<PAGE>
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ILLINOIS POWER SPECIAL PURPOSE TRUST
(Issuer of Securities)
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
(Exact name of Registrant as Specified in Its Certificate of Formation)
DELAWARE 37-1376566
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
500 SOUTH 27TH STREET, DECATUR, ILLINOIS 62521, (217) 424-____.
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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ROBERT A. SCHULTZ OF ILLINOIS POWER COMPANY, THE SOLE MEMBER OF
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
500 SOUTH 27TH STREET, DECATUR, ILLINOIS 62521, (217) 424-8780
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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With copies to:
Owen E. MacBride Renwick D. Martin
Schiff Hardin & Waite Brown & Wood LLP
7200 Sears Tower One World Trade Center
Chicago, Illinois New York, New York
60606 10048-0557
(312) 258-5680 (212) 839-5319
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, check the following box. /X/
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 effective registration statement
for the same offering. / /
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Aggregate Price Aggregate Offering Registration
Securities to be Registered Registered Per Unit(1) Price(1) Fee
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<S> <C> <C> <C> <C>
Transitional Funding Trust Notes $1,000,000 100% $1,000,000 $295
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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.
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<PAGE>
[RED HERRING LEGEND]
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.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1998.
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED ____________, 1998.
ILLINOIS POWER SPECIAL PURPOSE TRUST
$864,000,000 ILLINOIS POWER SPECIAL PURPOSE TRUST
TRANSITIONAL FUNDING TRUST NOTES, SERIES 1998-1
$_________ Class A-1 ___% Notes $_________ Class A-5 ___% Notes
$_________ Class A-2 ___% Notes $_________ Class A-6 ___% Notes
$_________ Class A-3 ___% Notes $_________ Class A-7 ___% Notes
$_________ Class A-4 ___% Notes $_________ Class A-8 ___% Notes
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ILLINOIS POWER COMPANY
SERVICER
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The Illinois Power Special Purpose Trust Transitional Funding Trust Notes,
Series 1998-1 (the "Offered Notes"), offered hereby will consist of the [eight]
classes listed above. Each Offered Note will be secured primarily by the
Intangible Transition Property owned by the Trust, as described under
"Description of the Intangible Transition Property" herein and in the Prospectus
and by the other Note Collateral described under "Security for the Notes" in the
Prospectus.
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE OFFERED NOTES, AND THERE IS
NO ASSURANCE THAT ONE WILL DEVELOP. PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG
OTHER THINGS, THE INFORMATION SET FORTH UNDER THE CAPTION "RISK FACTORS," WHICH
BEGINS ON PAGE 29 IN THE PROSPECTUS.
THE OFFERED NOTES DO NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE OF
ILLINOIS OR ANY POLITICAL SUBDIVISION THEREOF AND DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF ILLINOIS POWER COMPANY ("ILLINOIS POWER") OR ANY OF ITS
AFFILIATES. NONE OF THE OFFERED NOTES, OR THE INTANGIBLE TRANSITION PROPERTY,
WILL BE GUARANTEED OR INSURED BY ILLINOIS POWER OR ITS AFFILIATES.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public (1) and Commissions (2) Trust (1)(3)
---------- ---------------------- ------------
<S> <C> <C> <C>
Per Class A-1 Note....... % % %
Per Class A-2 Note....... % % %
Per Class A-3 Note....... % % %
Per Class A-4 Note....... % % %
Per Class A-5 Note....... % % %
Per Class A-6 Note....... % % %
Per Class A-7 Note....... % % %
Per Class A-8 Note....... % % %
Total.................... % % %
</TABLE>
- ----------------------
(1) Plus accrued interest, if any, at the applicable Note Interest Rate
from _________________, 1998.
(2) Illinois Power Securitization Limited Liability Company and Illinois
Power have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deduction of expenses payable by the Trust (as defined herein)
estimated to be ______.
<PAGE>
The Offered Notes are offered severally by the Underwriters when, as and if
issued by the Trust and subject to receipt and acceptance by the Underwriters
and subject to their right to reject orders in whole or in part. It is expected
that the Offered Notes will be delivered on or about ____________ __, 1998, in
book- entry form through the facilities of The Depository Trust Company, Cedel
Bank, societe anonyme, and the Euroclear System.
---------------------
MERRILL LYNCH & CO.
The date of this Prospectus Supplement is __________________, 1998.
S-2
<PAGE>
Interest on each Class of Offered Notes at the applicable Note Interest
Rate will be payable quarterly on___________, ____________, ___________, and
_____________ or, if any such day is not a Business Day, the next succeeding
Business Day (each, a "Payment Date") commencing __________, 1999.
The Offered Notes are part of a separate Series of Illinois Power Special
Purpose Trust Transitional Funding Trust Notes being offered by the Trust from
time to time pursuant to a Prospectus dated _____________ (the "Prospectus"), of
which this Prospectus Supplement is a part and which accompanies this Prospectus
Supplement.
THE INTANGIBLE TRANSITION PROPERTY ASSIGNED TO THE TRUST BY ILLINOIS POWER
SECURITIZATION LIMITED LIABILITY COMPANY AND CERTAIN OTHER ASSETS OF THE TRUST
ARE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED NOTES. NONE OF ILLINOIS POWER OR
ITS AFFILIATES WILL HAVE ANY OBLIGATIONS IN RESPECT OF THE OFFERED NOTES, OR THE
INTANGIBLE TRANSITION PROPERTY, EXCEPT AS EXPRESSLY SET FORTH HEREIN AND IN THE
PROSPECTUS.
TRANSITIONAL FUNDING ORDERS AUTHORIZING THE ISSUANCE OF THE OFFERED NOTES
DO NOT CONSTITUTE A PLEDGE OF THE FULL FAITH AND CREDIT OF THE STATE OF ILLINOIS
OR OF ANY OF ITS POLITICAL SUBDIVISIONS. THE ISSUANCE OF THE OFFERED NOTES UNDER
THE ILLINOIS ELECTRIC UTILITY TRANSITIONAL FUNDING OF 1997 LAW SHALL NOT
DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OF ILLINOIS OR ANY
POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION THEREFOR
OR TO MAKE ANY APPROPRIATION FOR THE PAYMENT.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE OFFERED NOTES,
INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
OFFERED NOTES AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
Prospective investors should refer to the "Index of Principal Definitions"
which begins on page S-31 herein and which begins on page 145 in the Prospectus
for the location of the definitions of capitalized terms that appear in the
Prospectus and this Prospectus Supplement.
S-3
<PAGE>
REPORTS TO HOLDERS
Unless and until the Offered Notes are no longer issued in book-entry form,
the Servicer indirectly will provide to Cede & Co., as nominee of The Depository
Trust Company ("DTC") and registered holder of the Offered Notes and, upon
request, to Participants of DTC, periodic reports concerning the Offered Notes.
See "Servicing --Statements by Servicer" in the Prospectus. Such reports may be
made available to the holders of interests in the Offered Notes (the
"Noteholders") upon request to their Participants. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The financial information provided to Noteholders will
not be examined and reported upon, nor will an opinion thereon be provided, by
any independent public accountant.
Illinois Power Securitization Limited Liability Company (the "Grantee"), on
behalf of the Trust, will file with the Securities and Exchange Commission (the
"Commission") such periodic reports as are required by the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules, regulations or
orders of the Commission thereunder. Copies of the Registration Statement and
exhibits thereto may be obtained at the locations specified in the Prospectus
under "Available Information" at prescribed rates. Information filed with the
Commission can also be inspected at the Commission's site on the World Wide Web
at http://www.sec.gov. The Grantee may discontinue filing periodic reports under
the Exchange Act at the beginning of the fiscal year following the issuance of
the Offered Notes if there are fewer than 300 holders of such Offered Notes.
S-4
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORTS TO HOLDERS.....................................................................................S-4
PROSPECTUS SUPPLEMENT SUMMARY..........................................................................S-6
DESCRIPTION OF THE OFFERED NOTES......................................................................S-20
General......................................................................................S-20
Security.....................................................................................S-20
Payments of Interest.........................................................................S-21
Payments of Principal........................................................................S-21
Optional Redemption..........................................................................S-22
Overcollateralization Amount.................................................................S-23
Other Credit Enhancement.....................................................................S-23
Reserve Subaccount...........................................................................S-23
Capital Subaccount...........................................................................S-24
Allocations; Payments........................................................................S-24
DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY.....................................................S-25
1998 TFO.....................................................................................S-25
Adjustments to Instrument Funding Charges....................................................S-26
THE SERVICER..........................................................................................S-28
SERVICING.............................................................................................S-28
General......................................................................................S-28
No Servicer Advances.........................................................................S-28
Servicing Compensation.......................................................................S-28
Statements by Servicer.......................................................................S-29
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS...............................................S-29
UNDERWRITING..........................................................................................S-29
RATINGS...............................................................................................S-31
LEGAL MATTERS.........................................................................................S-31
INDEX OF PRINCIPAL DEFINITIONS........................................................................S-32
</TABLE>
S-5
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING PROSPECTUS SUPPLEMENT SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE DETAILED INFORMATION APPEARING ELSEWHERE HEREIN AND IN THE
PROSPECTUS. CERTAIN CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS PROSPECTUS
SUPPLEMENT SUMMARY HAVE THE MEANINGS ASCRIBED TO SUCH TERMS ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT OR, TO THE EXTENT NOT DEFINED HEREIN, HAVE THE MEANINGS
ASCRIBED TO SUCH TERMS IN THE PROSPECTUS. THE INDEX OF PRINCIPAL DEFINITIONS
INCLUDED IN THIS PROSPECTUS SUPPLEMENT WHICH BEGINS ON PAGE S-32 SETS FORTH THE
PAGES ON WHICH THE DEFINITIONS OF CERTAIN PRINCIPAL TERMS APPEAR.
<TABLE>
<S> <C>
Summary of Offered Notes............ The Illinois Power Special Purpose Trust
Transitional Funding Trust Notes, Series 1998-1
(the "Offered Notes"). On the date of initial
issuance of the Offered Notes (the "Series
Issuance Date"), the Offered Notes will be
issued as described below.
</TABLE>
<TABLE>
<CAPTION>
Initial Expected Note
Principal Maturity Final Maturity Interest
Class Amount Date Date Rate
------- --------- -------- --------------- --------
<S> <C> <C> <C> <C>
A-1................... %
A-2................... %
A-3................... %
A-4................... %
A-5................... %
A-6................... %
A-7................... %
A-8................... %
</TABLE>
<TABLE>
<S> <C>
Transaction Overview................ For a brief summary of the statutes and
proceedings which form the basis for the
issuance and sale of the Offered Notes by the
Trust, and a diagram of the parties to the
transaction, their roles and their various
relationships to the other parties, investors
are directed to the discussion under the heading
"Prospectus Summary -- Transaction Overview" in
the Prospectus.
The Trust, whose primary asset will be
Intangible Transition Property transferred to
the Trust pursuant to the Sale Agreements, as
well as any interest rate exchange agreement
executed solely to permit the issuance of
Floating Rate Notes (a "Swap Agreement"), will
issue the Offered Notes, which will be sold to
the Underwriters. The Offered Notes will be
secured primarily by all of the Intangible
Transition Property (whether created by the
Transitional Funding Order issued by the ICC on
September 10, 1998 (the "1998 TFO") or any other
Transitional Funding Order) which has been
transferred to the Trust pursuant to a
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Sale Agreement. The Offered Notes also will be
secured by the Grant Agreements, the Sale
Agreements and the Servicing Agreement; the
Collection Account and all amounts of cash or
investment property on deposit therein or
credited thereto from time to time; all rights
to compel Illinois Power, as Servicer (or any
successor), to file for and obtain adjustments
to the IFC Charges in accordance with Section
18-104(d) of the Funding Law, the Transitional
Funding Orders, including the 1998 TFO and all
IFC Tariffs, including the 1998 IFC Tariff (as
hereinafter defined) filed with the ICC in
connection therewith; all present and future
claims, demands, causes and choses in action in
respect of any or all of the foregoing; and all
payments on or under and all proceeds in respect
of any or all of the foregoing.
The IFC Charges are calculated to be sufficient
over time to (a) pay interest and make Scheduled
Payments on the Offered Notes, (b) pay all
related fees and expenses of the Trust and the
Grantee, including the Servicing Fee and any
Administration Fee, (c) replenish the Capital
Subaccount up to the Required Capital Level, and
(d) fund and maintain the Overcollateralization
Subaccount up to the Required
Overcollateralization Level. The IFC Charges
will be increased in connection with the
issuance of additional Notes pursuant to any
subsequent Transitional Funding Order, to a
level calculated to be sufficient over time to
make the above-described payments in respect of
all outstanding Notes.
The IFC Charges will be subject to the
Adjustments authorized by the Transitional
Funding Order, as described in the Prospectus,
over the life of the Notes (including the
Offered Notes) to enhance the likelihood of
timely recovery of such amounts. See
"Description of the Intangible Transition
Property -- Adjustments to Instrument Funding
Charges" in the Prospectus.
Risk Factors........................ Investors should consider the risks associated
with an investment in the Offered Notes. For a
discussion of certain material risks associated
therewith, investors should review the
discussion under "Risk Factors" which begins on
page 29 of the Prospectus.
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
The Offered Notes................... The Offered Notes hereunder are the Illinois
Power Special Purpose Trust Transitional Funding
Trust Notes, Series 1998-1. The Offered Notes
are comprised of the [eight] classes listed on
the cover page hereof (each, a "Class"). As of
the Series Issuance Date, the aggregate
principal balance of the Offered Notes (the
"Original Note Principal Balance") will be
$864,000,000. Each Class of Offered Notes will
have a principal balance (the "Class Principal
Balance") equal to the initial principal amount
of such Class, reduced by principal paid to such
Class in accordance with the terms of the
Indenture. See "Description of the Notes" herein
and in the Prospectus.
[Each Series of Notes may include one or more
Classes of Notes that accrue interest at a
variable rate based on the index described in
the related Prospectus Supplement (the "Floating
Rate Notes"). See "Description of the Notes
-- Floating Rate Notes."]
None of the Offered Notes or the underlying
Intangible Transition Property will be
guaranteed or insured by Illinois Power or any
of its affiliates. The 1998 TFO authorizing the
issuance of the Offered Notes does not
constitute a pledge of the full faith and credit
of the State of Illinois or of any of its
political subdivisions. The issuance of the
Offered Notes under the Funding Law shall not
directly, indirectly or contingently obligate
the State of Illinois or any political
subdivision thereof to levy or to pledge any
form of taxation therefor or to make any
appropriation for their payment. The Offered
Notes will be payable solely by application of
the proceeds of the Intangible Transition
Property and the other Note Collateral held by
the Indenture Trustee under the Indenture. If
additional Notes (other than the Offered Notes)
are subsequently issued under the Indenture, the
Offered Notes will be at least PARI PASSU with
such other Notes as to all of the Intangible
Transition Property and the other Note
Collateral. Any and all funds or property
released by the Indenture Trustee pursuant to
the Indenture will cease to be Note Collateral
and will no longer be available for payment of
the Offered Notes.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Servicer/Administrator.............. Illinois Power Company, an Illinois corporation
("Illinois Power") and a subsidiary of Illinova
Corporation, an Illinois corporation, will act
as the initial servicer (in such capacity, and
together with any successor servicer, the
"Servicer") of the Intangible Transition
Property pursuant to the terms of the Servicing
Agreement, and as the initial administrator (in
such capacity, and together with any successor
administrator, the "Administrator") of the
Grantee pursuant to the terms of an
Administration Agreement between the Grantee and
the Administrator (the "Administration
Agreement"). For a more complete discussion of
Illinois Power and its role as Servicer, see
"The Servicer" herein and in the Prospectus.
Grantee............................. The grantee of the Intangible Transition
Property will be Illinois Power Securitization
Limited Liability Company, a special purpose
Delaware limited liability company (the
"Grantee"), whose sole member is Illinois Power.
Pursuant to the Sale Agreement entered into with
respect to the issuance by the Trust of the
Offered Notes, the Grantee will assign all of
its right, title and interest in the Intangible
Transition Property created by the 1998 TFO (the
"1998 ITP"), the Servicing Agreement and certain
other related assets to the Trust. For a more
complete discussion of the Grantee, see "The
Grantee" in the Prospectus.
Trust............................... The issuer of the Offered Notes will be the
Illinois Power Special Purpose Trust (the
"Trust"), a Delaware business trust created
under a Declaration of Trust (the "Trust
Agreement") by and among the Delaware Trustee
and the Beneficiary Trustees. For a more
complete discussion of the Trust, see "The
Trust" in the Prospectus.
Delaware Trustee.................... First Union Trust Company, National Association,
acting not in its individual or corporate
capacity, but solely as trustee under the Trust
Agreement (the "Delaware Trustee").
Beneficiary Trustees................ _____________________, and ____________________.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
Indenture........................... The Offered Notes will be issued pursuant to the
terms of the Indenture through the execution and
delivery of a Trust issuance certificate or a
supplement to the Indenture. The 1998 ITP, any
other subsequent Intangible Transition Property
created by subsequent Transitional Funding
Orders and the other Note Collateral will be
pledged under the Indenture for the benefit of
the Noteholders.
Indenture Trustee................... Harris Trust and Savings Bank, an Illinois
banking corporation (the "Indenture Trustee").
Intangible Transition Property...... As more fully described under "Description of
the Intangible Transition Property" herein and
in the Prospectus, the Intangible Transition
Property, including the 1998 ITP, is the
separate property right as set forth in the
Funding Law and created under the Transitional
Funding Orders, including the 1998 TFO,
including, without limitation, the right, title
and interest to impose and receive the IFC
Charges authorized thereby and all related
revenues, collections, claims, payment, money,
or proceeds thereof, including all right, title,
and interest under and pursuant to such
Transitional Funding Orders.
IFC Charges......................... As more fully described under "Description of
the Intangible Transition Property" and
"Electric Industry Restructuring in
Illinois -- Instrument Funding Charges" in the
Prospectus, IFC Charges are non-bypassable,
usage-based, per kilowatt hour charges to be
imposed on each existing and future retail
customer or class of retail customers in
Illinois Power's service area in Illinois, or
other person or group of persons obligated from
time to time to pay to Illinois Power or any
successor Applicable Rates, and on any customers
who enter into contracts with Illinois Power to
take non-tariffed services but would otherwise
have been obligated to pay Applicable Rates
(collectively, the "Customers").
The IFC Charges authorized in the 1998 TFO (the
"1998 Authorized IFC Charges"), which Illinois
Power believes are higher than will actually be
required, based on certain assumptions contained
in its application for the 1998 TFO, are set
forth in
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
"Description of the Intangible Transition
Property" herein.
As required by the Funding Law, any increase in
the amount of the IFC Charges for any of the IFC
Customer Classes beyond the level of the 1998
Authorized IFC Charges for such IFC Customer
Classes shall require Illinois Power or any
successor Utility thereto to file an amendatory
tariff adjusting the amounts otherwise billed by
Illinois Power or such successor Utility for
Applicable Rates to offset the amount of such
excess (or, if Illinois Power or such successor
Utility shall have previously filed any such
amendatory tariffs, the incremental amount of
such excess). However, the failure of such
amendatory tariff to become effective for any
reason shall not delay or impair the
effectiveness of the increase in the IFC Charges.
In connection with the issuance and pricing of
the Offered Notes, Illinois Power filed an IFC
Tariff with the ICC (the "1998 IFC Tariff")
which provides for, among other things, certain
revisions to the IFC Charges. The actual initial
cents per kilowatt-hour IFC Charge payable by
each of the seven (7) IFC Customer Classes
beginning on the Series Issuance Date is as
follows:
</TABLE>
<TABLE>
<CAPTION> IFC CHARGE
IFC CUSTOMER CLASS CENTS PER kWH
<S> <C>
Residential
Small Commercial
Large Commercial
Municipal
Industrial Firm
Industrial High
Load Factor Firm
Industrial Non-Firm
</TABLE>
<TABLE>
<S> <C>
Adjustments to the IFC Charges...... The Servicing Agreement and the 1998 TFO require
the Servicer to calculate [annual][semiannual]
Adjustments to the IFC Charges. The
Reconciliation Period[s] for the
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
Offered Notes will be January 1 through
[June 30 and July 1 through] December 31 and the
Adjustment Date[s] will be February 1
[and August 1], commencing
[February 1, 2000/August 1, 1999.] The
Adjustments to the IFC Charges will continue
until all interest and principal on all the
Offered Notes have been paid in full subject
only to limitation of the maximum amount of IFC
Collections authorized by the Commission in the
1998 TFO or any subsequent Transitional Funding
Orders. In addition, the IFC Charges will be
increased in connection with the issuance of
additional Notes pursuant to any subsequent
Transitional Funding Order, to a level
calculated to be sufficient over time to
provide for, among other things, payment of all
interest and principal in respect of all
outstanding Notes. For a detailed discussion of
Adjustments to IFC Charges, see "Description of
the Intangible Transition Property -- Adjustments
to Instrument Funding Charges" herein and in the
Prospectus.
Payment Dates....................... Payments will be made to holders of the Offered
Notes on each [_______ ____________ ________
and ____________] (or, if any such date is not
a Business Day, the next succeeding Business Day),
commencing ___________, 1999 (each, a "Payment
Date").
Record Dates........................ With respect to any Payment Date or date of any
redemption, the Business Day preceding such
Payment Date or other date if the Offered Notes
are Book-Entry Notes or, if Definitive Notes are
issued, the last day of the preceding calendar
month (each, a "Record Date").
Expected Maturity and Final
Maturity Dates...................... The "Expected Maturity Date" for any Class will
be the date when all principal and interest on
such Class of Offered Notes is expected to be
paid in full by the Trust. The "Final Maturity
Date" for any Class corresponds to the date on
which such Class of Offered Notes may be
accelerated for failure to pay outstanding
principal thereon, which may be up to [TWO (2)]
years after the Expected Maturity Date for such
Class. The Expected Maturity Date and the Final
Maturity Date for each Class of Offered Notes
are specified above under "-- Summary of Offered
Notes."
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
Failure to pay principal on any Class of Offered
Notes in full by the Final Maturity Date shall
constitute an Event of Default, and the Indenture
Trustee may and, upon the written direction of the
holders of not less than a majority in principal
amount of all Notes of all Series then outstanding,
shall declare the unpaid principal amount of all
the Notes of all Series then outstanding to be due
and payable. See "Security for the Notes -- Events
of Default; Rights Upon Event of Default" and
"Ratings" in the Prospectus.
Issuance of Additional Series....... The Trust may issue additional Series of Notes
from time to time. An additional Series may be
issued only upon satisfaction of the conditions
described under "Description of the Notes--
Conditions of Issuance of Additional Series" in
the Prospectus.
Interest............................. On each Payment Date, the Indenture Trustee
shall pay pro rata to the Noteholders of each
Class as of the related Record Date any unpaid
interest payable on any prior Payment Dates,
together with interest thereon at the applicable
Note Interest Rate, and interest in an amount
equal to one-fourth of the product of (a) the
applicable Note Interest Rate and (b) the
applicable Class Principal Balance as of the
close of business on the preceding Payment Date
after giving effect to all payments of principal
made to the Noteholders on such preceding
Payment Date; provided, however, that with
respect to the initial Payment Date, interest on
each outstanding Class Principal Balance will
accrue from and including the Series Issuance
Date to, but excluding, such initial Payment
Date. Interest will be calculated on the basis
of a 360-day year of twelve 30-day months.
Interest on the Offered Notes will be
distributed prior to any distribution of
principal on the Offered Notes. See "Description
of the Notes -- Payments of Interest" herein and
"Description of the Notes -- Interest and
Principal" in the Prospectus.
Principal........................... Unless an Event of Default has occurred and is
continuing and the Offered Notes have been
declared due and payable, on each Payment Date,
the Indenture Trustee shall, as of the related
Record Date and subject to availability of funds
in the Collection Account, make Scheduled
Payments on the Offered Notes in the following
order and priority, in each case until the Class
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C>
Principal Balance for such Class has been
reduced to zero: [(1) to the holders of the
Class A-1 Notes; (2) to the holders of the
Class A-2 Notes; (3) to the holders of the
Class A-3 Notes; (4) to the holders of the
Class A-4 Notes; (5) to the holders of the Class
A-5 Notes; (6) to the holders of the Class A-6
Notes; (7) to the holders of the Class A-7
Notes; and (8) to the holders of the Class A-8
Notes; provided, however, that, unless an Event
of Default has occurred and is continuing and
the Offered Notes have been declared due and
payable, in no event shall the principal payment
on any Class on a Payment Date be greater than
the Scheduled Payment for such Class and Payment
Date.] See "Description of the Notes -- Payments
of Principal" herein and "Description of the
Notes -- Interest and Principal" in the
Prospectus.
Optional Redemption................. Pursuant to the terms of the Indenture, the
Offered Notes may be redeemed on any Payment
Date if, after giving effect to payments that
would otherwise be made on such date, the
outstanding principal balance of the Offered
Notes has been reduced to less than five percent
(5%) of the initial principal balance thereof.
See "Description of the Notes -- Optional
Redemption" herein.
Collection Account
and Subaccounts..................... Upon issuance of the Offered Notes, a Collection
Account will be established and held by the
Indenture Trustee for the benefit of the
Noteholders of all Series of Notes. The
Collection Account will consist of four
subaccounts: a general subaccount (the "General
Subaccount"), a reserve subaccount (the "Reserve
Subaccount"), a subaccount for the
Overcollateralization Amount (the
"Overcollateralization Subaccount"), and a
capital subaccount (the "Capital Subaccount").
