-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PHtDAS+bZh00GMOPtxp4GMMSfkoIMzTz2ODJO7LtyrvUNkrvKPnEH+kdQh5JsAjO TaZdA3iTi66kpFytblm2RQ== 0000950124-95-003902.txt : 19951124 0000950124-95-003902.hdr.sgml : 19951124 ACCESSION NUMBER: 0000950124-95-003902 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19951122 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS POWER FINANCING I CENTRAL INDEX KEY: 0001002443 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-63581 FILM NUMBER: 95595964 BUSINESS ADDRESS: STREET 1: C/O THE CORPORATION TRUST CO STREET 2: 1209 ORANGE STREET CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 3026587581 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS POWER CO CENTRAL INDEX KEY: 0000049816 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [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: 033-63581-01 FILM NUMBER: 95595965 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 S-3/A 1 PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 1995 REGISTRATION NOS. 33-63581-01 33-63581 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 FINANCING I (Exact name of registrant as specified in its Declaration of Trust) DELAWARE (State or other jurisdiction of incorporation or organization) APPLIED FOR (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 LLP 40 WEST 57TH STREET NEW YORK, NEW YORK 10019 (212) 603-2144 ------------------ Approximate date of commencement of proposed sale to the public: As soon as practicable 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: / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. /X/ ------------------ CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------ PROPOSED PROPOSED MAXIMUM AMOUNT MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED(1) PER UNIT(1)(2)(3) PRICE(1)(2)(3) FEE(1) - ------------------------------------------------------------------------------------------------------------------------ Illinois Power Financing I Preferred Securities - ------------------------------------------------ Illinois Power Company Subordinated Debentures(4) - ------------------------------------------------ Illinois Power Company Guarantee and other back-up obligations with respect to Illinois Power Financing I Preferred Securities(4) - ------------------------------------------------------------------------------------------------------------------------ Total........................................... $100,000,000.00 100% $100,000,000.00 $34,483.00
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Pursuant to Rule 457(o) under the Securities Act of 1933, which permits the registration fee to be calculated on the basis of the maximum aggregate offering price of all the securities listed, the table does not specify by each class information as to the amount to be registered, proposed maximum offering price per unit or proposed maximum aggregate offering price. This registration fee was paid at the time of the initial filing of this Registration Statement on October 20, 1995. (2) Estimated solely for the purpose of determining the registration fee. (3) Exclusive of accrued interest and dividends, if any. (4) No separate consideration will be received for Illinois Power Company's Subordinated Debentures, its Guarantee or its other back-up obligations with respect to Illinois Power Financing I Preferred Securities. ------------------ 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 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 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. PRELIMINARY PROSPECTUS DATED NOVEMBER 22, 1995 PROSPECTUS 4,000,000 PREFERRED SECURITIES [LOGO] ILLINOIS POWER FINANCING I % TRUST ORIGINATED PREFERRED SECURITIES SM ("TOPRS SM") (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) GUARANTEED TO THE EXTENT SET FORTH HEREIN BY ILLINOIS POWER COMPANY ------------------------ The % Trust Originated Preferred Securities (the "Preferred Securities") offered hereby represent preferred undivided beneficial interests in the assets of Illinois Power Financing I, a statutory business trust formed under the laws of the State of Delaware ("Illinois Power Financing I" or the "Trust"). Illinois Power Company, an Illinois corporation ("Illinois Power"), will directly or indirectly own all the common securities (the "Common Securities" and, together with the Preferred Securities, the "Trust Securities") representing undivided beneficial interests in the assets of Illinois Power Financing I. Illinois Power Financing I exists for the sole purpose of issuing the Preferred Securities and Common Securities and investing the proceeds thereof in an equivalent amount of % (continued on next page) SEE "RISK FACTORS" COMMENCING ON PAGE 5 OF THIS PROSPECTUS FOR CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL. Application has been made to list the Preferred Securities on the New York Stock Exchange. If so approved, trading of the Preferred Securities on the New York Stock Exchange is expected to commence within a 30-day period after the date of this Prospectus. See "Underwriting." ------------------------ 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.
- ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- INITIAL PUBLIC UNDERWRITING PROCEEDS TO OFFERING PRICE(1) COMMISSION(2) TRUST(3)(4) - ------------------------------------------------------------------------------------------------------- Per Preferred Security................ $ (3) $ - ------------------------------------------------------------------------------------------------------- Total................................. $ (3) $ - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
(1) Plus accrued distributions, if any, from , 1995. (2) Illinois Power Financing I and Illinois Power have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) In view of the fact that the proceeds of the sale of the Preferred Securities will be invested in the Subordinated Debentures, Illinois Power has agreed to pay to the Underwriters as compensation (the "Underwriters' Compensation") for their arranging the investment therein of such proceeds $ per Preferred Security (or $ in the aggregate); provided, that such compensation for sales of 10,000 or more Preferred Securities to a single purchaser will be $ per Preferred Security. Therefore, to the extent of such sales, the actual amount of Underwriters' Compensation will be less than the aggregate amount specified in the preceding sentence. See "Underwriting." (4) Expenses of the offering which are payable by Illinois Power are estimated to be $400,000. ------------------------ The 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 the Preferred Securities will be made only in book-entry form through the facilities of The Depository Trust Company, on or about , 1995. ------------------------ MERRILL LYNCH & CO. SMITH BARNEY INC. DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. PAINEWEBBER INCORPORATED ------------------------ The date of this Prospectus is , 1995. SM "Trust Originated Preferred Securities" and "TOPrS" are service marks of Merrill Lynch & Co., Inc. 3 (continued from previous page) Junior Subordinated Deferrable Interest Notes due 2044 (the "Subordinated Debentures") of Illinois Power. Upon an event of a default under the Declaration (as defined herein), the holders of Preferred Securities will have a preference over the holders of the Common Securities with respect to payments in respect of distributions and payments upon liquidation, redemption and otherwise. Holders of the Preferred Securities are entitled to receive cumulative cash distributions at an annual rate of % of the liquidation amount of $25 per Preferred Security, accruing from the date of original issuance and payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year, commencing December 31, 1995 ("distributions"). The payment of distributions out of moneys held by Illinois Power Financing I and payments on termination of Illinois Power Financing I or the redemption of Preferred Securities, as set forth below, are guaranteed by Illinois Power (the "Guarantee") to the extent Illinois Power Financing I has funds available therefor as described under "Description of the Preferred Securities Guarantee." The obligations of Illinois Power under the Guarantee are subordinate and junior in right of payment to all other liabilities of Illinois Power and pari passu with the most senior preferred stock issued, from time to time, if any, by Illinois Power. The obligations of Illinois Power under the Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness (as defined herein) of Illinois Power, which aggregated approximately $2.2 billion at September 30, 1995, and rank pari passu with Illinois Power's general unsecured creditors other than holders of Senior Indebtedness. The distribution rate and the distribution payment date and other payment dates for the Preferred Securities will correspond to the interest rate and interest payment date and other payment dates on the Subordinated Debentures, which will be the sole assets of Illinois Power Financing I. As a result, if principal or interest is not paid on the Subordinated Debentures, no amounts will be paid on the Preferred Securities. If Illinois Power does not make principal or interest payments on the Subordinated Debentures, Illinois Power Financing I will not have sufficient funds to make distributions on the Preferred Securities, in which event, the Guarantee will not apply to such distributions until Illinois Power Financing I has sufficient funds available therefor. Illinois Power has the right to defer payments of interest on the Subordinated Debentures by extending the interest payment period on the Subordinated Debentures at any time for up to 20 consecutive quarters (each, an "Extension Period"). If interest payments are so deferred, distributions on the Preferred Securities will also be deferred. During such Extension Period, distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at an annual rate of % per annum compounded quarterly, and during any Extension Period, holders of Preferred Securities will be required to include deferred interest income in their gross income for United States federal income tax purposes in advance of receipt of the cash distributions with respect to such deferred interest payments. There could be multiple Extension Periods of varying lengths throughout the term of the Subordinated Debentures. See "Description of the Subordinated Debentures -- Option to Extend Interest Payment Period." See "Risk Factors -- Option to Extend Interest Payment Period" and "United States Federal Income Taxation -- Original Issue Discount." In the event of any such deferral, the holders of the Preferred Securities do not have the right to appoint a special representative or trustee or otherwise act to protect their interests. The Subordinated Debentures are redeemable by Illinois Power, in whole or in part, from time to time, on or after , 2000, or at any time in certain circumstances upon the occurrence of a Tax Event (as defined herein). If Illinois Power redeems Subordinated Debentures, Illinois Power Financing I must redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed at $25 per Preferred Security plus accrued and unpaid distributions thereon (the "Redemption Price") to the date fixed for redemption. See "Description of the Preferred Securities -- Mandatory Redemption." The Preferred Securities will be redeemed upon maturity of the Subordinated Debentures. The Subordinated Debentures mature on , 2044. In addition, upon the occurrence of a Special Event (as defined herein), unless the Subordinated Debentures are redeemed in the limited circumstances described herein, Illinois Power Financing I shall be terminated, with the result that the Subordinated Debentures will be distributed to the holders of the Preferred Securities, on a pro rata basis, in lieu of any cash distribution. See "Description of the Preferred Securities -- Special Event Redemption or Distribution." In the case of the occurrence of a Special Event that is a Tax Event, Illinois Power will have the right in certain circumstances to redeem the Subordinated Debentures, which would result in the redemption by Illinois Power Financing I of Trust Securities in the same amount on a pro rata basis. If the Subordinated Debentures are distributed to the holders of the Preferred Securities, Illinois Power will use its best efforts to have the Subordinated Debentures listed on the New York Stock Exchange or on such other exchange as the Preferred Securities are then listed. See "Description of the Preferred Securities -- Special Event Redemption or Distribution" and "Description of the Subordinated Debentures." In the event of the involuntary or voluntary dissolution, winding up or termination of Illinois Power Financing I, the holders of the Preferred Securities will be entitled to receive for each Preferred Security a liquidation amount of $25 plus accrued and unpaid distributions thereon (including interest thereon) to the date of payment, unless, in connection with such dissolution, winding up or termination, the Subordinated Debentures are distributed to the holders of the Preferred Securities. See "Description of the Preferred Securities -- Liquidation Distribution Upon Termination." ------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE THAT 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 TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 AVAILABLE INFORMATION Illinois Power is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, information statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, information statements and other information filed by Illinois Power 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 the 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, information statements and other information concerning Illinois Power 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 Illinois Power's securities are listed. In addition, such reports, information statements and other information concerning Illinois Power can be inspected at the principal office of Illinois Power, 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 Illinois Power and Illinois Power Financing I 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 Financing I have been included herein. Illinois Power and Illinois Power Financing I do not consider that such financial statements would be material to holders of Preferred Securities because Illinois Power Financing I 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 Financing I." INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents heretofore filed by Illinois Power with the Commission pursuant to the Exchange Act are incorporated herein by reference: 1. Illinois Power's Annual Report on Form 10-K for the year ended December 31, 1994; 2. Illinois Power's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995; and 3. Illinois Power's Current Report on Form 8-K dated August 11, 1995. All documents subsequently filed by Illinois Power 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 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. ILLINOIS POWER 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 THIS PROSPECTUS INCORPORATES. REQUEST FOR SUCH COPIES SHOULD BE DIRECTED TO MS. CYNTHIA G. STEWARD, CONTROLLER, ILLINOIS POWER COMPANY, 500 SOUTH 27TH STREET, DECATUR, ILLINOIS 62525, TELEPHONE NUMBER (217) 424-6600. 3 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus. Preferred Securities Offered. 4,000,000 % Trust Originated Preferred Securities evidencing preferred undivided beneficial interests in the assets of Illinois Power Financing I are offered hereby. Holders of the Preferred Securities are entitled to receive cumulative cash distributions at an annual rate of % of the liquidation amount of $25 per Preferred Security, accruing from the date of original issuance and payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on December 31, 1995. The distribution rate and the distribution and other payment dates for the Preferred Securities will correspond to the interest rate and interest and other payment dates on the Subordinated Debentures, which will be the sole assets of Illinois Power Financing I. As a result, if principal or interest is not paid on the Subordinated Debentures, no amounts will be paid on the Preferred Securities. See "Description of the Preferred Securities." Subordinated Debentures. Illinois Power Financing I will invest the proceeds from the issuance of the Preferred Securities and Common Securities in an equivalent amount of % Subordinated Debentures due , 2044 of Illinois Power. The Subordinated Debentures will be subordinate and junior in right of payment to all Senior Indebtedness of Illinois Power. See "Description of the Subordinated Debentures -- Subordination." Preferred Securities Guarantee. Payment of distributions out of moneys held by Illinois Power Financing I, and payments on termination of Illinois Power Financing I or the redemption of Preferred Securities are guaranteed by Illinois Power to the extent Illinois Power Financing I has funds available therefor. If Illinois Power does not make principal or interest payments on the Subordinated Debentures, Illinois Power Financing I will not have sufficient funds to make distributions on the Preferred Securities, in which event the Guarantee will not apply to such distributions until Illinois Power Financing I has sufficient funds available therefor. See "Description of the Preferred Securities Guarantee" and "Effect of Obligations Under the Subordinated Debentures and the Guarantee" herein. The obligations of Illinois Power under the Guarantee are subordinate and junior in right of payment to all other liabilities of Illinois Power and will rank pari passu with the most senior preferred stock issued by Illinois Power. See "Risk Factors -- Ranking of Subordinate Obligations Under the Guarantee and Subordinated Debentures" and "Description of the Preferred Securities Guarantee." Interest Deferral. Illinois Power has the right to defer payments of interest on the Subordinated Debentures by extending the interest payment period on the Subordinated Debentures, at any time, for up to 20 consecutive quarters. If interest payments on the Subordinated Debentures are so deferred, distributions on the Preferred Securities will also be deferred. During any such deferral, distributions will continue to accrue with interest thereon (to the extent permitted by law) as described herein. There could be multiple Extension Periods of varying lengths throughout the term of the Subordinated Debentures. During an Extension Period, holders of Preferred Securities will be required to include deferred interest income in their gross income in advance of receipt of the cash interest payments attributable thereto. See "Description of the Preferred Securities -- Voting Rights," "Description of the Subordinated Debentures -- Option to Extend Interest Payment Period" and "United States Federal Income Taxation -- Original Issue Discount," and "-- Market Discount and Bond Premium." Redemption. The Subordinated Debentures are redeemable by Illinois Power (in whole or in part) from time to time, on or after , 2000 or at any time in certain circumstances upon the occurrence of a Tax Event. If the Subordinated Debentures are redeemed, Illinois Power Financing I must redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of Subordinated Debentures so redeemed. The Preferred Securities will be redeemed upon maturity of the Subordinated Debentures. See "Description of the Preferred Securities -- Mandatory Redemption." 4 6 RISK FACTORS Prospective purchasers of Preferred Securities should carefully review the information contained elsewhere in this Prospectus and should particularly consider the following matters. RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND SUBORDINATED DEBENTURES Illinois Power's obligations under the Guarantee are subordinate and junior in right of payment to all liabilities of Illinois Power and pari passu with the most senior preferred stock issued, from time to time, if any, by Illinois Power. The obligations of Illinois Power under the Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness of Illinois Power and pari passu with obligations to or rights of Illinois Power's general unsecured creditors other than holders of Senior Indebtedness. As of September 30, 1995, Senior Indebtedness aggregated approximately $2.2 billion. There are no terms in the Preferred Securities, the Subordinated Debentures or the Guarantee that limit Illinois Power's ability to incur additional indebtedness, including indebtedness that ranks senior to the Subordinated Debentures and the Guarantee. See "Description of Preferred Securities Guarantee -- Status of the Guarantee" and "Description of the Subordinated Debentures -- Subordination" herein. RIGHTS UNDER THE GUARANTEE The Guarantee will be qualified as an indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Wilmington Trust Company will act as indenture trustee under the Guarantee for the purposes of compliance with the provisions of the Trust Indenture Act (the "Guarantee Trustee"). The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred Securities. The Guarantee guarantees to the holders of the Preferred Securities the payment of (i) any accrued and unpaid distributions that are required to be paid on the Preferred Securities, to the extent Illinois Power Financing I has funds available therefor, (ii) the Redemption Price, including all accrued and unpaid distributions with respect to Preferred Securities called for redemption by Illinois Power Financing I, to the extent Illinois Power Financing I has funds available therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of Illinois Power Financing I (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or a redemption of all the Preferred Securities), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid distributions on the Preferred Securities to the date of the payment to the extent Illinois Power Financing I has funds available therefor or (b) the amount of assets of Illinois Power Financing I remaining available for distribution to holders of the Preferred Securities upon termination of Illinois Power Financing I. The holders of a majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred Securities may institute a legal proceeding directly against Illinois Power to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against Illinois Power Financing I, the Guarantee Trustee or any other person or entity. If Illinois Power were to default on its obligation to pay amounts payable on the Subordinated Debentures, Illinois Power Financing I would lack available funds for the payment of distributions or amounts payable on redemption of the Preferred Securities or otherwise, and, in such event, holders of the Preferred Securities would not be able to rely upon the Guarantee for payment of such amounts. Instead, holders of the Preferred Securities would rely on the enforcement by the Property Trustee of its rights as registered holder of the Subordinated Debentures against Illinois Power pursuant to the terms of the Subordinated Debentures. See "Description of the Preferred Securities Guarantee" and "Description of the Subordinated Debentures." The Declaration provides that each holder of Preferred Securities, by acceptance thereof, agrees to the provisions of the Guarantee, including the subordination provisions thereof, and the Indenture (as defined herein). 