any Person to the Partnership as an additional or substitute limited partner in the Partnership, which admission shall be effective as of the date of the occurrence of such event, and the business of the Partnership shall be continued without dissolution. (b) The Partnership shall be dissolved and its affairs shall be wound up upon the occurrence of any of the following events: -25- 30 (i) The expiration of the term of the Partnership, as provided in Section 1.4 hereof; (ii) Upon the bankruptcy or withdrawal of the General Partner; (iii) Upon the assignment by the General Partner of its entire interest in the Partnership when the assignee is not admitted to the Partnership as a general partner of the Partnership in accordance with Section 10.1, or the filing of a certificate of dissolution or its equivalent with respect to the General Partner, or the revocation of the General Partner's charter and the expiration of 90 days after the date of notice to the General Partner of revocation without a reinstatement of its charter, or any other event occurs which causes the General Partner to cease to be a general partner of the Partnership under the Act, unless the business of the Partnership is continued in accordance with the Act (any remaining general partner of the Partnership is hereby authorized to and shall continue the business of the Partnership without dissolution); (iv) In accordance with any Action; (v) the entry of a decree of judicial dissolution under Section 17-802 of the Act; or (vi) the written consent of all Partners. (c) Upon dissolution of the Partnership, the Liquidator (as defined below) shall promptly notify the Partners of such dissolution. Section 11.3. Liquidation. (a) In the event of the dissolution of the Partnership for any reason, the General Partner (or, if the Partnership is dissolved pursuant to Section 11.2(b)(ii) or (iii), then a liquidating trustee appointed by 66 2/3% in liquidation preference of the Preferred Securities (the General Partner or such Person so appointed is hereinafter referred to as the "Liquidator")), shall commence to wind up the affairs of the Partnership and to liquidate the Partnership's assets; provided, however, that a reasonable time shall be allowed for the orderly liquidation of the assets of the Partnership and the satisfaction of liabilities to creditors so as to enable the Partners to minimize the normal losses attendant upon liquidation. The Partners shall continue to share all income, losses and distributions during the period of liquidation in accordance with Articles IV and V. Subject to the provisions of this Article XI, the Liquidator shall have full right and unlimited discretion to determine the time, manner and terms of any sale or sales of Partnership property pursuant to such liquidation, giving due regard to the activity and condition of the relevant market and general financial and economic conditions. (b) The Liquidator shall have all of the rights and powers with respect to the assets and liabilities of the Partnership in connection with the liquidation and termination of the Partnership that the General Partner would have with respect to the assets and liabilities of the Partnership during the term of the Partnership, and the Liquidator is hereby expressly authorized and empowered to execute any and all documents necessary or desirable to effectuate the liquidation and termination of the Partnership and the transfer of any assets. (c) Notwithstanding the foregoing, a Liquidator which is not the General Partner shall not be deemed a Partner in the Partnership and shall not have any of the economic interests in the Partnership of a Partner; and such Liquidator may be compensated for its services to the -26- 31 Partnership at normal, customary and competitive rates for its services to the Partnership as reasonably determined by a majority in liquidation preference of the Preferred Securities. Section 11.4. Distribution in Liquidation. (a) Upon the winding up of the Partnership, the assets of the Partnership shall be distributed in the following order of priority: (i) to creditors of the Partnership, including Preferred Security Holders who are creditors, to the extent permitted by law, in satisfaction of the liabilities of the Partnership (whether by payment or the making of reasonable provision for payment thereof); and (ii) to the Partners in proportion to the Partners' positive Capital Account balances. Section 11.5. Rights of Limited Partners. Each Limited Partner shall look solely to the assets of the Partnership for all distributions with respect to the Partnership and such Partner's capital contribution (including return thereof), and such Partner's share of profits or losses thereof, and shall have no recourse therefor (upon dissolution or otherwise) against the General Partner. No Partner shall have any right to demand or receive property other than cash upon dissolution and termination of the Partnership. Section 11.6. Termination. The Partnership shall terminate when all of the assets of the Partnership shall have been disposed of and the assets shall have been distributed as provided in Section 11.4, and the Liquidator has executed and caused to be filed a