Unless the context indicates otherwise,
references herein to the Collection Account
include each of the subaccounts contained
therein. Withdrawals from and deposits to these
subaccounts will be made as described under
"Security for the Notes -- Allocations; Payments"
in the Prospectus.
Credit Enhancement.................. The Offered Notes will benefit from the
following forms of credit enhancement:
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
OVERCOLLATERALIZATION. The Overcollateralization
Amount established in connection with the
issuance of the Offered Notes will be
[$_________], which is 0.50 percent of the
initial aggregate Class Principal Balance for
all of the Offered Notes. The IFC Charges will
be set and adjusted at a rate that is intended
to recover, among other things, the
Overcollateralization Amount over the life of
the Offered Notes according to the schedule set
forth under "Description of the Offered Notes
-- Overcollateralization Amount" herein.
Collections allocated to the
Overcollateralization Amount for all Series of
Notes, including the Offered Notes, will be held
in the Overcollateralization Subaccount, as
described further under "Security for the Notes
-- Description of Indenture Accounts
-- Overcollateralization Subaccount" in the
Prospectus and any such amounts will be
available to pay interest and make Scheduled
Payments on all Series of Notes, including the
Offered Notes, to the extent of any shortfalls
in current IFC Collections available for such
payment. The amount required to be on deposit in
the Overcollateralization Subaccount with
respect to the Offered Notes as of any Payment
Date, as specified in the schedule set forth
under "Description of the Offered Notes --
Overcollateralization Amount" herein, is
referred to herein as the "Required
Overcollateralization Level."
RESERVE SUBACCOUNT. IFC Collections available
with respect to any Payment Date in excess of
amounts necessary to (a) pay interest and make
Scheduled Payments on all Series of Notes,
including the Offered Notes (or, if the Notes
have been declared due and payable, to pay the
Notes in full), (b) pay all related fees and
expenses of the Trust and the Grantee, including
the Servicing Fee and any Administration Fee,
(c) replenish the Capital Subaccount up to the
Required Capital Level, and (d) fund and
maintain the Overcollateralization Subaccount up
to the Required Overcollateralization Level (all
as described under "Security for the Notes
-- Allocations; Payments" in the Prospectus),
will be allocated to the Reserve Subaccount. On
each Payment Date, the Indenture Trustee will
draw on amounts in the Reserve Subaccount, to
the extent amounts available in the General
Subaccount are insufficient to pay expenses of
the Trust and the Grantee and to pay interest
and make Scheduled Payments on the Notes and to
make
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
other payments and transfers in accordance
with the terms of the Indenture.
CAPITAL SUBACCOUNT. Upon the issuance of the
Offered Notes, the Trust will retain proceeds in
the amount of [$_________], which is 0.50
percent of the initial aggregate Class Principal
Balance for all of the Offered Notes less
$100,000 in the aggregate for all Series of
Notes, which will be transferred to the Grantee.
Such amount is the Required Capital Level with
respect to the Offered Notes and, together with
the Required Capital Level with respect to any
other Series of Notes, will be deposited into
the Capital Subaccount. Withdrawals from and
deposits to the Capital Subaccount will be made
as described under "Security for the Notes
-- Allocations; Payments" in the Prospectus.
Allocations and Payment............. On each Payment Date, amounts on deposit in the
Collection Account will be applied in the manner
described under "Security for the
Notes -- Allocations; Payments" in the Prospectus.
Servicing Compensation.............. The Servicer will be entitled to receive a
servicing fee on each Payment Date (the
"Servicing Fee"), in an amount equal to (a)
$_________, for so long as IFC Charges are
billed concurrently with charges otherwise
billed by the Servicer to Customers and (b) not
to exceed $____________, if IFC Charges are not
billed concurrently with charges otherwise
billed by the Servicer to Customers. (Under the
Servicing Agreement, Illinois Power or any
successor thereto is required to bill IFC
Charges concurrently with charges for electric
service or Applicable Rates so long as Illinois
Power or such successor is billing Customers for
such electric service or Applicable Rates.) The
Servicing Fee will be paid prior to the payment
of any amounts in respect of interest on and
principal of the Offered Notes. The Servicer
will be entitled to retain as additional
compensation net investment income on IFC
Payments received by the Servicer prior to
remittance thereof to the Collection Account and
the portion of late fees, if any, paid by
Customers relating to the IFC Payments. See
"Servicing -- Servicing Compensation" herein and
in the Prospectus.
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
No Servicer Advances................ The Servicer will not be obligated to make any
advances of interest or principal on the Offered
Notes.
Maturity, Weighted Average Life and
Yield Considerations................ The actual Payment Dates on which principal is
paid each Class of Offered Notes and, therefore,
the weighted average life and yield to maturity
on the Offered Notes may be affected by various
factors, including principally the rate and
timing of receipt of IFC Collections and amounts
available in the Overcollateralization
Subaccount, Capital Subaccount and Reserve
Subaccount. In addition, because principal will
be paid at a rate not faster than that
contemplated in the Expected Amortization
Schedule, except in the event of an optional
redemption or the acceleration of maturity of
the Offered Notes after an Event of Default, the
Offered Notes are not expected to mature earlier
than scheduled. See "Risk Factors -- Potential
Servicing Issues -- Inaccurate Usage and Credit
Projections" and "--Reliance on Alternative
Retail Electric Suppliers," "Uncertainties
Related to the Electric Utility Industry
Generally," and "Reliance on Broad Base of
Customers;" "Certain Payment, Weighted Average
Life and Yield Considerations," and "Description
of the Intangible Transition Property
-- Adjustments to Instrument Funding Charges" in
the Prospectus.
Denominations....................... Each Class of Offered Notes will be issued in
minimum initial denominations of [$1,000] and in
integral multiples thereof.
Book-Entry Notes.................... The Offered Notes will initially be represented
by one or more notes registered in the name of
Cede & Co. ("Cede") (each, a "Book-Entry Note"),
the nominee of The Depository Trust Company
("DTC"), and available only in the form of
book-entries on the records of DTC, its
Participants and its Indirect Participants.
Holders may also hold Book-Entry Notes of a
Series through CEDEL or Euroclear (in Europe),
if they are participants in such systems or
indirectly through organizations that are
participants in such systems. For a more
complete discussion of the Book-Entry Notes, see
"Risk Factors -- Nature of the Notes" and
"Description of the Notes -- Book-Entry
Registration" in the Prospectus.
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
Ratings............................. It is a condition of issuance of the Offered
Notes that the Offered Notes be rated [____] by
Duff & Phelps Credit Rating Company, [____] by
Fitch IBCA, Inc., [____] by Moody's Investors
Service, Inc. and [____] by Standard & Poor's, a
division of The McGraw-Hill Companies, Inc.
(each of such rating agencies, a "Rating Agency").
A security rating is not a recommendation to
buy, sell or hold securities and may be subject
to revision or withdrawal at any time. No person
is obligated to maintain any rating on any
Offered Note and, accordingly, there can be no
assurance that the ratings assigned to any Class
of Offered Notes upon initial issuance thereof
will not be revised or withdrawn by a Rating
Agency at any time thereafter. If a rating of
any Series or Class of Offered Notes is revised
or withdrawn, the liquidity of such Series or
Class of Offered Notes may be adversely
affected. In general, the ratings address credit
risk and do not represent any assessment of the
rate of principal payments on the Offered Notes.
See "Risk Factors -- Nature of the Notes --
Limited Nature of Ratings" and "Certain Payment,
Weighted Average Life and Yield Considerations"
in the Prospectus and "Ratings" herein and in
the Prospectus.
Taxation of the Notes............... Interest paid on the Offered Notes generally
will be taxable to a United States Noteholder as
ordinary interest income at the time it accrues
or is received in accordance with such United
States Noteholder's method of accounting for
United States federal income tax purposes. See
"Certain United States Federal Income Tax
Considerations" herein and in the Prospectus.
ERISA Considerations................ Subject to the considerations described in
"ERISA Considerations" in the Prospectus, a
fiduciary or other person contemplating
purchasing the Offered Notes on behalf of or
with assets of any employee benefit plan or
other plan or arrangement (including but not
limited to an insurance company general account)
that is subject to Title I of the Employee
Retirement Income Security Act 1974, as amended
("ERISA"), or Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code")
(collectively, "Plans"), should carefully review
with its legal advisors whether the purchase or
holding of the Offered Notes could give rise to
a transaction prohibited
S-18
<PAGE>
or not otherwise permissible under ERISA or
Section 4975 of the Code.
</TABLE>
S-19
<PAGE>
DESCRIPTION OF THE OFFERED NOTES
GENERAL
The Offered Notes, together with any Notes of any other Series which may
hereafter be issued by the Trust (collectively, the "Notes"), will be issued by
the Trust pursuant to the Indenture and a Trust issuance certificate or a series
supplement, if any, thereto. Pursuant to the Indenture, further Trust issuance
certificates or series supplements may be executed in order for the Trust to
issue additional Series of Notes. In connection with the issuance of any
additional Series of Notes pursuant to a subsequent Transitional Funding Order,
the IFC Charges will be increased to a level calculated to be sufficient over
time to provide for, among other things, payment of all interest and principal
in respect of all outstanding Notes. This summary should be read together with
the material under the heading "Description of the Notes" in the Prospectus.
The Offered Notes will be comprised of the following [eight] Classes:
<TABLE>
<CAPTION>
Initial Expected Note
Principal Maturity Final Maturity Interest
Class Amount Date Date Rate
----- --------- -------- -------------- --------
<S> <C> <C> <C> <C>
A-1................... %
A-2................... %
A-3................... %
A-4................... %
A-5................... %
A-6................... %
A-7................... %
A-8................... %
</TABLE>
[INSERT DESCRIPTION OF ANY FLOATING RATE NOTES AND SWAP AGREEMENT]
SECURITY
To secure the payment of principal of and interest on the Offered Notes,
the Trust has granted to the Indenture Trustee, for the benefit of the
holders of the Notes (the "Noteholders"), a security interest in all of the
Trust's right, title and interest in and to the 1998 ITP, any subsequent
Intangible Transition Property created under any subsequent Transitional
Funding Order, and the other Note Collateral. If additional Notes (other than
the Offered Notes) are subsequently issued, the Offered Notes will be at
least PARI PASSU with such other notes as to all of the Intangible Transition
Property and the other Note Collateral. The Note Collateral is described more
specifically under "Security for the Notes -- Pledge of Note Collateral" in
the Prospectus.
S-20
<PAGE>
PAYMENTS OF INTEREST
Interest on each Class of the Offered Notes will accrue from the Series
Issuance Date at the rates set forth on the cover page and above (each, a "Note
Interest Rate"), in each case payable quarterly on each Payment Date of each
year, commencing _____________, 1999.
On each Payment Date, Noteholders of each Class of Offered Notes will be
entitled to receive pro rata any unpaid interest payable on any prior Payment
Dates, together with interest thereon at the applicable Note Interest Rate and
interest in an amount equal to one-fourth of the product of (a) the applicable
Note Interest Rate and (b) the applicable Class Principal Balance as of the
close of business on the preceding Payment Date after giving effect to all
payments of principal made to the Noteholders on such preceding Payment Date;
provided, however, that with respect to the initial Payment Date, interest on
each outstanding Class Principal Balance will accrue from and including the
Series Issuance Date to but excluding such first Payment Date. Interest will be
calculated on the basis of a 360-day year of twelve 30-day months. See
"Description of the Notes -- Interest and Principal" in the Prospectus.
PAYMENTS OF PRINCIPAL
Unless an Event of Default has occurred and is continuing and the Offered
Notes have been declared due and payable, on each Payment Date, each Class of
the Offered Notes will be entitled to receive Scheduled Payments of principal as
follows, in each case until the Class Principal Balance for such class has been
reduced to zero:
[(1) to the holders of the Class A-1 Notes;
(2) to the holders of the Class A-2 Notes;
(3) to the holders of the Class A-3 Notes;
(4) to the holders of the Class A-4 Notes;
(5) to the holders of the Class A-5 Notes;
(6) to the holders of the Class A-6 Notes;
(7) to the holders of the Class A-7 Notes; and
(8) to the holders of the Class A-8 Notes;]
provided, however, that, unless an Event of Default has occurred and is
continuing and the Offered Notes have been declared due and payable, in no event
shall the principal payment on any Class on a Payment Date be greater than the
Scheduled Payment for such Class and Payment Date.
S-21
<PAGE>
Principal will be payable at the Corporate Trust Office of the Indenture
Trustee in the City of Chicago, Illinois or at the office or agency of the
Indenture Trustee maintained for such purposes in the Borough of Manhattan, the
City of New York.
The following Expected Amortization Schedule sets forth the scheduled
outstanding Class Principal Balance for each Class of the Offered Notes at each
Payment Date from the Series Issuance Date to the Expected Maturity Date for
such Class. In preparing the following table, it has been assumed, among other
things, that (a) the Offered Notes are issued on __________, 1998, (b) payments
on the Offered Notes are made on each Payment Date, commencing ________, 1999,
(c) the Servicing Fee equals [__________], (d) there are no net earnings on
amounts on deposit in the Collection Account, (e) Operating Expenses,
Administration Fees, and amounts owed to the Delaware Trustee and the Indenture
Trustee are in the aggregate [$_______I per quarter, and all such amounts are
payable in arrears, and (f) all IFC Collections are deposited in the Collection
Account in accordance with Illinois Power's forecasts.
Expected Amortization Schedule
Outstanding Principal Balance
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
OFFERED NOTES
DATE CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS A-7 CLASS A-8 TOTAL
--------- --------- --------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series
Issuance
Date $____
</TABLE>
[INFORMATION TO BE PROVIDED]
There can be no assurance that the Class Principal Balances of the
Offered Notes will be reduced as indicated in the foregoing table, and the
actual reductions in such Class Principal Balances may be slower (or, if an
Event of Default occurs and is continuing and the Offered Notes have been
declared due and payable, faster) than those indicated in the chart. See "Risk
Factors" in the Prospectus for a discussion of various factors which may,
individually or in the aggregate, affect the rate of reductions of the Class
Principal Balances of the Offered Notes.
Each Class becomes due on its Final Maturity Date. The entire unpaid
principal amount of the Offered Notes will be due and payable on the date on
which an Event of Default has occurred and is continuing, if the Indenture
Trustee or holders of not less than a majority in principal amount of the Notes
of all Series then outstanding have declared the Offered Notes to be immediately
due and payable. See "Security for the Notes -- Events of Default; Rights Upon
Event of Default" in the Prospectus.
OPTIONAL REDEMPTION
The Offered Notes may be redeemed on any Payment Date commencing with
the Payment Date on which the outstanding principal balance of the Offered Notes
(after giving
S-22
<PAGE>
effect to payments that would otherwise be made on such date) has been reduced
to less than five percent of the initial principal balance of the Offered Notes.
Notice of such redemption will be given by the Indenture Trustee to each holder
of Offered Notes to be redeemed by first-class mail, postage prepaid, mailed not
less than 25 days nor more than 50 days prior to the date of redemption.
OVERCOLLATERALIZATION AMOUNT
The 1998 TFO provides that the Trust, as the assignee of the Intangible
Transition Property, is entitled to collect an additional amount (for the
Offered Notes, the "Overcollateralization Amount"), which is intended to enhance
the likelihood that payments on the Offered Notes will be made in accordance
with their respective Expected Amortization Schedules. The Overcollateralization
Amount established in connection with the issuance of the Offered Notes will be
[$_________], which is 0.50 percent of the initial aggregate principal amount of
the Offered Notes. The Overcollateralization Amount is scheduled to be collected
over the life of the Offered Notes in accordance with the Schedule set forth
hereinbelow. The Required Overcollateralization Level for the Offered Notes on
each Payment Date is as follows:
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
Required Required
Overcollateralization Overcollateralization
Payment Date Level Payment Date Level
------------ --------------------- ------------ ---------------------
<S> <C> <C> <C>
[INFORMATION TO BE PROVIDED]
</TABLE>
OTHER CREDIT ENHANCEMENT
RESERVE SUBACCOUNT. IFC Collections available with respect to any
Payment Date in excess of amounts necessary to (a) pay interest and make
Scheduled Payments on the Notes (or if the Notes have been declared due and
payable, to pay the Notes in full), (b) pay all related fees and expenses of
the Trust and the Grantee, including the Servicing Fee and any Administration
Fee, (c) replenish the Capital Subaccount up to the Required Capital Level,
and (d) fund and maintain the Overcollateralization Subaccount up to the
Required Overcollateralization Level (all as described under "Security for
the Notes -- Allocations; Payments" in the Prospectus), will be allocated to
the Reserve Subaccount. On each Payment Date, the Indenture Trustee will draw
on amounts in the Reserve Subaccount, to the extent amounts available in the
General Subaccount are insufficient to pay expenses of the Trust and pay
interest and make Scheduled Payments on the Notes and to make other payments
and transfers in accordance with the terms of the Indenture.
S-23
<PAGE>
CAPITAL SUBACCOUNT. Upon the issuance of the Offered Notes, the Trust
will retain proceeds in the amount of [$_________], which is 0.50 percent of the
initial aggregate Class Principal Balance for all of the Offered Notes less
$100,000 in the aggregate for all series of Notes. Such amount is the Required
Capital Level with respect to the Offered Notes and, together with the Required
Capital Level with respect to any other Series of Notes, will be deposited into
the Capital Subaccount. Withdrawals from and deposits to the Capital Subaccount
will be made as described under "Security for the Notes -- Allocations;
Payments" in the Prospectus.
ALLOCATIONS; PAYMENTS
On each Payment Date, the Indenture Trustee will, at the direction of
the Servicer, apply all amounts on deposit in the Collection Account in the
manner described under "Security for the Notes -- Allocations; Payments" in the
Prospectus.
S-24
<PAGE>
DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY
1998 TFO
The Funding Law authorizes the ICC to issue the 1998 TFO in favor of
the Grantee at the request of Illinois Power to create and establish the 1998
ITP and to permit the Trust to issue the Offered Notes secured by the 1998 ITP.
The total dollar amount of 1998 ITP authorized by the 1998 TFO is $1.634
billion, which represents the maximum dollar amount of IFC Charges which may be
applied and invoiced over time by the Servicer on behalf of the Trust without
further action by the ICC. In its application for the 1998 TFO, Illinois Power
estimated $1.277 billion as the amount of IFC Charges which would be necessary
to be billed through the Expected Maturity Date of all Classes of Offered Notes
in order to pay interest and principal on the Offered Notes, based on certain
assumptions set forth therein. The 1998 TFO also permits the sale of the Offered
Notes in an aggregate principal amount not to exceed $864 million.
The 1998 TFO creates and establishes, among other things, the 1998 ITP
and authorizes the imposition and collection of the IFC Charges, which
constitute separate non-bypassable usage-based charges expressed in cents per
kilowatt-hour payable by Customers in an aggregate amount sufficient to repay in
full the Offered Notes, fund the Overcollateralization Subaccount and pay all
related fees and expenses. The 1998 TFO entitles the Trust, as the assignee of
the 1998 ITP from the Grantee, to receive the payments made pursuant to the IFC
Charges from all Customers through December 31, 2008 or, if later, until the
Trust has received IFC Collections sufficient to retire all the outstanding
Offered Notes and cover related fees and expenses. Subsequent Transitional
Funding Orders may authorize and create additional Intangible Transition
Property and additions to the IFC Charges in order to pay interest and principal
on other Series of Notes to be issued in connection therewith, together with
related fees, expenses and the Required Overcollateralization Level and Required
Capital Level established with respect to such Series of Notes.
The 1998 Authorized IFC Charges set forth in the 1998 TFO (which may be
increased by the ICC in connection with the issuance of a subsequent
Transitional Funding Order), which Illinois Power believes are higher than will
actually be required, based on certain conservative assumptions contained in its
application for the 1998 TFO, are as follows:
<TABLE>
<CAPTION>
IFC CHARGE
IFC CUSTOMER CLASS (CENTS PER KWH)
------------------ ---------------
<S> <C>
Residential 1.74
Small Commercial 1.64
Large Commercial 1.32
Municipal 1.54
</TABLE>
S-25
<PAGE>
<TABLE>
<S> <C>
Industrial Firm 1.00
Industrial High Load Factor Firm 0.45
Industrial Non-Firm 0.26
</TABLE>
As required by the Funding Law, any increase in the amount of the IFC
Charges for any of the IFC Customer Classes beyond the level of the 1998
Authorized IFC Charges for such IFC Customer Class set forth in the immediately
preceding table shall require Illinois Power or any successor Utility thereto to
file an amendatory tariff adjusting the amounts otherwise billed by Illinois
Power or such successor Utility for Applicable Rates to offset the amount of
such excess (or, if Illinois Power or such successor Utility shall have
previously filed any such amendatory tariffs, the incremental amount of such
excess).
In connection with the issuance and pricing of the Offered Notes,
Illinois Power filed the 1998 IFC Tariff with the ICC which provides for, among
other things, certain revisions to the IFC Charges. The actual initial cents per
kilowatt-hour IFC Charge payable by each of the seven (7) IFC Customer Classes
beginning on the Series Issuance Date is as follows:
<TABLE>
<CAPTION>
IFC CHARGE
IFC CUSTOMER CLASS (CENTS PER KWH)
------------------ ---------------
<S> <C>
Residential
Small Commercial
Large Commercial [TO BE PROVIDED]
Municipal
Industrial Firm
Industrial High Load Factor Firm
Industrial Non-Firm
</TABLE>
ADJUSTMENTS TO INSTRUMENT FUNDING CHARGES
The Servicing Agreement and the 1998 TFO require the Servicer to
calculate and implement Adjustments to the IFC Charges which are designed to
enhance the likelihood that the IFC Collections which are remitted to the
Collection Account will be sufficient to (a) pay interest and make Scheduled
Payments on the Notes, (b) pay all related fees and expenses of the Trust and
the Grantee, including the Servicing Fee and any Administration Fee, (c)
replenish the Capital Subaccount up to the Required Capital Level, and (d) fund
and maintain the Overcollateralization Subaccount up to the Required
Overcollateralization Level. In addition, the IFC Charges will be increased in
connection with the issuance of additional Notes
S-26
<PAGE>
pursuant to any subsequent Transitional Funding Order, to a level calculated to
be sufficient over time to provide for, among other things, payment of all
interest and principal in respect of all outstanding Notes.
Each Adjustment will be calculated by the Servicer within the one-month
period following the end of each Reconciliation Period. The [annual]
[semiannual] Reconciliation Period for the Offered Notes will be January 1
through [June 30 and July through] December 31. The changes in IFC Charges, if
any, resulting from an Adjustment will take effect on the first day of the
second month following the Reconciliation Period (each, an "Adjustment Date").
The initial Adjustment Date for the Offered Notes will be [FEBRUARY 1,
2000/AUGUST 1, 1999].
See "Description of the Intangible Transition Property --Adjustments to
Instrument Funding Charges" in the Prospectus.
S-27
<PAGE>
THE SERVICER
The following information supplements that provided under the heading
"The Servicer" in the Prospectus. For a more complete discussion of the
Servicer, see "The Servicer" in the Prospectus.
[SUPPLEMENTAL FINANCIAL INFORMATION, IF ANY]
SERVICING
GENERAL
The Servicer will manage, service and administer, and make
collections in respect of, the Intangible Transition Property pursuant to the
Servicing Agreement between the Servicer and the Grantee. The Servicer may not
resign from its obligations and duties under the Servicing Agreement unless
certain requirements are met. The 1998 TFO does not require approval by the ICC
of such resignation. For a detailed discussion of the Servicer's procedures, the
manner in which payments from Customers are remitted to the Collection Account,
and related matters, see "Servicing" in the Prospectus.
The Servicer will be required by law to allow an Alternative
Retail Electric Supplier ("ARES") who chooses to do so to bill customers for the
services provided by the ARES and the services provided by the Servicer,
including the IFC Charges, and thus will be required to allow such ARES to
collect and remit IFC Charges. The Servicer will have certain rights and
remedies with respect to such ARES as provided by the Amendatory Act and the
1998 TFO. See "Risk Factors -- Potential Servicing Issues --Reliance on
Alternative Retail Electric Suppliers" and "Servicing -- Alternative Retail
Electric Suppliers and Other Third-Party Collectors" in the Prospectus.
NO SERVICER ADVANCES
The Servicer will not make any advances of interest or
principal on the Offered Notes.
SERVICING COMPENSATION
The Servicer will be entitled to receive a servicing fee on
each Payment Date, in an amount equal to (a) $________, for so long as IFC
Charges are billed concurrently with charges otherwise billed by the Servicer to
Customers and (b) not to exceed $_______ if IFC Charges are not billed
concurrently with charges otherwise billed by the Servicer to Customers. (Under
the Servicing Agreement, Illinois Power or any successor thereto is required to
bill IFC Charges concurrently with charges for electric service or Applicable
Rates, so long as Illinois Power or such successor is billing Customers for such
electric service or Applicable Rates.) The Servicing Fee (together with any
portion of the Servicing Fee that
S-28
<PAGE>
remains unpaid from prior Payment Dates) will be paid solely to the extent funds
are available therefor as described under "Security for the Notes --Allocations;
Payments" in the Prospectus. The Servicing Fee will be paid prior to the payment
of any amounts in respect of interest on and principal of the Offered Notes. The
Servicer will be entitled to retain as additional compensation net investment
income on IFC Payments received by the Servicer prior to remittance thereof to
the Collection Account and the portion of late fees, if any, paid by Customers
relating to the IFC Payments.
STATEMENTS BY SERVICER
For each Remittance Date and each Payment Date, the Servicer will
provide the statements and reports described under "Servicing -- Statements by
Servicer" in the Prospectus.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Illinois Power has received a ruling from the Internal Revenue Service
holding that, among other things, (a) the Trust's issuance and sale of the
Offered Notes and the transfer of the proceeds of such issuance to Illinois
Power will not result in gross income to the Grantee, the Trust or Illinois
Power and (b) the Offered Notes will constitute obligations of Illinois Power
for federal income tax purposes. See "Certain United States Federal Income Tax
Considerations" in the Prospectus.