5 7 ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES If (i) Illinois Power Financing I fails to pay distributions in full on the Preferred Securities for six consecutive quarterly distribution periods or (ii) a Declaration Event of Default (as defined herein) occurs and is continuing, then the holders of Preferred Securities would rely on the enforcement by the Property Trustee (as defined herein) of its rights as a holder of the Subordinated Debentures against Illinois Power. In addition, the holders of a majority in liquidation amount of the Preferred Securities will have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee to exercise the remedies available to it as a holder of the Subordinated Debentures. If the Property Trustee fails to enforce its rights under the Subordinated Debentures to the fullest extent permitted by law, a holder of Preferred Securities may institute a legal proceeding directly against Illinois Power to enforce the Property Trustee's rights under the Subordinated Debentures without first instituting any legal proceeding against the Property Trustee or any other person or entity. OPTION TO EXTEND INTEREST PAYMENT PERIOD Illinois Power has the right under the Indenture to defer payments of interest on the Subordinated Debentures by extending the interest payment period at any time, and from time to time, on the Subordinated Debentures. As a consequence of such an extension, quarterly distributions on the Preferred Securities would be deferred (but despite such deferral would continue to accrue with interest thereon compounded quarterly to the extent permitted by applicable law) by Illinois Power Financing I during any such Extension Period. Such right to extend the interest payment period for the Subordinated Debentures is limited to a period not exceeding 20 consecutive quarters. In the event that Illinois Power exercises this right to defer interest payments, then (a) Illinois Power shall not declare or pay dividends on, or make a distribution with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock, provided, however, Illinois Power may declare and pay a stock dividend where the dividend stock is the same stock as that on which the dividend is being paid, (b) Illinois Power shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities (including guarantees) issued by Illinois Power which rank pari passu with or junior to the Subordinated Debentures, and (c) Illinois Power shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantee). Prior to the termination of any such Extension Period, Illinois Power may further extend the interest payment period; provided, that such Extension Period, together with all such previous and further extensions thereof, may not exceed 20 consecutive quarters. Upon the termination of any Extension Period and the payment of all amounts then due, Illinois Power may commence a new Extension Period, subject to the above requirements. See "Description of the Preferred Securities -- Distributions" and "Description of the Subordinated Debentures -- Option to Extend Interest Payment Period." Because Illinois Power has the right to extend the interest payment period for the Subordinated Debentures, the Preferred Securities will be treated as having been issued with original issue discount ("OID") for United States federal income tax purposes. Should Illinois Power exercise its right to defer payments of interest by extending the interest payment period, each holder of Preferred Securities will continue to accrue income (as OID) in respect of the deferred interest allocable to its Preferred Securities for United States federal income tax purposes, which will be allocated, but not distributed, to holders of record of Preferred Securities. As a result, each such holder of Preferred Securities will recognize income for United States federal income tax purposes in advance of the receipt of cash, regardless of their method of accounting, and will not receive the cash from Illinois Power Financing I related to such income if such holder disposes of its Preferred Securities prior to the record date for the date on which distributions of such amounts are made. Illinois Power has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. However, should Illinois Power determine to exercise such right in the future, the market price of the Preferred Securities is likely to be affected. A holder that disposes of its Preferred Securities during an Extension Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Preferred Securities. In addition, as a result of 6 8 the existence of Illinois Power's right to defer interest payments, the market price of the Preferred Securities (which represent an undivided beneficial interest in the Subordinated Debentures) may be more volatile than other securities on which OID accrues that do not have such rights. See "United States Federal Income Taxation -- Original Issue Discount." SPECIAL EVENT REDEMPTION OR DISTRIBUTION Upon the occurrence of a Special Event, Illinois Power Financing I shall be terminated, except in the limited circumstance described below, with the result that, after satisfaction of liabilities to creditors, the Subordinated Debentures would be distributed to the holders of the Trust Securities in connection with the termination of Illinois Power Financing I. In the case of a Special Event that is a Tax Event, in certain circumstances Illinois Power shall have the right to redeem the Subordinated Debentures, in whole or in part, in lieu of a distribution of the Subordinated Debentures by Illinois Power Financing I; in which event Illinois Power Financing I will redeem the Trust Securities on a pro rata basis to the same extent as the Subordinated Debentures are redeemed by Illinois Power. See "Description of the Preferred Securities -- Special Event Redemption or Distribution." There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities if a termination of Illinois Power Financing I were to occur. Accordingly, the Preferred Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Subordinated Debentures that a holder of Preferred Securities may receive on termination of Illinois Power Financing I, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Because holders of Preferred Securities may receive Subordinated Debentures upon the occurrence of a Special Event, prospective purchasers of Preferred Securities are also making an investment decision with regard to the Subordinated Debentures and should carefully review all the information regarding the Subordinated Debentures contained herein. See "Description of the Preferred Securities -- Special Event Redemption or Distribution" and "Description of the Subordinated Debentures -- General." LIMITED VOTING RIGHTS Holders of Preferred Securities will have limited voting rights and will not be entitled to vote to appoint, remove or replace, or to increase or decrease the number of, Illinois Power Trustees (as defined herein), which voting rights are vested exclusively in the holder of the Common Securities. See "Description of the Preferred Securities -- Voting Rights." TRADING PRICE The Preferred Securities may trade at a price that does not fully reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debentures. A holder who disposes of his Preferred Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Subordinated Debentures through the date of disposition in income as ordinary income (i.e., OID), and to add such amount to his adjusted tax basis in his pro rata share of the underlying Subordinated Debentures deemed disposed of. To the extent the selling price is less than the holder's adjusted tax basis (which will include, in the form of OID, all accrued but unpaid interest), a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. See "United States Federal Income Taxation -- Original Issue Discount" and "-- Sales of Preferred Securities." 7 9 ILLINOIS POWER COMPANY Illinois Power was incorporated under the laws of Illinois on May 25, 1923. Effective May 27, 1994, Illinois Power became a subsidiary of Illinova Corporation ("Illinova"), 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 Illinois Power's Common Stock was converted into one share of common stock of Illinova. Illinois Power 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 310 incorporated municipalities, adjacent suburban and rural areas and numerous unincorporated municipalities having an estimated aggregate population of 1,265,000. Gas service is provided to 257 incorporated municipalities, adjacent suburban areas and numerous unincorporated municipalities having an estimated aggregate population of 920,000. 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 Illinois Power are located at 500 South 27th Street, Decatur, Illinois 62525, and Illinois Power's telephone number is (217) 424-6600. ILLINOIS POWER FINANCING I Illinois Power Financing I is a statutory business trust formed under Delaware law pursuant to (i) a declaration of trust, dated as of October 17, 1995, executed by Illinois Power, as sponsor (the "Sponsor"), and the trustees of Illinois Power Financing I (the "Illinois Power Trustees") and (ii) the filing of a certificate of trust with the Secretary of State of the State of Delaware on October 17, 1995. Such declaration will be amended and restated in its entirety (as so amended and restated, the "Declaration") substantially in the form filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Declaration will be qualified as an indenture under the Trust Indenture Act. Upon issuance of the Preferred Securities, the purchasers thereof will own all of the Preferred Securities. See "Description of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust Company." Illinois Power will directly or indirectly acquire Common Securities in an aggregate liquidation amount equal to approximately 3% of the total capital of Illinois Power Financing I. Illinois Power Financing I exists for the exclusive purposes of (i) issuing the Trust Securities representing undivided beneficial interests in the assets of Illinois Power Financing I, (ii) investing the gross proceeds of the Trust Securities in the Subordinated Debentures and (iii) engaging in only those other activities necessary, convenient or incidental thereto. Illinois Power Financing I has a term of approximately 55 years, but may terminate earlier as provided in the Declaration. Pursuant to the Declaration, the number of Illinois Power Trustees will initially be three. Two of the Illinois Power Trustees (the "Regular Trustees") will be persons who are employees or officers of or who are affiliated with Illinois Power. The third trustee will be a financial institution that maintains its principal place of business in the State of Delaware and is unaffiliated with Illinois Power, which trustee will serve as property trustee under the Declaration and as indenture trustee for the purposes of compliance with the provisions of the Trust Indenture Act (the "Property Trustee"). Initially, Wilmington Trust Company, a Delaware banking corporation, will be the Property Trustee until removed or replaced by the holder of the Common Securities. Wilmington Trust Company will also act as indenture trustee under the Guarantee for the purposes of compliance with the provisions of the Trust Indenture Act (the "Guarantee Trustee"). See "Description of the Preferred Securities Guarantee." The Property Trustee will hold title to the Subordinated Debentures for the benefit of the holders of the Trust Securities, and the Property Trustee will have the power to exercise all rights, powers and privileges under the Indenture (as defined herein) as the holder of the Subordinated Debentures. In addition, the Property Trustee will maintain exclusive control of a segregated non-interest bearing bank account (the "Property Account") to hold all payments made in respect of the Subordinated Debentures for the benefit of the holders of the Trust Securities. The Property Trustee will make payments of distributions and payments on liquidation, redemption and otherwise to the holders of the Trust Securities out of funds from the Property Account. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred 8 10 Securities. Illinois Power, as the direct or indirect holder of all the Common Securities, will have the right to appoint, remove or replace any Illinois Power Trustee and to increase or decrease the number of Illinois Power Trustees; provided, that (i) the number of Illinois Power Trustees shall be at least three, and (ii) at least two shall be Regular Trustees. Illinois Power will pay all fees and expenses related to Illinois Power Financing I and the offering of the Trust Securities. See "Description of the Subordinated Debentures -- Miscellaneous." The rights of the holders of the Preferred Securities, including rights to information and voting rights, are set forth in the Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust Indenture Act. See "Description of the Preferred Securities." 9 11 SUMMARY FINANCIAL INFORMATION OF ILLINOIS POWER (THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS) The following information is qualified in its entirety by the information appearing elsewhere in this Prospectus and by the information and financial statements incorporated in this Prospectus by reference.
12 MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------------------------ 1995 1990 1991 1992 1993(A) 1994(A) (UNAUDITED)(A)(B) ---------- ---------- ---------- ---------- ---------- ----------------- INCOME STATEMENT DATA Operating Revenues................ $1,469,480 $1,474,905 $1,479,449 $1,581,190 $1,589,465 $ 1,624,032 Net Income (Loss)................. (78,484) 109,244 122,088 (56,038) 180,242 205,357 Preferred Dividend Requirements... 36,839 30,866 28,854 26,123 24,834 25,827 Net Income (Loss) Applicable to Common Stock.................... (115,323) 78,378 93,234 (82,161) 161,767(f) 185,889(f) Ratio of Earnings to Fixed Charges(c)...................... 0.70(d) 1.85 2.02 0.80(d) 2.75 2.92 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements(c)................. 0.60(e) 1.48 1.61 0.70(e) 2.21 2.40
AT SEPTEMBER 30, 1995 ------------------------- ACTUAL AS ADJUSTED ---------- ----------- (UNAUDITED) CAPITALIZATION Long-Term Debt...................................................................... $1,738,664 $1,738,664 Preferred Stock (not subject to mandatory redemption)............................... 221,512 121,512 Company-obligated Mandatorily Redeemable Preferred Securities of Illinois Power Capital, L.P.(g) ................................................................. 97,000 97,000 Company-obligated Mandatorily Redeemable Preferred Securities of Illinois Power Financing I(h).................................................................... -- 100,000 Common Stock Equity................................................................. 1,516,921 1,516,921 ---------- ---------- Total Capitalization............................................................ $3,574,097 $3,574,097 ========== ==========
- ------------------------- (a) Subsequent to Illinois Power's merger with Illinova, net assets of Illinova Generating Company (formerly IP Group, Inc.) were transferred in the form of a dividend from the Company to Illinova. The income statement data contained herein has been restated to reflect the financial results of Illinois Power's current operations. (b) In the opinion of Illinois Power, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited twelve-month period ended September 30, 1995, 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 Illinois Power'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 years ended December 31, 1993 and 1990 of 0.80 and 0.70, respectively, indicate that earnings were inadequate to cover fixed charges. The dollar amounts of the coverage deficiency for the years ended 1993 and 1990 were approximately $37 million and $68 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 2.25 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. (e) The ratios of earnings to combined fixed charges and preferred stock dividend requirements for the years ended December 31, 1993 and 1990 of 0.70 and 0.60, 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 years ended 1993 and 1990 were approximately $63 million and $105 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 1.83 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. (f) Includes $6 million excess of carrying amount over consideration paid for redeemed preferred stock. (g) The sole asset of Illinois Power Capital, L.P. is the $100 million principal amount of 9.45% Subordinated Deferrable Interest Debentures due 2043 of Illinois Power. (h) As described in this Prospectus, the sole asset of Illinois Power Financing I will be the $103.1 million principal amount of Subordinated Debentures of Illinois Power. 10 12 ACCOUNTING TREATMENT The financial statements of Illinois Power Financing I will be reflected in Illinois Power's consolidated financial statements with the Preferred Securities shown as Company-obligated mandatorily redeemable preferred securities of Illinois Power Financing I holding subordinated debentures of Illinois Power. USE OF PROCEEDS All of the proceeds from the sale of the Preferred Securities will be invested by Illinois Power Financing I in Subordinated Debentures of Illinois Power issued pursuant to the Indenture therefor described herein and ultimately will be used by Illinois Power to purchase or redeem outstanding shares of preferred stock of Illinois Power, and for general corporate purposes. DESCRIPTION OF THE PREFERRED SECURITIES The Preferred Securities will be issued pursuant to the terms of the Declaration. The Declaration will be qualified as an indenture under the Trust Indenture Act. The Property Trustee, Wilmington Trust Company, will act as indenture trustee under the Declaration for purposes of compliance with the provisions of the Trust Indenture Act. The terms of the Preferred Securities will include those stated in the Declaration and those made part of the Declaration by the Trust Indenture Act. The following summary of the principal terms and provisions of the Preferred Securities does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Declaration (a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part) and the Trust Indenture Act. GENERAL The Declaration authorizes the Regular Trustees to issue on behalf of Illinois Power Financing I the Trust Securities, which represent undivided beneficial interests in the assets of Illinois Power Financing I. All of the Common Securities will be owned, directly or indirectly, by Illinois Power. The Common Securities rank pari passu, and payments will be made thereon on a pro rata basis, with the Preferred Securities, except that upon the occurrence of a Declaration Event of Default, the rights of the holders of the Common Securities to receive payment of periodic distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the Preferred Securities. The Declaration does not permit the issuance by Illinois Power Financing I of any securities other than the Trust Securities or the incurrence of any indebtedness by Illinois Power Financing I. Pursuant to the Declaration, the Property Trustee will own the Subordinated Debentures purchased by Illinois Power Financing I for the benefit of the holders of the Trust Securities. The payment of distributions out of money held by Illinois Power Financing I, and payments upon redemption of the Trust Securities or termination of Illinois Power Financing I, are guaranteed by Illinois Power to the extent described under "Description of the Preferred Securities Guarantee." The Guarantee will be held by Wilmington Trust Company, the Guarantee Trustee, for the benefit of the holders of the Preferred Securities. The Guarantee does not cover payment of distributions when Illinois Power Financing I does not have sufficient available funds to pay such distributions. In such event, the remedy of a holder of Preferred Securities is to vote to direct the Property Trustee to enforce the Property Trustees rights under the Subordinated Debentures. See "Description of the Preferred Securities -- Voting Rights." DISTRIBUTIONS Distributions on the Preferred Securities will be fixed at a rate per annum of % of the stated liquidation amount of $25 per Preferred Security. Distributions in arrears for more than one quarter will bear interest thereon at the rate per annum of % thereof compounded quarterly. The term "distribution" as used herein includes any such interest payable unless otherwise stated. The amount of distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. 11 13 Distributions on the Preferred Securities will be cumulative, will accrue from , 1995, and will be payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year, commencing December 31, 1995, when, as and if funds are available and determined to be so payable by the Property Trustee, except as otherwise described below. Illinois Power has the right under the Indenture to defer payments of interest on the Subordinated Debentures by extending the interest payment period from time to time on the Subordinated Debentures, which, if exercised, would defer quarterly distributions on the Preferred Securities (though such distributions would continue to accrue with interest since interest would continue to accrue on the Subordinated Debentures) during any such Extension Period. Such right to extend the interest payment period for the Subordinated Debentures is limited to a period not exceeding 20 consecutive quarters provided that no Extension Period shall last beyond the date of maturity of the Subordinated Debentures. In the event that Illinois Power exercises this right, then (a) Illinois Power shall not declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock, and (b) Illinois Power shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Illinois Power that rank pari passu with or junior to such Subordinated Debentures. Prior to the termination of any such Extension Period, Illinois Power may further extend the interest payment period; provided, that such Extension Period, together with all such previous and further extensions thereof, may not exceed 20 consecutive quarters or extend beyond the maturity date of the Subordinated Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, Illinois Power may select a new Extension Period, subject to the above requirements. See "Description of the Subordinated Debentures -- Interest" and "-- Option to Extend Interest Payment Period." If distributions are deferred, the deferred distributions and accrued interest thereon shall be paid to holders of record of the Preferred Securities as they appear on the books and records of Illinois Power Financing I on the record date next following the termination of such deferral period. Distributions on the Preferred Securities must be paid on the dates payable to the extent that Illinois Power Financing I has funds available for the payment of such distributions in the Property Account. Illinois Power Financing I's funds available for distribution to the holders of the Preferred Securities will be limited to payments received from Illinois Power on the Subordinated Debentures. See "Description of the Subordinated Debentures." The payment of distributions out of moneys held by Illinois Power Financing I is guaranteed by Illinois Power to the extent set forth under "Description of the Preferred Securities Guarantee." Distributions on the Preferred Securities will be payable to the holders thereof as they appear on the books and records of Illinois Power Financing I on the relevant record dates, which, as long as the Preferred Securities remain in book-entry only form, will be one Business Day (as defined herein) prior to the relevant payment dates. Such distributions will be paid through the Property Trustee who will hold amounts received in respect of the Subordinated Debentures in the Property Account for the benefit of the holders of the Trust Securities. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment will be made as described under "Book-Entry Only Issuance -- The Depository Trust Company" below. In the event that the Preferred Securities do not continue to remain in book-entry only form, the relevant record dates for the Preferred Securities shall conform to the rules of any securities exchange on which the securities are listed and, if none, shall be selected by the Regular Trustees, which dates shall be at least one Business Day but less than 60 Business Days prior to the relevant payment dates. In the event that any date on which distributions are to be made on the Preferred Securities is not a Business Day, then payment of the distributions 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 Saturday, Sunday or any other day on which banking institutions in New York City (in the State of New York) are permitted or required by any applicable law to close. MANDATORY REDEMPTION The Subordinated Debentures will mature on , 2044, and may be redeemed, in whole or in part, at any time on or after , 2000, or at any time in certain circumstances upon the occurrence of a Tax 12 14 Event (as defined herein). Upon the repayment of the Subordinated Debentures, whether at maturity or upon redemption, the proceeds from such repayment or payment shall simultaneously be applied to redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so repaid or redeemed at the Redemption Price; provided, that holders of Trust Securities shall be given not less than 30 nor more than 60 days notice of such redemption, except in the case of payments upon maturity. See "Description of the Subordinated Debentures -- Optional Redemption." In the event that fewer than all of the outstanding Preferred Securities are to be redeemed, the Preferred Securities will be redeemed pro rata as described under "Book -- Entry Only Issuance -- The Depository Trust Company" below. SPECIAL EVENT REDEMPTION OR DISTRIBUTION "Tax Event" means that the Regular Trustees shall have received an opinion of a nationally recognized independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") 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 or (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, in each case on or after the date of this Prospectus, there is more than an insubstantial risk that (i) Illinois Power Financing I is or within 90 days will be subject to United States federal income tax with respect to income accrued or received on the Subordinated Debentures, (ii) interest payable to Illinois Power Financing I on the Subordinated Debentures is or within 90 days will not be deductible by Illinois Power for United States federal income tax purposes or (iii) Illinois Power Financing I is or within 90 days will be subject to more than a de minimis amount of other taxes, duties or other governmental charges, which change or amendment becomes effective on or after the date of this Prospectus. "Investment Company Event" means that the Regular Trustees shall have received an opinion from independent counsel experienced in practice under the 1940 Act (as defined herein) to the effect that, as a result of 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"), there is more than an insubstantial risk that Illinois Power Financing I 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 the date of this Prospectus. If, at any time, a Tax Event or an Investment Company Event (each, as defined above, a "Special Event"), shall occur and be continuing, Illinois Power Financing I shall, except in the limited circumstances described below, be terminated with the result that, after satisfaction of liabilities to creditors, the Subordinated Debentures with an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accrued and unpaid distributions on, the Trust Securities, would be distributed to the holders of the Trust Securities in liquidation of such holders' interests in Illinois Power Financing I on a pro rata basis within 90 days following the occurrence of such Special Event; provided, however, that in the case of the occurrence of a Tax Event, that such termination and distribution shall be conditioned on (i) the Regular Trustees' receipt of an opinion of nationally recognized independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on published revenue rulings of the Internal Revenue Service, to the effect that the holders of the Trust Securities will not recognize any gain or loss for United States federal income tax purposes as a result of such termination of Illinois Power Financing I and such distribution of Subordinated Debentures and (ii) Illinois Power being unable to avoid such Tax Event within such 90-day period by taking some ministerial action or pursuing some other reasonable measure that will have no adverse effect on Illinois Power Financing I, Illinois Power or the holders