certificate of cancellation of the Certificate. ARTICLE XII AMENDMENTS AND MEETINGS Section 12.1. Amendments. Except as otherwise provided in this Agreement or by any applicable terms of any Action establishing a series of Preferred Securities, this Agreement may be amended by, and only by, a written instrument executed by the General Partner; provided, however, that (i) no amendment shall be made, and any such purported amendment shall be void and ineffective, to the extent the result thereof would be to cause the Partnership to be treated as anything other than a partnership for purposes of United States income taxation and (ii) any amendment which would adversely affect the powers, preferences or special rights of any series of Preferred Securities may be effected only as permitted by the terms of such series of Preferred Securities. Section 12.2. Amendment of Certificate. In the event this Agreement shall be amended pursuant to Section 12.1, the General Partner shall amend the Certificate to reflect such change if it deems such amendment of the Certificate to be necessary or appropriate. Section 12.3. Meetings of the Partners. (a) Meetings of the Limited Partners who are Holders of any series or, in the case of a class vote, of multiple series of Preferred Securities may be called at any time by the -27- 32 General Partner (or as provided in any Action establishing a series of Preferred Securities) to consider and act on any matter on which Limited Partners are entitled to act under the terms of this Agreement or the Act. The General Partner shall call a meeting of Holders of any series or, in the case of a class vote, multiple series, if directed to do so by Holders of not less than 10% in liquidation preference of the Preferred Securities of that series entitled to vote at the meeting. Such direction shall be given by delivering to the General Partner one or more calls in writing stating that the signing Limited Partners wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Limited Partner calling a meeting shall specify in a writing the LP Certificates held by the Limited Partners exercising the right to call a meeting and only those specified Interests shall be counted for purposes of determining whether the required percentage set forth in the proceeding sentence has been met. Except to the extent otherwise provided in any such Action, the following provisions shall apply to meetings of Partners. (b) Notice of any such meeting shall be given to all Limited Partners having a right to vote thereat not less than seven Business Days nor more than 60 days prior to the date of such meeting. Whenever a vote, consent or approval of Limited Partners is permitted or required under this Agreement, such vote, consent or approval may be given at a meeting of Limited Partners. Further, any action that may be taken at a meeting of the Limited Partners may be taken without a meeting if a consent in writing setting forth the action so taken is signed by Limited Partners owning not less than the minimum Interests that would be necessary to authorize or take such action at a meeting at which all Limited Partners having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Limited Partners entitled to vote who have not consented in writing. The General Partner may specify that any written ballot submitted to the Limited Partners for the purpose of taking any action without a meeting shall be returned to the Partnership within the time specified by the General Partner. (c) Each Limited Partner may authorize any Person to act for it by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Limited Partner executing it. Except as otherwise provided herein, in any Action or pursuant to Section 12.3(e), all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Partnership were a Delaware corporation and the Limited Partners were stockholders of a Delaware corporation. (d) Each meeting of Partners shall be conducted by the General Partner or by such other Person that the General Partner may designate. (e) The General Partner, in its sole discretion, shall establish all other provisions relating to meetings of Limited Partners, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Limited Partners, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. -28- 33 ARTICLE XIII MISCELLANEOUS Section 13.1. Notices. All notices provided for in this Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Partnership, in care of the General Partner at the Partnership's mailing address set forth below: (b) if given to the General Partner, at its mailing address set forth below: Illinois Power Company 500 South 27th Street Decatur, Illinois 62525 Attention: President (c) if given to any other Partner at the address for such Partner set forth on the books and records of the Partnership. All such notices shall be deemed to have been given when sent. Section 13.2. Entire Agreement. This Agreement constitutes the entire agreement among the parties. It supersedes any prior agreement or understandings among them, and it may not be modified or amended in any manner other than as set forth herein. Section 13.3. Governing Law. This Agreement and the rights of the parties hereunder shall be governed by and interpreted in accordance with the law of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. Section 13.4. Effect. Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, successors and assigns. Section 13.5. Pronouns and Number. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine, feminine or neuter shall include the masculine, feminine and neuter. Section 13.6. Captions. Captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provision hereof. Section 13.7. Partial Enforceability. If any provision of this Agreement, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. -29- 34 Section 13.8. Counterparts. This Agreement may contain more than one counterpart of the signature page and this Agreement may be executed by the affixing of the signature of each of the Partners to one of such counterpart signature pages. All of such counterpart signatures pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. Section 13.9. Waiver of Partition. Each Partner hereby irrevocably waives any and all rights (if any) that such Partner may have to maintain any action for partition of any of the Partnership's property. Section 13.10. Remedies. The failure of any party to seek redress for violation of, or to insist upon the strict performance of, any provision of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above stated. General Partner: ILLINOIS POWER COMPANY, an Illinois corporation By:______________________ Name: Title: Initial Limited Partner: ILLINOVA CORPORATION, an Illinois corporation By:_______________________ Name: Title: -30- 35 Annex A Certificate Number R-1 CUSIP NO. Certificate Evidencing Preferred Securities of Illinois Power Capital, L.P.* ________________ Monthly Income Preferred Securities, Series _______ (liquidation preference $25 per Preferred Security) Illinois Power Capital, L.P., a limited partnership formed under the laws of the State of Delaware (the "Partnership"), hereby certifies that __________ (the "Holder") is the registered owner of _______ ( ) preferred securities of the Partnership representing limited partner interests in the Partnership of a series designated the ______________ Monthly Income Preferred Securities, Series _____ (liquidation preference $25 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are fully paid and nonassessable limited partner interests in the Partnership, as to which the limited partners in the Partnership who hold the Preferred Securities (the "Preferred Security Holders"), as limited partners in the Partnership, will, assuming such Preferred Security Holders do not participate in the control of the business of the Partnership, have no liability in excess of their obligations to make payments provided for in the Limited Partnership Agreement (as defined below) and their share of the Partnership's assets and undistributed profits (subject to the obligation of a Preferred Security Holder to repay any funds wrongfully distributed to it) and are transferable on the books and records of the Partnership, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The powers, preferences and special rights and limitations of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Agreement of Limited Partnership of the Partnership dated as of __________ 1994, as the same may be amended from time to time (the "Limited Partnership Agreement"), and the Action of the General Partner taken pursuant thereto authorizing the issuance of the Preferred Securities and determining the designations, powers, rights, preferences, privileges, limitations and other terms and provisions, regarding Dividends, voting, return of capital and otherwise, and other matters relating to the Preferred Securities. Capitalized terms used herein but not defined shall have the meaning given them in the Limited Partnership Agreement or the Action. The Holder is entitled to the benefits of the Guarantee Agreement of Illinois Power Company, an Illinois corporation ("Illinois Power"), dated as of ____________________, 1994 (the "Guarantee"), and the Subordinated Debentures of Illinois Power issued pursuant to the Indenture dated as of ______________, 1994 ________________________ *The form of this Certificate may be modified to reflect the specific terms and provisions of a particular series of Preferred Securities. 36 between Illinois Power and The First National Bank of Chicago, as Trustee (the "Indenture"), in each case to the extent provided therein. The Partnership will furnish a copy of the Limited Partnership Agreement, the Action, the Guarantee and the Subordinated Debentures to the Holder without charge upon written request to the Partnership at its principal place of business or registered office. The Holder, by accepting this certificate, is deemed to have agreed that (i) the Subordinated Debentures acquired by the Partnership with the proceeds from the issuance of the Preferred Securities are subordinate and junior in right of payment to all Senior Indebtedness of Illinois Power as and to the extent provided in the Indenture, and (ii) the Guarantee ranks subordinate and junior in right of payment to all liabilities of Illinois Power, pari passu with the most senior preferred or preference stock now or hereafter issued