The Indenture provides that a Noteholder and any persons holding a
beneficial interest in the Offered Notes, by acquiring any Offered Note or
interest therein, agrees to treat the Offered Note as indebtedness of Illinois
Power secured by the Note Collateral for purposes of federal, state and local
income and franchise taxes, and any other taxes imposed upon, measured by, or
based upon gross or net income, unless otherwise required by appropriate taxing
authorities.
For a discussion of certain United States federal income and estate tax
considerations relevant to the purchase, ownership and disposition of the Notes
by the initial beneficial owners thereof, see "Certain United States Federal
Income Tax Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Trust 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, ____________and ________________ are
acting as representatives, has severally agreed to purchase, the respective
principal amounts of the Offered Notes set forth opposite its name below.
S-29
<PAGE>
<TABLE>
<CAPTION>
Class Class Class Class Class Class Class Class
A-1 A-2 A-3 A-4 A-5 A-6 A-7 A-8
Name Notes Notes Notes Notes Notes Notes Notes Notes
---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch,
Pierce, Fenner &
Smith
Incorporated
Total............... $ $ $ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------
----------- ----------- ----------- ----------- ----------- ----------- ------------ ---------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and to pay for all of the Offered Notes
offered hereby, if any are taken.
The Underwriters propose to offer the Offered Notes in part directly
to the public at the initial public offering price set forth on the cover
page of this Prospectus Supplement, and in part to certain securities dealers
at such price less a concession not in excess of _______ percent of the
principal amount of the Class A-1 Notes, ______ percent of the principal
amount of the Class A-2 Notes, ______ percent of the principal amount of the
Class A-3 Notes, ______ percent of the principal amount of the Class A-4
Notes, ______ percent of the principal amount of the Class A-5 Notes,
______ percent of the principal amount of the Class A-6 Notes,______ percent
of the principal amount of the Class A-7 Notes, and _____ percent of the
principal amount of the Class A-8 Notes. The Underwriters may allow and such
dealers may reallow a concession, not in excess of _______ percent of the
principal amount of the Class A-1 Notes, ______ percent of the principal
amount of the Class A-2 Notes, ______ percent of the principal amount of the
Class A-3 Notes, ______ percent of the principal amount of the Class A-4
Notes, ______ percent of the principal amount of the Class A-5 Notes, ______
percent of the principal amount of the Class A-6 Notes, ______ percent of
the principal amount of the Class A-7 Notes and _______ percent of the
principal amount of the Class A-8 Notes. After the Offered Notes are released
for sale to the public, the offering price and other selling terms may from
time to time be varied by the Underwriters.
The Offered Notes are a new issue of securities with no established
trading market. The Offered Notes will not be listed on any securities exchange.
The Trust has been advised by the Underwriters that they intend to make a market
in the Offered Notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Offered Notes.
In connection with the offering, the Underwriters may purchase and sell
the Offered Notes in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Offered Notes; and syndicate
short positions involve the sale by the Underwriters of a greater number of
Offered Notes than they are required to purchase from the Trust in the offering.
The Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-
S-30
<PAGE>
dealers in respect of the Offered Notes sold in the offering for their
account may be reclaimed by the syndicate if such Offered Notes are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of
the Offered Notes, which may be higher than the price that might otherwise
prevail in the open market; and these activities, if commenced, may be
discontinued at any time.
Under the terms of the Underwriting Agreement, the Trust has agreed
to reimburse the Underwriters for certain expenses.
The Grantee and Illinois Power have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
RATINGS
It is a condition of issuance of the Offered Notes that the Offered
Notes be rated [___] by Duff & Phelps Credit Rating Company, [____] by Fitch
IBCA, Inc., [____] by Moody's Investors Service, Inc. and [____] by Standard
& Poor's, a division of The McGraw-Hill Companies, Inc.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning Rating Agency. No person is obligated to maintain the rating on any
Offered Note, and, accordingly, there can be no assurance that the ratings
assigned to any Class of Offered Notes upon initial issuance will not be
revised or withdrawn by a Rating Agency at any time thereafter. If a rating
of any Class of Offered Notes is revised or withdrawn, the liquidity of such
Class of Offered Notes may be adversely affected. In general, ratings address
credit risk and do not represent any assessment of the rate of principal
payments.
LEGAL MATTERS
Certain legal matters relating to the Offered Notes will be passed upon
by Schiff Hardin & Waite, Chicago, Illinois, counsel to Illinois Power, the
Grantee and the Trust. Certain federal income tax consequences of the issuance
of the Offered Notes will be passed upon by Mayer Brown & Platt, Chicago,
Illinois, tax counsel to Illinois Power. Certain legal matters relating to the
Offered Notes will be passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel to the Trust and the Delaware Trustee, and by Brown & Wood LLP,
New York, New York, counsel to the Underwriters.
S-31
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Set forth below is a list of the defined terms used in this
Prospectus Supplement and defined herein and the pages on which the
definitions of such terms may be found herein. Certain defined terms used in
this Prospectus Supplement are defined in the Prospectus. See "Index of
Principal Definitions" in the Prospectus.
<TABLE>
<CAPTION>
DEFINED
DEFINED TERM ON PAGE
- ------------ -------
<S> <C>
1998 Authorized IFC Charges................................................................................... S-10
1998 IFC Tariff............................................................................................... S-11
1998 ITP...................................................................................................... S-9
1998 TF0...................................................................................................... S-6,24
Adjustments................................................................................................... S-11
Adjustment Date............................................................................................... S-26
Administration Agreement...................................................................................... S-9
Administrator................................................................................................. S-9
ARES.......................................................................................................... S-27
Book-Entry Note............................................................................................... S-17
Capital Subaccount............................................................................................ S-14
Cede.......................................................................................................... S-17
Class......................................................................................................... S-8
Class Principal Balance....................................................................................... S-8
Code.......................................................................................................... S-18
Commission.................................................................................................... S-4
Customers...................................................................................................... S-10
Delaware Trustee.............................................................................................. S-9
DTC........................................................................................................... S-4,17
ERISA......................................................................................................... S-18
Exchange Act.................................................................................................. S-4
Expected Maturity Date........................................................................................ S-12
Final Maturity Date........................................................................................... S-12
Floating Rate Notes........................................................................................... S-8
General Subaccount............................................................................................ S-14
Grantee....................................................................................................... S-4,9
IFC Charges................................................................................................... S-10
S-32
<PAGE>
Illinois Power................................................................................................ S-9
Indenture Trustee............................................................................................. S-10
Note Interest Rate............................................................................................ S-20
Noteholders................................................................................................... S-4,19
Notes......................................................................................................... S-19
Offered Notes................................................................................................. S-1,6
Original Note Principal Balance............................................................................... S-8
Overcollateralization Amount.................................................................................. S-22
Overcollateralization Subaccount.............................................................................. S-14
Payment Date.................................................................................................. S-3
Plans......................................................................................................... S-18
Prospectus.................................................................................................... S-3
Rating Agency................................................................................................. S-18
Reconciliation Period......................................................................................... S-26
Record Date................................................................................................... S-12
Required Capital Level........................................................................................ S-16
Required Overcollateralization Level.......................................................................... S-22
Reserve Subaccount............................................................................................ S-14
Series Issuance Date.......................................................................................... S-6
Servicer...................................................................................................... S-9
Servicing Fee................................................................................................. S-16
Swap Agreement................................................................................................ S-6
Trust......................................................................................................... S-9
Trust Agreement............................................................................................... S-9
Underwriters.................................................................................................. S-28
</TABLE>
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
S-33
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1998.
PROSPECTUS
ILLINOIS POWER SPECIAL PURPOSE TRUST
TRANSITIONAL FUNDING TRUST NOTES
ISSUABLE IN SERIES
----------
ILLINOIS POWER COMPANY,
SERVICER
----------
The Illinois Power Special Purpose Trust Transitional Funding
Trust Notes (the "Notes") offered hereby in an aggregate principal amount of up
to $864,000,000 may be sold from time to time in series (each, a "Series"), each
of which may be comprised of one or more classes (each, a "Class"), as described
in the related Prospectus Supplement. Each Series of Notes will be issued by the
Illinois Power Special Purpose Trust (the "Trust"), a Delaware business trust to
be created under a Declaration of Trust (the "Trust Agreement"), by and among a
Delaware trustee (the "Delaware Trustee") and Beneficiary Trustees to be named
in the related Prospectus Supplement.
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.
----------
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH UNDER THE CAPTION "RISK FACTORS," WHICH BEGINS ON PAGE 29 HEREIN.
THE NOTES OFFERED HEREBY DO NOT CONSTITUTE A DEBT OR LIABILITY OF THE STATE
OF ILLINOIS OR ANY POLITICAL SUBDIVISION THEREOF AND DO NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF ILLINOIS POWER COMPANY OR ANY OF ITS AFFILIATES.
NONE OF THE NOTES OR THE UNDERLYING INTANGIBLE TRANSITION PROPERTY WILL BE
GUARANTEED OR INSURED BY ILLINOIS POWER OR ITS AFFILIATES.
(i)
<PAGE>
----------
THE INTANGIBLE TRANSITION PROPERTY ASSIGNED TO THE TRUST BY ILLINOIS POWER
SECURITIZATION LIMITED LIABILITY COMPANY, CERTAIN OTHER ASSETS OF THE TRUST
AND PAYMENTS ON ANY RELATED SWAP AGREEMENT (SOLELY WITH RESPECT TO CLASSES OF
NOTES BEARING INTEREST AT FLOATING RATES), WILL BE THE SOLE SOURCE OF
PAYMENTS ON THE NOTES. NEITHER ILLINOIS POWER COMPANY NOR ANY OF ITS
AFFILIATES WILL HAVE ANY OBLIGATIONS IN RESPECT OF THE NOTES OR THE
INTANGIBLE TRANSITION PROPERTY, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN
THE RELATED PROSPECTUS SUPPLEMENT.
----------
TRANSITIONAL FUNDING ORDERS AUTHORIZING THE ISSUANCE OF THE NOTES DO NOT
CONSTITUTE A PLEDGE OF THE FULL FAITH AND CREDIT OF THE STATE OF ILLINOIS OR
OF ANY OF ITS POLITICAL SUBDIVISIONS. THE ISSUANCE OF THE NOTES UNDER THE
ILLINOIS ELECTRIC UTILITY TRANSITIONAL FUNDING LAW OF 1997 SHALL NOT
DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE STATE OF ILLINOIS OR ANY
POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION
THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF
SECURITIES OFFERED HEREBY UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS
SUPPLEMENT.
Prospective investors should refer to the "Index of
Principal Definitions" which begins on page 144 herein for the location of
the definitions of capitalized terms that appear in this Prospectus.
_______________, 1998.
By one or more orders of the Illinois Commerce Commission
(the "ICC"), in accordance with the Illinois Electric Utility Transitional
Funding Law of 1997, Article XVIII of the Illinois Public Utilities Act (the
"Funding Law"), the Intangible Transition Property will be created and will
be granted by the ICC to Illinois Power Securitization Limited Liability
Company, a special purpose Delaware limited liability company (the
"Grantee"), whose sole member is Illinois Power Company ("Illinois Power").
The Intangible Transition Property, among other things, will represent a
current right to receive IFC Charges. The IFC Charges are non-bypassable
usage-based per kilowatt-hour charges to be imposed against, with certain
limited exceptions described herein, customers of Illinois Power, and
collections thereof will be the primary source of payment of principal and
interest on the Notes. Pursuant to one or more Intangible Transition Property
Sale Agreements between the Grantee and the Trust (each, a "Sale Agreement"),
the Grantee will assign its rights in, to and under the related Intangible
Transition Property, the Servicing Agreement and other
----------
(ii)
<PAGE>
related assets to the Trust. Illinois Power will also enter into one or more
Agreements Relating to Grant of Intangible Transition Property (each, a
"Grant Agreement") for the benefit of the Grantee, the rights under which
will be assigned to the Trust pursuant to the related Sale Agreement. See
"Description of the Intangible Transition Property -- Sale and Assignment of
Intangible Transition Property." Illinois Power will act as initial servicer
of the Intangible Transition Property (in its capacity as servicer, and
together with any successor servicer, the "Servicer") pursuant to the
Intangible Transition Property Servicing Agreement (the "Servicing
Agreement") between Illinois Power and the Grantee. See "Servicing."
The Notes will be secured primarily by the Intangible
Transition Property, as described under "Prospectus Summary -- Intangible
Transition Property" and "Description of the Intangible Transition Property."
The Notes will also be secured by the Grant Agreement, the Sale Agreement and
the Servicing Agreement, the Collection Account and all amounts of cash or
investment property on deposit therein or credited thereto from time to time;
with respect to Floating Rate Notes only, any interest rate exchange
agreement (a "Swap Agreement") executed solely to permit the issuance of
Notes that accrue interest at a variable rate based on the index described in
the related Prospectus Supplement (the "Floating Rate Notes"); all rights to
compel Illinois Power, as Servicer (or any successor) to file for and obtain
adjustments to the IFC Charges; and all present and future claims, demands,
causes and choses in action in respect of any or all of the foregoing and all
payments on or under and all proceeds in respect of any or all of the
foregoing. See "Security for the Notes -- Pledge of Note Collateral."
The Trust will issue to investors separate Series of Notes
from time to time upon terms determined at the time of sale and described in
the related Prospectus Supplement. Each Series may be issuable in one or more
Classes. A Series may include Classes which differ as to the interest rate,
timing, sequential order and amount of distributions of principal or interest
or both or otherwise. As more specifically described under "Security for the
Notes -- Allocations; Payments," the Trust will use all payments made with
respect to Intangible Transition Property (including net investment earnings
thereon) to pay certain expenses described in this Prospectus, interest due
on the Notes and principal payable on the Notes, allocated among the Series
and Classes of Notes based on the priorities described in this Prospectus and
in the related Prospectus Supplement except that investment earnings on
amounts on deposit in the Collection Account shall, to the extent such
amounts are not otherwise required to make other payments described herein,
or in the related Prospectus Supplement, be paid to the Trust or as it
directs. All principal not previously paid, if any, on any Note will be due
and payable on the Final Maturity Date of such Note. The Intangible
Transition Property, certain other assets of the Trust and, solely with
respect to any Floating Rate Notes, payments pursuant to any Swap Agreement
entered into with respect to the issuance of any such Floating Rate Notes (or
any Class thereof) will be the only source of payments on the Notes of such
Series (or any Class thereof). While the specific terms of any Series of
Notes (and the Classes, if any, thereof) will be described in the related
Prospectus Supplement, the terms of such Series and any Classes thereof will
not be subject to prior review by, or consent of, the holders of the Notes of
any previously issued Series.
(iii)
<PAGE>
Offers of the Notes of a Series may be made through one or
more different methods, including offerings through underwriters, as
described under "Plan of Distribution" herein and "Underwriting" in the
related Prospectus Supplement. There will have been no secondary market for
the Notes of any Series prior to the offering thereof. There can be no
assurance that a secondary market for any Series of Notes will develop or, if
one does develop, that it will continue. It is not anticipated that any of
the Notes will be listed on any securities exchange.
No dealer, salesperson, or any other person has been
authorized to give any information, or to make any representations, other
than those contained in this Prospectus or the related Prospectus Supplement
and, if given or made, such information or representations must not be relied
upon as having been authorized by Illinois Power, the Trust or any dealer,
salesperson, or any other person. Neither the delivery of this Prospectus or
the related Prospectus Supplement nor any sale made hereunder or thereunder
shall under any circumstances create an implication that there has been no
change in the information herein or therein since the date hereof. This
Prospectus and the related Prospectus Supplement do not constitute an offer
to sell or a solicitation of an offer to buy any security in any jurisdiction
in which it is unlawful to make such offer or solicitation.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT,
ALL DEALERS EFFECTING TRANSACTIONS IN THE RELATED SERIES OF NOTES, WHETHER OR
NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO DELIVER
THIS PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Grantee has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (as amended, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Notes. This Prospectus, which forms a
part of the Registration Statement, and any Prospectus Supplement describe
the material terms of each document filed as an exhibit to the Registration
Statement; however, this Prospectus and any Prospectus Supplement do not
contain all of the information contained in the Registration Statement and
the exhibits thereto. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission are not necessarily complete, and in
each instance reference is made to the copy of such document so filed. Each
such statement is qualified in its entirety by such reference. For further
information, reference is made to the Registration Statement and the exhibits
thereto, which are available for inspection without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located as follows:
Chicago Regional Office, Citicorp Center, 500 West Madison
(iv)
<PAGE>
Street, Suite 1400, Chicago, Illinois 60661-2511; and New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of the Registration Statement and exhibits thereto may be obtained at
the above locations at prescribed rates. Information filed with the
Commission can also be inspected at the Commission's site on the World Wide
Web at http://www.sec.gov.
The Grantee will file with the SEC such periodic reports
with respect to each Series of Notes as are required by the Securities
Exchange Act of 1934, as amended (the "Exchange Act "), and the rules,
regulations or orders of the SEC thereunder. The Grantee may discontinue
filing periodic reports under the Exchange Act at the beginning of the fiscal
year following the issuance of the Notes of any Series if there are fewer
than 300 holders of such Notes.
REPORTS TO HOLDERS
Unless and until the Notes are no longer issued in
book-entry form, the Servicer will provide to Cede & Co. ("Cede"), as nominee
of The Depository Trust Company ("DTC") and registered holder of the Notes,
and, upon request, to Participants of DTC, periodic reports concerning the
Notes. See "Security for the Notes -- Reports to Noteholders." Such reports
may be made available to the holders of interests in the Notes (the
"Noteholders") upon request to their Participants. Such reports will not
constitute financial statements prepared in accordance with generally
accepted accounting principles. The financial information provided to
Noteholders will not be examined and reported upon, nor will an opinion
thereon be provided, by any independent public accountant.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Grantee
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus and prior to the termination of the offering
made hereby shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof. Any statement contained herein or in a
Prospectus Supplement, or in a document incorporated or deemed to be
incorporated by reference herein or therein shall be deemed to be modified or
superseded for purposes of this Prospectus and any Prospectus Supplement to
the extent that a statement contained herein or in any other subsequently
filed document that 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 or any Prospectus Supplement.
The Grantee will provide without charge to each person to
whom a copy of this Prospectus is delivered, on the written or oral request
of any such person, a copy of any of or all the documents incorporated herein
by reference (other than exhibits to such documents). Requests for such
copies should be directed to the Grantee at Illinois Power
(v)
<PAGE>
Securitization Limited Liability Company at 500 South 27th Street, Decatur,
Illinois 62521, or by telephone at (217) 424 - ____, Attention: __________.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement for a Series of Notes will
describe, among other things, the following terms of such Series and, if
applicable, the Classes thereof: (a) the designation of the Series and, if
applicable, the Classes thereof, (b) the principal amount, (c) the annual
rate at which interest accrues, or if the Trust has entered into a Swap
Agreement with respect to such Series, the index on which a variable rate of
interest will be based, (d) the dates on which payments of interest and
principal are scheduled to occur, (e) the Expected Maturity Date and the
Final Maturity Date of such Series, (f) the initial Adjustment Date of, and
the Reconciliation Period for such Series, (g) the issuance date of the
Series, (h) the place or places for the payment of principal and interest,
(i) the authorized denominations, (j) the provisions for optional redemption
of such Series or Class by the Trust, (k) the Expected Amortization Schedule
for principal of such Series and, if applicable, the Classes thereof, (l) the
initial IFC Charges authorized in connection with the issuance of such Series
by the related Transitional Funding Order, and the IFC Charges imposed as of
the date of issuance of such Series, (m) the total dollar amount of
Intangible Transition Property authorized by the related Transitional Funding
Order, (n) any other terms of such Series and any Class thereof that are not
inconsistent with the provisions of the Notes and that will not result in any
Rating Agency reducing or withdrawing its then current rating of any
outstanding Series or Class of Notes, (o) the identity of the Indenture
Trustee, the Delaware Trustee and the Beneficiary Trustees, and (p) the terms
of any Swap Agreement executed solely to permit the issuance of any Floating
Rate Notes.
(vi)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...............................................................................................iv
REPORTS TO HOLDERS...................................................................................................v
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................................................................v
PROSPECTUS SUPPLEMENT...............................................................................................vi
TABLE OF CONTENTS..................................................................................................vii
PROSPECTUS SUMMARY...................................................................................................1
RISK FACTORS........................................................................................................29
Unusual Nature of Intangible Transition Property...........................................................29
Legal Challenges...........................................................................................29
Possible Amendment or Repeal of Amendatory Act: Breach of State Pledge; Limited Rights and Remedies........30
Limit on Amount of Intangible Transition Property..........................................................31
Potential Servicing Issues.................................................................................31
Reliance on Servicer..............................................................................31
Inaccurate Usage and Credit Projections...........................................................32
Delays Caused by Changes in Payment Terms.........................................................32
Limited Credit Policy and Procedures..............................................................33
Reliance on Alternative Retail Electric Suppliers.................................................33
Commingling of IFC Payments With Servicer's Other Funds; Investment of IFC
Payments for Servicer's Account.................................................................34
Year 2000 Issues..................................................................................35
Uncertainties Related to the Electric Industry Generally...................................................35
Untried New Illinois Market Structure.............................................................35
Technological Change..............................................................................36
Municipalization..................................................................................37
Changes in General Economic Conditions and Electricity Usage......................................37
Changing Regulatory and Legislative Environment............................................................38
Reliance on Broad Base of Customers........................................................................38
Reduction in Amount of Revenue From Applicable Rates.......................................................39
Bankruptcy and Creditors' Rights Issues....................................................................43
Potential Bankruptcy of Illinois Power or the Grantee.............................................43
Potential Bankruptcy of the Servicer..............................................................45
Nature of the Notes........................................................................................46
Limited Liquidity.................................................................................46
Restrictions on Book-Entry Registration...........................................................46
(vii)
<PAGE>
Limited Recourse Obligations......................................................................46
Expected Issuance of Additional Series of Notes; Other Transitional Funding Orders................47
Limited Nature of Ratings.........................................................................47
Uncertain Payment Amounts and Weighted Average Life...............................................48
Effect of Optional Redemption on Weighted Average Life and Yield..................................48
Additional Risks of Floating Rate Notes...........................................................49
ELECTRIC INDUSTRY RESTRUCTURING IN ILLINOIS.........................................................................50
General ..................................................................................................50
Amendatory Act Overview....................................................................................50
Transition Charges.........................................................................................51
Transition Period..........................................................................................53
Alternative Retail Electric Suppliers......................................................................54
Competitive Services.......................................................................................55
Federal Initiatives; Increased Competition.................................................................55
DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY...................................................................56
Creation of Intangible Transition Property Under the Funding Law...........................................56
Limitations on the Amounts of Transitional Funding Instruments, Intangible Transition Property
and Instrument Funding Charges Which Can Be Authorized; Permitted Use of Proceeds.................58
Imposition and Collection of Instrument Funding Charges; Adjustment Mechanism..............................60
The Transitional Funding Order Issued at the Request of Illinois Power.....................................62
Transactions Pursuant to the Transitional Funding Order....................................................64
Non-bypassable Instrument Funding Charges..................................................................65
Adjustments to Instrument Funding Charges..................................................................65
Sale and Assignment of Intangible Transition Property......................................................67
Grant Agreement............................................................................................69
Representations and Warranties of Illinois Power...........................................................69
Covenants of Illinois Power................................................................................71
Amendment of Grant Agreement...............................................................................73
Indemnification Obligations of Illinois Power..............................................................74
Sale Agreement.............................................................................................74
Representations And Warranties of Grantee..................................................................75
Covenants of the Grantee...................................................................................77
Amendment of Sale Agreement................................................................................79
Indemnification Obligations of the Grantee.................................................................79
CERTAIN PAYMENT, WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS.....................................................81
THE TRUST...........................................................................................................82
(viii)
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THE GRANTEE.........................................................................................................83
Managers and Officers......................................................................................83
THE SERVICER........................................................................................................84
General ..................................................................................................84
Illinois Power Customer Base, Electric Energy Consumption and Base Rates...................................84
Forecasting Electricity Consumption........................................................................88
Forecast Variances.........................................................................................88
Credit Policy; Billing; Collections; Restoration of Service ...............................................89
Credit Policy.....................................................................................90
Billing Process...................................................................................90
Collection Process................................................................................91
Restoration of Service............................................................................92
Loss and Delinquency Experience............................................................................92
Delinquencies..............................................................................................93
Year 2000 Issues...........................................................................................95
SERVICING...........................................................................................................96
Servicing Procedures.......................................................................................96
Servicing Standards and Covenants..........................................................................97
Remittances to Collection Account..........................................................................98
No Servicer Advances.......................................................................................99
Servicing Compensation.....................................................................................99
Alternative Retail Electric Suppliers and Other Third-Party Collectors....................................100
Servicer Representations and Warranties...................................................................101
Statements by Servicer....................................................................................102
Evidence as to Compliance.................................................................................102
Certain Matters Regarding the Servicer....................................................................102
Servicer Defaults.........................................................................................103
Rights Upon Servicer Default..............................................................................104
Waiver of Past Defaults...................................................................................104
Successor Servicer........................................................................................105
Amendment.................................................................................................105
Termination...............................................................................................105
DESCRIPTION OF THE NOTES...........................................................................................106
General .................................................................................................106
Interest and Principal....................................................................................107
Payments on the Notes.....................................................................................108
Floating Rate Notes.......................................................................................109
Registration and Transfer of the Notes....................................................................109
Book-Entry Registration...................................................................................110
Definitive Notes..........................................................................................114
Optional Redemption.......................................................................................115
Conditions of Issuance of Additional Series...............................................................115
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List of Noteholders.......................................................................................116
SECURITY FOR THE NOTES.............................................................................................117
General .................................................................................................117
Pledge of Note Collateral.................................................................................117
Security Interest in Note Collateral......................................................................118
Creation and Perfection of Security Interest Under the Funding Law...............................118
Right of Foreclosure.............................................................................119
Filings Made With Respect to the Intangible Transition Property .................................119
Description of Indenture Accounts.........................................................................119
Collection Account...............................................................................119
General Subaccount...............................................................................120
Reserve Subaccount...............................................................................120
Overcollateralization Subaccount.................................................................120
Capital Subaccount...............................................................................121
Allocations; Payments.....................................................................................121
State Pledge..............................................................................................123
Reports to Noteholders....................................................................................124
Supplemental Indentures...................................................................................125
Certain Covenants of the Delaware Trustee and the Trust...................................................125
Events of Default; Rights Upon Event of Default...........................................................128
Actions by Noteholders....................................................................................130
Annual Compliance Statement...............................................................................130
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS............................................................131
Tax Consequences to United States Noteholders.............................................................132
United States Noteholder.........................................................................132
Payments of Interest.............................................................................132
Original Issue Discount..........................................................................132
Market Discount and Premium......................................................................132
Sale, Exchanges, Redemption or Retirement of the Notes...........................................132
Tax Consequences to Non-United States Noteholders.........................................................133
Backup Withholding and Information Reporting..............................................................136
ERISA CONSIDERATIONS...............................................................................................139
USE OF PROCEEDS....................................................................................................141
PLAN OF DISTRIBUTION...............................................................................................141
RATINGS ..........................................................................................................142
LEGAL MATTERS......................................................................................................142
EXPERTS ..........................................................................................................143
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INDEX OF PRINCIPAL DEFINITIONS..................................................................................144
INDEX OF FINANCIAL STATEMENTS...................................................................................F-1
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PROSPECTUS SUMMARY
The following Prospectus Summary is qualified in its entirety by
reference to the detailed information appearing elsewhere in this Prospectus
and by reference to the information with respect to each Series of Notes
contained in the related Prospectus Supplement. Capitalized terms used but
not defined in this Prospectus Summary have the meanings ascribed to such
terms elsewhere in this Prospectus. The Index of Principal Definitions which
begins on page 144 sets forth the pages on which the definitions of certain
principal terms appear.