of the Trust Securities. Furthermore, if after receipt of a Dissolution Tax Opinion by the Regular Trustees (i) Illinois Power has received an opinion (a "Redemption Tax Opinion") of nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that Illinois Power would be precluded from deducting 13 15 the interest on the Subordinated Debentures for United States federal income tax purposes, even after the Subordinated Debentures were distributed to the holders of Trust Securities in liquidation of such holders' interests in Illinois Power Financing I as described above, or (ii) the Regular Trustees shall have been informed by such tax counsel that it cannot deliver a No Recognition Opinion to Illinois Power Financing I, Illinois Power shall have the right, upon not less than 30 nor more than 60 days notice, to redeem the Subordinated Debentures, in whole or in part, for cash within 90 days following the occurrence of such Tax Event, and, following such redemption, Trust Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed shall be redeemed by Illinois Power Financing I at the Redemption Price on a pro rata basis; provided, however, that if at the time there is available to Illinois Power or Illinois Power Financing I the opportunity to eliminate, within such 90-day period, the Tax Event by taking some ministerial action, such as filing a form or making an election or pursuing some other similar reasonable measure that has no adverse effect on Illinois Power Financing I, Illinois Power or the holders of the Trust Securities, Illinois Power or Illinois Power Financing I will pursue such measure in lieu of redemption. If the Subordinated Debentures are distributed to the holders of the Preferred Securities, Illinois Power will use its best efforts to cause the Subordinated Debentures to be listed on the New York Stock Exchange or on such other exchange as the Preferred Securities are then listed. After the date for any distribution of Subordinated Debentures upon termination of Illinois Power Financing I, (i) the Preferred Securities will no longer be deemed to be outstanding, (ii) the Depositary (as defined herein) or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or certificates representing the Subordinated Debentures to be delivered upon such distribution, and (iii) any certificates representing Preferred Securities not held by the Depositary or its nominee will be deemed to represent beneficial interests in the Subordinated Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accrued and unpaid distributions on such Preferred Securities until such certificates are presented to Illinois Power or its agent for transfer or reissuance. There can be no assurance as to the market prices for either the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for the Preferred Securities if a termination of Illinois Power Financing I were to occur. Accordingly, the Preferred Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Subordinated Debentures that an investor may receive if a termination of Illinois Power Financing I were to occur, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. REDEMPTION PROCEDURES Illinois Power Financing I may not redeem fewer than all of the outstanding Preferred Securities unless all accrued and unpaid distributions have been paid on all Preferred Securities for all quarterly distribution periods terminating on or prior to the date of redemption. If Illinois Power Financing I gives a notice of redemption in respect of Preferred Securities (which notice will be irrevocable), then, by 12:00 noon, New York City time, on the redemption date, provided that Illinois Power has paid to the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Subordinated Debentures, Illinois Power Financing I will irrevocably deposit with the Depositary funds sufficient to pay the applicable Redemption Price and will give the Depositary irrevocable instructions and authority to pay the Redemption Price to the holders of the 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, immediately prior to the close of business on the date of such deposit, distributions will cease to accrue and all rights of holders of such Preferred Securities so called for redemption will cease, except the right of the holders of such Preferred Securities to receive the Redemption Price but without interest on such Redemption Price. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of any such 14 16 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 Preferred Securities is improperly withheld or refused and not paid either by Illinois Power Financing I, or by Illinois Power pursuant to the Guarantee, distributions on such 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. In the event that fewer than all of the outstanding Preferred Securities are to be redeemed, the Preferred Securities will be redeemed pro rata as described below under "Book-Entry Only Issuance -- The Depository Trust Company." Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), Illinois Power or its affiliates may at any time, and from time to time, purchase outstanding Preferred Securities by tender, in the open market or by private agreement. LIQUIDATION DISTRIBUTION UPON TERMINATION In the event of any voluntary or involuntary dissolution, winding-up or termination of Illinois Power Financing I (each, a "Liquidation"), then holders of the Preferred Securities will be entitled to receive out of the assets of Illinois Power Financing I, after satisfaction of liabilities to creditors, distributions in an amount equal to the aggregate of the stated liquidation amount of $25 per Preferred Security plus accrued and unpaid distributions thereon to the date of payment (the "Liquidation Distribution"), unless, in connection with such Liquidation, Subordinated Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accrued and unpaid distributions on, the Preferred Securities have been distributed on a pro rata basis to the holders of the Preferred Securities in exchange for such Preferred Securities. If, upon any such Liquidation, the Liquidation Distribution can be paid only in part because Illinois Power Financing I has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by Illinois Power Financing I on the Preferred Securities shall be paid on a pro rata basis. The holders of the Common Securities will be entitled to receive distributions upon any such Liquidation pro rata with the holders of the Preferred Securities, except that if a Declaration Event of Default has occurred and is continuing, the Preferred Securities shall have a preference over the Common Securities with regard to such distributions. Pursuant to the Declaration, Illinois Power Financing I shall terminate (i) on December 31, 2050, the expiration of the term of Illinois Power Financing I, (ii) upon the bankruptcy of Illinois Power or the holder of the Common Securities, (iii) upon the filing of a certificate of dissolution or its equivalent with respect to the holder of the Common Securities or Illinois Power, or the revocation of the charter of the holder of the Common Securities or Illinois Power and the expiration of 90 days after the date of revocation without a reinstatement thereof, (iv) upon the distribution of Subordinated Debentures upon the occurrence of a Special Event, (v) upon the entry of a decree of a judicial dissolution of the holder of the Common Securities, Illinois Power or Illinois Power Financing I, or (vi) upon the redemption of all the Trust Securities. DECLARATION EVENTS OF DEFAULT An event of default under the Indenture (an "Indenture Event of Default") constitutes an event of default under the Declaration with respect to the Trust Securities (a "Declaration Event of Default"); provided, that pursuant to the Declaration, the holder of the Common Securities will be deemed to have waived any Declaration Event of Default with respect to the Common Securities until all Declaration Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until such Declaration Events of Default with respect to the Preferred Securities have been so cured, waived, or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the holders of the Preferred Securities and only the holders of the Preferred Securities will have the right to direct the Property Trustee with respect to certain matters under the Declaration, and therefore the Indenture. 15 17 Upon the occurrence of a Declaration Event of Default, the Property Trustee, as the sole holder of the Subordinated Debentures, will have the right under the Indenture to declare the principal of and interest on the Subordinated Debentures to be immediately due and payable. Illinois Power and Illinois Power Financing I are each required to file annually with the Property Trustee an officer's certificate as to its compliance with all conditions and covenants under the Declaration. VOTING RIGHTS Except as described herein under "Description of the Preferred Securities Guarantee -- Amendments and Assignment" and as otherwise required by law and the Declaration, the holders of the Preferred Securities will have no voting rights. In the event that Illinois Power elects to defer payments of interest on the Subordinated Debentures as described above under "-- Distributions," the holders of the Preferred Securities do not have the right to appoint a special representative or trustee or otherwise act to protect their interests. Subject to the requirement of the Property Trustee obtaining a tax opinion in certain circumstances set forth in the last sentence of this paragraph, the holders of a majority in aggregate liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration including the right to direct the Property Trustee, as holder of the Subordinated Debentures, to (i) exercise the remedies available under the Indenture with respect to the Subordinated Debentures, (ii) waive any past Indenture Event of Default that is waivable under the Base Indenture (as defined herein), (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable, provided, however, that, where a consent or action under the Indenture would require the consent or act of holders of more than a majority in principal amount of the Subordinated Debentures (a "Super-Majority") affected thereby, only the holders of at least the proportion in liquidation amount of the Preferred Securities which the relevant Super-Majority represents of the aggregate principal amount of the Subordinated Debentures may direct the Property Trustee to give such consent or take such action. If the Property Trustee fails to enforce its rights under the Subordinated Debentures or the Declaration to the fullest extent permitted by law, a record holder of Preferred Securities may, after such holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against Illinois Power to enforce the Property Trustee's rights under the Subordinated Debentures or the Declaration without first instituting any legal proceeding against the Property Trustee or any other person or entity. The Property Trustee shall notify all holders of the Preferred Securities of any notice of default received from the Indenture Trustee with respect to the Subordinated Debentures. Such notice shall state that such Indenture Event of Default also constitutes a Declaration Event of Default. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the Property Trustee shall not take any of the actions described in clauses (i), (ii) or (iii) above unless the Property Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, Illinois Power Financing I will not fail to be classified as a grantor trust for United States federal income tax purposes and that each holder of Preferred Securities will not fail to be treated as owning an undivided beneficial interest in the Subordinated Debentures. In the event the consent of the Property Trustee, as the holder of the Subordinated Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Property Trustee shall request the direction of the holders of the Trust Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by 66 2/3% in liquidation amount of the Trust Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of a Super-Majority, the Property Trustee may only give such consent at the direction of the holders of at least the proportion in liquidation amount of the Trust Securities which the relevant Super-Majority represents of the aggregate principal amount of the Subordinated Debentures outstanding. The Property Trustee shall be under no obligation to take any such action in accordance with the directions of the holders of the Trust Securities unless the Property Trustee has obtained an opinion of tax counsel to the affect that for the purposes of United States federal income tax Illinois Power Financing I will not be classified as other than a grantor trust and that 16 18 each holder of Preferred Securities will not fail to be treated as owning an undivided beneficial interest in the Subordinated Debentures. A waiver of an Indenture Event of Default will constitute a waiver of the corresponding Declaration Event of Default. Any required approval or direction of holders of Preferred Securities may be given at a separate meeting of holders of Preferred Securities convened for such purpose, at a meeting of all of the holders of Trust Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be mailed to each holder of record of Preferred Securities. Each such notice will include a statement setting forth the following information: (i) the date of such meeting or the date by which such action is to be taken; (ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such matter upon which written consent is sought; and (iii) instructions for the delivery of proxies or consents. No vote or consent of the holders of Preferred Securities will be required for Illinois Power Financing I to redeem and cancel Preferred Securities or distribute Subordinated Debentures in accordance with the Declaration. Notwithstanding that holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned at such time by Illinois Power or any entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, Illinois Power, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if such Preferred Securities were not outstanding. The procedures by which holders of Preferred Securities may exercise their voting rights are described below. See "-- Book-Entry Only Issuance -- The Depository Trust Company" below. Holders of the Preferred Securities will have no rights to appoint or remove the Illinois Power Trustees, who may be appointed, removed or replaced solely by Illinois Power as the indirect or direct holder of all of the Common Securities. MODIFICATION OF THE DECLARATION The Declaration may be modified and amended if approved by the Regular Trustees (and in certain circumstances the Property Trustee or the Delaware Trustee), provided that, if any proposed amendment provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would materially adversely affect the powers, preferences or special rights of the holders of Trust Securities, whether by way of amendment to the Declaration or otherwise or (ii) the dissolution, winding-up or termination of Illinois Power Financing I other than pursuant to the terms of the Declaration, then the holders of the Trust Securities voting together as a single class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least 66 2/3% in liquidation amount of the Trust Securities affected thereby; provided, that, if any amendment or proposal referred to in clause (i) above would materially adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of 66 2/3% in liquidation amount of such class of Securities. Notwithstanding the foregoing, no amendment or modification may be made to the Declaration if such amendment or modification would (i) cause Illinois Power Financing I to be classified for purposes of United States federal income taxation as other than a grantor trust, (ii) reduce or otherwise materially adversely affect the powers of the Property Trustee or the Delaware Trustee or (iii) cause Illinois Power Financing I to be deemed an "investment company" which is required to be registered under the 1940 Act. MERGERS, CONSOLIDATIONS OR AMALGAMATIONS Illinois Power Financing I 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 Financing I may, with the consent of the Regular Trustees and 17 19 without the consent of the holders of the Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State; provided, that (i) such successor entity either (x) expressly assumes all of the obligations of Illinois Power Financing I under the Trust Securities or (y) substitutes for the Preferred Securities other securities having substantially the same terms as the Trust Securities (the "Successor Securities"), so long as the Successor Securities rank the same as the Trust Securities rank with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) Illinois Power expressly acknowledges a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the Subordinated Debentures, (iii) the 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 with another organization on which the Preferred Securities are then listed or quoted, (iv) such merger, consolidation, amalgamation or replacement does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity), (vi) such successor entity has a purpose identical to that of Illinois Power Financing I, (vii) prior to such merger, consolidation, amalgamation or replacement, Illinois Power has received an opinion of a nationally recognized independent counsel to Illinois Power Financing I experienced in such matters to the effect that, (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the holders of the Trust Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity), (B) following such merger, consolidation, amalgamation or replacement, neither Illinois Power Financing I nor such successor entity will be required to register as an investment company under the 1940 Act and (C) following such merger, consolidation, amalgamation or replacement, Illinois Power Financing I (or the Successor Entity) will continue to be classified as a grantor trust for United States federal income tax purposes, and each holder of the Trust Securities will be treated as owning an undivided beneficial interest in the Subordinated Debentures, and (viii) Illinois Power guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee and the Common Securities Guarantee. Notwithstanding the foregoing, Illinois Power Financing I shall not, except with the consent of holders of 100% in liquidation amount of the Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if such consolidation, amalgamation, merger or replacement would cause Illinois Power Financing I or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY The Depository Trust Company ("DTC") will act as securities depositary for the Preferred Securities. The 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 Preferred Securities certificates, representing the total aggregate number of Preferred Securities, will be issued and will be deposited with DTC. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive form. Such laws may impair the ability to transfer beneficial interests in the global Preferred Securities as represented by a global certificate. 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 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 18 20 corporations and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and by 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 transactions through or maintain a direct or indirect 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 Preferred Securities within the DTC system must be made by or through Direct Participants, which will receive a credit for the Preferred Securities on DTC's records. The ownership interest of each actual purchaser of each 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 Preferred Securities. Transfers of ownership interests in the 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 the Preferred Securities, except in the event that use of the book-entry system for the Preferred Securities is discontinued. To facilitate subsequent transfers, all the Preferred Securities deposited by Participants with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of Preferred Securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Preferred Securities. DTC's records reflect only the identity of the Direct Participants to whose accounts such 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 that may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Preferred Securities are being redeemed, DTC will reduce the amount of the interest of each Direct Participant in such Preferred Securities in accordance with its procedures. Although voting with respect to the 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 Preferred Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to Illinois Power Financing I as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. consenting or voting rights to those Direct Participants to whose accounts the Preferred Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Illinois Power and Illinois Power Financing I believe that the arrangements among DTC, Direct and Indirect Participants, and Beneficial Owners will enable the Beneficial Owners to exercise rights equivalent in substance to the rights that can be directly exercised by a holder of a beneficial interest in Illinois Power Financing I. Distribution payments on the 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, as is the case with securities held for the account of customers in bearer form or registered in "street name," and such payments will be the responsibility of such Participant and not of DTC, Illinois Power Financing I or Illinois Power, subject to any statutory or regulatory requirements to the contrary that may be in effect from time to time. Payment of distributions to DTC is the responsibility of Illinois Power Financing I, 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. 19 21 Except as provided herein, a Beneficial Owner will not be entitled to receive physical delivery of Preferred Securities. Accordingly, each Beneficial Owner must rely on the procedures of DTC to exercise any rights under the Preferred Securities. DTC may discontinue providing its services as securities depositary with respect to the Preferred Securities at any time by giving reasonable notice to Illinois Power Financing I. Under such circumstances, in the event that a successor securities depositary is not obtained, Preferred Securities certificates are required to be printed and delivered. Additionally, the Regular Trustees (with the consent of Illinois Power) may decide to discontinue use of the system of book-entry transfers through DTC (or any successor depositary) with respect to the Preferred Securities. In that event, certificates for the Preferred Securities will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Illinois Power and Illinois Power Financing I believe to be reliable, but neither Illinois Power nor Illinois Power Financing I takes responsibility for the accuracy thereof. INFORMATION CONCERNING THE PROPERTY TRUSTEE The Property Trustee, prior to the occurrence of a default with respect to the Trust Securities, undertakes to perform only such duties as are specifically set forth in the Declaration and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provisions, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Declaration at the request of any holder of Preferred Securities, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The holders of Preferred Securities will not be required to offer such indemnity in the event such holders, by exercising their voting rights, direct the Property Trustee to take any action following a Declaration Event of Default. PAYING AGENT In the event that the Preferred Securities do not remain in book-entry only form, the following provisions would apply: The Property Trustee will act as paying agent and may designate an additional or substitute paying agent at any time. Registration of transfers of Preferred Securities will be effected without charge by or on behalf of Illinois Power Financing I, but upon payment (with the giving of such indemnity as the Regular Trustees may require) in respect of any tax or other governmental charges that may be imposed in relation to it. Illinois Power Financing I will not be required to register or cause to be registered the transfer of Preferred Securities after such Preferred Securities have been called for redemption. GOVERNING LAW The Declaration and the Preferred Securities will be governed by, and construed in accordance with, the internal laws of the State of Delaware. MISCELLANEOUS The Regular Trustees are authorized and directed to operate Illinois Power Financing I in such a way so that Illinois Power Financing I will not be required to register as an "investment company" under the 1940 Act or characterized as other than a grantor trust for United States federal income tax purposes and so that each holder of Preferred Securities will be treated as owning an undivided beneficial interest in the Subordinated Debentures. Illinois Power is authorized and directed to conduct its affairs so that the Subordinated Debentures will be treated as indebtedness of Illinois Power for United States federal income tax purposes. In this connection, Illinois Power and the Regular Trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust of Illinois Power Financing I or the certificate of 20 22 incorporation of Illinois Power, that each of Illinois Power and the Regular Trustees determine in their discretion to be necessary or desirable to achieve such end, as long as such action does not materially adversely affect the interests of the holders of the Preferred Securities or vary the terms thereof. Holders of the Preferred Securities have no preemptive rights. DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE Set forth below is a summary of information concerning the Guarantee that will be executed and delivered by Illinois Power for the benefit of the holders from time to time of the Preferred Securities. The Guarantee will be qualified as an indenture under the Trust Indenture Act. Wilmington Trust Company will act as the Guarantee Trustee. The terms of the Guarantee will be those set forth therein and those made part thereof by the Trust Indenture Act. 