by Illinois Power and with any guarantee now or hereafter issued by Illinois Power in respect of any preferred or preference stock of any Affiliate of Illinois Power, and senior to Illinois Power's common stock, as and to the extent provided in the Guarantee. Upon receipt of this certificate, the Holder is admitted to the Partnership as a Limited Partner, is bound by the Limited Partnership Agreement and the Action and is entitled to the benefits thereunder. IN WITNESS WHEREOF, the Partnership has executed this certificate this day of ___________, 199__ ILLINOIS POWER CAPITAL, L.P. By: ILLINOIS POWER COMPANY, its General Partner By: __________________________ -2- EX-4.D 4 ACTION OF GENERAL PARTNER 1 EXHIBIT 4(D) ACTION OF GENERAL PARTNER ILLINOIS POWER COMPANY, an Illinois corporation ("Illinois Power"), as General Partner of Illinois Power Capital, L.P., a Delaware limited partnership (the "Partnership"), in accordance with Section 6.1(b)(ii) of the Amended and Restated Agreement of Limited Partnership of the Partnership dated as of _________________, 1994 (the "Partnership Agreement"), does hereby establish a new series of Preferred Securities having the following designation, powers, rights, preferences, privileges, limitations and other terms and provisions (capitalized terms used herein without definition having the meanings specified in the Partnership Agreement): (a) Designation. __________ (_____________) Preferred Securities, with a liquidation preference of $25 per Preferred Security, are hereby designated as ["_____% Cumulative Monthly Income Preferred Securities, Series A"] ["Cumulative Adjustable Rate Monthly Income Preferred Securities, Series A"] (the "Series A Preferred Securities"). (b) Dividends. (i) The Limited Partners who hold the Series A Preferred Securities shall be entitled to receive, when, as and if available and determined to be so distributed by the General Partner (the General Partner's discretion to be subject to (b)(ii) below), cumulative dividends at a [rate per annum of ____% of the liquidation preference of $25 per Preferred Security, calculated on the basis of a 360-day year of twelve 30-day months,] [rate per annum of ___% from the date of initial issuance to , 1994, and thereafter at the Applicable Rate (as defined in the Prospectus Supplement relating to the offering of the Series A Preferred Securities) from time to time in effect], and payable in United States dollars monthly in arrears on the last day of each calendar month of each year, commencing , 1994. Such Dividends will accumulate and be cumulative whether or not they have been determined to be made and whether or not there are funds of the Partnership legally available for the payment of Dividends. Dividends on the Series A Preferred Securities shall be cumulative from the date of original issue, and the cumulative portion from such date to _______________ , 1994 shall be payable on , 1994. In the event that any date on which Dividends are payable on the Series A Preferred Securities is not a Business Day, then payment of the Dividends payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. Dividends in arrears for more than one month will bear interest thereon at the rate per annum of ____% thereof. (ii) Dividends on the Series A Preferred Securities must be paid on the date such Dividends are payable to the extent that the Partnership has, on the date such Dividends are payable, (x) funds legally available for the payment of such Dividends and (y) cash on hand sufficient to permit such payments. Dividends will be payable to the Preferred Security Holders as they appear on the books and records of the Partnership on the relevant record dates, which, as long as the Series A Preferred Securities remain in book-entry-only form, will be one Business Day prior to the relevant payment dates. In the event the Series A Preferred Securities shall not continue to remain in book-entry-only form, the General Partner shall have the right to select relevant record dates which shall be more than one Business Day prior to the relevant payment dates. 2 (iii) The Partnership shall not: (A) pay, or set aside for payment, any Dividends with respect to any other Preferred Securities, unless the amount of any Dividends paid or set aside on such other Preferred Securities is paid or set aside on such other Preferred Securities and the Series A Preferred Securities on a pro rata basis on the date such dividends are paid or set aside on such other Preferred Securities, so that (x) the aggregate amount of Dividends paid on the Series A Preferred Securities bears to the aggregate amount of Dividends paid on such other Preferred Securities the same ratio as (y) the aggregate of all accumulated and unpaid Dividends in respect of the Series A Preferred Securities bears to the aggregate of all accumulated and unpaid Dividends in respect of such other Preferred Securities; or (B) redeem, purchase or otherwise acquire any other Preferred Securities; until, in each case, such time as all accumulated and unpaid Dividends on the Series A Preferred Securities shall have been paid in full for all Dividend periods terminating on or prior to, in the case of clause (A), such payment