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Transaction Overview................ The Illinois Electric Utility Transitional
Funding Law of 1997 (the "Funding Law") permits
Illinois electric utilities (each, a "Utility",
and collectively, the "Utilities"), including
Illinois Power Company, an Illinois corporation
("Illinois Power"), and other permitted issuers,
including the Trust, to issue transitional
funding instruments, such as the Notes, in an
aggregate amount for each Utility not to exceed,
among certain other restrictions, 50% of such
Utility's total capitalization as of December 31,
1996; provided, however, that prior to August 1,
1999, the maximum amount of transitional funding
instruments may not exceed 25% of such Utility's
total capitalization as of December 31, 1996.
Pursuant to the Funding Law, the Illinois
Commerce Commission (the "ICC") has issued and
may hereafter issue one or more transitional
funding orders in favor of the Grantee at the
request of Illinois Power (each, a "Transitional
Funding Order") each of which provides, among
other things, for the creation of Intangible
Transition Property and the vesting thereof in
the Grantee. The Intangible Transition Property
created by each Transitional Funding Order, among
other things, represents the right to impose and
receive certain non-bypassable usage-based
charges (expressed in cents per kilowatt-hour and
included in the regular utility bills of existing
and future electric service customers in Illinois
Power's existing service area in Illinois,
together with certain other "retail customers" as
defined in the Illinois Public Utilities Act (the
"Act")), and all related revenues, collections,
claims, payments, money or proceeds thereof.
These charges are non-bypassable in that
Customers cannot avoid paying them regardless of
from whom their electricity is purchased;
provided, however, that such charges must be
deducted from
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amounts which could otherwise be billed by
Illinois Power (or its successor) or other
provider of electric service to such Customers on
account of its tariffed rates (or, in the case of
Customers not taking tariffed services on account
of private contracts, from the charges and rates
for the equivalent services provided by Illinois
Power). Illinois Power will enter into one or
more Agreements Relating to Grant of Intangible
Transition Property (each, a "Grant Agreement"
and collectively, the "Grant Agreements"),
relating to the grant by the ICC to the Grantee
of all of the rights in and to the Intangible
Transition Property created by the related
Transitional Funding Order and containing certain
representations, warranties and covenants with
respect to such Intangible Transition Property.
Pursuant to one or more Intangible Transition
Property Sale Agreements between the Grantee and
the Trust (each, a "Sale Agreement" and
collectively, the "Sale Agreements"), the Grantee
has assigned and may further assign its rights
in, to and under the Intangible Transition
Property created by the related Transitional
Funding Order, the Servicing Agreement and
certain other related assets to the Trust. The
Trust, whose primary asset will be all of the
Intangible Transition Property transferred to the
Trust pursuant to the Sale Agreements, will issue
the Notes, which will be sold to the underwriters
named in each Prospectus Supplement. The Notes
will be secured primarily by all of the
Intangible Transition Property. The Notes also
will be secured by the Grant Agreements, the Sale
Agreements and the Intangible Transition Property
Servicing Agreement between the Servicer and the
Grantee (the "Servicing Agreement"); the
Collection Account and all amounts of cash or
investment property on deposit therein or
credited thereto from time to time; with respect
to Floating Rate Notes only, any interest rate
exchange agreements (each, a "Swap Agreement")
entered into with respect to the issuance of such
Floating Rate Notes; all rights to compel
Illinois Power, as Servicer (or any successor) to
file for and obtain adjustments to the IFC
Charges in accordance with Section 18-104(d) of
the Funding Law, the Transitional Funding Orders
and all tariffs filed with the ICC in connection
therewith (each, an "IFC Tariff"); all present
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and future claims, demands, causes and choses in
action in respect of any or all of the foregoing;
and all payments on or under and all proceeds in
respect of any or all of the foregoing. See
"Security for the Notes."
The IFC Charges will be calculated and adjusted
from time to time to generate projected revenues
expected to be sufficient over time to (a) pay
interest and make Scheduled Payments on the
Notes, (b) pay all related fees and expenses of
the Trust and the Grantee, including the
Servicing Fee and any Administration Fee, (c)
replenish the Capital Subaccount up to the
Required Capital Level, and (d) fund and maintain
the Overcollateralization Subaccount up to the
Required Overcollateralization Level. The IFC
Charges will be subject to Adjustments, as
described under "Description of the Intangible
Transition Property -- Adjustments to the
Instrument Funding Charges" over the term of each
Series of Notes to enhance the likelihood of
timely recovery of such amounts.
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The following diagram represents a general
summary of the parties to the transactions
contemplated hereby, their roles and their
various relationship to the other parties.
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[GRAPHIC]
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Risk Factors........................ Investors should consider the risks associated
with an investment in the Notes. For a discussion
of certain material risks associated therewith,
investors should review the discussion under
"Risk Factors" which begins on page 29.
Servicer/Administrator.............. Illinois Power, a subsidiary of Illinova
Corporation, an Illinois corporation
("Illinova"), will act as the initial servicer
(in such capacity, and together with any
successor servicer, the "Servicer") of the
Intangible Transition Property pursuant to the
terms of the
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Servicing Agreement, and as the initial
administrator (in such capacity, and together
with any successor administrator, the
"Administrator") of the Grantee pursuant to the
terms of an Administration Agreement between the
Grantee and the Administrator (the
"Administration Agreement").
Illinois Power is a public utility primarily
engaged in the business of generating,
transmitting and distributing electric energy to
customers in areas of central and southwestern
Illinois, including the cities of Bloomington,
Normal, Galesburg, Decatur, Champaign, Urbana,
Danville, Centralia, Belleville, Edwardsville and
Granite City. See "The Servicer."
Grantee............................. The grantee of the Intangible Transition Property
will be Illinois Power Securitization Limited
Liability Company, a special purpose Delaware
limited liability company (the "Grantee"), whose
sole member is Illinois Power. In accordance with
the Funding Law and each Transitional Funding
Order, the Grantee shall be a grantee of the
Intangible Transition Property, authorized to
assign such Intangible Transition Property to the
Trust as an assignee. Pursuant to a Sale
Agreement, the Grantee will sell and assign all
of its right, title and interest in the
Intangible Transition Property, the Servicing
Agreement and certain other related assets to the
Trust.
Trust .............................. The issuer of the Notes will be the Illinois
Power Special Purpose Trust (the "Trust"), a
Delaware business trust. In accordance with the
Funding Law and the related Transitional Funding
Order, the Trust shall be entitled to receive the
Intangible Transition Property created by such
Transitional Funding Order as assignee of the
Grantee, and shall be authorized to issue Notes
as transitional funding instruments. The assets
of the Trust will consist of the Intangible
Transition Property and the other Note Collateral.
Delaware Trustee.................... A Delaware entity (the "Delaware Trustee") shall
be named as trustee under the Declaration of
Trust (the "Trust Agreement"), as set forth in
each Prospectus Supplement.
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Beneficiary Trustees................ The individuals named in the related Prospectus
Supplement as Beneficiary Trustees shall serve as
Beneficiary Trustees (each, a "Beneficiary
Trustee") of the Trust.
The Notes........................... The Notes will be issued in series (each, a
"Series"), and each Series of Notes may be issued
in one or more classes (each, a "Class"). Each
Series and Class of Notes will be in an initial
aggregate principal amount, and will bear
interest at a rate described in the related
Prospectus Supplement and will be at least PARI
PASSU to any subsequent Series and Class of
Notes. The Notes will be issued under the
Indenture.
The Indenture provides that collections received
with respect to the Intangible Transition
Property ("IFC Collections") will be used, among
other things, to pay (a) fees payable to the
Delaware Trustee, the Indenture Trustee, the
Servicer and the Administrator and other
Operating Expenses; and (b) interest (including
amounts, if any, payable with respect to any Swap
Agreement entered into with respect to the
issuance of any Floating Rate Notes) due on the
Notes and principal payable on the Notes,
allocated among the Series and Classes of Notes
based on the priorities described herein and in
the related Prospectus Supplement, until each
outstanding Series and Class of Notes is retired.
However, as described under "Description of the
Notes -- Interest and Principal," unless an Event
of Default has occurred and is continuing and the
Notes have been declared due and payable,
principal on the Notes on any Payment Date will
only be paid until the outstanding principal
balance of the Notes has been reduced to the
principal balance specified in the Expected
Amortization Schedule for such Payment Date. To
the extent that, with respect to any Payment
Date, amounts on deposit in certain subaccounts
of the Collection Account are insufficient to
reduce the principal balance of the Notes to the
amount required pursuant to the Expected
Amortization Schedule on such Payment Date, the
amount of such deficiency will be deferred to a
subsequent Payment Date without a default
occurring under the Indenture. All principal not
previously paid, if any, on a Note is due and
payable on the Final Maturity Date of such Note.
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Each Series of Notes is non-recourse and will be
secured only by and payable solely out of the
proceeds of Intangible Transition Property owned
by the Trust, together with the other Note
Collateral. See "Description of the Notes" and
"Security for the Notes."
A Series of Notes may include two or more Classes
of Notes that differ as to the interest rate,
timing, sequential order and amount of
distributions of principal or interest or both or
otherwise.
In addition, a Series of Notes may include one or
more Classes of Notes that accrue interest at a
variable rate based on the index described in the
related Prospectus Supplement (the "Floating Rate
Notes"). See "Description of the Notes --
Floating Rate Notes."
While the specific terms of any Series of Notes
(and the Classes thereof, if any) will be
described in the related Prospectus Supplement,
the terms of such Series and any Classes thereof
will not be subject to prior review by, or
consent of, the Noteholders of any previously
issued Series of Notes.
All Notes of the same Series will be identical in
all respects except for the denominations
thereof, unless such Series is comprised of two
or more Classes, in which case all Notes of the
same Class will be identical in all respects
except for the denominations thereof.
No additional Notes will be issued or shall be
secured, directly or indirectly, by the
Intangible Transition Property and the other Note
Collateral unless, among other things, each
Rating Agency with respect to any outstanding
Notes shall have affirmed the then current rating
of all such outstanding Notes in connection with
the issuance of such additional Notes.
So long as any Notes are outstanding, the
Noteholders will direct the Indenture Trustee as
to matters in which the Noteholders are permitted
or required to take action; provided, however,
that the Indenture Trustee will be permitted to
take certain actions specified in the Indenture
without the direction of all of the Noteholders.
See "Security for the Notes -- Actions by
Noteholders."
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None of the Notes or the underlying Intangible
Transition Property will be guaranteed or insured
by Illinois Power or any of its affiliates.
Transitional Funding Orders authorizing the
issuance of the Notes do not constitute a pledge
of the full faith and credit of the State of
Illinois or any of its political subdivisions.
The issuance of the Notes under the Funding Law
shall not directly, indirectly or contingently
obligate the State of Illinois or any political
subdivision thereof to levy or to pledge any form
of taxation therefor or to make any appropriation
for their payment. Notes will be payable solely
by application of the proceeds of the Intangible
Transition Property and the other Note Collateral
held by the Indenture Trustee under the
Indenture. If additional Notes are subsequently
issued, the previously issued and outstanding
Notes will be at least PARI PASSU with such
subsequently issued Notes as to all of the
Intangible Transition Property and the other Note
Collateral. Any and all funds or property
released by the Indenture Trustee pursuant to the
Indenture will cease to be Note Collateral and
will no longer be available for payment of the
Notes.
See "Description of the Notes."
Indenture........................... The Notes will be issued pursuant to the terms of
the Indenture, and Intangible Transition Property
and the other Note Collateral will be pledged
under the Indenture for the benefit of the
Noteholders.
Indenture Trustee................... The entity named as trustee under the Indenture,
as set forth in each Prospectus Supplement (the
"Indenture Trustee").
Rating Agency....................... Each nationally-recognized securities rating
organization which rates any Series of Notes upon
request of the Trust (each, a "Rating Agency") as
set forth in the Prospectus Supplement related
thereto.
IFC Charges......................... Each Transitional Funding Order obtained by
Illinois Power from the ICC will create and
establish a certain dollar amount of Intangible
Transition Property and the rights of the Grantee
therein and authorize the assignment of such
Intangible Transition Property from the Grantee
to the Trust and the issuance of the Notes
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by the Trust and the pledge of the Intangible
Transition Property and the other Note Collateral
as security therefor. The Prospectus Supplement
related to an issuance of Notes will identify the
Transitional Funding Order and the total dollar
amount of Intangible Transition Property
authorized thereby, which will represent the
maximum dollar amount of IFC Charges which may be
applied and invoiced under such Transitional
Funding Order over time by the Servicer on behalf
of the Trust without further action by the ICC.
Unlike legislation enacted in certain other
states, the Amendatory Act does not provide that
the IFC Charges constitute recoveries of Illinois
Power's "stranded costs."
Each Transitional Funding Order will provide for
the establishment, imposition and collection of
non-bypassable, usage-based, per kilowatt-hour
charges on designated consumers of electricity
(the "IFC Charges"). Each such order will provide
that IFC Charges will be imposed on each existing
and future retail customer or class of retail
customers in Illinois Power's service area in
Illinois, or other person or group of persons
obligated, from time to time, to pay to Illinois
Power or any successor Applicable Rates, and any
customers who, after the Notes are issued, enter
into contracts with Illinois Power to take
non-tariffed services but would otherwise have
been obligated to pay Applicable Rates
(collectively, the "Customers"). However,
Customers will not include retail customers of
Illinois Power not paying Applicable Rates as a
result of entering into a contract with Illinois
Power before the date the Notes are issued,
unless the customer has agreed in such contract
to pay the Grantee or its assigns, or Illinois
Power as Servicer, as applicable, an amount equal
to the amount of IFC Charges that would have been
billed if the services provided under such
contract were subject to Applicable Rates. Of
amounts collected from the Customers, only the
portion of amounts collected that comprise the
IFC Charges, as adjusted from time to time, will
be available to make payments on the Notes. IFC
Charges will be deducted and stated separately
from Applicable Rates.
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"Applicable Rates" means any tariffed charges
owed to Illinois Power, including, without
limitation, charges for "base rates", "delivery
services" or "transition charges" (including
lump-sum payments for such charges) as each such
term is defined in the Act. Applicable Rates do
not include late charges or charges set forth in
those tariffs which are filed specifically and
primarily to collect amounts related to
decommissioning expense, taxes, municipal
infrastructure maintenance fees, franchise fees
or other franchise cost additions, costs imposed
by local governmental units which are allocated
and charged to customers within the boundaries of
such governmental units' jurisdictions, renewable
energy resources and coal technology development
assistance charges, energy assistance charges for
the Supplemental Low-Income Energy Assistance
Fund, reimbursement for the costs of optional or
non-standard facilities and reimbursement for the
costs of optional or non-standard meters, or
monies that will be paid to third parties (after
deduction of allowable administrative, servicing
or similar fees) (collectively, "Excluded
Amounts"). Payments owed to the Grantee or the
Trust in respect of IFC Charges do not constitute
Excluded Amounts. To the extent any Applicable
Rates reflect compensation owed by Illinois Power
for power or energy supplied to customers by a
person or entity other than Illinois Power, the
IFC Charges will be deducted and stated
separately from such Applicable Rates without
giving effect to such compensation.
Administrative, servicing and similar fees
referred to in the parenthetical above means fees
which Illinois Power is expressly authorized
under its current agreements with third parties
or by statute, tariff or otherwise to deduct from
monies owed to such parties to cover its cost of
processing such third-party payments. Charges
associated with Excluded Amounts are generally
the subject of separate riders to Illinois
Power's rates, such that increases in such
charges are collected through an increase in the
amount permitted to be collected under such
rider, rather than through an increased share of
the Applicable Rates. As a result, any increase
in Excluded Amounts should not result in a
material decrease in the amount of Applicable
Rates available to cover the amount of IFC
Charges.
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Unless otherwise provided in the related
Prospectus Supplement, each Transitional Funding
Order will further provide that neither Illinois
Power nor any successor Utility may enter into
any contract with any Customer obligated (or who
would, but for such contract, be obligated) to
pay IFC Charges if, as a result thereof, the
Customer would not receive services subject to
Applicable Rates, unless the contract provides
that the Customer will pay an amount each billing
period to the Grantee or its assigns, or to
Illinois Power as Servicer, as applicable, equal
to the amount of IFC Charges that would have been
billed if the services provided under such
contract were subject to Applicable Rates. Unless
otherwise provided in the related Prospectus
Supplement, each Transitional Funding Order will
further provide that any revenues received by
Illinois Power or a successor Utility from any
such contracts shall, to the extent the IFC
Charges would be imposed on the customer if the
services taken by the customer pursuant to such
contract were subject to Applicable Rates, be
deemed to be proceeds of, and included in, the
Intangible Transition Property created by the
related Transitional Funding Order. Customers do
not include retail customers of Illinois Power
not paying Applicable Rates as a result of
entering into a contract with Illinois Power
before the date of issuance of a Series of Notes,
unless the customer has agreed in such contract
to pay to the Grantee or its assigns or to
Illinois Power, as Servicer, an amount equal to
the amount of IFC Charges that would have been
billed if the services provided under such
contract were subject to Applicable Rates. See
"Description of the Intangible Transition
Property -- The Transitional Funding Order Issued
at the Request of Illinois Power."
If a Customer chooses to take service from an
Alternative Retail Electric Supplier ("ARES")
that provides consolidated billing, such
Customer's IFC Charges are required to be
remitted to the Servicer by such ARES. See "Risk
Factors -- Potential Servicing Issues -- Reliance
on Alternative Retail Electric Suppliers" and
"Servicing -- Alternative Retail Electric
Suppliers and Other Third-Party Collectors."
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The IFC Charges will be calculated, and adjusted
from time to time, to generate projected revenues
expected to be sufficient to (a) pay interest and
make Scheduled Payments on the Notes, (b) pay all
related fees and expenses of the Trust and the
Grantee, including the Servicing Fee and any
Administration Fee, (c) replenish the Capital
Subaccount up to the Required Capital Level, and
(d) fund and maintain the Overcollateralization
Subaccount up to the Required
Overcollateralization Level. The IFC Charges are
specific, separately-identified charges
(expressed in cents per kilowatt-hour) that will
be assessed on all Customers based on the
applicable Customer's consumption of electricity.
In each case, the IFC Charges will be assessed
for the benefit of the Trust as assignee of all
of the Grantee's right, title and interest in the
Intangible Transition Property. Such IFC Charges
will be collected by the Servicer, either
directly from Customers or from an ARES or other
third-party collection agent that collects such
amounts from Customers, as part of its normal
collection activities and will be deposited into
the Collection Account under the terms of the
Indenture and the Servicing Agreement on each
Remittance Date or Daily Remittance Date, as the
case may be.
The Funding Law provides that, notwithstanding
any other provision of law, once a Transitional
Funding Order has become final and nonappealable,
none of such Transitional Funding Order, the
Intangible Transition Property created and
established thereby or the IFC Charges authorized
to be imposed and collected thereunder shall be
subject to any reduction, postponement,
impairment or termination by any subsequent
action of the ICC.
Intangible Transition Property...... The right to impose, and collect payments of, the
IFC Charges from the Customers (such payments,
whether collected directly from Customers or
through third-party collection agents, including
ARES, being the "IFC Payments") gives rise to a
separate property right as set forth in the
Funding Law. This property is created, and vested
in the Grantee, by a Transitional Funding Order
and, together with the related items described in
this paragraph, is referred to herein generally
as the
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"Intangible Transition Property." The Intangible
Transition Property includes the right, title and
interest to impose and receive IFC Charges, and
all related revenues, collections, claims,
payments, money, or proceeds thereof, including
all right, title, and interest under and pursuant
to the Transitional Funding Order which created
such Intangible Transition Property.
Adjustments to IFC Charges.......... The Servicing Agreement and each Transitional
Funding Order will require the Servicer to
calculate and implement adjustments to the IFC
Charges which are designed to enhance the
likelihood that the IFC Collections which are
remitted to the Collection Account will be
sufficient to (a) pay interest and make Scheduled
Payments on the Notes, (b) pay all related fees
and expenses of the Trust and the Grantee,
including the Servicing Fee and any
Administration Fee, (c) replenish the Capital
Subaccount up to the Required Capital Level, and
(d) fund and maintain the Overcollateralization
Subaccount up to the Required
Overcollateralization Level.
Unless otherwise provided in the related
Prospectus Supplement, each Transitional Funding
Order will provide that the changes in IFC
Charges, if any, resulting from an Adjustment
("Adjustments") will take effect on the first day
of the second month following the end of each
[ANNUAL/SEMI-ANNUAL] Reconciliation Period (each
such date, an "Adjustment Date," and each such
period, a "Reconciliation Period").
The IFC Charges will, subject to Adjustments as
provided herein, continue to be imposed and
collected until all interest on and principal of
all Series of the Notes have been paid in full,
subject only to the limitation of the maximum
amount of IFC Collections authorized by the
Commission in the Transitional Funding Order
or Orders.
All Adjustments shall be implemented pursuant to
the IFC Tariff filed by Illinois Power in
connection with the related Transitional Funding
Order. As required by the Funding Law, if, as a
result of any Adjustment, the IFC Charge as so
adjusted will exceed the amount per kilowatt-hour
of the IFC Charge authorized by the ICC in
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any Transitional Funding Order, then Illinois
Power shall be obligated to file amendatory
tariffs or revisions to existing tariffs (each,
an "Amendatory Tariff") adjusting the amounts
otherwise billed by Illinois Power for Applicable
Rates, to offset the amount of such excess (or,
if Illinois Power shall have previously filed any
such Amendatory Tariffs, the incremental amount
of such excess). However, the failure of such
Amendatory Tariff to become effective for any
reason shall not delay or impair the
effectiveness of any such Adjustments.
See "Description of the Intangible Transition
Property -- Adjustments to the Instrument Funding
Charges."
State Pledge........................ Pursuant to the Funding Law, the State of
Illinois pledges to and agrees with the holders
of the Notes that the State of Illinois will not
in any way limit, alter or reduce the value of
the Intangible Transition Property created by, or
the IFC Charges approved by, the Transitional
Funding Order so as to impair the terms of any
contract made by Illinois Power, Grantee or Trust
with such holders or in any way impair the rights
and remedies of such holders until the Notes,
together with the interest thereon, and other
fees, costs and charges related thereto, are
fully paid and discharged (the "State Pledge").
The Funding Law authorizes issuers, such as the
Trust, to include these pledges and agreements of
the State in any contract with the holders of the
transitional funding instruments, and the pledges
and agreements shall be so included in the
Indenture for the benefit of the Noteholders. See
"Security for the Notes -- State Pledge."
Payment Dates....................... The payment dates on Notes of each Series will be
the quarterly dates specified in the related
Prospectus Supplement (each, a "Payment Date").
If such specified date is not a Business Day,
then the Payment Date shall be the next
succeeding Business Day.
Record Dates........................ With respect to any Payment Date or date of any
redemption, the Business Day preceding such
Payment Date or other date if the Notes are
Book-Entry Notes or, if Definitive Notes are
issued, the last day of the preceding calendar
month (each, a "Record Date").