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 Guarantee, which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part and the Trust Indenture Act. The Guarantee will be held by the Guarantee Trustee for the benefit of the holders of the Preferred Securities. GENERAL Pursuant to the Guarantee, Illinois Power will irrevocably and unconditionally agree, to the extent set forth therein, to pay in full to the holders of the Preferred Securities the Guarantee Payments (as defined herein) (without duplication of amounts theretofore paid by Illinois Power Financing I), to the extent not paid by Illinois Power Financing I, regardless of any defense, right of set-off or counterclaim that Illinois Power Financing I may have or assert. The following payments or distributions with respect to the Preferred Securities to the extent not paid or made by Illinois Power Financing I (the "Guarantee Payments") will be subject to the Guarantee (without duplication): (i) any accrued and unpaid distributions that are required to be paid on the Preferred Securities, to the extent Illinois Power Financing I has funds available therefor, (ii) the Redemption Price, including all accrued and unpaid distributions to the date of the redemption, to the extent Illinois Power Financing I has funds available therefore, with respect to any Preferred Securities called for redemption by Illinois Power Financing I and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of Illinois Power Financing I (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities in exchange for Preferred Securities), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid distributions on the Preferred Securities to the date of payment, to the extent Illinois Power Financing I has funds available therefor, and (b) the amount of assets of Illinois Power Financing I remaining available for distribution to holders of Preferred Securities in termination of Illinois Power Financing I. Illinois Power's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by Illinois Power to the holders of Preferred Securities or by causing Illinois Power Financing I to pay such amounts to such holders. The Guarantee will be a guarantee of the Guarantee Payments with respect to the Preferred Securities from the time of issuance of the Preferred Securities, but will not apply to the payment of distributions and other payments on the Preferred Securities when the Property Trustee does not have sufficient funds in the Property Account to make such distributions or other payments. If Illinois Power does not make interest payments on the Subordinated Debentures held by the Property Trustee, Illinois Power Financing I will not make distributions on the Preferred Securities issued by Illinois Power Financing I and will not have funds available therefor. See "Description of the Subordinated Debentures -- Certain Covenants." Illinois Power will also agree separately to irrevocably and unconditionally guarantee the obligations of Illinois Power Financing I with respect to the Common Securities (the "Common Securities Guarantee") to the same extent as the Guarantee, except that upon the occurrence and during the continuation of an Indenture Event of Default, holders of Preferred Securities shall have priority over holders of Common Securities with respect to distributions and payments on liquidation, redemption or otherwise. 21 23 CERTAIN COVENANTS OF ILLINOIS POWER In the Guarantee, Illinois Power will covenant that, so long as the Preferred Securities remain outstanding, if there shall have occurred and is continuing any event that would constitute an event of default under the Guarantee or the Declaration, then (a) Illinois Power shall not declare or pay any dividend on, or make any distribution with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock, provided, however, Illinois Power may declare and pay a stock dividend where the dividend stock is the same stock as that on which the dividend is being paid, (b) Illinois Power shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities (including guarantees) issued by Illinois Power which rank pari passu with or junior to the Subordinated Debentures, and (c) Illinois Power shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantee). AMENDMENTS AND ASSIGNMENT Except with respect to any changes which do not materially adversely affect the rights of holders of Preferred Securities (in which case no vote will be required), the Guarantee may be amended only with the prior approval of the holders of not less than 66 2/3% in liquidation amount of the outstanding Preferred Securities. The manner of obtaining any such approval of holders of the Preferred Securities is set forth under "Description of the Preferred Securities -- Voting Rights." All guarantees and agreements contained in the Guarantee shall bind the successors, assigns, receivers, trustees and representatives of Illinois Power and shall inure to the benefit of the Guarantee Trustee and 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 upon full payment of the Redemption Price of all Preferred Securities, or upon distribution of the Subordinated Debentures to the holders of the Preferred Securities, and will terminate completely upon full payment of the amounts payable upon termination of Illinois Power Financing I. See "Description of the Subordinated Debentures -- Indenture Events of Default" for a description of the events of default and enforcement rights of the holders of Subordinated Debentures. 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 must repay to Illinois Power Financing I or Illinois Power, or their successors, any sums paid to them under such Preferred Securities or the Guarantee. EVENTS OF DEFAULT An event of default under the Guarantee will occur upon the failure of Illinois Power to perform any of its payment or other obligations thereunder. The holders of a majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred Securities may institute a legal proceeding directly against Illinois Power to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against Illinois Power Financing I, the Guarantee Trustee or any other person or entity. STATUS OF THE GUARANTEE Illinois Power's obligations under the Guarantee to make the Guarantee Payments will constitute an unsecured obligation of Illinois Power and will rank (i) subordinate and junior in right of payment to all other liabilities of Illinois Power, including the Subordinated Debentures, except those liabilities of Illinois Power made pari passu or subordinate by their terms, (ii) pari passu with the most senior preferred stock now or hereafter issued by Illinois Power and with any guarantee now or hereafter entered into by Illinois Power in respect of any preferred stock of any affiliate of Illinois Power, and (iii) senior to Illinois Power's common 22 24 stock. The terms of the Preferred Securities provide 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 (that is, the guaranteed party may institute a legal proceeding directly against the guarantor to enforce its rights under the guarantee without instituting a legal proceeding against any other person or entity). The Guarantee will be deposited with the Guarantee Trustee to be held for the benefit of the holders of the Preferred Securities. Except as otherwise noted herein, the Guarantee Trustee has the right to enforce the Guarantee on behalf of the holders of the Preferred Securities. The Guarantee will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by Illinois Power Financing I). INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, prior to the occurrence of a default with respect to the Guarantee and after the curing of all such defaults that may have occurred, undertakes to perform only such duties as are specifically set forth in the Guarantee and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provisions, the Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Guarantee at the request of any holder of Preferred Securities, unless offered reasonable indemnity against the costs, expenses and liabilities which might be incurred thereby; but the foregoing shall not relieve the Guarantee Trustee, upon the occurrence of an event of default under the Guarantee from exercising the rights and powers vested in it by the Guarantee. The Guarantee Trustee also serves as Property Trustee and Indenture Trustee. GOVERNING LAW The Guarantee will be governed by, and construed in accordance with, the internal laws of the State of Illinois. DESCRIPTION OF THE SUBORDINATED DEBENTURES Set forth below is a description of the terms of the Subordinated Debentures in which Illinois Power Financing I will invest the proceeds from the issuance and sale of the Trust Securities. The following description does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Indenture, dated as of , 1995, (the "Base Indenture") between Illinois Power and Wilmington Trust Company, as Trustee (the "Indenture Trustee"), as supplemented by a First Supplemental Indenture, dated as of , 1995 (the Base Indenture, as so supplemented, is hereinafter referred to as the "Indenture"), the forms of which are filed as Exhibits to the Registration Statement of which this Prospectus forms a part. The terms of the Subordinated Debentures will include those stated in the Indenture and those made a part of the Indenture by reference to the Trust Indenture Act. Certain capitalized terms used herein are defined in the Indenture. Under certain circumstances involving the termination of Illinois Power Financing I following the occurrence of a Special Event, Subordinated Debentures may be distributed to the holders of the Trust Securities. See "Description of the Preferred Securities -- Special Event Redemption or Distribution." If the Subordinated Debentures are distributed to the holders of the Preferred Securities, Illinois Power will use its best efforts to have the Subordinated Debentures listed on the New York Stock Exchange or on such other national securities exchange or similar organization on which the Preferred Securities are then listed or quoted. GENERAL The Subordinated Debentures will be issued as unsecured subordinated debt under the Indenture. The Subordinated Debentures will be limited in aggregate principal amount to $103,100,000, such amount being the sum of the aggregate stated liquidation amount of the Preferred Securities and the contributions made by Illinois Power in exchange for the Common Securities (the "Illinois Power Payment"). 23 25 The Amended and Restated Articles of Incorporation of Illinois Power limit the amount of unsecured indebtedness that Illinois Power 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 Illinois Power and the capital and surplus of Illinois Power as then stated on Illinois Power's books. At September 30, 1995, Illinois Power could have issued approximately $308 million of unsecured indebtedness (such as the Subordinated Debentures) without violating this provision. The Subordinated Debentures are not subject to a sinking fund provision. The entire principal amount of the Subordinated Debentures will mature and become due and payable, together with any accrued and unpaid interest thereon including Compound Interest (as defined herein) and Additional Interest (as defined herein), if any, on , 2044. If Subordinated Debentures are distributed to holders of Preferred Securities in liquidation of such holders' interests in Illinois Power Financing I, such Subordinated Debentures will initially be issued as a Global Security (as defined herein). As described herein, under certain limited circumstances, Subordinated Debentures may be issued in certificated form in exchange for a Global Security. See "-- Book-Entry and Settlement" below. In the event that Subordinated Debentures are issued in certificated form, such 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 Subordinated Debentures issued as a Global Security will be made to DTC, a successor depositary or, in the event that no depositary is used, to a Paying Agent for the Subordinated Debentures. In the event Subordinated Debentures are issued in certificated form, principal and interest will be payable, the transfer of the Subordinated Debentures will be registrable and Subordinated Debentures will be exchangeable for Subordinated Debentures of other denominations of a like aggregate principal amount at the corporate trust office of the Indenture Trustee in Wilmington, Delaware; provided, that payment of interest may be made at the option of Illinois Power by check mailed to the address of the persons entitled thereto. The Indenture does not contain provisions that afford holders of the Subordinated Debentures protection in the event of a highly leveraged transaction involving Illinois Power. SUBORDINATION The Indenture provides that the Subordinated Debentures are subordinated and junior in right of payment to all Senior Indebtedness of Illinois Power, whether now existing or hereafter incurred. No payment of principal (including redemption payments, if any), premium, if any, or interest on, the Subordinated Debentures may be made if (i) any Senior Indebtedness of Illinois Power is not paid when due, and any applicable grace period with respect to such default has ended and such default has not been cured or waived or ceased to exist, or (ii) the maturity of any Senior Indebtedness of Illinois Power has been accelerated because of a default. Upon any distribution of assets of Illinois Power to creditors upon any dissolution, winding-up, liquidation or reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all principal, premium, if any, and interest due or to become due on all Senior Indebtedness of Illinois Power must be paid in full before the holders of Subordinated Debentures are entitled to receive or retain any payment. Upon satisfaction of all claims of all Senior Indebtedness then outstanding, the rights of the holders of the Subordinated Debentures will be subrogated to the rights of the holders of Senior Indebtedness of Illinois Power 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" means, with respect to Illinois Power, (i) the principal, premium, if any, interest on and any other payment in respect of (A) indebtedness of Illinois Power for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by Illinois Power, including, without limitation, indebtedness evidenced by securities issued pursuant to its Mortgage and Deed of Trust dated November 1, 1943, as supplemented, and its General Mortgage Indenture and Deed of Trust dated as of November 1, 1992, (ii) all capital lease obligations of Illinois Power, (iii) all obligations of Illinois Power issued or assumed as the deferred purchase price of property, all conditional sale obligations of 24 26 Illinois Power and all obligations of Illinois Power under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of Illinois Power for the reimbursement on any letter of credit, banker's acceptance, security purchase facility or similar credit transaction, (v) all obligations of the type referred to in clauses (i) through (iv) above of other persons for the payment of which Illinois Power is responsible or liable as obligor, guarantor or otherwise and (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons secured by any lien on any property or asset of Illinois Power (whether or not such obligation is assumed by Illinois Power), except for (1) any such indebtedness that is by its terms subordinated to or pari passu with the Subordinated Debentures and (2) any indebtedness between or among Illinois Power or its affiliates, including all other debt securities and guarantees in respect of those debt securities, issued to any other trust, or a trustee of such trust, partnership or other entity affiliated with Illinois Power that is a financing vehicle of Illinois Power (a "financing entity") in connection with the issuance by such financing entity of Preferred Securities or other securities that rank pari passu with, or junior to, the Preferred Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness and be entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Indebtedness. In October 1994, Illinois Power issued $100 million of Series A Subordinated Debentures to Illinois Power Capital, L.P., a financing entity which issued cumulative monthly income preferred securities that rank pari passu with the Preferred Securities. The Indenture does not limit the aggregate amount of Senior Indebtedness that may be issued by Illinois Power. As of September 30, 1995, Senior Indebtedness of Illinois Power aggregated approximately $2.2 billion. CERTAIN COVENANTS If (i) there shall have occurred any event that would constitute an Indenture Event of Default or (ii) Illinois Power shall be in default with respect to its payment of any obligations under the Guarantee or the Common Securities Guarantee, then (a) Illinois Power shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase or make a liquidation payment with respect to, any of its capital stock, provided, however, Illinois Power may declare and pay a stock dividend where the dividend stock is the same stock as that on which the dividend is being paid, (b) Illinois Power shall not make any payment of interest, principal or premium, if any on or repay, repurchase or redeem any debt securities issued by Illinois Power which rank pari passu with or junior to the Subordinated Debentures, and (c) Illinois Power shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantee). If Illinois Power shall have given notice of its election of an Extension Period as provided in the Indenture and such period, or any extension thereof, shall be continuing, then (a) Illinois Power shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase or make a liquidation payment with respect to, any of its capital stock, provided, however, Illinois Power may declare and pay a stock dividend where the dividend stock is the same stock as that on which the dividend is being paid, (b) Illinois Power shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities (including guarantees) issued by Illinois Power which rank pari passu with or junior to the Subordinated Debentures, and (c) Illinois Power shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantee). For so long as the Trust Securities remain outstanding, Illinois Power will covenant (i) to directly or indirectly maintain 100% direct or indirect ownership of the Common Securities of the Trust; provided, however, that any permitted successor of Illinois Power under the Indenture may succeed to Illinois Power's ownership of such Common Securities, (ii) not to cause, as sponsor of Illinois Power Financing I, or to permit, as holder of the Common Securities, the dissolution, winding-up or termination of Illinois Power Financing I, except in connection with a distribution of the Subordinated Debentures as provided in the Declaration and in connection with certain mergers, consolidations or amalgamation and (iii) to use its reasonable efforts to cause Illinois Power Financing I (a) to remain a statutory business trust, except in connection with the distribution of Subordinated Debentures to the holders of Trust Securities in termination of Illinois Power Financing I, the redemption of all of the Trust Securities of Illinois Power Financing I, or certain mergers, 25 27 consolidations or amalgamations, each as permitted by the Declaration, and (b) to otherwise continue to be classified as a grantor trust for United States federal income purposes with each holder of Preferred Securities being treated as owning an undivided beneficial interest in the Subordinated Debentures. OPTIONAL REDEMPTION Illinois Power shall have the right to redeem the Subordinated Debentures, in whole or in part, from time to time, on or after , 2000, or at any time in certain circumstances upon the occurrence of a Special Event as described under "Description of the Preferred Securities -- Special Event Redemption or Distribution," 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. If a partial redemption of the Preferred Securities resulting from a partial redemption of the Subordinated Debentures would result in the delisting of the Preferred Securities by such exchange on which the Preferred Securities are then listed, Illinois Power may only redeem the Subordinated Debentures in whole. INTEREST Each Subordinated Debenture shall bear interest at the rate of % per annum from the original date of issuance, payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year (each an "Interest Payment Date"), commencing December 31, 1995, to the person in whose name such 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 Subordinated Debentures shall not continue to remain in book-entry only form, Illinois Power 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. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on the Subordinated Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, then 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 Illinois Power shall have the right at any time, and from time to time, during the term of the Subordinated Debentures to defer payments of interest by extending the interest payment period for a period not exceeding 20 consecutive quarters, at the end of which Extension Period, Illinois Power shall pay all interest then accrued and unpaid (including any Additional Interest) together with interest thereon compounded quarterly at the rate specified for the Subordinated Debentures to the extent permitted by applicable law ("Compound Interest"); provided, that during any such Extension Period, (a) Illinois Power shall not declare or pay dividends on, make any distribution with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to any of its capital stock, provided, however, Illinois Power may declare and pay a stock dividend where the dividend stock is the same stock as that on which the dividend is being paid, (b) Illinois Power shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by Illinois Power that rank pari passu with or junior to the Subordinated Debentures, and (c) Illinois Power shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantee). Prior to the termination of any such Extension Period, Illinois Power may further defer payments of interest by extending the interest payment period; provided, however, that, such Extension Period, including all such previous and further extensions, may not exceed 20 consecutive quarters or extend beyond the maturity of the Subordinated Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, Illinois Power may commence a new Extension Period, subject to the terms set forth in this section. No interest during an Extension Period, except 26 28 at the end thereof, shall be due and payable. Illinois Power has no present intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. If the Property Trustee shall be the sole holder of the Subordinated Debentures, Illinois Power shall give the Regular Trustees and the Property Trustee notice of its election of such Extension Period one Business Day prior to the earlier of (i) the date distributions on the Preferred Securities are payable or (ii) the date the Regular Trustees are required to give notice to the New York Stock Exchange (or other applicable self-regulatory organization) or to holders of the Preferred Securities of the record date or the date such distribution is payable. The Regular Trustees shall give notice of Illinois Power's selection of such Extension Period to the holders of the Preferred Securities. If the Property Trustee shall not be the sole holder of the Subordinated Debentures, Illinois Power shall give the holders of the Subordinated Debentures notice of its election of such Extension Period ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the date upon which Illinois Power is required to give notice to the New York Stock Exchange (or other applicable self- regulatory organization) or to holders of the Subordinated Debentures of the record or payment date of such related interest payment. ADDITIONAL INTEREST If at any time Illinois Power Financing I or the Property Trustee shall 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, Illinois Power will pay as additional interest ("Additional Interest") such additional amounts as shall be required so that the net amounts received and retained by Illinois Power Financing I after paying any such taxes, duties, assessments or other governmental charges will be not less than the amounts Illinois Power Financing I and the Property Trustee would have received had no such taxes, duties, assessments or other governmental charges been imposed. INDENTURE EVENTS OF DEFAULT In case any Indenture Event of Default shall occur and be continuing, the Property Trustee, as the holder of the Subordinated Debentures, will have the right to declare the principal of and the interest on the Subordinated Debentures (including any Compound Interest and Additional Interest, if any) 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 Subordinated Debentures. 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 the Subordinated Debentures: (a) failure for 30 days to pay interest on the Subordinated Debentures, including any Additional Interest in respect thereof, when due; provided, however, that a valid extension of the interest payment period by Illinois Power shall not constitute a default in the payment of interest for this purpose; or (b) failure to pay principal or premium, if any, on the Subordinated Debentures when due whether at maturity, upon earlier redemption or otherwise; or (c) failure to observe or perform any other covenant or agreement (other than those specifically relating to another series of subordinated debt securities) contained in the Indenture or established pursuant thereto for 90 days after written notice to Illinois Power from the Indenture Trustee or the holders of at least 25% in principal amount of the outstanding Subordinated Debentures; or (d) certain events of bankruptcy, insolvency or reorganization of Illinois Power; or (e) the voluntary or involuntary dissolution, winding-up or termination of Illinois Power Financing I, except in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities upon termination of Illinois Power Financing I, the redemption of all outstanding Trust Securities of Illinois Power Financing I and certain mergers, consolidations or amalgamations permitted by the Declaration. 