and, in the case of clause (B), the date of such redemption, purchase or acquisition. (c) Redemption. (i) The Series A Preferred Securities are redeemable, at the option of the Partnership, in whole or in part from time to time, on or after _____, 1999, upon not less than 30 nor more than 60 days' notice, at the Redemption Price (as hereinafter defined); provided, however, that prior to giving any such notice, the Partnership shall have received from Illinois Power a notice of redemption of Series A Subordinated Debentures in an aggregate principal amount equal to the aggregate liquidation preference of the Series A Preferred Securities to be redeemed. If a partial redemption would result in a delisting of the Series A Preferred Securities, the Partnership may only redeem the Series A Preferred Securities in whole. (ii) Upon repayment of the Series A Subordinated Debentures at maturity or earlier, the proceeds from such repayment shall be applied to redeem the Series A Preferred Securities, in whole, at the redemption price of $25 per Preferred Security plus accumulated and unpaid Dividends (whether or not declared) to the date fixed for redemption (the "Redemption Price") upon not less than 30 nor more than 60 days' notice. (iii) Except as provided in the next succeeding sentence, if a Special Event shall occur and be continuing, the General Partner shall elect to either (A) cause the Partnership to redeem the Series A Preferred Securities in whole (and not in part), upon not less than 30 or more than 60 days' notice at the Redemption Price within 90 days following the occurrence of such Special Event; provided, that if at the time there is available to the General Partner the opportunity to eliminate, within such 90-day period, the Special Event by taking some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable measure which -2- 3 has no adverse effect on the Partnership or the General Partner, the General Partner will pursue such measure in lieu of redemption, or (B) dissolve the Partnership and, after satisfaction of liabilities of creditors as required by the Partnership Act, cause to be distributed to Series A Preferred Security Holders in liquidation of the Partnership, within 90 days following the occurrence of such Special Event, Series A Subordinated Debentures having a principal amount equal to the aggregate liquidation preference of the outstanding Series A Preferred Securities. In the case of a Tax Event, the General Partner may also elect to cause the Series A Preferred Securities to remain outstanding. In the event of a distribution of Series A Subordinated Debentures as described in (B) above, each holder of Series A Preferred Securities would receive Series A Subordinated Debentures in an aggregate principal amount equal to the aggregate liquidation preference of $25 per Series A Preferred Security on the Series A Preferred Securities held by it, with such Series A Subordinated Debentures bearing interest at a rate per annum equal to the dividend rate per annum on such Series A Preferred Securities from the last date on which dividends were paid. After the date fixed for any distribution of Series A Subordinated Debentures upon dissolution of the Partnership, (i) the Series A Preferred Securities will no longer be deemed to be outstanding, (ii) DTC or its nominee, as the record Holder of the Series A Preferred Securities, will receive a registered global certificate or certificates representing the Series A Subordinated Debentures to be delivered upon such distribution, and (iii) any certificates representing Series A Preferred Securities not held by DTC or its nominee will be deemed to represent Series A Subordinated Debentures having a principal amount equal to the aggregate liquidation preference of such Series A Preferred Securities until such certificates are presented to the General Partner or its agent for transfer or reissuance. (d) Redemption Procedures. (i) Notice of any redemption (a "Notice of Redemption") of the Series A Preferred Securities will be given by the Partnership by mail to each record Holder to be redeemed not fewer than 30 nor more than 60 days prior to the date fixed for redemption thereof. For purposes of the calculation of the date of redemption and the dates on which notices are given pursuant to this paragraph (d)(i), a Notice of Redemption shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Preferred Security Holders who hold Series A Preferred Securities. Each Notice of Redemption shall be addressed to the Preferred Security Holders who hold Series A Preferred Securities at the address of the Holder appearing in the books and records of the Partnership. No defect in the Notice of Redemption or in the mailing thereof or publication of its contents shall affect the validity of the redemption proceedings. (ii) In the event that fewer than all the outstanding Series A Preferred Securities are to be redeemed in the case of a redemption pursuant to paragraph (c)(i) above, the Series A Preferred Securities to be redeemed will be selected in accordance with paragraph (d)(iv) below. The Partnership may not redeem fewer than all the outstanding Series A Preferred Securities unless all accumulated