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Expected Final Distribution
and Final Maturity Dates............ For each Series or Class of Notes, the related
Prospectus Supplement will specify an Expected
Maturity Date and a Final Maturity Date. The
Expected Maturity Date will be the date when all
principal and interest on such Series or Class of
Notes is expected to be paid in full by the
Trust, based on various assumptions described
herein. The "Final Maturity Date" corresponds to
the date on which such Series or Class of Notes
may be accelerated for failure to pay outstanding
principal thereon, which may be up to two (2)
years after the Expected Maturity Date for such
Series or Class. The Funding Law provides that
the authority of the Trust to impose and collect
IFC Charges shall continue until such time as all
Notes have been paid in full.
Issuance of Additional Series....... The Trust may issue additional Series of Notes
from time to time; provided, however, the Trust
may not currently issue in excess of $864 million
in aggregate principal amount of Notes prior to
August 1, 1999, and thereafter may not issue in
excess of $1.728 billion of Notes (less the
initial amount of any previously issued Notes). A
subsequent Transitional Funding Order would
authorize additional Intangible Transition
Property and an increase in the authorized amount
of IFC Charges in connection with such issuance.
See "Description of the Intangible Transition
Property -- The Transitional Funding Order Issued
at the Request of Illinois Power." An additional
Series may be issued only upon satisfaction of
the conditions described under "Description of
the Notes -- Conditions of Issuance of Additional
Series." Each Series of Notes will be solely
secured by the Intangible Transition Property and
the other Note Collateral. An Event of Default
with respect to one Series of Notes (or one or
more Classes thereof) may adversely affect other
outstanding Classes and Series of Notes since
such event will be considered an Event of Default
with respect to all Series of Notes and each such
Class or Series will be entitled only to its
ratable portion of the Intangible Transition
Property and the other Note Collateral as
determined under the Indenture. In addition, all
Intangible Transition Property owned by the Trust
will secure all Series of Notes and
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any remedial actions taken by Noteholders of one
Series will affect the other Series.
Interest............................ Unless otherwise specified in the related
Prospectus Supplement, interest on each Series of
Notes (and, if applicable, each Class thereof)
will accrue and be payable in arrears at the
interest rate for such Series (or Class), or
calculated in the manner, specified in the
related Prospectus Supplement.
Principal........................... Principal of each Series of Notes (and, if
applicable, each Class thereof) will be paid to
the Noteholders of such Series (or Class) in the
amounts and on the Payment Dates specified in the
related Prospectus Supplement, but only to the
extent that amounts in the Collection Account are
available therefor, and subject to the other
limitations described below. See "Security for
the Notes -- Allocations; Payments." The related
Prospectus Supplement will set forth a schedule
of the expected amortization of principal of the
related Series of Notes and, if applicable, the
Classes thereof (for any Series or Class, the
"Expected Amortization Schedule"). Unless an
Event of Default has occurred and is continuing
and the Notes have been declared due and payable,
on any Payment Date, subject to availability of
funds in the Collection Account, the Trust will
make principal payments on the Notes only until
the outstanding principal balances thereof have
been reduced to the principal balances specified
in the applicable Expected Amortization Schedules
for such Payment Date (each, a "Scheduled
Payment"). However, if insufficient IFC
Collections are received with respect to any
Payment Date, and amounts in the Collection
Account are not sufficient to make up the
shortfall, principal of any Series or Class of
Notes may be paid later than reflected in the
related Expected Amortization Schedule, as
described in this Prospectus and in the related
Prospectus Supplement. See "Risk Factors --
Nature of the Notes -- Uncertain Payment Amounts
and Weighted Average Life" and "Certain Payment,
Weighted Average Life and Yield Considerations."
Events of Default................... The Indenture provides that any of the following
events will constitute an "Event of Default" with
respect to any
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Series of Notes: (a) a default for five days in
the payment of any interest on any Note; (b) a
default in the payment of the then unpaid
principal of any Note on the Final Maturity Date
for such Note; (c) a default in the payment of
the optional redemption price for any Note on the
optional redemption date therefor; (d) a default
in the observance or performance in any material
respect of any covenant or agreement of the Trust
made in the Indenture and the continuation of any
such default for a period of 30 days after notice
thereof is given to the Trust by the Indenture
Trustee or to the Trust and the Indenture Trustee
by the holders of at least 25 percent in
principal amount of the Notes of such Series then
outstanding; (e) any representation or warranty
made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in
connection therewith having been incorrect in a
material respect as of the time made, and such
breach not having been cured within 30 days after
notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the
Indenture Trustee by the holders of at least 25
percent in principal amount of the Notes of such
Series then outstanding; (f) certain events of
bankruptcy, insolvency, receivership or
liquidation of the Trust; (g) a breach by the
State of Illinois or any of its agencies
(including the ICC), officers or employees of the
State Pledge; and (h) any other event designated
as such in the Trust issuance certificate or
series supplement relating to such Series.
If an Event of Default (other than as specified
in clause (g) above) has occurred and is
continuing with respect to the Notes, the
Indenture Trustee may and, upon the written
direction of the holders of not less than a
majority in principal amount of the Notes then
outstanding shall, declare the unpaid principal
amount of all the Notes of all Series then
outstanding to be immediately due and payable. If
an Event of Default as specified in clause (g)
above has occurred, then, as the sole and
exclusive remedy for such breach, the Servicer
shall be obligated to institute (and the
Indenture Trustee, for the benefit of the
Noteholders, shall be entitled and empowered to
institute) any suits, actions or proceedings at
law, in equity or otherwise, to enforce the State
Pledge and to collect any monetary damages as a
result of a breach thereof, and each of the
Servicer and
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the Indenture Trustee may prosecute any such
suit, action or proceeding to final judgment or
decree.
See "Security for the Notes -- Events of Default;
Rights Upon Event of Default" and "Ratings."
Optional Redemption................. Pursuant to the terms of the Indenture, any
Series of Notes may be redeemed on any Payment
Date if, after giving effect to distributions
that would otherwise be made on such date, the
outstanding principal balance of such Series of
Notes has been reduced to less than five percent
(5%) of the initial principal balance thereof.
If specified in the Prospectus Supplement related
to any Series or Class of Notes, the Indenture
may also permit the redemption of any such Series
or Class of Notes in full on any Payment Date on
or prior to December 31, 2004 using proceeds
received from the refinancing of any other Series
or Class of Notes, through the issuance of an
additional Series of Notes (the "New Notes"). The
New Notes will be payable solely out of the
Intangible Transition Property and the other Note
Collateral and will have no more than a PARI
PASSU lien thereon vis-a-vis all existing Series
of Notes.
No redemption shall be permitted under the
Indenture unless each Rating Agency with respect
to any Notes that will remain outstanding after
such redemption shall have affirmed the then
current rating of all such outstanding Notes.
Upon any redemption of any Series or Class of
Notes, the Trust will have no further obligations
under the Indenture with respect thereto.
See "Description of the Notes -- Optional
Redemption."
Establishment of Collection
Accounts and Subaccounts............ Pursuant to the Indenture, a Collection Account
will be established and held by the Indenture
Trustee for the benefit of the Noteholders. The
Collection Account will consist of four
subaccounts: a general subaccount (the "General
Subaccount"), a reserve subaccount (the "Reserve
Subaccount"), a subaccount for the
Overcollateralization Amount (the
"Overcollateralization Subaccount"), and a
capital subaccount (the "Capital Subaccount").
Unless the context indicates otherwise,
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references herein to the Collection Account
include each of the subaccounts contained
therein. Withdrawals from and deposits to these
subaccounts will be made as described under
"Security for the Notes -- Allocations; Payments."
General Subaccount.................. The General Subaccount will hold all funds held
in the Collection Account that are not held in
the other three subaccounts. The Servicer will
remit all IFC Collections to the General
Subaccount on each Remittance Date or Daily
Remittance Date, as required under the Servicing
Agreement. On each Payment Date, the Indenture
Trustee will draw on amounts in the General
Subaccount to pay expenses of the Trust and the
Grantee and to pay interest and make Scheduled
Payments on the Notes and to make other payments
and transfers in accordance with the terms of the
Indenture.
Reserve Subaccount.................. IFC Collections available with respect to any
Payment Date in excess of amounts necessary to
(a) pay interest and make Scheduled Payments on
the Notes (or, if the Notes have been declared
due and payable, to pay the Notes in full), (b)
pay all related fees and expenses of the Trust
and the Grantee, including the Servicing Fee and
any Administration Fee, (c) replenish the Capital
Subaccount up to the Required Capital Level, and
(d) fund and maintain the Overcollateralization
Subaccount up to the Required
Overcollateralization Level (all as described
under "Security for the Notes -- Allocations;
Payments"), will be allocated to the Reserve
Subaccount. On each Payment Date, the Indenture
Trustee will draw on amounts in the Reserve
Subaccount, to the extent amounts available in
the General Subaccount are insufficient to pay
expenses of the Trust and the Grantee and to pay
interest and make Scheduled Payments on the Notes
and to make other payments and transfers in
accordance with the terms of the Indenture.
Overcollateralization
Subaccount.......................... Each Transitional Funding Order will provide that
the Trust, as the assignee of all of Grantee's
right, title and interest in the Intangible
Transition Property created thereby, is entitled
to collect an additional amount (for
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any Series, the "Overcollateralization Amount")
specified in the related Prospectus Supplement
which is intended to enhance the likelihood that
payments on the Notes will be made in accordance
with their Expected Amortization Schedules. Each
Transitional Funding Order will permit the
Servicer to set the IFC Charges at levels that
are expected to produce IFC Collections in
amounts that exceed the amounts expected to be
required to pay interest and make Scheduled
Payments on the Notes and to pay all related fees
and expenses of the Trust and the Grantee,
including the Servicing Fee and any
Administration Fee, in order to collect the
Overcollateralization Amount. The
Overcollateralization Amount established in
connection with each Series of Notes will be
specified in the related Prospectus Supplement,
but will not be less than 0.50 percent of the
initial principal balance of such Series of
Notes, collected over the expected life of the
Notes of such Series according to a schedule set
forth in the related Prospectus Supplement. The
Overcollateralization Amount for all Series of
Notes will be held in the Over collateralization
Subaccount, as described further under "Security
for the Notes -- Description of Indenture Accounts
-- Overcollateralization Subaccount." The amount
required to be on deposit in the Over
collateralization Subaccount as of any Payment
Date with respect to each Series, as specified in
the schedule set forth in the related Prospectus
Supplement, is referred to as the "Required
Overcollateralization Level." On each Payment
Date, the Indenture Trustee will draw on amounts
in the Overcollateralization Subaccount, if any,
to the extent amounts available in the General
Subaccount and the Reserve Subaccount are
insufficient to pay expenses of the Trust and the
Grantee and to pay interest and make Scheduled
Payments on the Notes. If amounts on deposit in
the Overcollateralization Subaccount are used to
pay such expenses and make such payments,
subsequent Adjustments shall take into account,
among other things, such amounts and on
subsequent Payment Dates the
Overcollateralization Subaccount will be
replenished to the extent IFC Collections exceed
amounts required to make payments or transfers
having a higher priority of payment, as more
fully described under "Security for the Notes
-- Allocations; Payments."
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Capital Subaccount.................. Upon the issuance of each Series of Notes, the
Trust will retain proceeds equal to 0.50% of the
initial principal amount of such Series of Notes
less $100,000 in the aggregate for all Series of
Notes. Such amount (with respect to each Series,
the "Required Capital Level"), will be deposited
into the Capital Subaccount. On each Payment
Date, the Indenture Trustee will draw on amounts
in the Capital Subaccount, if any, to the extent
amounts available in the General Subaccount, the
Reserve Subaccount and the Overcollateralization
Subaccount are insufficient to pay expenses of
the Trust and the Grantee and to pay interest and
make Scheduled Payments on the Notes and to make
other payments and transfers in accordance with
the terms of the Indenture. If amounts on deposit
in the Capital Subaccount are used to make such
payments and transfers, subsequent Adjustments
shall take into account, among other things, such
amounts and on subsequent Payment Dates the
Capital Subaccount will be replenished to the
extent IFC Collections exceed amounts required to
pay amounts having a higher priority of payment,
as more fully described under "Security for the
Notes -- Allocations; Payments."
Collections......................... The IFC Tariff allows the Trust to begin to
impose and collect the IFC Charges concurrently
with the issuance of the Notes of any Series
(each, a "Series Issuance Date"). The IFC Charges
will be imposed and collected based upon the
entire electricity consumption of Customers
included in bills issued to Customers on and
after such Series Issuance Date, including that
portion of the applicable Billing Period during
which electric service was provided prior to such
Series Issuance Date.
The Servicing Agreement provides, among other
things, that the Servicer will collect the IFC
Payments on behalf of the Trust, as assignee of
the Grantee. The Servicer will remit to the
Collection Account on the tenth day of each month
(or, if such day is not a Business Day, on the
next Business Day), (each such monthly date, a
"Remittance Date"), all IFC Payments received by
the Servicer during the immediately preceding
Billing Period (the "Monthly IFC Amount") unless
the Servicer fails to
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meet the Remittance Conditions, in which case
the Servicer will, within two Servicer Business
Days of receipt (each, a "Daily Remittance
Date"), remit all IFC Payments to the Collection
Account. See "Servicing -- Remittances to
Collection Account.
A "Billing Period" is a period created by
dividing the calendar year into twelve
consecutive periods of approximately twenty-one
(21) Servicer Business Days each, and represents
the period during which the Servicer typically
renders a bill for electric service to each of
its customers. A "Servicer Business Day" is
generally any day other than a Saturday, Sunday
or holiday on which the Servicer maintains normal
office hours and conducts business.
The "Servicing Standard" will be set forth in the
Servicing Agreement and shall require the
Servicer to calculate, collect, apply, remit and
reconcile proceeds of the Intangible Transition
Property, including IFC Payments, and other Note
Collateral for the benefit of the Trust and the
Noteholders (a) with the same degree of care and
diligence as the Servicer applies with respect to
payments owed to it for its own account, (b) in
accordance with procedures and requirements
established by the ICC for collection of electric
utility tariffs, and (c) in accordance with the
other terms of the Servicing Agreement.
Allocations; Payments.............. On each Payment Date, amounts in the Collection
Account, including net earnings thereon, will be
allocated to the following (in the priority
indicated, (a) all amounts owed by the Trust to
the Delaware Trustee and the Indenture Trustee
will be paid to such persons; (b) the Servicing
Fee and all unpaid Servicing Fees from prior
Payment Dates will be paid to the Servicer; (c)
the Administration Fee and all unpaid
Administration Fees (or portions thereof), if
any, from prior Payment Dates will be paid to the
Administrator; (d) so long as no Default or Event
of Default has occurred or would be caused by
such payment, all other accrued and unpaid fees
and expenses of the Trust ("Operating Expenses")
will be paid to the persons entitled thereto,
provided that the amount paid on each Payment
Date pursuant to this clause (d) may not exceed
$100,000; (e) any overdue
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Quarterly Interest, and then Quarterly Interest
with respect to each Series of Notes will be paid
to the Noteholders together with any net payments
due to a Swap Counterparty; (f) principal on any
Series of Notes payable as a result of an Event
of Default or on the Final Maturity Date for such
Series of Notes will be paid to the Noteholders
of the applicable Series; (g) the Scheduled
Payment for any Series of Notes based on
priorities described in each Prospectus
Supplement will be paid to the Noteholders of the
applicable Series; (h) unpaid Operating Expenses
will be paid to the persons entitled thereto; (i)
the amount, if any, by which the Required Capital
Level with respect to all outstanding Series of
Notes exceeds the amount in the Capital
Subaccount as of such Payment Date will be
allocated to the Capital Subaccount; (j) the
amount, if any, by which the Required
Overcollateralization Level exceeds the amount in
the Overcollateralization Subaccount as of such
Payment Date will be allocated to the
Overcollateralization Subaccount; (k) funds up to
the net earnings on amounts in the Collection
Account for the prior quarter without cumulation
will be released to the Trust; (l) if any Series
of Notes has been retired as of such Payment
Date, the excess of the amount in the
Overcollateralization Subaccount over the
aggregate Required Overcollateralization Level
with respect to all Series of Notes remaining
outstanding will be released to the Grantee; (m)
if any Series of Notes has been retired as of
such Payment Date, the excess of the amount in
the Capital Subaccount over the aggregate
Required Capital Level with respect to all Series
of Notes remaining outstanding will be released
to the Grantee; (n) the balance, if any, will be
allocated to the Reserve Subaccount for payment
on subsequent Payment Dates; and (o) following
the repayment of all outstanding Series of Notes,
the balance, if any, will be released to the
Grantee.
See "Security for the Notes -- Allocation;
Payments."
The following diagram provides a general summary
of the flow of funds from the Customers through
the Servicer to the Collection Account and the
various allocations therefrom.
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[GRAPHIC]
Servicing........................... The Servicer is responsible for servicing,
managing and receiving IFC Payments in accordance
with the Servicing Standard. The Funding Law
provides that pending deposit into the Collection
Account, all IFC Payments received by the
Servicer may be invested by the Servicer at its
own risk and for its own benefit, and need not be
segregated from other funds of the Servicer. See
"Servicing--Servicing Procedures."
It is possible that certain third-party
collection agents may collect payments (including
IFC Charges) from Customers, and that certain
ARES may also bill charges for such payments. In
the latter case, the Servicer will bill each such
ARES for the full amount of IFC Charges and other
charges owed to the Servicer in its individual
capacity. Unless otherwise provided in the
related Prospectus Supplement, the ICC will
approve in each
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Transitional Funding Order procedures that would
(a) require any third party (including an ARES
that is required to collect IFC Charges) who
bills or collects IFC Charges to or from
Customers to either (i) remit IFC Collections to
the Servicer within seven business days of
receipt or (ii) pay such IFC Charges to the
Servicer within fifteen days of billing by
Illinois Power irrespective of whether payments
have been received from the Customer, (b) allow
the Servicer, within ten days after a default by
any such third-party in remitting IFC
Collections, to give notice thereof to the
defaulting entity and, if the Servicer does not
receive payment or a response initiating dispute
resolution within five days thereafter, to assume
or transfer to another third party that
defaulting entity's billing and collection
responsibilities, (c) grant the Servicer access
to information on total monthly kilowatt-hour
usage by the applicable Customers not otherwise
available to the Servicer to the extent
reasonably required for the Servicer to calculate
and, if applicable, bill the related IFC Charges
owed by such Customers, and (d) allow the
Servicer, pursuant to a tariff subject to
applicable regulatory approval, to impose such
other terms with respect to credit and collection
policies as may be reasonably necessary to
prevent the then current rating of the Notes from
being withdrawn or downgraded. Unless otherwise
provided in the related Prospectus Supplement,
each IFC Tariff filed in connection with a
Transitional Funding Order will require a
third-party collector which assumes payment
responsibilities under clause (a)(ii) above and
which does not have investment-grade credit
ratings (at least BBB-or the equivalent) to post
a deposit or comparable security equal to one
month's estimated IFC Collections collected by
such third-party collector.
In addition, unless otherwise provided in the
related Prospectus Supplement, each Transitional
Funding Order will provide that (a) a third-party
collector who is or otherwise becomes obligated
to remit payments to Illinois Power on a more
frequent basis than as set forth above, shall
remit the IFC Charges at the same time as such
other payments and (b) a third-party collector
disputing payments shall pay the disputed amount
under
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protest (or make other suitable financial
arrangements) pending a hearing.
To the extent that there is a shortfall in the
amounts received by the Servicer from (a)
Customers it bills directly or (b) a third-party
collection agent, including an ARES, such
shortfall will be allocated by the Servicer to
the Trust and Illinois Power PRO RATA, based on
the amount of Customers' bills constituting IFC
Charges and the amount constituting other fees
and charges owed to Illinois Power or any
successor (including charges for services other
than electric service, such as gas service,
provided by Illinois Power) or to a third party.
In the event that an ARES or another Utility
provides consolidated billing to Customers for
both the services provided by such ARES or other
Utility and services provided by Illinois Power,
partial payments made to an ARES by such
Customers are required by the Act to be credited
first to amounts due to Illinois Power's tariffed
services (including IFC Charges collected on
behalf of Noteholders), and the Servicer will
allocate such payments as otherwise described
above.
Servicing Compensation.............. The Servicer will be entitled to receive a
Servicing Fee on each Payment Date in an amount
equal to (a) $____________, for so long as IFC
Charges are billed concurrently with charges
otherwise billed by the Servicer to Customers and
(b) not to exceed $____________, if IFC Charges
are not billed concurrently with charges
otherwise billed by the Servicer to Customers
(the "Servicing Fee"). (Under the Servicing
Agreement, Illinois Power or any successor
thereto is required to bill IFC Charges
concurrently with charges for electric service or
Applicable Rates, so long as Illinois Power or
such successor is billing customers for such
electric service or Applicable Rates.) The
Servicing Fee will be paid prior to the
distribution of any amounts in respect of
interest on and principal of the Notes. The
Servicer will be entitled to retain as additional
compensation net investment income on IFC
Payments received by the Servicer prior to
remittance thereof to the Collection Account and
the portion of late fees, if any, paid by
Customers relating to the IFC Payments. See
"Servicing -- Servicing Compensation."
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No Servicer Advances................ The Servicer will not make any advances of
interest or principal on the Notes.
Denominations....................... Each Series of Notes (and, if applicable, each
Class thereof) will be issued in the minimum
initial denominations set forth in the related
Prospectus Supplement and in integral multiples
thereof.
Book-Entry Notes.................... Each Series of Notes (and, if applicable, each
Class thereof) may be issued in definitive form
or initially may be represented by one or more
notes registered in the name of Cede (each, a
"Book Entry Note" and collectively, the
"Book-Entry Notes"), the nominee of DTC, and
available only in the form of book-entries on the
records of DTC, participating members thereof
("Participants") and other entities, such as
banks, brokers, dealers and trust companies, that
clear through or maintain a custodial
relationship with a Participant, either directly
or indirectly ("Indirect Participants"). If so
indicated in the applicable Prospectus
Supplement, Noteholders may also hold Book-Entry
Notes of a Series through CEDEL or Euroclear (in
Europe), if they are participants in such systems
or indirectly through organizations that are
participants in such systems. Notes representing
Book-Entry Notes will be issued in definitive
form only under the limited circumstances
described herein and in the related Prospectus
Supplement. With respect to the Book-Entry Notes,
all references herein to "holders" reflect the
rights of owners of the Book-Entry Notes as they
may indirectly exercise such rights through DTC
and Participants, except as otherwise specified
herein. See "Risk Factors" and "Description of
the Notes -- Book-Entry Registration."
Ratings............................. It is a condition of issuance of each Series of
Notes (and, if applicable, each Class thereof)
that at the time of issuance such Series (or
Class) receive the rating indicated in the
related Prospectus Supplement, which will be in
one of the four highest categories, from one or
more of the Rating Agencies specified therein.
See "Ratings" in the related Prospectus
Supplement.
A security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or
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withdrawal at any time. No person is obligated to
maintain any rating on any Note and, accordingly,
there can be no assurance that the ratings
assigned to any Series (or Class) of Notes upon
initial issuance thereof will not be revised or
withdrawn by a Rating Agency at any time
thereafter. If a rating of any Series (or Class)
of Notes is revised or withdrawn, the liquidity
of such Series (or Class) of Notes may be
adversely affected. In general, the ratings
address credit risk and do not represent any
assessment of the rate of principal payments on
the Notes. See "Risk Factors -- Nature of the
Notes -- Uncertain Payment Amounts and Weighted
Average Life," "Certain Payment, Weighted Average
Life and Yield Considerations" and "Ratings."
Taxation of the Notes............... Interest paid on the Notes generally will be
taxable to a United States Noteholder (as
hereinafter defined) as ordinary interest income
at the time it accrues or is received in
accordance with such United States Noteholder's
method of accounting for United States federal
income tax purposes. Interest paid on the Notes
generally will not be taxable to a Non-United
States Noteholder.
See "Certain United States Federal Income Tax
Considerations" herein and in the related
Prospectus Supplement.
ERISA Considerations................ A fiduciary of any employee benefit plan or other
plan or arrangement that is subject to the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code"), should carefully review with its legal
advisors whether the purchase or holding of the
Notes of any Class or Series could give rise to a
transaction prohibited or not otherwise
permissible under ERISA or the Code. See "ERISA
Considerations" herein and in the related
Prospectus Supplement.
</TABLE>
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Notes.
UNUSUAL NATURE OF INTANGIBLE TRANSITION PROPERTY
The Funding Law establishes the right, title and interest of a Utility or a
grantee, including the Grantee, pursuant to a transitional funding order, to
impose and receive instrument funding charges, and all related revenues,
collections, claims, payments, money or proceeds thereof. The Funding Law also
allows a Utility or grantee, such as the Grantee, to assign that right to an
assignee, such as Trust. The Funding Law defines "instrument funding charge" as
a non-bypassable charge expressed in cents per kilowatt-hour authorized in a
transitional funding order to be applied and invoiced to each retail customer,
class of retail customers of a Utility or other person or group of persons
obligated to pay any base rates, transition charges or other rates for tariffed
services from which such instrument funding charges have been deducted and
stated separately pursuant to Section 18-104(j) of the Funding Law.
There is no historical performance data for an asset type such as the
Intangible Transition Property in the State of Illinois and the Servicer does
not have any historical experience administering this specific type of asset.
Although energy usage records are available, such records have limited
predictive value with respect to the cash flows expected to be available for
payment of the Notes because of the significant changes to electricity markets
in Illinois that are likely to result from the Amendatory Act. In addition,
although the Funding Law provides that the Noteholders or the Indenture Trustee
may foreclose or otherwise enforce the lien on the Intangible Transition
Property securing the Notes, in the event of a foreclosure, there is likely to
be a limited market, if any, for Intangible Transition Property and, therefore,
foreclosure upon the Intangible Transition Property may not be a realistic or
practical remedy for the Noteholders.