27 29 The holders of a majority in aggregate outstanding principal amount of the Subordinated Debentures have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Indenture Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Subordinated Debentures may declare the principal due and payable immediately on default, but the holders of a majority in aggregate outstanding principal amount 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 due otherwise than by acceleration and any applicable premium has been deposited with the Indenture Trustee. The holders of a majority in aggregate outstanding principal amount of the Subordinated Debentures affected thereby may, on behalf of the holders of all the Subordinated Debentures, waive any past default, except (i) a default in the payment of principal, premium, if any, or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration and any applicable premium has been deposited with the Indenture Trustee) or (ii) a default in the covenant of Illinois Power not to declare or pay dividends on, or make distributions with respect to, or redeem, purchase or acquire any of its capital stock during an Extension Period. An Indenture Event of Default also constitutes a Declaration Event of Default. The holders of Preferred Securities in certain circumstances have the right to direct the Property Trustee to exercise its rights as the holder of the Subordinated Debentures. See "Description of the Preferred Securities -- Declaration Events of Default" and "-- Voting Rights." BOOK-ENTRY AND SETTLEMENT If distributed to holders of Preferred Securities in connection with the involuntary or voluntary dissolution, winding-up or termination of Illinois Power Financing I as a result of the occurrence of a Special Event, the Subordinated Debentures will be issued in the form of one or more global certificates (each a "Global Security") registered in the name of the Depositary or its nominee. Except under the limited circumstances described below, Subordinated Debentures represented by the Global Security will not be exchangeable for, and will not otherwise be issuable as, Subordinated Debentures in definitive form. The Global Securities described above may not be transferred except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or to a successor depositary 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 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 Subordinated Debentures shall be exchangeable, except for another Global Security of like denomination and tenor to be registered in the name of the Depositary or its nominee or to a successor Depositary or its nominee. Accordingly, each Beneficial Owner must rely on the procedures of the Depositary or 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 DEPOSITARY If Subordinated Debentures are distributed to holders of Preferred Securities in liquidation of such holders' interests in Illinois Power Financing I, DTC will act as securities depositary (the "Depositary") for the Subordinated Debentures. For a description of DTC and the specific terms of the depositary arrangements, see "Description of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust Company." As of the date of this Prospectus, 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 Preferred Securities apply in all material respects to any debt obligations represented by one or more Global Securities held by 28 30 DTC. Illinois Power may appoint a successor to DTC or any successor depositary in the event DTC or such successor depositary is unable or unwilling to continue as a depositary for the Global Securities. None of Illinois Power, Illinois Power Financing I, the Indenture Trustee, any paying agent and any other agent of Illinois Power or the Indenture 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 Subordinated Debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. DISCONTINUANCE OF THE DEPOSITARY'S SERVICES A Global Security shall be exchangeable for Subordinated Debentures registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies Illinois Power that it is unwilling or unable to continue as a depositary for such Global Security and no successor depositary shall have been appointed, (ii) the Depositary, at any time, ceases to be a clearing agency registered under the Exchange Act at which time the Depositary is required to be so registered to act as such depositary and no successor depositary shall have been appointed or (iii) Illinois Power, in its sole discretion, determines that such Global Security shall be so exchangeable. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Subordinated Debentures registered in such names as the Depositary shall direct. It is expected that such instructions will be based upon directions received by the Depositary from its Participants with respect to ownership of beneficial interests in such Global Security. In the event the Subordinated Debentures are not represented by one or more Global Securities, certificates evidencing 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 Security Registrar or at the office of any transfer agent designated by Illinois Power for such purpose with respect to the Subordinate Debentures without service charge and upon payment of any taxes and other governmental charges as described in the Indenture. Such transfer or exchange will be effected upon the Security Registrar or such transfer agent, as the case may be, being satisfied with the documents of title and identity of the person making the request. Illinois Power has appointed the Indenture Trustee as Security Registrar with respect to the Subordinated Debentures. Illinois Power may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, except that Illinois Power will be required to maintain a transfer agent at the place of payment. Illinois Power may at any time designate additional transfer agents with respect to the Subordinated Debentures. In the event of any redemption in part, Illinois Power shall not be required to (i) issue, exchange or register the transfer of Subordinated Debentures during a period beginning at the opening of business 15 days before the date of the mailing of a notice of redemption of less than all of the Subordinated Debentures and ending at the close of business on the date of such mailing and (ii) register the transfer of or exchange any Subordinated Debentures so selected for redemption, in whole or in part, except the unredeemed portion of any Subordinated Debentures being redeemed in part. MODIFICATION OF THE INDENTURE The Indenture contains provisions permitting Illinois Power and the Indenture Trustee, with the consent of the holders of at least 66 2/3% in principal amount of the Subordinated Debentures, to modify the Indenture or any supplemental indenture affecting that series or the rights of the holders of the Subordinated Debentures; provided that no such modification may, without the consent of the holder of each outstanding Subordinated Debentures affected thereby, (i) extend the fixed maturity of the Subordinated Debentures, 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 the Subordinated Debentures 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. 29 31 In addition, Illinois Power and the Indenture Trustee may execute, without the consent of holders of the Subordinated Debentures, any supplemental indenture for certain other usual purposes including the creation of any new series of subordinated debt securities. CONSOLIDATION, MERGER AND SALE The Indenture does not contain any covenant which restricts Illinois Power'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, Illinois Power will be discharged from any and all obligations in respect of the Subordinated Debentures (except in each case for certain obligations with respect to denominations and provisions for payment of the Subordinated Debentures and 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 Illinois Power (i) deposits with the Indenture Trustee, in trust, moneys or governmental obligations, in an amount sufficient to pay all the principal of, and interest on, the Subordinated Debentures on the dates such payments are due in accordance with the terms of such Subordinated Debentures and (ii) delivered to the Indenture Trustee an opinion of counsel to the effect that, based upon Illinois Power's receipt from, or the publication by, the Internal Revenue Service of a ruling or a change in law, the holders of the Subordinated Debentures will not recognize income, gain or loss for United States federal income tax purposes as a result of the deposit, defeasance and discharge and will be subject to United States federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance or discharge had not occurred. GOVERNING LAW The Indenture and the Subordinated Debentures will be governed by, and construed in accordance with, the internal laws of the State of New York. INFORMATION CONCERNING THE INDENTURE TRUSTEE The Indenture Trustee, prior to default, undertakes to perform only such duties as are specifically set forth in the Indenture and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provision, the Indenture 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; but the foregoing shall not relieve the Indenture Trustee, upon the occurrence of an Indenture Event of Default, from exercising the rights and powers vested in it by the Indenture. The Indenture 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 Indenture Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. MISCELLANEOUS Illinois Power 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 Illinois Power; provided that, in the event of any such assignment, Illinois Power will remain liable for all of their 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. The Indenture will provide that Illinois Power will pay all fees and expenses related to (i) the offering of the Trust Securities and the Subordinated Debentures, (ii) the organization, maintenance and dissolution of Illinois Power Financing I, (iii) the taxes of Illinois Power Financing I (other than United States withholding 30 32 taxes attributable to Illinois Power Financing I or its assets), (iv) the retention of the Illinois Power Trustees and (v) the enforcement by the Property Trustee of the rights of holders of Preferred Securities. EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBENTURES AND THE GUARANTEE As set forth in the Declaration, the sole purpose of Illinois Power Financing I is to issue the Trust Securities evidencing undivided beneficial interests in the assets of Illinois Power Financing I and to invest the proceeds from such issuance and sale in the Subordinated Debentures. As long as payments of interest and other payments are made when due on the Subordinated Debentures, such payments will be sufficient to cover distributions and payments due on the Trust Securities because of the following factors: (i) the aggregate principal amount of Subordinated Debentures will be equal to the sum of the aggregate liquidation amount of the Trust Securities; (ii) the interest rate and the interest and other payment dates on the Subordinated Debentures will match the distribution rate and distribution and other payment dates for the Preferred Securities; (iii) Illinois Power shall pay all, and Illinois Power Financing I shall not be obligated to pay, directly or indirectly, any costs and expenses of Illinois Power Financing I; and (iv) the Declaration further provides that the Illinois Power Trustees shall not cause or permit Illinois Power Financing I to, among other things, engage in any activity that is not consistent with the purposes of Illinois Power Financing I. Payments of distributions (to the extent funds therefor are available) and other payments due on the Preferred Securities (to the extent funds therefor are available) are guaranteed by Illinois Power as and to the extent set forth under "Description of the Preferred Securities Guarantee." If Illinois Power does not make interest payments on the Subordinated Debentures purchased by Illinois Power Financing I, Illinois Power Financing I will not have sufficient funds to pay distributions on the Preferred Securities. The Guarantee is a guarantee from the time of its issuance but does not apply to any payment of distributions unless and until Illinois Power Financing I has sufficient funds for the payment of such distributions. If Illinois Power fails to make interest or other payments on the Subordinated Debentures when due (taking into account any Extension Period), the Declaration provides a mechanism whereby the holders of the Preferred Securities, using the procedures described in "Description of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust Company" and "-- Voting Rights," may direct the Property Trustee to enforce its rights under the Subordinated Debentures. If the Property Trustee fails to enforce its rights under the Subordinated Debentures to the fullest extent permitted by law, a holder of Preferred Securities may institute a legal proceeding against Illinois Power to enforce the Property Trustee's rights under the Subordinated Debentures without first instituting any legal proceeding against the Property Trustee or any other person or entity. If Illinois Power fails to make payments under the Guarantee, the Guarantee provides a mechanism whereby the holders of the Preferred Securities may direct the Guarantee Trustee to enforce its rights thereunder. If the Guarantee Trustee fails to enforce the Guarantee, any holder of Preferred Securities may institute a legal proceeding directly against Illinois Power to enforce the Guarantee Trustee's rights under the Guarantee without first instituting a legal proceeding against Illinois Power Financing I, the Guarantee Trustee, or any other person or entity. Illinois Power, under the Guarantee, acknowledges that the Guarantee Trustee shall enforce the Guarantee on behalf of the holders of the Preferred Securities. The obligations of Illinois Power with respect to the Preferred Securities under the Subordinated Debentures, the Indenture, the Guarantee and the Declaration (including its obligation to pay the expenses of Illinois Power Financing I), taken together, are equivalent to a full and unconditional guarantee by Illinois Power of payments due on the Preferred Securities. See "Description of the Preferred Securities Guarantee -- General." 31 33 UNITED STATES FEDERAL INCOME TAXATION GENERAL The following is a summary of certain of the material United States federal income tax consequences of the purchase, ownership and disposition of Preferred Securities to a holder that is a citizen or resident of the United States, a corporation, partnership or other entity created or organized under the laws of the United States or any state thereof or the District of Columbia, or an estate or trust the income of which is subject to United States federal income taxation regardless of its source. Unless otherwise stated, this summary deals only with Preferred Securities held as capital assets by holders who purchase the Preferred Securities upon original issuance ("Initial Holders"). It does not deal with special classes of holders such as banks, thrifts, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or persons that will hold the Preferred Securities as a position in a "straddle," as part of a "synthetic security" or "hedge," as part of a "conversion transaction" or other integrated investment, or as other than a capital asset. This summary also does not address the tax consequences to persons that have a functional currency other than the U.S. Dollar or the tax consequences to shareholders, partners or beneficiaries of a holder of Preferred Securities. Further, it does not include any description of any alternative minimum tax consequences or the tax laws of any state or local government or of any foreign government that may be applicable to the Preferred Securities. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder (the "Treasury Regulations") and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. CLASSIFICATION OF THE SUBORDINATED DEBENTURES In connection with the issuance of the Subordinated Debentures, Schiff Hardin & Waite, counsel to Illinois Power and Illinois Power Financing I, will render its opinion generally to the effect that, although not entirely free from doubt, under then current law and assuming full compliance with the terms of the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Subordinated Debentures held by Illinois Power Financing I will be classified for United States federal income tax purposes as indebtedness of Illinois Power. CLASSIFICATION OF ILLINOIS POWER FINANCING I In connection with the issuance of the Preferred Securities, Schiff Hardin & Waite, counsel to Illinois Power and Illinois Power Financing I, will render its opinion generally to the effect that, under then current law and assuming full compliance with the terms of the Declaration and the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, Illinois Power Financing I will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Accordingly, for United States federal income tax purposes, each holder of Preferred Securities generally will be considered the owner of an undivided interest in the Subordinated Debentures, and each holder will be required to include in its gross income any OID accrued with respect to its allocable share of those Subordinated Debentures. ORIGINAL ISSUE DISCOUNT Because Illinois Power has the option, under the terms of the Subordinated Debentures, to defer payments of interest by extending interest payment periods for up to 20 quarters, all of the stated interest payments on the Subordinated Debentures will be treated as OID. Holders of debt instruments issued with OID must include that discount in income on an economic accrual basis before the receipt of cash attributable to the interest, regardless of their method of tax accounting. Generally, all of a holder's taxable interest income with respect to the Subordinated Debentures will be accounted for as OID, and actual distributions of stated interest will not be separately reported as taxable income. The amount of OID that accrues in any month will approximately equal the amount of the interest that accrues on the Subordinated Debentures in that month at the stated interest rate. In the event that the interest payment period is extended, holders will continue to 32 34 accrue OID approximately equal to the amount of the interest payment due at the end of the Extension Period on an economic accrual basis over the length of the Extension Period. In addition, the amount of OID will be increased or decreased if the issue price of the Subordinated Debentures (offering price of the Preferred Securities at the time of the issuance) is less than or greater than their stated principal amount. It is anticipated that the issue price of the Subordinated Debentures will equal or exceed their stated principal amount. In the event that the issue price of the Subordinated Debentures is less than their stated principal amount, however, the Treasury Regulations may be read to require a recalculation of the amount of OID for each period that Illinois Power does not exercise its right to extend the interest payment period. This recalculation could result in minor adjustments to the amount of OID taxable to the Holders for such period. Because income on the Preferred Securities will constitute OID, corporate holders of Preferred Securities will not be entitled to a dividends-received deduction with respect to any income recognized with respect to the Preferred Securities. MARKET DISCOUNT AND BOND PREMIUM Holders of Preferred Securities other than Initial Holders may be considered to have acquired their undivided interests in the Subordinated Debentures with market discount or acquisition premium as such phrases are defined for United States federal income tax purposes. Such holders are advised to consult their tax advisors as to the income tax consequences of the acquisition, ownership and disposition of the Preferred Securities. RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF ILLINOIS POWER FINANCING I Under certain circumstances, as described under the caption "Description of the Preferred Securities -- Special Event Redemption or Distribution," Subordinated Debentures may be distributed to holders in exchange for the Preferred Securities and upon termination of Illinois Power Financing I. Under current law, such a distribution, for United States federal income tax purposes, would be treated as a non-taxable event to each holder, and each holder would receive an aggregate tax basis in the Subordinated Debentures equal to such holder's aggregate tax basis in its Preferred Securities. A holder's holding period in the Subordinated Debentures so received upon termination of Illinois Power Financing I would include the period during which the Preferred Securities were held by such holder. Under certain circumstances described herein (see "Description of the Preferred Securities -- Special Event Redemption or Distribution"), the Subordinated Debentures may be redeemed for cash and the proceeds of such redemption distributed to holders in redemption of their Preferred Securities. Under current law, such a redemption would, for United States federal income tax purposes, constitute a taxable disposition of the redeemed Preferred Securities, and a holder could recognize gain or loss as if it sold such redeemed Preferred Securities for cash. See "United States Federal Income Taxation -- Sales of Preferred Securities." SALES OF PREFERRED SECURITIES A holder that sells Preferred Securities will recognize gain or loss equal to the difference between its adjusted tax basis in the Preferred Securities and the amount realized on the sale of such Preferred Securities. A holder's adjusted tax basis in the Preferred Securities generally will be its initial purchase price increased by OID previously includible in such holder's gross income to the date of disposition and decreased by payments received on the Preferred Securities. Such gain or loss generally will be a capital gain or loss and generally will be a long-term capital gain or loss if the Preferred Securities have been held for more than one year. The Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debentures. A holder who disposes of his Preferred Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Subordinated Debentures through the date of disposition in income as OID, and to add such amount to his adjusted tax basis in his pro rata share of the underlying Subordinated 33 35 Debentures deemed disposed of. To the extent the selling price is less than the holder's adjusted tax basis (which will include, in the form of OID, all accrued but unpaid interest) a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. INFORMATION REPORTING TO HOLDERS Subject to the qualifications discussed below, income on the Preferred Securities will be reported to holders on Forms 1099, which forms should be mailed to holders of Preferred Securities by January 31 following each calendar year. Illinois Power Financing I will be obligated to report annually to Cede & Co., as holder of record of the Preferred Securities, the OID related to the Subordinated Debentures that accrued during the year. Illinois Power Financing I currently intends to report such information on Form 1099 prior to January 31 following each calendar year even though Illinois Power Financing I is not legally required to report to record holders until April 15 following each calendar year. The Underwriters (as defined herein) have indicated to Illinois Power Financing I that, to the extent that they hold Preferred Securities as nominees for beneficial holders, they currently expect to report to such beneficial holders on Forms 1099 by January 31 following each calendar year. Under current law, holders of Preferred Securities who hold as nominees for beneficial holders will not have any obligation to report information regarding the beneficial holders to Illinois Power Financing I. Illinois Power Financing I, moreover, will not have any obligation to report to beneficial holders who are not also record holders. Thus, beneficial holders of Preferred Securities who hold their Preferred Securities through the Underwriters will receive Forms 1099 reflecting the income on their Preferred Securities from such nominee holders rather than Illinois Power Financing I. BACKUP WITHHOLDING Payments made on, and proceeds from the sale of, the Preferred Securities may be subject to a "backup" withholding tax of 31% unless the holder complies with certain identification requirements. Any withheld amounts will be allowed as a credit against the holder's United States federal income tax, provided the required information is provided to the Service. THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. 34 36 UNDERWRITING Subject to the terms and conditions set forth in an underwriting agreement (the "Underwriting Agreement"), Illinois Power Financing I has agreed to sell to each of the underwriters named below (the "Underwriters"), and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Smith Barney Inc., Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc. and PaineWebber Incorporated are acting as representatives (the "Representatives"), has severally agreed to purchase the number of Preferred Securities set forth opposite its name below. In the Underwriting Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Preferred Securities offered hereby if any of the Preferred Securities are purchased. In the event of default by an Underwriter, the Underwriting Agreement provides that, in certain circumstances, the purchase commitments of the nondefaulting Underwriters may be increased or the Underwriting Agreement may be terminated.