and unpaid Dividends have been paid on all Series A Preferred Securities for all monthly Dividend periods terminating on or prior to the date of redemption. (iii) If the Partnership gives a Notice of Redemption in respect of Series A Preferred Securities, then, (A) by 12:00 noon, New York time, on the redemption date in the case of Clauses (I) and (II) below, or (B) prior to the close of business on the Business Day immediately preceding the redemption date in the case of Clause (III) below, the Partnership will irrevocably -3- 4 deposit with (I) DTC, as long as DTC is the Clearing Agency on the date such Notice of Redemption is given, (II) such other Person which is the Clearing Agency on the date such Notice of Redemption is given, or (III) if there is no Clearing Agency with respect to the Series A Preferred Securities on the date such Notice of Redemption is given, the Paying Agent or Paying Agents appointed by the General Partner pursuant to Section 10.7 of the Partnership Agreement, funds sufficient to pay the applicable Redemption Price and will give DTC, such other Clearing Agency or the Paying Agent or Paying Agents, as the case may be, irrevocable instructions and authority to pay the Redemption Price to the Holders of the Series A Preferred Securities. If Notice of Redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of the Preferred Security Holders who hold such Series A Preferred Securities so called for redemption will cease, except the right of the Holders of such securities to receive the Redemption Price, but without interest on such Redemption Price. In the event that any date fixed for redemption of Series A Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in respect of Series A Preferred Securities is improperly withheld or refused and not paid either by the Partnership or by Illinois Power pursuant to the Guarantee, Dividends on such Series A Preferred Securities will continue to accumulate at the then applicable rate, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (iv) Notices of Redemption shall be sent to (A) Cede & Co. or any successor nominee of DTC, in either case so long as DTC is the Clearing Agency, (B) the nominee of any Clearing Agency other than DTC or (C) any Paying Agent or Paying Agents appointed by the General Partner pursuant to Section 10.7 of the Partnership Agreement. If less than all the Series A Preferred Securities are being redeemed, interests to be redeemed shall be determined as follows: (x) in accordance with DTC's practice, as long as DTC is the Clearing Agency, (y) in accordance with the practice of any other Clearing Agency or (z) if, at the time such Notice of Redemption is sent, there is no Clearing Agency, the Paying Agent or Paying Agents shall select, by lot or in such other manner as the Paying Agent or Paying Agents shall deem appropriate and fair, in their discretion, the Series A Preferred Securities to be redeemed. (e) Liquidation Distribution. In the event of any voluntary or involuntary dissolution, winding up or termination of the Partnership, Preferred Security Holders who hold the Series A Preferred Securities at the time will be entitled to receive out of the assets of the Partnership available for distribution to Partners, after satisfaction of liabilities of creditors as required by the Partnership Act, before any distribution of assets is made to the General Partner, but together with the Holders of every other series of Preferred Securities outstanding, if any, an amount equal to, in the case of Holders of Series A Preferred Securities, the aggregate of the liquidation preference of $25 per Preferred Security and accumulated and unpaid Dividends thereon (whether or not declared) to the date of payment (the "Liquidation Distribution"), unless in connection with such dissolution, winding up or termination, Series A Subordinated Debentures in an aggregate principal amount equal to $25 per Series A Preferred Security have been distributed on a pro rata basis to the Holders of the Series A Preferred Securities. -4- 5 If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Partnership has insufficient assets available to pay in full the aggregate Liquidation Distribution and the aggregate maximum liquidation distributions on any other series of Preferred Securities, then the amounts payable directly by the Partnership on the Series A Preferred Securities and on such other series of Preferred Securities shall be paid on a pro rata basis, so that (i) the aggregate amount paid in respect of the Liquidation Distribution bears to the aggregate amount paid as liquidation distributions on such other series of Preferred Securities the same ratio as (ii) the aggregate Liquidation Distribution bears to the aggregate maximum liquidation distributions on such other series of Preferred Securities. * * * * This written Action of General Partner shall constitute an Action within the meaning of Section 6.1(b)(ii) of the Partnership Agreement. IN WITNESS WHEREOF, the undersigned has executed this Action of General Partner this ____ day of ___________, 1994. GENERAL PARTNER Illinois Power Company By: ___________________________ Name: Title: -5- -----END PRIVACY-ENHANCED MESSAGE-----