LEGAL CHALLENGES
[TO BE PROVIDED]
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POSSIBLE AMENDMENT OR REPEAL OF AMENDATORY ACT: BREACH OF STATE PLEDGE;
LIMITED RIGHTS AND REMEDIES
The Illinois Legislature could amend or repeal the Funding Law or other
provisions of the Act or take actions in contravention of the State Pledge
which could impair the rights of the Noteholders and affect the collection of
IFC Charges and payments on the Notes. Schiff Hardin & Waite will render an
opinion to the effect that, absent a demonstration by the State of Illinois
that an impairment is necessary to further a significant and legitimate
public purpose, the Noteholders could challenge successfully under the
Contract Clause of the United States and Illinois Constitutions the
constitutionality of any law subsequently enacted by the Illinois Legislature
that purports to limit, alter, impair or reduce materially the value of the
rights of the Noteholders or the IFC Charges so as to impair substantially
the Indenture or the Notes or the rights and remedies of the Noteholders
until such time as the Notes are fully paid and discharged.
Unlike other states, Illinois law does not permit citizens to initiate
substantive legislation through referendums. The Illinois Constitution does
permit citizen-initiative amendments; however, those amendments are
constitutionally limited to addressing "structural and procedural subjects"
governing the structure, composition and operation of the Illinois
Legislature. The Illinois Supreme Court has held attempts to use those
provisions to enact substantive legislation to be outside the scope of the
provisions. Schiff Hardin & Waite will render an opinion to the effect that
based on the court decisions interpreting the scope of the permitted citizen
initiative under the Illinois Constitution, an attempt by citizens of
Illinois to use the initiative power to enact legislation which would impair
the rights of Noteholders would be held invalid.
If the IFC Charges become uncollectible as a result of a repeal or
amendment of the Funding Law or other provisions of the Act or an action of
the Illinois Legislature in violation of the State Pledge, the sole remedy of
the Noteholders is that the Servicer shall be obligated to institute (and the
Indenture Trustee, for the benefit of the Noteholders, shall be entitled and
empowered to institute) any suits, actions or proceedings at law, in equity
or otherwise, seeking to overturn any such change in law or to enforce the
State Pledge and to collect any monetary damages which may result therefrom,
and each of the Servicer and the Indenture Trustee may prosecute any such
suit, action or proceeding to final judgment or decree. The Servicer would be
required to advance its own funds in order to bring any such suits, actions
or proceedings and for so long as such legal action were pending, the
Servicer would, unless otherwise prohibited by applicable law or judicial or
regulatory order in effect at such time, be required to bill and collect the
IFC Charges, perform Adjustments and discharge its obligations under the
Servicing Agreement. The Servicer would be entitled to reimbursement of its
expenses advanced by it in connection with such legal or administrative
action as an Operating Expense of the Trust under the Indenture. Any such
litigation might adversely affect the price and liquidity of the Notes and
the dates of maturity thereof, and, accordingly, the weighted average lives
thereof. Moreover, given the lack of judicial precedent directly on point,
and the novelty of the security for the Notes, the
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outcome of any such litigation cannot be predicted with certainty and,
accordingly, Noteholders may suffer a loss of their investment in the Notes.
LIMIT ON AMOUNT OF INTANGIBLE TRANSITION PROPERTY
The Funding Law requires that each Transitional Funding
Order authorize a specific dollar amount of Intangible Transition Property,
which represents the maximum dollar amount of IFC Charges which may be
imposed and collected over time without further action by the ICC. The
Prospectus Supplement related to each Series of Notes will set forth the
maximum aggregate dollar amount of IFC Charges which may be imposed. In its
application for the Initial TFO, Illinois Power estimated the amount of IFC
Charges which would be necessary to be billed through the Expected Maturity
Date of all Classes of Notes described in the related Prospectus Supplement
in order to pay interest and principal on the Notes. Such estimate was based
on various assumptions believed by Illinois Power to be conservative as to
pricing and the level of required fees to be paid. Illinois Power would
include similar conservative assumptions in any future applications for
Transitional Funding Orders. Accordingly, Illinois Power believes that the
limit in any such Transitional Funding Order on the maximum aggregate dollar
amount of IFC Charges should not impair or otherwise adversely affect the
rights of the Noteholders. If for any reason (e.g., because of increased
servicing costs, operating expenses, changes in technology, defaults by
third-party collectors or any other factors), the amount of IFC Charges
necessary to amortize the Notes in full were to exceed the maximum authorized
dollar amount of IFC Charges which may be imposed and collected by more than
the amount in the Capital Subaccount, then Illinois Power, as Servicer, would
be obligated, in good faith, to request the ICC to increase the previously
authorized dollar amount of Intangible Transition Property. The ICC is not
required under the Funding Law to approve any such increase, however, except
in connection with an issuance of additional Notes, and the Noteholders
could, accordingly, suffer a loss in such event.
POTENTIAL SERVICING ISSUES
RELIANCE ON SERVICER. The Trust will rely on the Servicer
for the determination of any Adjustments to the IFC Charges and for the
Customer billing and collection that are necessary to recover the IFC
Payments and, ultimately, to make payments on the Notes. If, as a result of
its insolvency or liquidation or otherwise, Illinois Power were to cease
servicing the Intangible Transition Property, determining Adjustments to the
IFC Charges or collecting IFC Payments, it may be difficult to find a
substitute servicer, and there can be no assurance that a substitute servicer
will be engaged. In such an event, the timing of recovery of payment on the
Intangible Transition Property could be delayed. Any Successor Servicer may
have less experience than Illinois Power and less capable systems than those
employed by Illinois Power, and, given the complexity of the tasks to be
performed by the servicer and the expertise required, a Successor Servicer
may experience difficulties in collecting IFC Payments and determining
appropriate adjustments to IFC Charges. Further, any Successor Servicer who
is not a provider of electric service may not be able to invoke a remedy of
shutting off service to a Customer for nonpayment of
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the IFC Charge. In addition, the Servicing Agreement and, unless otherwise
provided in the related Prospectus Supplement, each Transitional Funding
Order, permit a higher Servicing Fee to be paid to the Servicer if IFC
Charges are not imposed and collected by the Servicer in conjunction with
billing to, and collecting charges from, the Customers for electric service.
(Under the Servicing Agreement, Illinois Power or any successor thereto is
required to bill IFC Charges concurrently with charges for electric service
or Applicable Rates, so long as Illinois Power or such successor is billing
customers for such electric service or Applicable Rates.) See "Servicing."
INACCURATE USAGE AND CREDIT PROJECTIONS. The ability of the
Servicer to forecast accurately the electricity usage of Customers, the
related revenues from Applicable Rates, and the delinquency and write-off
experience relating to IFC Payments may affect significantly IFC Collections
and therefore whether Noteholders will receive timely payments of interest on
the Notes or payments of principal in accordance with the Expected
Amortization Schedule. Actual energy usage may differ from projections as a
result of weather during the relevant period that is warmer or cooler than
expected. In addition, actual energy usage, delinquencies and write-offs may
differ from projections as a result of general economic conditions, trends in
demographics that are not precisely as predicted, changes in technology that
result in decreased purchases of electricity, unexpected catastrophes, and
other causes. During the past five years (1993-1997), Illinois Power had an
average of a 1.44% inaccuracy in its forecasts of overall kilowatt-hour
usage. See "The Servicer -- Forecast Variances." Past accuracy of the
Servicer's historical forecasts is not necessarily indicative of the accuracy
of the Servicer's future forecasts and there can be no assurances that actual
usage, delinquencies and write-offs will not be significantly different from
future forecasts thereof.
DELAYS CAUSED BY CHANGES IN PAYMENT TERMS. The Servicer is
permitted to alter the terms of billing and collection arrangements and
modify amounts due from Customers all in accordance with the Servicing
Standard. Although the Servicer does not have the right to change the amount
of a Customer's individual IFC Charge, it does have the right to take actions
that in its judgment will maximize actual collections from Customers with
respect to any utility bill. In addition, the Servicer has the right to write
off outstanding bills that it deems uncollectible in accordance with its
customary practices. Such actions might include, for example, agreeing to an
extended payment schedule or agreeing to write off a portion of an
outstanding bill in order to recover a portion thereof. In certain
circumstances, Illinois Power is required by provisions of the Public
Utilities Act or regulations of the ICC to take such actions, or to refrain
from normal collection actions. While Illinois Power has no current intention
of taking actions that would change the billing and collection arrangements
in a manner which would affect adversely the collection of IFC Payments,
there can be no assurance that changes in Illinois Power's customary and
usual practices for comparable assets it services for itself might not result
in a determination to do so or that a Successor Servicer may not make such a
determination. Illinois Power could also be required to modify its billing
and collection arrangements due to changes in ICC regulations governing such
arrangements. See "The Servicer -- Credit Policy; Billing; Collections;
Restoration of Service." Any such changes could delay collections from
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Customers or result in lower collections, and accordingly could adversely
affect the timely payment of interest on the Notes or the payment of the
principal of the Notes pursuant to the Expected Amortization Schedules or in
full by the applicable Expected Maturity or Final Maturity Dates. See
"Certain Payment, Weighted Average Life and Yield Considerations."
LIMITED CREDIT POLICY AND PROCEDURES. The ability of the
Servicer to collect amounts billed to Customers, including the IFC Charges,
will depend in part on the creditworthiness of the Customers. As a general
matter, Illinois Power is obligated to provide service to new Customers under
Illinois law and performs no outside credit investigations on new Customers.
Illinois Power's information regarding the credit status of new Customers is
limited to information regarding prior service, if any, by Illinois Power to
such Customers. Illinois Power relies on the information provided by
Customers and its customer information system audits to indicate whether a
new Customer has had previous service from Illinois Power. If Illinois Power
evaluates the creditworthiness of a significant number of its Customers
incorrectly, resulting in significant increases in delinquencies and
write-offs, delays in distributions to Noteholders may occur.
An important element of Illinois Power's policies and
procedures relating to credit and collections is its right to disconnect
service on account of non-payment. Unless otherwise provided in the related
Prospectus Supplement, each Transitional Funding Order will expressly provide
that Illinois Power may disconnect service for non-payment of IFC Charges to
the same extent as Illinois Power would be entitled to take such action
because of non-payment of any other charge for tariffed services.
Nonetheless, Illinois Power's rights to disconnect service are subject to
and, to a material extent, controlled by Illinois statutory requirements and
the rules and regulations of the ICC which may change from time to time. See
"The Servicer -- Credit Policy; Billing; Collections; Restoration of Service."
RELIANCE ON ALTERNATIVE RETAIL ELECTRIC SUPPLIERS. As part
of the restructuring of the Illinois electric industry, certain Customers
will be allowed, beginning October 1, 1999, and all Customers will be allowed
as of May 1, 2002, to purchase electricity and related services from ARES and
from other Utilities rather than from Illinois Power. See "Electric Industry
Restructuring in Illinois -- Alternative Retail Electric Suppliers." The
Amendatory Act requires Illinois Power to allow such ARES and other
Utilities, pursuant to a tariff filed by Illinois Power with, and approved by
the ICC, to issue a single bill to any retail customer purchasing electricity
or related services from the ARES or other Utility and delivery services from
Illinois Power for both the services provided by the ARES or other Utility
and the delivery services provided by Illinois Power. The Amendatory Act
provides that the tariff to be filed by Illinois Power shall (a) require
partial payments made by retail customers to be credited first to Illinois
Power's tariffed services (which would include IFC Charges), (b) impose
commercially reasonable terms with respect to credit and collection,
including requests for deposits, (c) retain Illinois Power's right to
disconnect retail customers, if it does not receive payment for its tariffed
services, in the same manner that it would be permitted to if it had billed
for the services itself, and (d) require an ARES or other Utility that elects
this billing option to include on each bill to retail customers an
identification
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of the Utility (I.E., Illinois Power) providing the delivery services and a
listing of the charges applicable to those services. As of the date hereof,
the ICC has not promulgated any rules or regulations or issued any orders
relating to the form or content of such tariffs, and neither Illinois Power
nor any other Utility has filed such a tariff with the ICC. Accordingly,
there is currently no basis to predict what the ICC will find to be
"commercially reasonable terms with respect to credit and collection,
including requests for deposit"; or to predict what other terms and
conditions of such tariffs, such as the frequency with which ARES must remit
collections to Illinois Power, the ICC will find to be reasonable. Unless
otherwise provided in the related Prospectus Supplement, each Transitional
Funding Order will contain provisions which would allow IFC Charges to be
collected by ARES concurrently with their collection of bills for tariffed
services subject, however, to specific conditions designed to mitigate
against these risks. No assurance can be provided, however, that such
mitigants will be effective to prevent losses resulting from defaults by any
ARES or failure of any such ARES to apply credit and collection policies
which are as favorable to the Noteholders as those applied by Illinois Power.
There can also be no assurance that changes in billing and payment practices
caused by ARES billing will not result in misdirected or delayed payments due
to customer confusion. In addition, the Servicer will have no meaningful
ability to control the payment procedure of other third-party collection
agents who forward payments on behalf of Customers and not pursuant to
contractual arrangements with Illinois Power. See "Servicing--Alternative
Retail Electric Suppliers and Other Third-Party Collectors."
The Servicer, on behalf of the Trust, will be obligated, in
accordance with the standards set forth in the Servicing Agreement, to pursue
any ARES that fails to remit applicable IFC Charges in accordance with the
terms of the applicable IFC Tariff. However, if an ARES were to default in
its obligations to bill, collect and remit IFC Charges, or were unable
despite its best efforts to collect amounts billed in respect of IFC Charges
from Customers, there is no assurance that the Servicer would ultimately be
able to collect such IFC Charges. If a substantial number of Customers elect
to purchase their electricity from ARES that elect to provide a single bill,
the Servicer may be relying on a small number of ARES, each of whom is
responsible for a substantial portion of the Servicer's total billings, to
collect IFC Charges, rather than the Servicer collecting IFC Charges directly
from all Customers. In this circumstance, a default in the collection and
remittance of IFC Charges to the Servicer by a single ARES that provides
electricity to a large number of Customers may adversely affect the
Servicer's ability to make timely remittance of IFC Charges to the Collection
Account, and thus may adversely affect the timing of payment on the Notes.
COMMINGLING OF IFC PAYMENTS WITH SERVICER'S OTHER FUNDS;
INVESTMENT OF IFC PAYMENTS FOR SERVICER'S ACCOUNT. Except as described under
"Servicing -- Remittances to Collection Account," on each Remittance Date the
Servicer will remit to the Collection Account IFC Payments received during
the last preceding Billing Period. Accordingly, IFC Payments received by the
Servicer will not be segregated from the Servicer's general funds until they
are remitted to the Collection Account. The Servicer will invest IFC Payments
received but not yet remitted for its own account. A failure or inability of
the Servicer to implement Adjustments, or to remit the full amount of the IFC
Payments
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on any Remittance Date, whether voluntary or involuntary, might result in
delays in payments to Noteholders. In the event of a Servicer default, the
Funding Law authorizes the ICC, upon petition from the Indenture Trustee, to
order the sequestration and payment of IFC Collections for the benefit of the
Noteholders. However, delays in payments to Noteholders may occur as a result
of delays by the Servicer in implementing any Adjustments or delays by the
ICC in ordering any such relief.
The Servicer shall be responsible for monitoring the IFC
Collections received by it and holding such IFC Collections in trust for the
benefit of the Trust. The Funding Law provides that neither the property
interest of the Trust nor the lien of the Indenture Trustee shall be defeated
or adversely affected by the commingling of IFC Collections with other funds
of Illinois Power. In addition, unless otherwise provided in the related
Prospectus Supplement, each Transitional Funding Order will provide that the
portion of commingled funds held by Illinois Power and allocable to IFC
Collections may be determined by such reasonable means of estimation as are
set forth in the Servicing Agreement. Nonetheless, if Illinois Power were
unable to trace or otherwise identify the IFC Collections held by it and were
subsequently to become a debtor in a bankruptcy case, a creditor or
bankruptcy trustee of Illinois Power or Illinois Power itself as
debtor-in-possession could take the position that the Noteholders' property
interest in such commingled and no longer identifiable IFC Collections had
been lost and that the Noteholders' sole claim in respect of such
unidentifiable property would be an unsecured claim against Illinois Power.
YEAR 2000 ISSUES. Illinois Power, like all other companies
using computers and automated devices containing microprocessors, is faced
with the task of addressing the ability of computer hardware and software to
handle the date change on January 1, 2000. See "The Servicer -- Year 2000
Issues." Illinois Power recently implemented a new computerized billing
system which it believes is Year 2000 ready. Nonetheless, the inability to
handle the date change issue could affect, among other things, the ability of
Illinois Power, as Servicer, and any ARES to bill and collect the IFC
Charges, both because of problems with their own systems and problems that
Customers may have in processing bills, and the ability of the Servicer and
ARES to meter usage. The date change issue could also affect usage if there
are problems with the generation or distribution of electricity. There is no
way to fully predict the impact of the date change issue, but if there are
significant interruptions of service to Customers or significant business
interruptions in general caused by date change issues, there could be
significant delays in IFC Collections and, therefore, in payments to
Noteholders.
UNCERTAINTIES RELATED TO THE ELECTRIC INDUSTRY GENERALLY
UNTRIED NEW ILLINOIS MARKET STRUCTURE. The Illinois
electric industry is expected to change dramatically in the near future, as a
result of enactment of the Amendatory Act. See "Electric Industry
Restructuring in Illinois." Beginning October 1, 1999, under the new market
structure, certain retail customers will be eligible to purchase electricity
from suppliers other than the certificated local Utility, and by May, 2002,
all retail customers of investor-owned Utilities in Illinois will be entitled
to purchase electricity from
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other suppliers. Each local electric Utility, such as Illinois Power, will be
required to deliver the electricity sold by other suppliers to retail
customers in the Utility's service area. In addition, as a result of both the
Amendatory Act and federal initiatives, Utilities may be required to turn
over control and/or operation of their transmission systems to an independent
operating entity. Further, under the Amendatory Act, Utilities, such as
Illinois Power, will be entitled to enter into contracts for service with
customers which will not be subject to regulation by the ICC as to prices,
terms and conditions. The new electric market structure has neither been
tested or implemented on a scale represented by the State of Illinois.
Attempts to initiate operations under a similar market structure in
California, as mandated by statute, commencing January 1, 1998, resulted in a
series of delays in implementation due to difficulties in bringing the
necessary new systems and procedures to an acceptable state of readiness and
reliability. In addition, the impacts of the implementation of the new market
structure on the pricing of electricity services, Customer usage of
electricity, and the tariffed and other revenues received by Illinois Power,
cannot be predicted with certainty. If difficulties are experienced in
implementing the various aspects of the new market structure in Illinois,
electricity generation, transmission and distribution may be adversely
affected, IFC Collections may be lower than predicted, IFC Payments may not
be made as expected, Illinois Power's business may be adversely affected, and
Noteholders may fail to receive payments of principal and interest.
TECHNOLOGICAL CHANGE. The continuous processes of
technological development may result in introduction of
economically-attractive alternatives to the purchase of electricity from
Utilities, such as Illinois Power, for increasing numbers of Customers.
Previously, only the largest industrial and institutional users with large
process steam requirements in Illinois Power's service area were considered
candidates for cost-effective co-generation or self-generation installations.
However, manufacturers of self-generation facilities continue to develop
smaller-scale, more fuel-efficient generating units which can be
cost-effective options for customers with smaller electric energy
requirements. For example, Unicom Energy Services, Inc., an affiliate of
Commonwealth Edison, the largest Utility in Illinois, is engaged in a joint
venture with a major electrical equipment manufacturer to market smaller
electric generating units that may be suitable and cost-effective for
installation in smaller commercial establishments. Eventually, such units may
be produced in sizes, costs, and with operating efficiencies that make them
cost-effective for installation in residences. Other types of distributed
generation which could be purchased by customers in order to bypass the local
Utility include fuel cells. In addition, continuing advances in the operating
efficiencies of electricity-consuming devices are a factor reducing the
amount of electricity purchased by consumers from Utilities. A customer who
obtains electricity from its own cogeneration or self-generation facility and
who takes no tariffed services from Illinois Power will not be obligated to
pay IFC Charges.
Within the time period between issuance and maturity of the
Notes, there can be no assurances that the technological developments
described herein, and others, will not result in material reductions in the
amount of electricity sold or delivered by Illinois Power to its Customers.
Reductions in the amount of electricity sold or delivered by Illinois Power to
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its Customers will result in higher IFC Charges than would otherwise exist
and could negatively impact the timing of IFC Payments.
MUNICIPALIZATION. The Amendatory Act expressly preserves
the right of a municipality under certain circumstances to form a municipal
utility which can purchase electric power and energy on a wholesale basis for
resale to customers within the geographic areas it is lawfully entitled to
serve. A municipality within Illinois Power's service area which wanted to
operate a municipal utility would have to form its own distribution system,
either by building one or acquiring (through negotiated purchase or
appropriate condemnation proceedings) the portion of Illinois Power's
distribution system related to such municipality's service area. Under Order
888 of the Federal Energy Regulatory Commission ("FERC"), Illinois Power
would have the right to seek to recover its legitimate, prudent and
verifiable stranded costs resulting from a municipalization, with the amount
of such recovery to be determined through appropriate proceedings before
FERC. If a municipalization were to occur, a portion of any such condemnation
award or other recovery that was made in respect of lost tariffed revenues
would be allocable, in accordance with the Servicing Agreement, to the IFC
Charges and, if it were, Illinois Power would be required to pay such portion
to the Trust as proceeds of the Intangible Transition Property. Nonetheless,
in the event of a municipalization, the Customers within such municipal
utility's service area would thereafter cease to be Customers of Illinois
Power obligated to pay IFC Charges and the loss of such Customers could
result in a material reduction in the amount of electricity sold or delivered
by Illinois Power. Moreover, unless the municipality, in its capacity as a
retail customer, elected to take tariffed or contract services from Illinois
Power, the municipality itself would not be a Customer and would also not be
obligated to pay IFC Charges. Reductions in the amount of electricity sold or
delivered by Illinois Power will result, through Reconciliation Adjustments,
in increased IFC Charges and could negatively impact the timing of the IFC
Payments.
As of September 1, 1998, there were only twelve municipal
utilities operating within Illinois Power's service area, the last of which
was created several decades ago. Although there can be no assurance that
other municipalities in Illinois Power's service area might not seek, prior
to the time the Notes are paid in full, to form a municipal utility, Illinois
Power does not believe there is any material risk of future municipalizations
having an adverse impact on the Noteholders. The Amendatory Act also allows
municipalities, subject to certain conditions, to become ARES. In such an
event, the Customers receiving power and energy from such municipality (or
the municipality on their behalf) would remain obligated to pay IFC Charges
in connection with Illinois Power's provisions of delivery services to such
Customers and in connection with any payments of transition charges owed by
such Customers. The loss of such Customers could nonetheless result in a
material reduction in the amount of electricity generated by Illinois Power
and, therefore, in the amount of revenues supporting payment of the IFC
Charges. See "-- Reliance on Broad Base of Customers."
CHANGES IN GENERAL ECONOMIC CONDITIONS AND ELECTRICITY
USAGE. General economic conditions and technological changes that would
significantly alter power
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consumption or reduce the Customer base in Illinois Power's service area may
affect payments on the Notes. Changes in business cycles, departures of
Customers from Illinois Power's service area, other demographic changes,
weather, occurrence of natural disasters such as ice storms, tornados,
windstorms, earthquakes and floods, implementation of energy conservation
efforts and increased efficiency of equipment all affect energy usage. If a
sufficient number of Customers reduce significantly their electricity
consumption or cease consuming electricity altogether, revenues supporting
payment of the IFC Changes could decrease, and such decreases could
negatively impact the timing of the IFC Payments.
CHANGING REGULATORY AND LEGISLATIVE ENVIRONMENT
Although the Amendatory Act provides for comprehensive
changes in the legal and regulatory framework governing electric utilities,
such as Illinois Power, in Illinois, there can be no assurances that, during
the term to maturity of the Notes, the Illinois Legislature will not pass
additional laws materially changing the legal and regulatory framework to
which Illinois Power is subject. In addition to actions taken by the Illinois
Legislature and regulation by the ICC, the electric industry is also subject
to federal law and to regulation by the FERC. The National Energy Policy Act
of 1992 was designed to increase competition in the wholesale electric
generation market by easing regulatory restrictions on producers of wholesale
power and by authorizing the FERC to mandate access to electric transmission
systems by wholesale power generators. In addition, at least eight bills
(none of which has passed in Committee) have been introduced in the 105th
Congress, First Session, mandating the deregulation of the electric utility
industry on the state level. In their current forms, most but not all of the
bills contain provisions recognizing the validity of prior state actions
relating to deregulation. At least one of the bills, H.R. 1230, however,
would prohibit the recovery of stranded costs through charges such as the
transition charges provided for in the Amendatory Act. Although the IFC
Charges do not constitute recoveries for stranded costs, any prohibition on
the imposition of transition charges under the Amendatory Act could have a
material adverse impact on the amount of Applicable Rates from which the IFC
Charges are deducted and on the timing of IFC Charges. In any event, no
prediction can be made as to whether these bills, or any future proposed
bills to deregulate the electric industry, will become law or, if they become
law, what their final form or effect would be. Any changes in the existing
legal structure regulating the electric industry might have an impact on the
manner in which electricity is distributed and payments therefor are
collected, or on Illinois Power and its business, and thus the likelihood
that Noteholders will receive payments in the amounts and at the times
scheduled.