NUMBER OF UNDERWRITER PREFERRED SECURITIES ----------- -------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated................................................... Smith Barney Inc. .......................................................... Dean Witter Reynolds Inc. .................................................. A.G. Edwards & Sons, Inc. .................................................. PaineWebber Incorporated.................................................... --------------- Total.......................................................... 4,000,000 ==============
The Underwriters propose to offer the Preferred Securities in part directly to the public at the initial public offering price, as set forth on the cover page of this Prospectus, and in part to certain securities dealers at such price less a concession of $ per Preferred Security. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per Preferred Security to certain brokers and dealers. After the 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. In view of the fact that the proceeds of the sale of the Preferred Securities will be used to purchase the Subordinated Debentures of Illinois Power, the Underwriting Agreement provides that Illinois Power will agree to pay as compensation ("Underwriters' Compensation") to the Underwriters for the Underwriters' arranging the investment therein of such proceeds, an amount in New York Clearing House (next day) funds of $ per Preferred Security (or $ in the aggregate) for the accounts of the several Underwriters, provided that such compensation for sales of 10,000 or more Preferred Securities to any single purchaser will be $ per Preferred Security. Therefore, to the extent of such sales, the actual amount of Underwriters' Compensation will be less than the aggregate amount specified in the preceding sentence. During a period of 30 days from the date of the pricing of the Preferred Securities, neither Illinois Power Financing I nor Illinois Power will, without the prior written consent of the Representatives, directly or indirectly, sell, offer to sell, contract to sell, grant any option for the sale of, or otherwise dispose of, any Preferred Securities, any security convertible into or exchangeable into or exercisable for Preferred Securities or the Subordinated Debentures or any debt securities substantially similar to the Subordinated Debentures or any equity securities substantially similar to the Preferred Securities (except for the Subordinated Debentures and the Preferred Securities offered hereby). Application has been made to list the Preferred Securities on the New York Stock Exchange. If approved, trading of the Preferred Securities on the New York Stock Exchange is expected to commence within a 30-day period after the date of this Prospectus. The Representatives have advised Illinois Power Financing I that the Underwriters intend to make a market in the Preferred Securities prior to the commencement of trading on the New York Stock Exchange. The Underwriters will have no obligation to make a market in the Preferred Securities, however, any may cease market making activities, if commenced, at any time. 35 37 Prior to this offering, there has been no public market for the Preferred Securities. In order to meet one of the requirements for listing the Preferred Securities on the New York Stock Exchange, the Underwriters will undertake to sell lots of 100 or more Preferred Securities to a minimum of 400 beneficial holders. Illinois Power and Illinois Power Financing I have agreed to indemnify the Underwriters against, or to contribute to payments that the Underwriters may be required to make in respect of, certain liabilities, including liabilities under the Securities Act. Certain of the Underwriters engage in transactions with, and, from time to time, have performed services for, Illinois Power in the ordinary course of business. LEGAL MATTERS Certain legal matters will be passed upon for Illinois Power and Illinois Power Financing I by Schiff Hardin & Waite, Chicago, Illinois, and for the Underwriters by Reid & Priest LLP, 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 Illinois Power and Illinois Power Financing I. Schiff Hardin & Waite may rely on the opinion of Reid & Priest LLP as to all matters of New York law, and Reid & Priest LLP 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 Illinois Power's Annual Report on Form 10-K for the year ended December 31, 1994 have been so incorporated in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 36 38 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ILLINOIS POWER COMPANY, ILLINOIS POWER FINANCING I OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ILLINOIS POWER COMPANY OR ILLINOIS POWER FINANCING I, SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS PROSPECTUS
PAGE ---- Available Information................. 3 Incorporation of Certain Documents by Reference........................... 3 Prospectus Summary.................... 4 Risk Factors.......................... 5 Illinois Power Company................ 8 Illinois Power Financing I............ 8 Summary Financial Information of Illinois Power...................... 10 Accounting Treatment.................. 11 Use of Proceeds....................... 11 Description of the Preferred Securities.......................... 11 Description of the Preferred Securities Guarantee................ 21 Description of the Subordinated Debentures.......................... 23 Effect of Obligations Under the Subordinated Debentures and the Guarantee........................... 31 United States Federal Income Taxation............................ 32 Underwriting.......................... 35 Legal Matters......................... 36 Experts............................... 36
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ 4,000,000 PREFERRED SECURITIES ILLINOIS POWER FINANCING I % TRUST ORIGINATED PREFERRED SECURITIES SM ("TOPRS SM") GUARANTEED TO THE EXTENT SET FORTH HEREIN BY ILLINOIS POWER COMPANY ------------------------ PROSPECTUS ------------------------ MERRILL LYNCH & CO. SMITH BARNEY INC. DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. PAINEWEBBER INCORPORATED , 1995 - ------------------------------------------------------ - ------------------------------------------------------ 39 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.................................................. 75,000 Legal fees and expenses............................................ 115,000 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 Trustee fees and expenses.......................................... 35,000 Miscellaneous...................................................... 15,517 -------- Total......................................................... $400,000 ========
- ------------------------- * 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 Amended and Restated Declaration of Trust (the "Declaration") provides that no Trustee, affiliate of any Regular Trustee, or any officers, directors, shareholders, members, partners, employees, representatives or agents of any Regular Trustee, or any employee or agent of the Trust or its affiliates (each, an "Indemnified Person") shall be liable, responsible or accountable in damages or otherwise to the Trust or any employee or agent of the Trust or its affiliates for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by the Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omission. The Declaration II-1 40 also provides that, to the fullest extent permitted by applicable law, the Company 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 Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by the Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. The Declaration further provides that, 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 Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by or 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 for the underlying cause of action as authorized by the Declaration. The foregoing rights of indemnification shall apply to any liability of any director, officer or other Indemnified Person (or his legal representatives) arising under any of the provisions of the Securities Act, only to the extent that such rights of indemnification may be determined to be valid by a court of competent jurisdiction. The directors and officers of the Company and the Regular Trustees of the Trust are covered by insurance policies indemnifying against certain liabilities, including certain liabilities arising under the Securities Act, which might be incurred by them in such capacities and against which they cannot be indemnified by the Company or the Trust. Any agents, dealers or underwriters who execute any of the agreements filed as Exhibit 1 to this registration statement will agree to indemnify the Company's directors and their officers and the Regular Trustees of the Trust against certain liabilities that may arise under the Securities Act with respect to information furnished to the Company or the Trust by or on behalf of any such indemnifying party. 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) 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; (2) that 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 (3) that 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. The undersigned Trust registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-2 41 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. II-3 42 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Illinois Power Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this 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 21st day of November, 1995. ILLINOIS POWER COMPANY (Registrant) By: /s/ LARRY F. ALTENBAUMER ----------------------------------- Larry F. Altenbaumer Senior Vice President, Chief Financial Officer and Treasurer 43 Pursuant to the requirements of the Securities Act of 1933, Illinois Power Financing I certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this 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 21st day of November, 1995. ILLINOIS POWER FINANCING I (Registrant) By: Illinois Power Company, as Sponsor By: /s/ LARRY F. ALTENBAUMER ----------------------------------- Larry F. Altenbaumer Senior Vice President, Chief Financial Officer and Treasurer 44 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that Illinois Power Company, Illinois Power Financing I and each of the undersigned officers and directors of Illinois Power Company hereby constitute and appoint each of Larry D. Haab, Larry F. Altenbaumer and Cynthia G. Steward the true and lawful attorney-in-fact and agent of the undersigned, with full power of substitution and resubstitution for and in the name, place and stead of the undersigned, in any and all capacities, to sign all or any amendments (including post-effective amendments) of and supplements to this Registration Statement on Form S-3 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, to all intents and purposes and as fully as said corporation itself and each said officer or director might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below on behalf of each of Illinois Power Company and Illinois Power Financing I 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 - ------------------------------------- ----------------------------------- ------------------ /s/ LARRY D. HAAB Chairman, President, Chief - ------------------------------------- Executive Larry D. Haab Officer and Director (Principal Executive Officer) /s/ LARRY F. ALTENBAUMER Senior Vice President, Chief - ------------------------------------- Financial Officer and Treasurer Larry F. Altenbaumer (Principal Financial Officer) /s/ CYNTHIA G. STEWARD Controller and Chief - ------------------------------------- Accounting Officer Cynthia G. Steward (Controller) November 21, 1995 RICHARD R. BERRY* Director - ------------------------------------- Richard R. Berry DONALD E. LASATER* Director - ------------------------------------- Donald E. Lasater Director - ------------------------------------- Donald S. Perkins *By:/s/ LARRY F. ALTENBAUMER Larry F. Altenbaumer as Attorney-in-Fact
45
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 Director November 21, 1995 - ------------------------------------- Marilou von Ferstel CHARLES W. WELLS* Director - ------------------------------------- Charles W. Wells JOHN D. ZEGLIS* Director - ------------------------------------- John D. Zeglis VERNON K. ZIMMERMAN* Director - ------------------------------------- Vernon K. Zimmerman *By:/s/ LARRY F. ALTENBAUMER Larry F. Altenbaumer as Attorney-in-Fact
46 EXHIBIT INDEX
EXHIBITS DESCRIPTION PAGE - -------- ------------------------------------------------------------------------------ ----- 1 Form of Underwriting Agreement. 4(a) Certificate of Trust of Illinois Power Financing I.* 4(b) Declaration of Trust of Illinois Power Financing I.* 4(c) Form of Amended and Restated Declaration of Trust of Illinois Power Financing I.* 4(d) Form of Indenture between Illinois Power Company and Wilmington Trust Company, as Trustee.* 4(e) Form of Supplemental Indenture to Indenture to be used in connection with the issuance of Subordinated Debentures and Preferred Securities.* 4(f) Form of Preferred Security Certificate (contained in the Form of Amended and Restated Declaration of Trust of Illinois Power Financing I filed as Exhibit 4(c) to this Registration Statement).* 4(g) Form of Subordinated Debenture (contained in the Form of Supplemental Indenture filed as Exhibit 4(e) to this Registration Statement).* 4(h) 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 Statements 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(a) Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Wilmington Trust Company, as Trustee under the Indenture.* 25(b) Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Wilmington Trust Company, as Trustee under the Amended and Restated Declaration of Trust of Illinois Power Financing I.* 25(c) Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Wilmington Trust Company, as Preferred Securities Guarantee Trustee under the Guarantee Agreement with respect to the Preferred Securities.*
- ------------------------- * Previously filed. EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1 4,000,000 Preferred Securities ILLINOIS POWER FINANCING I (a Delaware Trust) ____% Trust Originated Preferred Securities ("TOPrS") (Liquidation Amount of $25 Per Preferred Security) SM UNDERWRITING AGREEMENT ______, 1995 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated as Representative of the several Underwriters Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281 Ladies and Gentlemen: Illinois Power Financing I (the "Trust"), a statutory business trust organized under the Business Trust Act (the "Delaware Act") of the State of Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del. C. Section Section 3801 et seq.), and Illinois Power Company, an Illinois corporation (the "Company" and, together with the Trust, the "Offerors") confirm their agreement (the "Agreement") with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 9 hereof), for whom Merrill Lynch is acting as representative (in such capacity, Merrill Lynch shall ____________________ SM "Trust Originated Preferred Securities" and "TOPrS" are service marks of Merrill Lynch & Co., Inc. 1 2 hereinafter be referred to as the "Representative"), with respect to the sale by the Trust and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of ____% Trust Originated Preferred Securities (liquidation amount of $25 per preferred security) of the Trust ("Preferred Securities") set forth in said Schedule A except as may otherwise be provided in the Pricing Agreement, as hereinafter defined. The Preferred Securities will be guaranteed by the Company with respect to distributions and payments upon liquidation, redemption and otherwise (the "Preferred Securities Guarantee") pursuant to the Preferred Securities Guarantee Agreement (the "Preferred Securities Guarantee Agreement"), dated as of ______, 1995, between the Company and Wilmington Trust Company, as trustee (the "Guarantee Trustee"), and in certain circumstances described in the Indenture (as defined herein), the Trust may distribute Subordinated Debt Securities (as defined herein) to holders of the Preferred Securities. The Preferred Securities, the related Preferred Securities Guarantee and $100,000,000 in aggregate principal amount of the Subordinated Debt Securities are referred to herein as the "Securities". Prior to the purchase and public offering of the Preferred Securities by the several Underwriters, the Offerors and the Representative, acting on behalf of the several Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Offerors and the Representative and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Preferred Securities will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Offerors have filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 33- 63581 and 33-63581-01) and a related preliminary prospectus for the registration under the Securities Act of 1933, as amended (the "1933 Act") of $100,000,000 in aggregate amount of a combination of (i) the Preferred Securities, (ii) the Preferred Securities Guarantee, and (iii) the Subordinated Debt Securities (as defined below) to be issued and sold to the Trust by the Company. The Offerors have filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof, and will file such additional amendments thereto and such amended prospectuses as may hereafter be required. Such registration statement (as amended, if applicable) and the prospectus constituting a part thereof (including, in each case, all documents incorporated or deemed to be incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act and the information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the rules and regulations of the 2 3 Commission under the 1933 Act (the "1933 Act Regulations")), as from time to time amended or supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or otherwise, are hereinafter referred to as the "Registration Statement" and the "Prospectus", respectively, except that, if any revised prospectus shall be provided to the Underwriters by the Offerors for use in connection with the offering of the Preferred Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Offerors pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. All references in this Agreement to financial statements and schedules and other information that is "contained," "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information that are or are deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the 1934 Act that is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. The Offerors understand that the Underwriters propose to make a public offering of the Securities as soon as the Representative deems advisable after the Pricing Agreement has been executed and delivered, and the Declaration (as defined herein), the Indenture, and the Preferred Securities Guarantee Agreement have been qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"). The entire proceeds from the sale of the Securities will be combined with the entire proceeds from the sale by the Trust to the Company of its common securities (the "Common Securities"), as guaranteed by the Company, to the extent set forth in the Prospectus, with respect to distributions and payments upon liquidation and redemption (the "Common Securities Guarantee" and together with the Preferred Securities Guarantee, the "Guarantees") pursuant to the Common Securities Guarantee Agreement (the "Common Securities Guarantee Agreement" and, together with the Preferred Securities Guarantee Agreement, the "Guarantee Agreements"), dated as of ______, 1995, of the Company, and will be used by the Trust to purchase the $103,100,000 of ____% subordinated debt securities (the "Subordinated Debt Securities") issued by the Company. The Preferred Securities and the Common Securities will be issued pursuant to the amended and restated declaration of trust of the Trust, dated as of the Closing Time (the "Declaration"), among the Company, as Sponsor, Larry F. Altenbaumer and Daniel L. Mortland (the "Regular Trustees") and Wilmington Trust Company, 3 4 a Delaware banking corporation, as property trustee (the "Property Trustee and, together with the Regular Trustees, the "Trustees"). The Subordinated Debt Securities will be issued pursuant to an indenture, dated as of ________ __, 1995 (the "Base Indenture"), between the Company and Wilmington Trust Company, as Trustee (the "Debt Trustee"), and a supplement to the Base Indenture, dated as of ________ __, 1995 (the "Supplemental Indenture," and together with the Base Indenture and any other amendments or supplements thereto, the "Indenture"), between the Company and the Debt Trustee. Section I. Representations and Warranties. The Offerors jointly and severally represent and warrant to each Underwriter as of the date hereof and as of the date of the Pricing Agreement (such latter date being hereinafter referred to as the "Representation Date") as follows. (i) The Company and the Trust meet, and at the respective times of commencement and consummation of the offering of the Securities will meet, the requirements for use of Form S-3 under the 1933 Act and the 1933 Act Regulations, and the Registration Statement has been filed with the Commission under the 1933 Act; such Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered or to be delivered to you, 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. (ii) 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 1933 Act or the 1934 Act, as applicable, and the 1933 Act Regulations and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations") 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 4 5 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 1933 Act or the 1934 Act, as applicable, and the 1933 Act Regulations and the 1934 Act Regulations 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 Trust or the Company by an Underwriter through you expressly for use in the Prospectus. (iii) Each preliminary prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the 1933 Act and the 1933 Act Regulations 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 Trust or the Company by an Underwriter through you expressly for use therein. (iv) The Registration Statement and the Prospectus conform, and, to the extent used to confirm sales of the Securities, any further amendments or supplements to the Registration Statement or the Prospectus, when any such 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 1933 Act, the 1939 Act and the rules and regulations of the Commission thereunder (the "1939 Act Regulations") and do not and will not, (i) as of the applicable effective date as to the Registration Statement and any amendment thereto and (ii) as of the applicable filing date as to the Prospectus, as it may be 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 Company nor the Trust 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 5 6 Prospectus in reliance upon and in conformity with information furnished in writing to the Trust or the Company by an Underwriter through you expressly for use therein. (v) The Trust has no subsidiaries. Neither the Trust, the Company nor any of the Company's other subsidiaries has sustained, since the date of the latest audited financial statements included or incorporated by reference in the 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 Prospectus, and, since the respective dates as of which information is given in the Registration Statement and the Prospectus there has not been any material change in the capital stock or long-term debt of the Company 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 Company and its subsidiaries (taken as a whole), otherwise than as set forth or contemplated in the Prospectus. (vi) The Order of the Illinois Commerce Commission (the "ICC") approving the investment by the Company in the Common Securities in connection with the issue and sale of the Preferred Securities, the issuance of the Subordinated Debt Securities and the execution of the Guarantees (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. (vii) The Trust has been duly created and is validly existing in good standing as a business trust under the laws of the State of Delaware, with power and authority to own its properties and conduct its business as described in the Prospectus, and has been duly qualified 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. The Trust is and will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. (viii) The Company 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 6 7 properties and conduct its business as described in the 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 Company (other than the Trust and Illinois Power Capital, L.P.) has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. (ix) The Company has no significant subsidiaries within the meaning of Regulation S-X. All of the outstanding shares of common stock of the Company are owned by Illinova Corporation, an Illinois corporation (the "Parent"). (x) The Preferred Securities have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, in the Pricing Agreement and in the Declaration, will be duly and validly issued and fully paid and nonassessable undivided beneficial interests in the assets of the Trust and will conform as to legal matters to the description thereof contained in the Prospectus. (xi) The issuance and delivery of the Subordinated Debt Securities have been duly authorized and, when issued and delivered and when the Subordinated Debt Securities have been duly executed, authenticated, issued and delivered in accordance with this Agreement and the Pricing Agreement, the Indenture and the Subordinated Debt Securities will constitute valid and legally binding obligations of the Company 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 Closing Time (as defined below), the Indenture will be duly qualified under the 1939 Act and will constitute a valid and legally binding obligation of the Company, 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 Subordinated Debt Securities and the Indenture will conform as to legal matters to the descriptions thereof in the Prospectus; and the Indenture will be substantially in the form filed as an exhibit to the Registration Statement. 7 8 (xii) The Declaration has been duly authorized by the Company and at Closing Time, will have been duly executed and delivered by the Company and the Trustees, and assuming due authorization, execution and delivery by the Property Trustee (as defined in the Declaration), the Declaration will, at Closing Time, be a valid and binding obligation of the Company and the Regular Trustees, enforceable against the Company and the Regular Trustees 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 at Closing Time, the Declaration will have been duly qualified under the 1939 Act. (xiii) Each of the Guarantee Agreements has been duly authorized by the Company and, when executed and delivered by the Company, and in the case of the Preferred Securities Guarantee Agreement, assuming due authorization, execution and delivery of the Preferred Securities Guarantee by the Guarantee Trustee, will constitute a valid and binding obligation of the Company, 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; each of the Guarantees and the Guarantee Agreements will conform as to legal matters to the description thereof in the Prospectus; and the Preferred Securities Agreement, at Closing Time, will have been duly qualified under the 1939 Act. (xiv) The Common Securities have been duly authorized by the Declaration and, when issued and delivered by the Trust to the Company against payment therefor as described in the Registration Statement and Prospectus, will be validly issued and fully paid and, except as otherwise provided in Section 10.1(b) of the Declaration, nonassessable undivided beneficial interests in the assets of the Trust and will conform as to legal matters to the descriptions thereof in the Prospectus. The issuance of the Common Securities is not subject to preemptive or other similar rights; and at Closing Time all of the issued and outstanding Common Securities of the Trust will be directly owned by the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (xv) Each of the Regular Trustees of the Trust is an employee of the Company and has been duly authorized by the Company to execute and deliver the Declaration. 