RELIANCE ON BROAD BASE OF CUSTOMERS
If one or more of the risks described under the heading
"Potential Servicing Issues -- Reliance on Alternative Retail Electric
Suppliers" or "Uncertainties Related to the Electric Industry Generally," or
an unforeseen catastrophe, were to occur, the number of Customers or
kilowatt-hours on which the IFC Charges would be levied might be reduced
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significantly. Such a reduction could, through the Adjustments, increase the
amount of the applicable IFC Charges for each remaining Customer and could
negatively impact the timing of IFC Payments.
REDUCTION IN AMOUNT OF REVENUE FROM APPLICABLE RATES
Under the Funding Law, the ICC is required to authorize in
each Transitional Funding Order and in each IFC Tariff, and Illinois Power is
entitled to implement, a procedure for periodic prospective adjustments to
the IFC Charges in respect of any over-collection or shortfall in collections
of IFC Charges during prior periods. See "Description of the Intangible
Transition Property -- Adjustments to the Instrument Funding Charges." The
Funding Law provides that if, as a result of any such adjustment, the IFC
Charge, as so adjusted, will exceed the amount per kilowatt-hour of the IFC
Charge authorized by the ICC in any Transitional Funding Order, then Illinois
Power shall be obligated to file Amendatory Tariffs adjusting the amounts
otherwise billed by Illinois Power for Applicable Rates, to offset the amount
of such excess (or, if Illinois Power shall have previously filed any such
Amendatory Tariffs, the incremental amount of such excess). However, the
failure of such Amendatory Tariff to become effective for any reason shall
not delay or impair the effectiveness of any such adjustments and the
obligation of Customers to pay the IFC Charges, as adjusted, shall not be
subject to any defense, counterclaim or right of set-off arising as a result
of either (a) the failure of Illinois Power to file such Amendatory Tariff or
(b) Illinois Power's failure to perform or provide past, future or present
services.
The Funding Law provides that instrument funding charges
are payable by customers of a Utility notwithstanding any failure on the part
of such Utility to file an amendatory tariff, but specifically preserves the
rights of such customers to bring actions against the Utility for failure to
file such amendatory tariff. The Funding Law also provides (a) that the
imposition of instrument funding charges on any customer will not cause a
Utility's rates for tariffed services, including transition charges, to
increase above the levels which the Utility would have been allowed to charge
such customer had the Utility not been authorized to collect instrument
funding charges and (b) that such instrument funding charges are to be
deducted, collected and stated separately from amounts otherwise billed by
such Utility for rates for tariffed services, including transition charges,
as set forth in the related transitional funding order.
Each Transitional Funding Order will include
determinations, with which Illinois Power will concur, to the effect that (a)
the imposition of IFC Charges will not increase the total charges to Illinois
Power's Customers over those that the Customers would pay absent the
imposition of IFC Charges and (b) the IFC Charges will be deducted from and
stated separately from the Applicable Rates charged on each Customer's bill.
If the amount of Illinois Power's Applicable Rates has been reduced to such a
low level that Illinois Power cannot offset adjusted IFC Charges against such
Applicable Rates and fails to file an Amendatory Tariff, Illinois Power may
become subject to actions by Customers, as described above.
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There are several provisions of the Amendatory Act
(including the provision requiring the filing of Amendatory Tariffs) which
will result in reductions to the amount of Applicable Rates which Illinois
Power will be allowed to bill and collect from Customers and from which
Illinois Power is required to deduct IFC Charges.
The Amendatory Act required Illinois Power to provide a 15%
reduction in base rates to its residential customers on August 1, 1998, and
requires an additional 5% reduction in base rates to its residential
customers on May 1, 2002. The Amendatory Act also provides that, with one
limited exception, Illinois Power may not request an increase in the base
rates that it charges its retail customers until January 1, 2005. Commencing
January 1, 2005, the ICC may, pursuant to appropriate proceedings, modify
Illinois Power's base rates in accordance with cost of service, and may set
the components of any such rates that are intended to recover power supply
costs at the lower of cost of service or 110% of market price (which
modifications could reduce such base rates). In addition, under the
Amendatory Act, the ICC, at Illinois Power's request and subject to
satisfaction of statutory criteria, may declare tariffed services offered by
Illinois Power to be "competitive." If a tariffed service is declared
competitive, Illinois Power is obligated to continue to offer the service as
a tariffed service for three years to those customers who were served on the
tariff on the date the service is declared competitive, but is relieved of
the obligation to offer or provide the service as a tariffed service to any
new customers who otherwise would have been eligible for it. In addition, the
Amendatory Act allows Illinois Power to self-declare a tariffed service,
other than delivery service or the provision of electric power and energy,
"competitive," but only with respect to those customers not then taking the
tariffed service, subject to the authority of the ICC to thereafter review
and revoke such declaration. Charges for a competitive service are not
included in Applicable Rates, thereby reducing the amount of Applicable Rates
from which the IFC Charges must be deducted and available to Illinois Power
to offset against any increase in the IFC Charges as a result of any
Amendatory Tariff.
The Amendatory Act allows certain non-residential customers
of Illinois Power to purchase their electricity from other suppliers
commencing October 1, 1999, allows all other non-residential customers to
purchase their electricity from other suppliers commencing December 31, 2000,
and allows all of Illinois Power's residential customers to purchase their
electricity from other suppliers commencing May 1, 2002. It is anticipated
that most Customers electing to purchase electricity from other suppliers
will find it necessary to purchase delivery services, which will be a
tariffed service, from Illinois Power, and may be required to pay a
transition charge to Illinois Power until December 31, 2006. The transition
charge is calculated according to a formula which is designed to allow
Illinois Power to recover a portion, but not all, of the revenue requirement
associated with its generation and power supply costs that are above market
prices. The market prices used in the calculation of the transition charge
are redetermined from year-to-year and it is possible that the transition
charge for some Customers may be zero, in which event the amount of
Applicable Rates from which IFC charges must be deducted and which are
available to Illinois Power to offset against any increase in the IFC Charges
would be limited by the remaining tariffed charges imposed on such Customers.
Moreover, under the
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Amendatory Act, the transition charges are designed to decrease over time,
and such reductions may further reduce the amount of such Applicable Rates.
See "Electric Industry Restructuring in Illinois -- Transition Charges."
The ICC, on petition by Illinois Power and based on
application of statutory criteria set forth in the Amendatory Act, is
authorized to extend the period during which transition charges may be
collected until no later than December 31, 2008. There can be no assurances
that the ICC will grant any such request for extension of the right to
collect transition charges. Based on the manner in which transition charges
must be established, as provided in the Amendatory Act, Illinois Power, until
at least December 31, 2004, expects to receive less revenue from a retail
customer who elects to purchase electricity from another supplier than
Illinois Power would receive if the customer continued to purchase
electricity from Illinois Power at base rates. Prior to December 31, 2006,
some customers who have elected to purchase electricity from other suppliers,
and after December 31, 2006, all such customers (unless the ICC grants an
Illinois Power request for an extension of the authority to collect
transition charges) will no longer pay Illinois Power transition charges, and
may pay Illinois Power only delivery service charges as a rate for tariffed
services. On a per-kilowatt hour basis, the delivery service charges are
expected to be materially lower than the current rates for tariffed services.
In addition, under the Amendatory Act, Utilities (including
Illinois Power) will be required to offer, as a tariffed service, (a) to
their non-residential delivery service customers, certain power purchase
options pursuant to which such customers may purchase electric power and
energy from the Utility at the market-based prices used in the calculation of
transition charges and (b) to all customers, real-time pricing whereby
charges for delivered electric power and energy may vary on an hour-to-hour
basis for non-residential retail customers and that vary on a periodic basis
during the day for residential retail customers. See "Electric Industry
Restructuring in Illinois -- Amendatory Act Overview." Such pricing options
have generally not existed in the past and, accordingly, there can be no
assurance as to how the offering of such options might affect the amount of
Applicable Rates from which the IFC Charges must be deducted and which are
available for Illinois Power to offset against any increase in the IFC
Charges as a result of an Amendatory Tariff.
A customer which obtains its electricity from its own
cogeneration or self-generation facilities and does not purchase any
electricity, or take delivery services or any other tariffed services, from
Illinois Power, will not pay transition charges or other tariffed charges on
the electricity it obtains from such facilities and thus will not be
obligated to pay IFC Charges with respect to that electricity. Even if such a
customer were to continue purchasing some but not all of its electricity from
Illinois Power, the amount of electricity which the customer purchases from
Illinois Power, and therefore the amount of IFC Charges the customer is
obligated to pay, would be less than if the customer were purchasing all of
its electricity from Illinois Power. Certain electricity consumers in the
State of Illinois and certain entities involved in the sale, installation,
operation and sale of fuel for cogeneration and self-generation facilities,
have taken the position that the phrase
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"customer's own cogeneration or self-generation facilities" for purposes of
the Amendatory Act should be interpreted to include, among other things (i)
facilities which are not located on the customer's premises, (ii) facilities
which are owned by a third party and leased to the customer, (iii) facilities
which are operated for the customer by a third party, (iv) a customer's
ownership or leasehold interest in a portion of a facility which, in its
entirety, is larger than required to serve the electrical needs of the
customer, and the remaining portion of which is used to serve other customers
or to make wholesale or retail sales of electricity to other customers or
third parties, and (v) facilities from which sales of electricity not needed
to serve the electricity requirements of the particular customer are made to
other customers or third parties. Illinois Power and certain other entities
have disagreed with this interpretation. Nonetheless, if the Illinois
Legislature, a court, or the ICC were to agree with such an interpretation,
in whole or in part, and adopt a conforming amendment to the Act or enter a
binding decision to such effect, then the number and extent of installation
of cogeneration or self-generation facilities (as so defined) may increase,
and the amount of electricity usage by customers installing such facilities
and in total in Illinois Power's service area that is subject to transition
charges and to IFC Charges and the amount of Applicable Rates from which IFC
Charges must be deducted and which are available for Illinois Power to offset
against an increase in IFC Charges as a result of an Amendatory Tariff, may
be reduced. However, any electricity delivered to a retail customer by
Illinois Power from a privately-owned generation facility, using Illinois
Power's transmission or distribution system, would be subject to delivery
charges and therefore to IFC Charges.
As a result of the statutory provisions and the events
described in the preceding six paragraphs, the total amount of Applicable
Rates which Illinois Power will be entitled, and can expect, to collect from
its Customers may decline materially over the period between issuance and
maturity of the Notes. To the extent any decline in Applicable Rates is
supplanted by revenues from contracts between Illinois Power and Customers
who would otherwise have been obligated to pay tariffed revenues and,
therefore, would have been obligated to pay IFC Charges, however, Illinois
Power will continue to impose and collect IFC Charges from such Customers
pursuant to the terms of the related Transitional Funding Order to the same
extent as if the services taken by such Customers under such contracts had
continued to be taken under tariff, and such Customers would agree to pay
such amounts to the Trust, the Grantee, or Illinois Power as Servicer, as
applicable. There can nonetheless be no assurance that any decline in
revenues would not have a negative impact on the amount and timing of IFC
Payments, and on the ability of Illinois Power to offset against any increase
in the IFC Charges as a result of an Amendatory Tariff, nor can there be any
assurance that any decline in overall revenues would not have a material
adverse affect on Illinois Power's financial condition, and thereby adversely
affect its ability to provide utility services or to perform its obligations
as Servicer.
Illinois Power does not expect, taking into consideration
the current authorized levels of IFC Charges and anticipated future issuances
of Notes, that any decline in revenues would result in a limitation on the
timing and amount of the IFC Charges payable by Customers. See "The Servicer
- --Illinois Power Customer Base, Electric Energy Consumption and Base Rates."
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BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
POTENTIAL BANKRUPTCY OF ILLINOIS POWER OR THE GRANTEE. The
Grantee will represent and warrant in each Sale Agreement that the transfer
of the Intangible Transition Property by the Grantee to the Trust pursuant to
such Sale Agreement constitutes a sale and absolute transfer of such
Intangible Transition Property, including amounts deemed to be Intangible
Transition Property pursuant to the related Transitional Funding Order, from
the Grantee to the Trust. Illinois Power will also represent and warrant in
each Grant Agreement that the vesting of the Intangible Transition Property
in the Grantee shall be irrevocable and enforceable against Illinois Power
and that it has no right, title and/or interest in the Intangible Transition
Property. Illinois Power and the Grantee will also represent and warrant in
the Basic Documents that they will each take all appropriate actions to
perfect the Indenture Trustee's security interest in the Intangible
Transition Property and the other Note Collateral. The Funding Law provides
that a sale, assignment or other transfer of intangible transition property
in a transaction approved by a transitional funding order which is expressly
stated in the documents governing the transaction to be a sale or other
absolute transfer, shall be treated as an absolute transfer of all the
transferor's right, title and interest in, to and under such intangible
transition property which places such transferred property beyond the reach
of the transferor or its creditors. Illinois Power and the Grantee will,
therefore, treat the transactions as an absolute transfer under applicable
law, although for financial reporting and federal income tax purposes the
transactions will be treated as debt of Illinois Power. If Illinois Power
were to become a debtor in a bankruptcy case, and a creditor or bankruptcy
trustee of Illinois Power or Illinois Power itself as debtor in possession
were to take the position that the Intangible Transition Property nonetheless
constituted property of Illinois Power's bankruptcy estate and a court were
to adopt such position, then delays or reductions in payments on the Notes
could result. Regardless of any specific adverse determinations in an
Illinois Power or Grantee bankruptcy proceeding, the mere fact of an Illinois
Power or Grantee bankruptcy proceeding could have an adverse effect on the
secondary market of the Notes, including an adverse effect on the liquidity
and market value of the Notes. See "-- Potential Servicing Issues
- --Commingling of IFC Payments with Servicer's Other Funds; Investment of IFC
Payments for Servicer's Account."
Illinois Power and the Grantee have taken steps to minimize
the risk that in the event Illinois Power were to become the debtor in a
bankruptcy case, a court would order that the assets and liabilities of
Illinois Power be substantively consolidated with those of the Grantee or the
Trust. The major step is that, instead of the Intangible Transition Property
being transferred directly from Illinois Power to the Grantee, the Funding
Law permits, and unless otherwise provided in the related Prospectus
Supplement, each Transitional Funding Order will provide, that the Intangible
Transition Property created by such Transitional Funding Order is vested
directly in the Grantee and is not subject to defense, counterclaim or right
of setoff as a result of Illinois Power's failure to perform or provide past,
present or future services. Additional steps include the fact that the
Grantee is a separate, special purpose limited liability company, subject to
the direction of a management committee, at least one of whose members must
be independent from Illinois
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Power, and the organizational documents of which provide that it shall not
commence a voluntary bankruptcy case without the unanimous affirmative vote
of all of its managers. Nonetheless, those steps may not be completely
effective, and thus no assurance can be given that if Illinois Power or the
Grantee were to become a debtor in a bankruptcy case, a court would not order
that the assets and liabilities of the Trust be consolidated with those of
Illinois Power or the Grantee, thus resulting in delays or reductions in
payments on the Notes.
Should the transfer of the Intangible Transition Property
to the Trust be recharacterized in a bankruptcy proceeding as a borrowing by
Illinois Power or the Grantee, the Funding Law provides that, subject to
certain required filings with the ICC which Illinois Power must make at the
time the Notes are issued, there is a perfected first priority statutory lien
on the Intangible Transition Property that secures all obligations to the
holders of the Notes.
Pursuant to the Funding Law, and, unless otherwise provided
in the related Prospectus Supplement, each Transitional Funding Order, upon
any issuance of Notes, the Intangible Transition Property identified in such
Transitional Funding Order constitutes a current property right and it
thereafter continuously exists as property for all purposes. Nonetheless, no
assurances can be given that if Illinois Power or the Grantee were to become
the debtor in a bankruptcy case, a creditor of, or a bankruptcy trustee for,
Illinois Power or the Grantee, or Illinois Power or the Grantee itself as
debtor in possession would not attempt to take the position that, because the
payments based on the IFC Charges are usage-based charges, Intangible
Transition Property comes into existence only as Customers use electricity
or, in the case of customers agreeing to pay IFC charges under private
contracts, as customers enter into such contracts. If a court were to adopt
this position, no assurances can be given that the statutory lien created by
the Funding Law would attach to IFC Collections in respect of electricity
consumed after the commencement of a bankruptcy case by or against Illinois
Power or the Grantee. If it were determined that the Intangible Transition
Property has not been sold to the Trust, and that the statutory lien created
by the Funding Law does not attach to collections of IFC Payments in respect
of electricity consumed after the commencement of a bankruptcy case for
Illinois Power or the Grantee, then the Indenture Trustee, as Trustee for the
Noteholders, would be an unsecured creditor of Illinois Power or the Grantee,
as the case may be, and delays or reductions in payments on the Notes could
result. Whether or not the court determined that the Intangible Transition
Property had been sold to the Trust, no assurances can be given that the
court would not rule that any IFC Payments relating to electricity consumed
after the commencement of Illinois Power's or the Grantee's bankruptcy cannot
be transferred to the Indenture Trustee, thus resulting in delays or
reductions in payments on the Notes.
Because the IFC Charges are usage-based charges, if
Illinois Power or the Grantee were to become the debtor in a bankruptcy case,
a creditor of, or a bankruptcy trustee for, Illinois Power or the Grantee, or
Illinois Power or the Grantee itself as debtor in possession could take the
position that the Trust should pay a portion of the costs of Illinois Power
associated with the generation, transmission, or distribution by Illinois
Power of the
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electricity whose consumption gave rise to the IFC Collections that are used
to make distributions on the Notes. If a court were to adopt this position,
the result could initially be a reduction in the amounts paid to the Trust,
and thus to the holders of the Notes. Although the IFC Charges may be
adjusted by the Servicer, delays in implementation thereof may cause a delay
in receipt of IFC Collections sufficient to pay interest and make Scheduled
Payments on the Notes.
In addition, if Illinois Power were to become the debtor in
a bankruptcy case, a bankruptcy trustee for Illinois Power, or Illinois Power
itself as debtor in possession, could take the position that it is not bound
prospectively by the provisions of a Transitional Funding Order that Illinois
Power will not enter into any contracts with any Customer obligated (or who
would but for such contract, be obligated) to pay IFC Charges if, as a result
thereof, the customer would not receive services subject to Applicable Rates,
unless such contract provides that the Customer will pay an amount to the
Grantee or its assigns, or to Illinois Power, as Servicer, as applicable,
equal to the amount of IFC Charges that would have been billed if the
Services provided under such contract were subject to Applicable Rates. If a
court were to adopt this position, the result could be a reduction in the
amounts paid to the Trust, and thus to the holders of the Notes.
Regardless of whether Illinois Power or the Grantee is the
debtor in a bankruptcy case, if a court were to accept the arguments of a
creditor of Illinois Power or Grantee that Intangible Transition Property
comes into existence only as Customers use electricity, a tax or government
lien or other nonconsensual lien on property of Illinois Power arising before
the Intangible Transition Property came into existence may have priority over
the Trust's interest in such Intangible Transition Property, thereby possibly
initially resulting in a reduction of amounts paid to the holders of the
Notes. Although the IFC Charges may be adjusted by the Servicer, delays in
implementation thereof may cause a delay in receipt of IFC collections
sufficient to pay interest and make Scheduled Payments on the Notes.
POTENTIAL BANKRUPTCY OF SERVICER. For so long as the
Servicer either (a) maintains a short-term debt rating of at least "_____" by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
"_____" by Moody's Investors Service, Inc. ("Moody's"), or (b) meets certain
other financial conditions (collectively, the "Remittance Conditions"), the
Servicer is entitled to commingle IFC Payments with its own funds until the
relevant Remittance Date. In the event of a bankruptcy of the Servicer, under
normal principles of the Uniform Commercial Code in effect in the State of
Illinois (the "UCC"), the Indenture Trustee likely would not have a perfected
interest in such commingled funds and the inclusion thereof in the bankruptcy
estate of the Servicer may result in delays or reductions in payments due on
the Notes. The Funding Law provides that both the property interest of the
Trust in the Intangible Transition Property and the security interest of the
Indenture Trustee in such Intangible Transition Property shall not be
defeated by the commingling of revenues arising from such Intangible
Transition Property with funds of Illinois Power or the Grantee. Each
Transitional Funding Order will provide that, in the case of any such
commingled revenues, collections, claims, payments, money or proceeds, the
portion allocable to the IFC Charges may be determined by such reasonable
methods of
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estimation as are set forth in the Servicing Agreement. Nonetheless, there
can be no assurance that in the event that Illinois Power or the Grantee were
to become a debtor in a bankruptcy case, a bankruptcy court would not take
positions inconsistent with the Funding Law so as to result in delays or
reductions in payments on the Notes. Furthermore, if the Servicer is in
bankruptcy, it may stop performing its functions as Servicer and it may be
difficult to find a third party to act as Successor Servicer. See " --
Potential Servicing Issues -- Reliance on Servicer," " -- Potential Servicing
Issues -- Commingling of IFC Payments with Servicer's Other Funds; Investment
of IFC Payments for Servicer's Account."
NATURE OF THE NOTES
LIMITED LIQUIDITY. There is no assurance that a secondary
market for any of the Notes will develop or, if one does develop, that it
will provide the Noteholders with liquidity of investment or that it will
continue for the life of such Notes. It is not anticipated that any Notes
will be listed on any securities exchange.
RESTRICTIONS ON BOOK-ENTRY REGISTRATION. The Notes will be
initially represented by one or more Notes registered in Cede's name, as
nominee for DTC, and will not be registered in the names of the Noteholders
or their nominees. Therefore, unless and until Definitive Notes are issued,
Noteholders will not be recognized by the Indenture Trustee as Noteholders.
Hence, until such time, Noteholders will only be able to receive
distributions from, and exercise the rights of Noteholders indirectly
through, DTC and participating organizations, and, unless a Noteholder
requests a copy of any such report from the Indenture Trustee or the
Servicer, will receive reports and other information provided for under the
Servicing Agreement only if, when and to the extent provided to Noteholders
by DTC and its participating organizations. In addition, the ability of
Noteholders to pledge Notes to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such Notes, may be
limited due to the lack of physical notes for such Notes. See "Description of
the Notes -- Book-Entry Registration."
LIMITED RECOURSE OBLIGATIONS. The Notes will not
constitute debt or liability of the State of Illinois or of any political
subdivision thereof, and will not represent an interest in or obligation of
Illinois Power or its affiliates. The Intangible Transition Property owned by
the Trust, and the other Note Collateral, which is expected to be relatively
small, are the sole source of payments on the Notes. It is anticipated that
the Note Collateral, which is described under "Security for the Notes --
Security Interest in Note Collateral" herein, will, with the limited
exceptions specified therein, constitute the Trust's only assets. The Trust's
organizational documents will restrict its right to acquire other assets
unrelated to the transactions described herein. The Notes are limited
obligations of the Trust, and the sole source of payments thereon is the
payments made with respect to the Intangible Transition Property and the
other Note Collateral and, for any Floating Rate Notes, the proceeds of any
Swap Agreement. None of the Notes or the underlying Intangible Transition
Property will be guaranteed or insured by Illinois Power or its affiliates.
Transitional Funding Orders authorizing issuance of the Notes do not
constitute a pledge of the full faith and credit of the
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State of Illinois or of any of its political subdivisions. The issuance of
the Notes under the Funding Law shall not directly, indirectly or
contingently obligate the State of Illinois or any political subdivision
thereof to levy or to pledge any form of taxation therefor or to make any
appropriation for their payment.
EXPECTED ISSUANCE OF ADDITIONAL SERIES OF NOTES; OTHER
TRANSITIONAL FUNDING ORDERS. Under the Basic Documents, the Trust will have
the right, subject to Illinois Power's seeking and obtaining one or more
subsequent Transitional Funding Orders from the ICC, to issue one or more
subsequent Series of Notes on or after August 1, 1999 in an additional amount
of up to approximately $864 million in aggregate principal amount. Any such
subsequent Series of Notes would be issued in connection with the creation of
additional Intangible Transitional Property under such subsequent
Transitional Funding Order and such subsequent Notes will have no more than a
PARI PASSU lien on the Note Collateral, including all additional Intangible
Transition Property, vis-a-vis all previously issued and outstanding Series
of Notes. The terms of any such Series of Notes will be specified in a
supplement to the Indenture or a Trust issuance certificate, and described in
the related Prospectus Supplement. The provisions of the supplement to the
Indenture or Trust issuance certificate and the terms of any additional
Series of Notes will not be subject to the prior review or consent of holders
of the Notes or Notes of any previously issued Series, including the Notes
expected to be issued in 1998. The terms of an additional Series of Notes may
include, without limitation, the matters described under "Description of the
Notes -- General." The ability of the Trust to issue any additional Series of
Notes is subject to the condition, among others, that such issuance will not
result in any Rating Agency reducing or withdrawing its then existing rating
of the Notes of any outstanding Class (the "Rating Agency Condition"). There
can be no assurance, however, that the issuance of any other Series of Notes,
including any Series issued from time to time hereafter, might not have an
impact on the timing or amount of payments received by a Noteholder. See
"Description of the Notes -- Conditions of Issuance of Additional Series." In
addition, various matters relating to the Notes are subject to a vote of all
Noteholders for all Series and Classes of Notes, even though there may be
differences in the interests or positions among such Series or Classes which
could result in voting outcomes adverse to the interests of one or more
Series or Classes of Notes. Moreover, the Basic Documents do not prohibit
Illinois Power from seeking Transitional Funding Orders under the Funding Law
which would create intangible transition property in favor of a party other
than the Grantee.