8 9 (xvi) The Trust is not in violation of its Certificate of Trust or the Declaration, 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 Trust, and neither the execution or delivery of this Agreement or the Pricing Agreement, the consummation of the transactions herein contemplated, the fulfillment of the terms hereof or the terms of the Pricing Agreement, nor compliance with the terms and provisions hereof or of the Pricing Agreement will conflict with, or result in a breach or violation of, or constitute a default under (i) its Certificate of Trust or the Declaration, or any contract, agreement or other instrument to which the Trust is a party or by which it may be bound or (ii) any statute, order, rule or regulation applicable to the Trust of any court or any federal or state governmental agency or body having jurisdiction over the Trust 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 Trust of the Preferred Securities pursuant to this Agreement or the Pricing Agreement, the execution, delivery and performance by the Trust of this Agreement or the Pricing Agreement, or the consummation of the transactions contemplated in this Agreement or the Pricing Agreement, except as set forth in Section l(vi) above and except for the registration under the 1933 Act of the Securities, the qualification of the Declaration, the Indenture and the Preferred Securities Guarantee Agreement under the 1939 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. (xvii) The Company is not in violation of its Amended and 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 Company, and neither the execution or delivery of this Agreement or of the Pricing Agreement, the consummation of the transactions herein contemplated or in the Pricing Agreement, the fulfillment of the terms hereof or of the Pricing Agreement, nor compliance with the terms and provisions hereof or the terms and provisions of the Pricing Agreement 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 9 10 which the Company is a party or by which it may be bound or (ii) any statute, order, rule or regulation applicable to the Company of any court or any federal or state governmental agency or body having jurisdiction over the Company 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 Preferred Securities or the consummation by the Company of the transactions contemplated by this Agreement or by the Pricing Agreement, except as set forth in Section l(vi) above and except for the registration under the 1933 Act of the Securities, the qualification of the Declaration, the Indenture and the Preferred Securities Guarantee Agreement under the 1939 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. (xviii) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company 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 Company and its subsidiaries taken as a whole; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (xix) Price Waterhouse LLP, who have audited certain financial statements of the Company and its other subsidiaries, are independent certified public accountants with respect to the Company as required by the 1933 Act and the 1933 Act Regulations. (xx) There are no contracts or documents of the Trust or the Company or any of the Company'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 1933 Act, the 1933 Act Regulations, the 1939 Act, the 1939 Act Regulations, the 1934 Act or the 1934 Act Regulations that have not been so filed. (xxi) There are no contracts, agreements or understandings between the Trust or the Company and any person granting such person the right to require the Trust or the Company to file a registration statement under the 1933 Act with respect to any undivided beneficial 10 11 interest of the Trust or any preferred stock of the Company owned or to be owned by such person or to require the Trust or the Company 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 Trust or the Company under the 1933 Act. (xxii) Neither the Trust nor the Company nor any of the Company'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 "1940 Act"). (xxiii) The Trust is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended ("1935 Act"); the Parent is a "holding company" as defined in 1935 Act by reason of its ownership of all the outstanding shares of common stock of the Company, and the Company is a "holding company," but the Company and Parent are each exempt from 1935 Act, 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. Section 2. Sale and Delivery to Under- writers; Closing. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Trust agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Trust, at the price per security set forth in the Pricing Agreement, the number of Preferred Securities set forth in Schedule A opposite the name of such Underwriter (except as otherwise provided in the Pricing Agreement), plus any additional number of Preferred Securities that such Underwriter may become obligated to purchase pursuant to the provisions of Section 9 hereof. The purchase price per security to be paid by the several Underwriters for the Preferred Securities shall be an amount equal to the initial public offering price. The initial public offering price per Preferred Security shall be a fixed price to be determined by agreement between the Representative and the Offerors. The initial public offering price and the purchase price, when so determined, shall be set forth in the Pricing Agreement. In the event that such prices have not been agreed upon and 11 12 the Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Offerors and the Representative. As compensation to the Underwriters for their commitments hereunder and in view of the fact that the proceeds of the sale of the Preferred Securities will be used to purchase the Subordinated Debt Securities of the Company, the Company hereby agrees to pay at Closing Time to the Representative, for the accounts of the several Underwriters, a commission per Preferred Security determined by agreement between the Representative and the Company for the Preferred Securities to be delivered by the Trust hereunder at Closing Time. The commission, when so determined, shall be set forth in the Pricing Agreement. (b) Payment of the purchase price for, and delivery of certificates for, the Preferred Securities shall be made at the office of Reid & Priest LLP, or at such other place as shall be agreed upon by the Representative and the Trust, at 10:00 A.M. New York time on the third business day (unless postponed in accordance with the provisions of Section 9) after execution of the Pricing Agreement, or such other time not later than ten business days after such date as shall be agreed upon by the Representative, the Trust, the Company (such time and date of payment and delivery being herein called "Closing Time"). Payment shall be made to the Trust by certified or official bank check or checks drawn in New York Clearing House funds or similar next day funds payable to the order of the Trust to an account designated by the Trust, against delivery to the Representative for the respective accounts of the Underwriters of certificates for the Preferred Securities to be purchased by them. Certificates for the Preferred Securities shall be in such denominations and registered in such names as the Representative may request in writing at least two business days before the Closing Time. It is understood that each Underwriter has authorized the Representative, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Preferred Securities which it has agreed to purchase. Merrill Lynch, individually and not as Representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Preferred Securities to be purchased by any Underwriter whose check has not been received by the Closing Time, but such payment shall not relieve such Underwriter from its obligations hereunder. 12 13 The certificate(s) for the Preferred Securities will be made available for examination and packaging by the Representative not later than 10:00 A.M. on the last business day prior to the Closing Time. At the Closing Time, the Company will pay, or cause to be paid, the commission payable at such time to the Underwriters under Section 2 hereof by certified or official bank check or checks payable to Merrill Lynch, Pierce, Fenner & Smith Incorporated in New York Clearing House funds or other similar next day funds. Section 3. Covenants of the Offerors. Each of the Offerors jointly and severally covenant with each Underwriter as follows: (a) The Offerors will notify the Representative immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment), (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Offerors will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Offerors will give the Representative notice of their intention to file or prepare (i) any amendment to the Registration Statement (including any post-effective amendment), (ii) any amendment or supplement to the Prospectus (including any revised prospectus which the Offerors propose for use by the Underwriters in connection with the offering of the Preferred Securities which differs from the prospectus on file at the Commission at the time the Registration Statement became effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations), or (iii) any document that would as a result thereof be incorporated by reference in the Prospectus whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Representative with copies of any such amendment, supplement or other document a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment, supplement or other document or use any such prospectus to which the Representative or counsel for the Underwriters shall reasonably object. Subject to the foregoing, the Offerors will 13 14 promptly prepare a supplement to the Prospectus to reflect the terms of the Preferred Securities and the terms of the offering. The Offerors will file the Prospectus as so supplemented pursuant to Rule 424(b) of the 1933 Act Regulations 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 430A(a)(3) of the 1933 Act Regulations. (c) The Offerors will deliver to the Representative one signed copy of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and will also deliver to the Representative a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. (d) The Offerors will furnish to each Underwriter, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request for the purposes contemplated by the 1933 Act or the 1933 Act Regulations. (e) If at any time when the Prospectus is required by the 1933 Act to be delivered in connection with sales of the Preferred Securities, any event shall occur as a result of which it is necessary, in the opinion of counsel for the Underwriters or counsel to the Company and the Trust, to amend or supplement the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is to be delivered to a purchaser, or if it shall be necessary at any such time, to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Offerors will promptly prepare and file with the Commission, subject to paragraph (b) above, such amendment or supplement as may be necessary to correct such untrue statement or omission or to make the Registration Statement or the Prospectus comply with such requirements; and the Offerors will furnish to the Underwriters a reasonable number of copies of such amendment or supplement. (f) The Offerors will endeavor, in cooperation with the Underwriters, to qualify the Preferred Securities (including the Preferred Securities Guarantee with respect thereto) and the Subordinated Debt Securities for offering and sale under the applicable securities laws of 14 15 such states and the other jurisdictions of the United States as the Representative may designate; provided, however, that none of the Offerors shall be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified. (g) The Trust will make generally available to its security holders as soon as practicable but not later than 45 days after the close of the period covered thereby, an earnings statement of the Company (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a twelve-month period beginning not later than the first day of the Trust's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (h) For a period of five years after the Closing Time, the Company will furnish to you and, upon request, to each Underwriter, copies of all annual reports, quarterly reports and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by the Company to its stockholders or security holders generally. (i) The Offerors will use best efforts to effect the listing of the Preferred Securities (including the Preferred Securities Guarantee with respect thereto) on the New York Stock Exchange; if the Preferred Securities are exchanged for Subordinated Debt Securities, the Company will use its best efforts to effect the listing of the Subordinated Debt Securities on the exchange on which the Preferred Securities were then listed. (j) During a period of 30 days from the date of the Pricing Agreement, neither the Trust nor the Company will, without the Representative's prior written consent, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any Preferred Securities, any security convertible into or exchangeable into or exercisable for Preferred Securities or the Subordinated Debt Securities or any debt securities substantially similar to the Subordinated Debt Securities or equity securities substantially similar to the Preferred Securities (except for the Subordinated Debt Securities and the Preferred Securities issued in accordance with this Agreement). Section 4. Payment of Expenses. The Company will pay all expenses incident to the performance of each Offerors' obligations under this Agreement, including, but not limited to, (i) the printing and filing of the 15 16 Registration Statement as originally filed and of each amendment thereto, (ii) the printing of this Agreement and the Pricing Agreement, (iii) the preparation, issuance and delivery of the certificates for the Preferred Securities to the Underwriters, (iv) the fees and disbursements of the Company's and the Trust's counsel and accountants, (v) the qualification of the Preferred Securities, the Preferred Securities Guarantee and the Subordinated Debt Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of any Blue Sky survey and any legal investment survey, (vi) the printing and delivery to the Underwriters of copies of the Registration Statement as originally filed and of each amendment thereto, of each preliminary prospectus, and of the Prospectus and any amendments or supplements thereto, (vii) the printing and delivery to the Underwriters of copies of any Blue Sky survey and any legal investment survey, (viii) the fee of the National Association of Securities Dealers, Inc., (ix) the fees and expenses of the Debt Trustee, including the fees and disbursements of counsel for the Debt Trustee in connection with the Indenture and the Subordinated Debt Securities, (x) the fees and expenses of the Property Trustee, and the Guarantee Trustee, including the fees and disbursements of counsel for the Property Trustee in connection with the Declaration and the Certificate of Trust, (xi) any fees payable in connection with the rating of the Preferred Securities and the Subordinated Debt Securities, (xii) the fees and expenses incurred in connection with the listing of the Preferred Securities (and the related Preferred Securities Guarantee) and, if applicable, the Subordinated Debt Securities on the New York Stock Exchange, (xiii) the cost and charges of any transfer agent or registrar, and (xiv) the cost of qualifying the Preferred Securities with The Depository Trust Company. If this Agreement is terminated by the Representative in accordance with the provisions of Section 5 or Section 8 hereof, the Company shall reimburse the Underwriters for all of their reasonable out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. Section 5. Conditions of Underwriters' Obligations. The obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties of the Offerors herein contained, to the performance by the Offerors of their obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date hereof, or with the consent of the Representative, at a later time and date, not later, however, than 5:30 16 17 P.M. on the first business day following the date hereof, or at such later time and date as may be approved by the Representative; and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the 1933 Act Regulations and in accordance with Section 3(b) and prior to Closing Time the Offerors shall have provided evidence satisfactory to the Representative of such timely filing. (b) At Closing Time the Representative shall have received: (1) The favorable opinion, dated as of Closing Time, of Schiff Hardin & Waite, counsel for the Offerors in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Act; all filings required under the laws of the State of Delaware with respect to the formation and valid existence of the Trust as a business trust have been made; the Trust is duly qualified 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, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the Trust. (ii) The Company 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 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 Company, 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 Common Securities have been duly authorized by the Declaration and are duly and validly issued, are fully paid and, 17 18 except as otherwise provided in Section 10.1(b) of the Declaration, nonassessable undivided beneficial interests in the assets of the Trust and are owned by the Company, free and clear of all liens, encumbrances, equities or claims; the Common Securities conform as to legal matters to the description thereof in the Prospectus; and the Trust is not a party to or otherwise bound by any agreement other than this Agreement, the Pricing Agreement, the Declaration and the agreements contemplated by the 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 Trust, the Company or any of the Company's subsidiaries or any property of the Company or any of its subsidiaries, of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Prospectus, and there is no contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit, which is not described in the Prospectus or filed as required; and the statements included or incorporated in the Prospectus describing any legal proceedings or material contracts or agreements relating to the Trust or the Company 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 undivided beneficial interests in the assets of the Trust; the holders of the Preferred Securities will be entitled to the same limitation of personal liability under Delaware law as is extended to stockholders of private corporations for profit; and the issuance of the Preferred Securities is not subject to preemptive or other similar rights. Said counsel may note that the holders of the Preferred Securities may be obligated, pursuant to the Declaration, to (a) provide indemnity and/or security in connection with, and pay taxes or governmental charges arising from, transfers or exchanges of Preferred Securities certificates and the issuance of replacement Preferred Securities certificates and (b) provide security and indemnity in connection with requests of or directions to the Property Trustee to exercise its rights and remedies under the Declaration. The Preferred Securities conform as to legal matters to the descriptions thereof in the Prospectus. (vi) The issuance and delivery of the Subordinated Debt Securities have been duly authorized, and the Subordinated Debt Securities have been duly executed, authenticated, issued and delivered in accordance with the Indenture, and the Subordinated Debt Securities 18 19 constitute valid and legally binding obligations of the Company 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 1939 Act and constitutes a valid and legally binding obligation of the Company, 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 Subordinated Debt Securities and the Indenture conform as to legal matters to the descriptions thereof in the Prospectus. (vii) The issuance of each of the Guarantee Agreements has been duly authorized, executed and delivered and the Preferred Securities Guarantee constitutes a valid and legally binding obligation of the Company, 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 Preferred Securities Guarantee Agreement has been duly qualified under the 1939 Act. The Guarantees and the Guarantee Agreements conform as to legal matters to the descriptions thereof in the Prospectus. (viii) The Declaration has been duly authorized, executed and delivered by the Company and the Trustees and is a valid and binding obligation of the Company and each of the Regular Trustees, enforceable against the Company and each of the Regular Trustees in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, and other laws relating to or affecting creditors' rights and to general equity principles. The Declaration conforms as to legal matters to the description thereof in the Prospectus. (ix) The Declaration has been duly qualified under the 1939 Act. (x) This Agreement and the Pricing Agreement have been duly authorized, executed and delivered by each of the Trust and the Company. (xi) 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. 19 20 (xii) The issuance and sale by the Trust of the Preferred Securities, the issuance and sale of the Subordinated Debt Securities by the Company, the compliance by the Trust and the Company with all of the provisions of this Agreement and the Pricing Agreement, the execution, delivery and performance by the Company of the Guarantees 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 Trust or the Company is a party or by which the Trust or the Company is bound or to which any of the property of the Trust or the Company is subject, the Certificate of Trust and the Declaration, the Restated Articles or By-laws of the Company, 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 Trust, the Company 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 Preferred Securities or the consummation of the transactions contemplated by this Agreement and the Pricing Agreement, except for (i) the Order, (ii) the registration under the 1933 Act of the Securities, (iii) the qualification of the Indenture, the Declaration and the Preferred Securities Guarantee Agreement under the 1939 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. (xiii) The Trust is not a "holding company" within the meaning of the 1935 Act; the Parent is a "holding company" as defined in the 1935 Act by reason of its ownership of all the outstanding shares of common stock of the Company, and the Company is a "holding company," but the Company and the Parent are each exempt from the 1935 Act, 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. (xiv) Neither the Trust nor the Company 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 1940 Act. (xv) Each part of the Registration Statement, when such part became effective, and the Prospectus as of its date and any amendments or supplements thereto made by the Company and the Trust 20 21 prior to the Closing Time as of the date of such amendment or supplement complied as to form in all material respects with the requirements of the 1933 Act, the 1933 Act Regulations, the 1939 Act and the 1939 Act Regulations; such counsel has no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company and the Trust prior to the Closing Time contained an untrue statement of a material fact or omitted to state a material fact required to be stated herein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus and any further amendment or supplement thereto made by the Company and the Trust prior to the Closing Time, 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 Closing Time, either the Registration Statement or the Prospectus, as amended or supplemented, or any further amendment or supplement thereto made by the Company and the Trust prior to the Closing Time 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 Prospectus, (B) as to any information contained therein that was furnished to the Trust or the Company 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 Prospectus as amended or supplemented or required to be described in the Registration Statement or the Prospectus as amended or supplemented which are not filed or incorporated by reference or described as required. (xvi) The documents incorporated by reference in the Prospectus or any amendment or supplement 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 1933 Act or were filed with the Commission under the 1934 Act, as the case may be, complied as to form in all material respects with the requirements of the 1933 Act or the 1934 Act, as applicable, and the 1933 Act Regulations and the 1934 Act Regulations; and such counsel has no reason to believe that any of such documents, when such documents 21 22 became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the 1933 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 1933 Act or the 1934 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 Federal Income Taxation" in the Prospectus. The foregoing opinions may be limited to the laws of New York, Delaware and the State of Illinois and federal securities and income tax laws. In rendering its opinion, such counsel may rely, as to matters of Delaware law relating to the Trust, the Preferred Securities and the Declaration, upon the opinion of Richards, Layton & Finger, P.A., special Delaware counsel to the Company, which shall be delivered in accordance with Section 5(b)(2) hereof, and as to matters of New York law relating to the Subordinated Debt Securities and the Indenture, upon the opinion of Reid & Priest LLP, which shall be delivered in accordance with Section 5(b)(4) hereof. (2) The favorable opinion, dated as of Closing Time, of Richards, Layton & Finger, P.A., special Delaware counsel to the Offerors, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Act, and all filings required under the laws of the State of Delaware with respect to the creation and valid existence of the Trust as a business trust have been made. (ii) Under the Delaware Act and the Declaration, the Trust has the power and authority to own property and conduct its business, all as described in the Registration Statement and the Prospectus. (iii) The Declaration constitutes a valid and binding obligation of the Company and the Trustees and is enforceable against the Company and the Trustees in accordance with its terms, subject, as 22 23 to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iv) Under the Delaware Act and the Declaration, the Trust has the power and authority to (i) execute and deliver, and to perform its obligations under, this Agreement and the Pricing Agreement and (ii) issue, and perform its obligations under, the Trust Securities. (v) Under the Delaware Act and the Declaration, the execution and delivery by the Trust of this Agreement, the Pricing Agreement and the performance by the Trust of its obligations hereunder and under the Pricing Agreement, have been duly authorized by all necessary action on the part of the Trust. (vi) The certificates for the Preferred Securities are in due and proper form; the Preferred Securities have been duly authorized by the Declaration and are duly and validly issued and, subject to qualifications hereinafter expressed in this paragraph (vi), fully paid and nonassessable undivided beneficial interests in the assets of the Trust; the holders of the Preferred Securities, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; said counsel may note that the holders of the Preferred Securities may be obligated, pursuant to the Declaration, to (i) provide indemnity and/or security in connection with, and pay taxes or governmental charges arising from, transfers or exchanges of Preferred Securities certificates and the issuance of replacement Preferred Securities certificates and (ii) provide security and indemnity in connection with requests of or directions to the Property Trustee to exercise its rights and remedies under the Declaration. (vii) The Common Securities have been duly authorized by the Declaration and are duly and validly issued and fully paid and, except as otherwise provided in Section 10.1(b) of the Declaration, nonassessable undivided beneficial interests in the assets of the Trust. (viii) Under the Delaware Act and the Declaration, the issuance of the Trust Securities is not subject to preemptive or other similar rights. (ix) The issuance and sale by the Trust of the Trust Securities, the purchase by the Trust of the Subordinated Debt 23 24 Securities, the execution, delivery and performance by the Trust of this Agreement and the Pricing Agreement, the consummation by the Trust of the transactions contemplated hereby and by the Pricing Agreement and compliance by the Trust with its obligations hereunder and thereunder will not violate (i) any of the provisions of the Certificate of Trust or the Declaration or (ii) any applicable Delaware law or administrative regulation. (3) The favorable opinion, dated as of Closing Time, of Richard, Layton & Finger, P.A., counsel of Wilmington Trust Company, as Property Trustee under the Declaration, and Guarantee Trustee under the Preferred Securities Guarantee Agreements, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) Wilmington Trust Company is a Delaware banking corporation with trust powers, duly organized, validly existing and in good standing under the laws of the State of Delaware with all necessary power and authority to execute and deliver, and to carry out and perform its obligations under the terms of the Declaration and the Preferred Securities Guarantee Agreement. (ii) The execution, delivery and performance by the Property Trustee of the Declaration and the execution, delivery and performance by the Guarantee Trustee of the Preferred Securities Guarantee Agreement have been duly authorized by all necessary corporate action on the part of the Property Trustee and the Guarantee Trustee, respectively. The Declaration and the Preferred Securities Guarantee Agreement have been duly executed and delivered by the Property Trustee and the Guarantee Trustee, respectively, and constitute the legal, valid and binding obligations of the Property Trustee and the Guarantee Trustee, respectively, enforceable against the Property Trustee and the Guarantee Trustee, respectively, in accordance with their 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. (iii) The execution, delivery and performance of the Declaration and the Preferred Securities Guarantee Agreement by the Property Trustee and the Guarantee Trustee, respectively, do not conflict with or constitute a breach of the Articles of Organization or Bylaws of the Property Trustee and the Guarantee Trustee, respectively. (iv) No consent, approval or authorization of, or registration with or notice to, any Delaware or federal banking authority 24 25 is required for the execution, delivery or performance by the Property Trustee and the Guarantee Trustee of the Declaration and the Preferred Securities Guarantee Agreement. (4) The favorable opinion, dated as of Closing Time, of Reid & Priest LLP, counsel for the Underwriters, in form and substance satisfactory to the Underwriters with respect to the incorporation and legal existence of the Company; the formation and legal existence of the Trust, the Preferred Securities, the Indenture, the Preferred Securities Guarantee Agreement, this Agreement, the Pricing Agreement, the Registration Statement, the Prospectus and other related matters as the Representative may require. In giving its opinion, Reid & Priest LLP may rely as to certain matters of Delaware law relating to the Trust, the Preferred Securities and the Declaration upon the opinion of Richards, Layton & Finger, P.A., special Delaware counsel for the Offerors, which shall be delivered in accordance with Section 5(b)(2) hereto, and as to matters of Illinois law upon the opinion of Schiff Hardin & Waite, counsel for the Offerors, which shall be delivered in accordance with Section 5(b)(1) hereto. (c) At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Trust or the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representative shall have received a certificate of a Vice President of the Company and of the chief financial or chief accounting officer of the Company and a certificate of a Regular Trustee of the Trust, and dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Trust and the Company have complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or threatened by the Commission. (d) At the time of the execution of this Agreement, the Representative shall have received from Price Waterhouse LLP a letter dated such date, in form and substance satisfactory to the Representative, to the effect that: 25 26 (i) they are independent public accountants with respect to the Company and its consolidated subsidiaries, within the meaning of the 1933 Act and the 1933 Act Regulations; (ii) in their opinion, the consolidated financial statements and schedules audited 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 accounting requirements of the 1933 Act or the Exchange Act, as applicable, and the related published rules and regulations thereunder, as applicable; they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the Company's consolidated interim financial statements as described in Statement on Auditing Standards ("SAS") No. 71, Interim Financial Information, for the periods specified in such letter performed at the request of the Company; (iii) based upon limited procedures set forth in detail in such letter, nothing has come to their attention which causes them to believe that: (A) the unaudited consolidated financial statements of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the 1934 Act Regulations, as they apply to Form 10-Q, or are not presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement, (B) the unaudited amounts of revenue and net income set forth under "Summary Financial Information of Illinois Power" in the Prospectus were not determined on a basis substantially consistent with that used in determining the corresponding amounts in the audited financial statements included in the Registration Statement, or (C) at a specified date not more than five days prior to the date of this Agreement, there has been any change in the capital stock of the Company and its subsidiaries or any increase in the consolidated long-term debt of the Company and its subsidiaries or any decrease in total assets or net assets as compared with the amounts shown on the date of the most recent consolidated balance sheet included in or incorporated by reference in the Registration Statement and the Prospectus (September 30, 1995 balance sheet included in the Registration Statement) or, during the period from the date of the most 26 27 recent consolidated balance sheet included in or incorporated by reference in the Registration Statement and the Prospectus to a specified date not more than five days prior to the date of this Agreement, there were any decreases, as compared with the corresponding period in the preceding year, in operating revenues or net earnings available for common stock of the Company and its subsidiaries, except in all instances for changes, increases or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur; and (iv) in addition to the audit referred to in their opinions and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included in the Registration Statement and Prospectus, or incorporated therein by reference, and which are specified by the Representative, and have found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other records of the Company and its subsidiaries identified in such letter. (e) At Closing Time, the Representative shall have received from Price Waterhouse LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the specified date referred to shall be a date not more than five days prior to Closing Time. (f) At Closing Time and each Date of Delivery, if any, counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Preferred Securities as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Offerors, in connection with the issuance and sale of the Preferred Securities as herein contemplated shall be satisfactory in form and substance to the Representative and Reid & Priest LLP, counsel for the Underwriters. (g) At Closing Time, the Preferred Securities and the Subordinated Debt Securities shall be rated in one of the four highest rating categories for long term debt ("Investment Grade") by any nationally recognized statistical rating agency, and the Trust shall have delivered to the Representative a letter, dated the Closing Time, from such nationally recognized statistical rating agency, or other evidence satisfactory to the Representative, confirming that the Preferred Securities and the Subordinated Debt Securities have Investment 27 28 Grade ratings; and there shall not have occurred any decrease in the ratings of any of the debt securities of the Company or of the Preferred Securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the 1933 Act Regulations) and such organization shall not have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the debt securities of the Company or of the Preferred Securities. (h) At the Closing Time, the Preferred Securities shall have been approved for listing on the New York Stock Exchange upon notice of issuance. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representative by notice to the Offerors at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. Section 6. Indemnification (a) The Trust and the Company 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 1933 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 the Registration Statement, the 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 Trust nor the Company 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 the Registration Statement, the 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 Trust or the Company through you expressly for use therein; 28 29 (b) Each Underwriter will indemnify and hold harmless the Trust and the Company against any losses, claims, damages or liabilities to which the Trust or the Company may become subject, under the 1933 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 the Registration Statement, the Prospectus, and 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 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 the Registration Statement, the 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 Trust or the Company by such Underwriter through you expressly for use therein; and will reimburse the Trust and the Company for any legal or other expenses reasonably incurred by the Trust or the Company 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 29 30 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. No indemnifying party shall be liable for any such settlement, compromise or judgment effected by the indemnified party without the written consent of the indemnifying party; provided, however, that if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any such settlement, compromise or judgment effected without its written consent if (i) such settlement, compromise or judgment is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement, compromise or judgment at least 30 days prior to such settlement, compromise or judgment being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement, compromise or judgment. (d) If the indemnification provided for in this Section 6 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 Trust and the Company 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 Trust and the Company 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 Trust and the Company on the one hand and such Underwriters on the other shall be deemed to be in the same 30 31 proportions as the total net proceeds from the offering (before deducting expenses) received by the Trust and the Company 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 Trust and the Company 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 Trust, the Company 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 Preferred 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 omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 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 Preferred Securities and not joint. (e) The obligations of the Trust and the Company under this Section 6 shall be in addition to any liability which the Trust and the Company 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 1933 Act; and the obligations of the Underwriters under this Section 6 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 Trust and the Company and to each person, if any, who controls the Trust or the Company within the meaning of the 1933 Act. 31 32 Section 7. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement and the Pricing Agreement, or contained in certificates of officers or Trustees of the Offerors submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Offerors and shall survive delivery of the Preferred Securities to the Underwriters. Section 8. Termination of Agreement. (a) The Representative may terminate this Agreement, by notice to the Offerors, at any time at or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition financial or otherwise, or in the earnings, business affairs or business prospects or the Trust or the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, (ii) if there has occurred any material adverse change in the financial markets in the United States or elsewhere or any outbreak of hostilities or escalation thereof or other calamity or crisis the effect of which is such as to make it, in the judgment of the Representative, impracticable to market the Preferred Securities or to enforce contracts for the sale of the Preferred Securities, (iii) if trading in the Preferred Securities has been suspended by the Commission, or if trading generally on the New York Stock Exchange has been suspended, limited or restricted or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required (excluding existing "circuit breaker" provisions in effect under the rules of said exchange on the date hereof), by said exchange or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by either federal, New York, Illinois or Delaware authorities or (iv) if there has been any decrease in the ratings of any of the debt securities of the Company or of the Preferred Securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) of the 1933 Act Regulations) or such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the debt securities of the Company or of the Preferred Securities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. 32 33 Section 9. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at Closing Time to purchase the Preferred Securities that it or they are obligated to purchase under this Agreement and the Pricing Agreement (the "Defaulted Securities"), the Representative shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the Preferred Securities, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the Preferred Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Representative or the Offerors shall have the right to postpone Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. Section 10. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representative at Merrill Lynch World Headquarters, North Tower, World Financial Center, New York, New York 10281-1201, attention of Russell Robertson, Senior Managing Director; notices to the Trust, and the Company shall be directed to them at 500 South 27th Street, Decatur, Illinois 62525, attention of Daniel L. Mortland, Assistant Treasurer. Section 11. Parties. This Agreement and the Pricing Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Trust, the Company and their respective successors. Nothing expressed or mentioned in this Agreement or the Pricing Agreement is intended or shall be 33 34 construed to give any person, firm or corporation, other than the Underwriters and the Trust and the Company and their respective successors and the controlling persons and officers, directors and trustees referred to in Section 6 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or the Pricing Agreement or any provision herein or therein contained. This Agreement and the Pricing Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the Underwriters and the Trust and the Company and their respective successors, and said controlling persons and officers, directors and trustees and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. Section 12. Governing Law and Time. This Agreement and the Pricing Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. Except as otherwise set forth herein, specified times of day refer to New York City time. Section 13. Counterparts. 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. 34 35 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Trust a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Trust and the Company in accordance with its terms. Very truly yours, ILLINOIS POWER COMPANY By ------------------------------------ Title: ILLINOIS POWER FINANCING I By ------------------------------------ Title: Trustee By ------------------------------------ Title: Trustee CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By -------------------------- Authorized Signatory For itself and as Representative of the other Underwriters named in Schedule A hereto. 36 SCHEDULE A
Number Name of Underwriter of Securities ------------------- ------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . . . . . . . . . Bear, Stearns & Co. Inc. . . . . . . . . . . . . . . . Dean Witter Reynolds Inc. . . . . . . . . . . . . . . . A.G. Edwards & Sons, Inc. . . . . . . . . . . . . . . . PaineWebber Incorporated . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 =========
37 EXHIBIT A _________________ Preferred Securities ILLINOIS POWER FINANCING I (a Delaware business trust) _____% Trust Originated Preferred Securities ("TOPrS") (Liquidation Amount of $25 Per Security) PRICING AGREEMENT MERRILL LYNCH & CO. _________, 1995 Merrill Lynch, Pierce, Fenner & Smith Incorporated as Representative of the several Underwriters named in the within- mentioned Underwriting Agreement Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281 Ladies and Gentlemen: Reference is made to the Underwriting Agreement, dated _________, 1995 (the "Underwriting Agreement"), relating to the purchase by the several Underwriters named in Schedule A thereto, for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as representative (the "Representative"), of the above ___% Trust Originated Preferred Securities (the "Preferred Securities"), of ILLINOIS POWER FINANCING I, a Delaware business trust (the "Trust"). Pursuant to Section 2 of the Underwriting Agreement, the Trust, Illinois Power Company (the "Company"), an Illinois corporation, agree with each Underwriter as follows: 1. The initial public offering price per security for the Preferred Securities, determined as provided in said Section 2, shall be $25.00. 38 2. The purchase price per security for the Preferred Securities to be paid by the several Underwriters shall be $25.00, being an amount equal to the initial public offering price set forth above. 3. The compensation per Preferred Security to be paid by the Company to the several Underwriters in respect of their commitments hereunder shall be ______; provided, however, that the compensation per Preferred Security for sales of 10,000 or more Preferred Securities to a single purchaser shall be _____. 2 39 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Trust a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Trust and the Company in accordance with its terms. Very truly yours, ILLINOIS POWER COMPANY By ------------------------------------ Title: ILLINOIS POWER FINANCING I By ------------------------------------ Title: Trustee By ------------------------------------ Title: Trustee CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By ---------------------------------- Authorized Signatory For itself and as Representative of the other Underwriters named in the Underwriting Agreement. EX-12 3 COMPUTATIONS OF RATIO OF EARNINGS 1 EXHIBIT 12 ILLINOIS POWER COMPANY STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1990 1990 1991 1992 1993 -------------- -------------- -------- -------- -------- SUPPLEMENTAL** Earnings Available for Fixed Charges: Net Income (Loss) per "Statement of Income"..... $(78,484) $(78,484) $109,244 $122,088 $(56,038) Add: Income Taxes: Current................................... 21,307 21,307 29,369 22,930 25,260 Deferred -- Net........................... 36,545 36,545 45,990 63,739 82,057 Allocated income taxes...................... 2,608 2,608 (1,348) (6,632) (12,599) Investment tax credit -- deferred........... (14,121) (14,121) (11) (519) (782) Income tax effect of disallowed costs....... (24,759) (24,759) -- -- (70,638) Interest on long-term debt.................. 191,559 191,559 176,179 160,795 154,110 Amortization of debt expense and premium-net, and other interest charges... 13,162 13,162 9,004 12,195 17,007 One-third of all rentals (Estimated to be representative of the interest component................................. 5,053 5,053 4,996 5,117 5,992 Interest on In-Core Fuel.................... 6,802 6,802 8,862 8,278 6,174 Disallowed Clinton Plant Costs.............. -- 160,328 -- -- -- -------- -------- -------- -------- -------- Earnings available for fixed charges............ $159,672 $320,000 $382,285 $387,991 $150,543 ======== ======== ======== ======== ======== Fixed charges: Interest on long-term debt.................... $191,559 $191,559 $176,179 $160,795 $154,110 Amortization of debt expense and premium-net, and other interest charges.................. 31,093 31,093 25,553 25,785 27,619 One-third of all rentals (Estimated to be representative of the interest component)... 5,053 5,053 4,996 5,117 5,992 -------- -------- -------- -------- -------- Fixed charges................................... $227,705 $227,705 $206,728 $191,697 $187,721 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges.............. 0.70* 1.41 1.85 2.02 0.80* ======== ======== ======== ======== ======== 12 MONTHS SEPTEMBER 30, 1993 1994 1995 -------------- -------- ------------- SUPPLEMENTAL** Earnings Available for Fixed Charges: Net Income (Loss) per "Statement of Income"..... $(56,038) $180,242 $ 205,357 Add: Income Taxes: Current................................... 25,260 58,354 67,048 Deferred -- Net........................... 82,057 71,177 77,773 Allocated income taxes...................... (12,599) (5,736) (7,969) Investment tax credit -- deferred........... (782) (11,331) (10,482) Income tax effect of disallowed costs....... (70,638) -- -- Interest on long-term debt.................. 154,110 135,115 133,212 Amortization of debt expense and premium-net, and other interest charges... 17,007 15,826 23,682 One-third of all rentals (Estimated to be representative of the interest component................................. 5,992 5,847 5,274 Interest on In-Core Fuel.................... 6,174 7,185 6,484 Disallowed Clinton Plant Costs.............. 270,956 -- -- -------- -------- -------- Earnings available for fixed charges............ $421,499 $456,679 $ 500,379 ======== ======== ======== Fixed charges: Interest on long-term debt.................... $154,110 $135,115 $ 133,212 Amortization of debt expense and premium-net, and other interest charges.................. 27,619 25,381 32,629 One-third of all rentals (Estimated to be representative of the interest component)... 5,992 5,847 5,274 -------- -------- -------- Fixed charges................................... $187,721 $166,343 $ 171,115 ======== ======== ======== Ratio of earnings to fixed charges.............. 2.25 2.75 2.92 ======== ======== ========
- ------------------------- * Earnings are inadequate to cover fixed charges. Additional earnings (thousands) of $68,033 and $37,178 for 1990 and 1993, respectively are required to attain a one-to-one ratio of Earnings to Fixed Charges. ** Supplemental ratio of earnings to fixed charges presented to exclude nonrecurring item -- Disallowed Clinton Plant Costs. 2 ILLINOIS POWER COMPANY STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1990 1990 1991 1992 1993 ------------ -------------- -------- -------- -------- SUPPLEMENTAL** Earnings Available for Fixed Charges and Preferred Stock Dividend Requirements: Net Income (Loss) per "Statement of Income"................ $(78,484) $(78,484) $109,244 $122,088 $(56,038) Add: Income Taxes: Current.............................................. 21,307 21,307 29,369 22,930 25,260 Deferred -- Net...................................... 36,545 36,545 45,990 63,739 82,057 Allocated income taxes................................. 2,608 2,608 (1,348) (6,632) (12,599) Investment tax credit -- deferred...................... (14,121) (14,121) (11) (519) (782) Income tax effect of disallowed costs.................. (24,759) (24,759) -- -- (70,638) Interest on long-term debt............................. 191,559 191,559 176,179 160,795 154,110 Amortization of debt expense and premium-net, and other interest charges..................................... 13,162 13,162 9,004 12,195 17,007 One-third of all rentals (Estimated to be representative of the interest component)............ 5,053 5,053 4,996 5,117 5,992 Interest on In-Core Fuel............................... 6,802 6,802 8,862 8,278 6,174 Disallowed Clinton Plant Costs......................... -- 160,328 -- -- -- -------- -------- -------- -------- -------- Earnings available for fixed charges and preferred stock dividend requirements.................................... $159,672 $320,000 $382,285 $387,991 $150,543 ======== ======== ======== ======== ======== Fixed charges: Interest on long-term debt............................... $191,559 $191,559 $176,179 $160,795 $154,110 Amortization of debt expense and premium-net, and other interest charges....................................... 31,093 31,093 25,553 25,785 27,619 One-third of all rentals (Estimated to be representative of the interest component)............................. 5,053 5,053 4,996 5,117 5,992 Earnings required (before taxes) for preferred stock dividends.............................................. 36,839*** 66,743 52,023 48,691 26,123*** -------- -------- -------- -------- -------- Fixed charges and preferred stock dividend requirements.... $264,544 $294,448 $258,751 $240,388 $213,844 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges......................... 0.60* 1.09 1.48 1.61 0.70* ======== ======== ======== ======== ======== 12 MONTHS SEPTEMBER 30, 1993 1994 1995 -------------- -------- ------------- SUPPLEMENTAL** Earnings Available for Fixed Charges and Preferred Stock Dividend Requirements: Net Income (Loss) per "Statement of Income"................ $(56,038) $180,242 $ 205,357 Add: Income Taxes: Current.............................................. 25,260 58,354 67,048 Deferred -- Net...................................... 82,057 71,177 77,773 Allocated income taxes................................. (12,599) (5,736) (7,969) Investment tax credit -- deferred...................... (782) (11,331) (10,482) Income tax effect of disallowed costs.................. (70,638) -- -- Interest on long-term debt............................. 154,110 135,115 133,212 Amortization of debt expense and premium-net, and other interest charges..................................... 17,007 15,826 23,682 One-third of all rentals (Estimated to be representative of the interest component)............ 5,992 5,847 5,274 Interest on In-Core Fuel............................... 6,174 7,185 6,484 Disallowed Clinton Plant Costs......................... 270,956 -- -- -------- -------- -------- Earnings available for fixed charges and preferred stock dividend requirements.................................... $421,499 $456,679 $ 500,379 ======== ======== ======== Fixed charges: Interest on long-term debt............................... $154,110 $135,115 $ 133,212 Amortization of debt expense and premium-net, and other interest charges....................................... 27,619 25,381 32,629 One-third of all rentals (Estimated to be representative of the interest component)............................. 5,992 5,847 5,274 Earnings required (before taxes) for preferred stock dividends.............................................. 43,100 39,947 37,019 -------- -------- -------- Fixed charges and preferred stock dividend requirements.... $230,821 $206,290 $ 208,134 ======== ======== ======== Ratio of earnings to fixed charges......................... 1.83 2.21 2.40 ======== ======== ========
- ------------------------- * Earnings are inadequate to cover fixed charges. Additional earnings (thousands) of $68,033 and $37,178 for 1990 and 1993, respectively, are required to attain a one-to-one ratio of Earnings to Fixed Charges. ** Supplemental ratio of earnings to fixed charges presented to exclude nonrecurring item -- Disallowed Clinton Plant Costs. *** Because the Company incurred a pre-tax loss, these amounts are at the net preferred dividend requirement level. EX-23.(C) 4 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23(C) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of our report dated February 1, 1995, which appears on page A-10 of the 1994 Annual Report to Shareholders of Illinois Power Company in the appendix to the Illinois Power Company Information Statement, which is incorporated by reference in Illinois Power Company's Annual Report on Form 10-K for the year ended December 31, 1994. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP St. Louis, Missouri November 21, 1995 -----END PRIVACY-ENHANCED MESSAGE-----