Issuance of an additional Series of Notes and/or creation
of additional intangible transition property will require imposition and
collection of additional Instrument Funding Charges from Customers. This may
increase the risks to Noteholders as described above, in particular those
risks described under "-- Reduction in Amount of Revenue From Applicable
Rates;" "-- Limit on Amount of Intangible Transition Property," "-- Potential
Servicing Issues," "-- Uncertainties Related to the Electric Industry
Generally," "-- Reliance on Broad Base of Customers" and "-- Bankruptcy and
Creditors' Rights Issues."
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LIMITED NATURE OF RATINGS. It is a condition of issuance of
each Class of Notes that they receive from the Rating Agencies the respective
ratings set forth in the applicable Prospectus Supplement. The ratings of the
Notes address the likelihood of the ultimate payment of principal and the
timely distribution of interest on the Notes. The ratings do not represent an
assessment of the likelihood that the rate of IFC Collections might differ
from that originally anticipated; as a result of such differences, any Series
or Class of Notes might mature later than scheduled, resulting in a weighted
average life of such Notes which is more than expected. A security rating is
not a recommendation to buy, sell or hold securities. There can be no
assurance that a rating will remain in effect for any given period of time or
that a rating will not be revised or withdrawn entirely by a Rating Agency
if, in its judgment, circumstances so warrant.
UNCERTAIN PAYMENT AMOUNTS AND WEIGHTED AVERAGE LIFE. The
actual dates on which principal is paid on each Class of Notes might be
affected by, among other things, the amount and timing of receipt of IFC
Collections. Since each IFC Charge will consist of a charge per kilowatt hour
allocated to the applicable class of Customers, the aggregate amount and
timing of receipt of IFC Collections (and the resulting amount and timing of
principal amortization on the Notes) will depend, in part, on actual usage of
electricity by Customers and the rate of delinquencies and write-offs. See "
- -- Potential Servicing Issues -- Inaccurate Usage and Credit Projections" and
" -- Reliance on Alternative Retail Electric Suppliers." Although the amount
of the IFC Charges will be adjusted from time to time based in part on the
actual rate of IFC Collections, no assurances can be given that the Servicer
will be able to forecast accurately actual Customer energy usage and the rate
of delinquencies and write-offs and implement adjustments to the IFC Charges
that will cause IFC Payments to be made at any particular rate. If IFC
Collections are received at a slower rate than expected, payments on a Note
may be made later than expected. Because principal will only be paid at a
rate not to exceed that set forth in the Expected Amortization Schedules,
except if an Event of Default occurs and the Notes are declared due and
payable or in the event of an early optional redemption, the Notes are not
expected to be retired earlier than scheduled. A payment on a date that is
earlier than forecasted will result in a shorter weighted average life, and a
payment on a date that is later than forecasted will result in a longer
weighted average life. See "Certain Payment, Weighted Average Life and Yield
Considerations" and "Description of the Intangible Transition Property --
Adjustments to Instrument Funding Charges."
EFFECT OF OPTIONAL REDEMPTION ON WEIGHTED AVERAGE LIFE AND
YIELD. As described more fully under "Description of the Notes -- Optional
Redemption," any Series of Notes may be redeemed on any Payment Date if,
after giving effect to payments that would otherwise be made on such date,
the outstanding principal balance of such Series of Notes has been reduced to
less than five percent of the initial outstanding principal balance thereof.
In addition, if specified in the Prospectus Supplement related to any Series
or Class of Notes, such Series or Class of Notes may be redeemed in full on
any Payment Date on or prior to December 31, 2004 using proceeds received
from the refinancing of any other Series or Class of Notes through the
issuance of an additional Series of Notes. Redemption will cause such Notes
to be retired earlier than would otherwise be expected,
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and if the payment schedule otherwise does not differ from that originally
anticipated, will result in a shorter than expected weighted average life for
such Notes. Such a redemption may also adversely affect the yield to maturity
of the Notes. There can be no assurance as to whether the Trust will
optionally redeem any Series of Notes, or as to whether Noteholders will be
able to receive an equally attractive rate of return upon reinvestment of the
proceeds resulting from any such redemption.
ADDITIONAL RISKS OF FLOATING RATE NOTES. As described
herein under "Description of the Notes -- Floating Rate Notes," in the event
that any Floating Rate Notes are issued, upon the occurrence of an Event of
Default or termination event under the Swap Agreement, the Swap Agreement
pursuant to which interest will be paid on any Floating Rate Notes will
terminate or may be terminated. In particular, the Swap Agreement will be
terminated if the Swap Counterparty's rating by either of Moody's or S&P
falls below "AAA" (or the equivalent rating) (a "Downgrade Event") and the
Swap Agreement is not assigned to a replacement Swap Counterparty satisfying
such ratings criteria or such lower ratings criteria as may be permitted by
the Swap Agreement within the time period specified in the related Prospectus
Supplement. In no event will any successor Swap Counterparty be rated below
"A" (or the equivalent rating) by either of the above-referenced Rating
Agencies. Upon the occurrence of a Downgrade Event and the failure to assign
the Swap Agreement, a termination event will have occurred under the Swap
Agreement and, in such event or upon any other swap termination, the interest
rate payable with respect to the Floating Rate Notes will convert permanently
to the fixed swap rate payable to the Swap Counterparty, which may be
substantially less than the rate otherwise payable on the Floating Rate
Notes. In the event of such conversion to a fixed interest rate, both the
liquidity and the market value of the Floating Rate Notes may be adversely
affected.
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ELECTRIC INDUSTRY RESTRUCTURING IN ILLINOIS
GENERAL
The electric utility industry is experiencing intensifying
competitive pressures, in both the wholesale generation market and, in many
states, including Illinois, in the retail market. Historically, electric
utilities operated as regulated monopolies in their service territories and
were the primary suppliers of electricity. In Illinois, Utilities' rates were
set by the ICC based on the Utilities' costs of providing services and a
reasonable return on their prudent capital investments. Changes to this
traditional legal and regulatory framework and market structure are occurring
at both the federal and State levels.
AMENDATORY ACT OVERVIEW
In Illinois, dramatic changes in the retail electricity
market will be occurring over the next ten years as a result of enactment of
Public Act 90-561 (the "Amendatory Act"), which became law on December 16,
1997 after being approved by a vote of 108-7 in the Illinois House of
Representatives and 57-2 in the Illinois Senate. Utilities, such as Illinois
Power, will be required to provide to customers in their service areas, on a
regulated basis, delivery services through which a customer can purchase
electricity from other suppliers and have it delivered by the local Utility
to the customer's premises. Beginning October 1, 1999, Utilities will be
required to offer delivery services to (a) all customers in a Utility's
service area with electric loads at a single site of 4 megawatts or greater,
(b) commercial customers in the Utility's service area with at least 10 sites
under common ownership whose electric loads total at least 9.5 megawatts,
constituting up to 3.5% of the Utility's peak load and (c) customers in
non-residential service classes whose usage constitutes one-third of the
Utility's remaining (I.E., excluding customers in groups (a) and (b))
kilowatt-hour sales in each such class, with the customers in groups (b) (if
necessary) and (c) to be selected by lottery or other random
non-discriminatory process. As of December 31, 2000, all non-residential
customers in a Utility's service area will be entitled to delivery services.
All residential customers in a Utility's service area will be entitled to
delivery services beginning May 1, 2002. The local Utility will be required
to provide delivery services to eligible customers on a non-discriminatory
basis regardless of the customer's choice of electricity provider. The
Utility will be compensated for providing delivery services through rates set
by the ICC to recover the costs of owning, operating and maintaining the
Utility's transmission and distribution facilities. Under the Amendatory Act,
Utilities also will be required to offer as a tariffed service to their
non-residential delivery service customers, certain power purchase options
pursuant to which such customers may purchase electric power and energy from
the Utility at market-based rates determined by formulas set forth in the
Amendatory Act. In addition, the Amendatory Act requires Utilities, including
Illinois Power, to offer, as a tariffed service, real-time pricing to
non-residential customers beginning October 1, 1998, and to residential
customers beginning October 1, 2000, pursuant to which tariff kilowatt-hour
charges for delivered electric power and energy may vary on an hour-to-hour
basis for non-residential retail customers and on a periodic basis during the
day for residential retail customers.
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TRANSITION CHARGES
Another change involves the ability of a Utility to collect
"transition charges" from those customers in its service area who obtain
electricity from an alternate provider. Until December 31, 2006, the Utility
will be entitled, pursuant to tariff, to collect transition charges from
delivery services customers and include such transition charges in its bills
to such customers. These periodic transition charges are only applicable to
customers obtaining electricity from an ARES or from another Utility, and are
not applicable to customers taking traditional tariffed service from the
Utility, or to a customer to the extent it obtains its electricity from its
own co-generation or self-generation facility. Transition charges are to be
calculated annually for each customer class and, for larger customers, on an
individual customer basis. The per kilowatt-hour transition charge applicable
to a customer class or an individual customer is calculated as follows using
the class' or customer's usage during a three-year period prior to the date
the customer became eligible for delivery service: (1) the revenues the
Utility would receive based on the applicable tariffed base rate (adjusted
for specific changes set forth in the Amendatory Act including, in the case
of residential customers, for the mandated rate reductions described below)
or contract rate, less (2) the revenues the Utility would receive for
delivering the same amount of usage, based on its currently applicable
delivery service rates, less (3) the market value of the capacity and energy
of the Utility that it would have used to supply the class or customer's
electric power and energy requirements, with the "market value" determined
through an ICC-approved tariff using market-based data as determined through
a market index or by a neutral fact-finder retained annually by the ICC, less
(4) a further specific deduction, referred to as the "mitigation factor,"
which is set forth in the Amendatory Act for each year in the relevant period
and which increases over that period. If the foregoing calculation results in
a negative number, the transition charge will be zero. The product of the
foregoing calculation is divided by the class' or customer's kilowatt-hour
usage during the three-year base period to yield a transition charge
expressed in cents per kilowatt-hour, which is charged on every kilowatt-hour
delivered by the electric utility for the delivery services customer until
December 31, 2006. However, depending on the levels of "market prices" which
are determined from year-to-year and the relationship between a class' or
customer's existing base rates or contract rate and the "market prices," and
given the increases in the "mitigation factors" over the relevant period as
specified in the Amendatory Act, it is likely that for some customers, and
possible that for all customers, the transition charge will be zero prior to
December 31, 2006. A Utility may petition the ICC to allow it to collect
transition charges for an additional period not to extend beyond December 31,
2008. The ICC must apply criteria specified in the Amendatory Act to the
Utility's request, and may deny the request, may authorize the Utility to
collect transition charges for some or all of the additional two year period,
in which case the mitigation factor deductions are increased over those
applicable for the year 2006, or in granting such authority, may impose
additional reductions on the allowable transition charges. The reduction in
transition charge revenues which the Utility is likely to experience over the
period from 1999 to 2006 or 2008 will reduce the total revenues of the
Utility from which IFC Charges may be deducted. See "Risk Factors --
Reduction in Amount of Revenue From Applicable Rates."
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In addition to the periodic transition charge from delivery
services customers who obtain electricity from an alternate provider
described above, a Utility shall also be entitled, pursuant to tariff, to
collect transition charges from customers in such Utility's service area who
obtain electricity from an alternate provider and do not take delivery
services from such Utility. As with the periodic transition charges described
above, these transition charges are only applicable to customers in its
service area obtaining electricity from an alternate provider and not to
customers who obtain their electricity from their own co-generation or
self-generation facility. These transition charges shall be calculated in the
same manner set forth above for the entire period of time that the customer
would be obligated to pay transition charges if it were taking delivery
services, except that no deduction for delivery services shall be made in
such calculation, and usage data from such customers' class shall be used
where historical usage data is not available for such customer. These
customers are obligated to pay such transition charges on a lump-sum basis on
or before the date such customer begins to take electricity from an alternate
provider; provided, however, that the Utility is to offer such customer the
option of paying such transition charges to such Utility ratably over the
period in which the transition charges would otherwise have applied pursuant
to a contract between such customer and such Utility, in which case the IFC
Charges would be deducted and stated separately from the transition charges.
The transition charge formula is designed to allow the
Utility to recover a portion, but not all, of the revenue requirement
associated with its generation and power supply costs that are above market
prices. Transition charges will be recalculated annually. There will be no
review to determine if the amount of transition charge revenues received in a
year, from a customer or from all customers, equaled the amount of such
revenues expected to be received, and no adjustment to transition charges in
subsequent years on account of any such difference. In order to realize the
same overall revenue stream from a customer who switches to another
electricity supplier as it would have realized if the customer had not
switched, the Utility must successfully remarket the electrical capacity and
energy that is no longer needed to serve the customer, at a price at least as
high as the "market price" used to calculate the customer's transition
charges; and must otherwise reduce its costs by, or develop other revenue
sources equal to, an amount at least as high as the amount of the "mitigation
factor" used in calculating the customer's transition charge. Otherwise, the
revenue received by the Utility from delivery charges and transition charges,
both of which are tariffed revenues from which IFC Charges can be deducted,
will be less than the revenue the Utility would have received from the
customer at existing tariffed rates for traditional tariffed services. On and
after the date that the Utility is no longer able to collect transition
charges from delivery services customers, and may only collect delivery
service charges, the Utility's tariffed revenues from customers previously
paying such transition charges will decline. In addition, beginning in 1999,
the ICC is authorized under the Amendatory Act to require a Utility to
unbundle components of its delivery service, such as metering services or
billing services and offer the unbundled components to customers separately,
thereby enabling the customer to purchase the unbundled service from an
alternative provider. If alternative providers enter the service area to
compete for the provision of unbundled delivery service components, it is
likely that the Utility will be able to
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obtain an ICC declaration that the unbundled service is "competitive" through
the process described below. Unbundling of delivery service components and
the declaration of such components as "competitive" may result in further
declines in the Utility's tariffed revenues. See "Risk Factors -- Reduction
in Amount of Revenue From Applicable Rates."
TRANSITION PERIOD
While Utilities are required under the Amendatory Act to
offer delivery services in accordance with the schedule and requirements
described above, they are also required to continue to offer each of their
existing, tariffed bundled services to customers in the Utility's service
area until the service is declared competitive by the ICC. A Utility may
petition the ICC to declare a service "competitive," but may not do so with
respect to the provision of power and energy service for residential and
small commercial (defined as a nonresidential using less than 15,000
kilowatt-hours per year) customers until such customers are no longer paying
transition charges, and may not do so for any other customer class or segment
until after such customers are eligible for delivery services. The ICC is to
evaluate the Utility's request based on criteria, specified in the Amendatory
Act, which are tied to the existence of other providers of the service. If
the ICC declares the provision of power and energy to residential or small
commercial customers "competitive," the Utility must continue to offer
tariffed, fully-bundled service to such customers, but may provide the power
and energy component of the fully bundled service on the basis of market
prices determined in a manner specified in the Amendatory Act. If the ICC
declares the provision of a tariffed service provided to any other customer
class or segment "competitive," the Utility (a) is no longer required to
offer the service on a tariffed basis to new customers, (b) must continue to
provide the service on a tariffed basis for three more years to those
customers who were taking the tariffed service on the date it was declared
competitive, and (c) after the three-year period, is no longer required to
offer the service on a tariffed basis to any customers. Accordingly, any such
declaration may diminish the amount of the Utility's tariffed revenues. See
"Risk Factors -- Reduction in Amount of Revenue From Applicable Rates."
During the period that non-residential delivery service
customers are paying transition charges, a Utility is required to offer, by
tariff, to sell electricity to those customers at the same market prices that
were used in determining the customers' transition charges. This service must
also be offered, with some modifications, after payment of transition charges
has stopped, until the sale of electricity to these customers is declared
competitive. This service is a tariffed service, therefore, instrument
funding charges may be deducted from the charges for this service.
During the "mandatory transition period" provided by the
Amendatory Act (which lasts until December 31, 2004), Utilities are
precluded, with one limited exception, from requesting authority from the ICC
to increase their base rates; and the ICC is precluded from ordering on its
own motion a Utility to reduce its base rates. These prohibitions do not
apply to delivery service rates. However, Utilities are required to reduce
their base rates to residential customers by specified amounts on specified
dates. For
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Illinois Power, the required reduction in residential base rates is 15%
effective August 1, 1998, and an additional 5% effective May 1, 2002. The
residential rate reductions are based on Illinois Power's base rates that
were in effect immediately prior to January 1, 1998, even though those base
rates were reduced on March 6, 1998, in connection with Illinois Power's
elimination of its fuel adjustment clause. Further, during the mandatory
transition period, a Utility is allowed to reduce any rate for tariffed
service by giving seven days notice to the ICC. In addition, during the
mandatory transition period, if a Utility's two-year average rate of return
on common equity exceeds the two-year average of the yields on 30-year U.S.
Treasury bonds plus, for the years 1998-1999, 550 basis points and for the
years 2000-2004, 650 basis points, the Utility must refund 50% of the dollar
amount of such excess earnings during the ensuing year through
cents-per-kilowatt hour credits on the bills of both its bundled tariff
service customers and its delivery services customers. Implementation of the
residential rate reductions required by the Amendatory Act, and of any other
reductions in tariffed rates voluntarily implemented by an electric utility,
will reduce the Utility's tariffed revenues. See "Risk Factors -- Reduction in
Amount of Revenue From Applicable Rates."
After December 31, 2004, a Utility may again request
increases in its base rates for bundled tariffed services, and the ICC is
again authorized to investigate and order reductions in the Utility's base
rates, in each case based on cost of service principles. However, if the ICC
finds that the rates for the generation component of a bundled tariffed
service of a Utility exceed market price by more than 10%, the ICC may order
such rates reduced to no less than 110% of market price, even if the
Utility's cost of service exceeds that level.
ALTERNATIVE RETAIL ELECTRIC SUPPLIERS
The Amendatory Act allows alternative retail electric
suppliers, referred to as ARES, to provide electricity to customers eligible
for delivery services, and other services to customers, in the Utility's
service area, thereby terminating the Utility's historical status as the sole
utility service provider. An ARES may be an electric utility from another
state, an affiliate of an out-of-state utility, an affiliate of a Utility, a
non-utility generator, or a power marketer, broker, reseller or aggregator
unaffiliated with any electric utility. An ARES must obtain a certificate of
service authority from the ICC based on satisfaction of statutory criteria.
The prices which an ARES charges to customers for electricity and other
services are not regulated by the ICC, but various other aspects of the ARES'
relationship with incumbent Utilities and with customers, including certain
marketing and billing practices, are regulated. In addition, the Amendatory
Act allows other Utilities to sell electricity to customers eligible for
delivery services, and to sell other services to customers, in each other's
service areas. For these purposes, Utilities are not required to obtain
certificates of service authority as are ARES, but are subject to many of the
same requirements as are ARES with respect to marketing and billing practices
and other aspects of their relationship with customers.
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COMPETITIVE SERVICES
The Amendatory Act allows a Utility to provide on a
competitive basis services that were formerly regulated, in three respects.
First, with one exception, a Utility and a customer in its service area may
at any time enter into a contract for the provision of services, at prices,
terms and conditions agreed to between the Utility and the customer. The
exception is that a Utility may not enter into such a contract to provide
delivery services until such services have been declared competitive by the
ICC. Second, a Utility may provide to customers in its service area, as a
competitive service (and may cease to offer as a tariffed service) a service
which has been declared competitive by the ICC through the procedure
described under "-- Transition Period", and may self-declare a tariffed
service (other than delivery services or the provision of electric power and
energy) to be competitive for new customers only (subject to the authority of
the ICC to revoke such declaration). Third, the provision of electric power
and energy by a Utility to customers in the service area of another Utility
is a competitive service.
In addition, the Amendatory Act classifies as competitive
services those services, other than tariffed services, which are related to,
but not necessary for, the provision of electric power and energy or delivery
services. Under the Amendatory Act, competitive services are not tariffed
services, and are provided at the rates, terms and conditions agreed to
between the Utility and the customer. The contracts or terms agreed to
between the Utility and the customer do not have to be filed with or approved
by the ICC; and the ICC is precluded from altering the rates, terms or
conditions in such contracts.
As a result of the changes imposed on the Illinois retail
electric markets by the Amendatory Act, it is highly possible that by 2007,
if not earlier, a significant portion of electricity purchased by customers
in Illinois Power's service area, whether obtained from Illinois Power,
another Utility or an ARES, will be purchased on a competitive basis and not
pursuant to a tariff. It is also likely that by 2008, Illinois Power will
still be the primary provider of delivery services in its service area.
FEDERAL INITIATIVES; INCREASED COMPETITION
In addition to the changes which are occurring at the
Illinois level discussed throughout this section, federal legislative efforts
may also significantly alter the national market for electricity. See "Risk
Factors -- Changing Regulatory and Legislative Environment." The changes at
both the federal and Illinois levels will have a significant impact on
Illinois Power as well as on other entities in the industry. Illinois Power
faces increased competition for resources and for customers. Competitors
include other electric utilities; privately-owned independent power
producers; exempt wholesale generators; power marketers, brokers, resellers
and aggregators; customers with their own sources of generation and
developers, equipment manufacturers, lenders and investment bankers in the
business of promoting such generation sources; suppliers of natural gas and
other fuels; electric cooperatives; and municipally-owned utility systems.
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DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY
CREATION OF INTANGIBLE TRANSITION PROPERTY UNDER THE FUNDING LAW
The Funding Law provides the basis and authority for the
creation of the Intangible Transition Property and the issuance of the Notes
issued hereunder. Under the Funding Law, "intangible transition property" is
defined as the right, title and interest of a Utility, grantee, or assignee,
arising pursuant to a "transitional funding order", to impose and receive
instrument funding charges and all related revenues, collections, claims,
payments, money or proceeds thereof, including all right, title and interest
of a Utility, grantee or assignee in, to, under and pursuant to such
transitional funding order. A "grantee" is defined as any party, other than a
Utility or an assignee which acquires its interest from a Utility, to whom or
for whose benefit the ICC creates, establishes and grants rights in, to and
under intangible transition property. The Funding Law defines "instrument
funding charge" as a non-bypassable charge expressed in cents per
kilowatt-hour authorized in a transitional funding order to be applied and
invoiced to each retail customer, class of retail customers of a Utility or
other person or group of persons obligated to pay any base rates, transition
charges or other rates for tariffed services from which the instrument
funding charges have been deducted and separately stated. Upon the
effectiveness of tariffs filed with the ICC to provide for the deduction and
separate statement and collection of instrument funding charges, instrument
funding charges become intangible transition property as specified in the
transitional funding order.
The Funding Law authorizes the ICC, pursuant to an
application filed by a Utility and in accordance with specific limitations
and restrictions which are described in this section, to issue a transitional
funding order or orders establishing, creating, and granting rights in and to
a specific amount of intangible transition property to or for the benefit of
the Utility, a grantee, or an assignee. The Funding Law also empowers the
ICC, in the transitional funding order, to authorize the sale, pledge,
assignment or other transfer of the Utility's, grantee's or assignee's rights
in and to the intangible transition property, the issuance of a specific
dollar amount of grantee instruments and/or transitional funding instruments
by or on behalf of the grantee, an assignee or an issuer; and the imposition
and collection of a specific dollar amount of instrument funding changes. The
total amount of intangible transition property which may be created by, and
instrument funding charges which may be imposed pursuant to, the related
transitional funding order is projected to be sufficient to pay when due
principal and interest on the transitional funding instruments, and to
provide for servicing costs and related fees and expenses and the funding or
maintenance of debt service and other reserves as security to the holders of
the transitional funding instruments. The amount of transitional funding
instruments which may be authorized for issuance is subject to certain
limitations and restrictions, and the total amount of intangible transitional
property which may be created may not exceed specified limits, as described
below. See " -- Limitations on the Amounts of Transitional Funding
Instruments, Intangible Transition Property and Instrument Funding Charges
Which Can Be Authorized; Permitted Use of Proceeds."
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The Funding Law provides that the creation, establishment
and granting of rights in, to and under intangible transition property in and
to any grantee, Utility, issuer or assignee shall include a grant of the
power to levy general tariffs on retail customers of a Utility or other
persons required to pay instrument funding charges in order to collect the
instrument funding charges relating to the intangible transition property in
which such party has been granted rights and in order to facilitate the
issuance of transitional funding instruments by or on behalf of the Utility,
grantee, issuer or assignee. The Funding Law empowers the ICC to authorize
the Utility to contract with the grantee, issuer, assignee or holders to
collect the applicable instrument funding charges for the benefit and account
of the grantee, issuer, assignee or holder, and provides that the Utility
will, except as otherwise specified in the related transitional funding
order, account for and remit the applicable instrument funding charges,
without the obligation to remit any investment earnings thereon, to or for
the account of the grantee, issuer, assignee or holder. The Funding Law
further provides that the obligation of the Utility to collect and remit the
applicable instrument funding charges shall continue irrespective of whether
such Utility is providing electric power and/or other services to the retail
customers and other persons obligated to pay the instrument funding charges.
In addition, the Funding Law states that if the documents creating the
transitional funding instruments so provide, the Utility's obligations, in
the event of a default by the Utility in performing them, shall be undertaken
and performed by any other entity selected by the assignee or any holder,
group of holders or trustee or agent on behalf of such holder or holders, (i)
which provides electric power or services to a person who was a retail
customer of the Utility, and (ii) from whom such Utility is entitled to
recover transition charges under the Amendatory Act.
The Funding Law provides that the interest of a Utility,
assignee, issuer or grantee in intangible transition property may be
assigned, sold or otherwise transferred, in whole or in part, and may, in
whole or in part, be pledged or assigned as security to or for the benefit of
a holder or holders. A "holder" is defined in the Funding Law as any holder
of a transitional funding instrument, including a trustee, collateral agent,
nominee or other such party acting for the benefit of such a holder. The
Funding Law specifies that neither intangible transition property nor any
right, title or interest therein shall constitute property in which a
security interest may be created under the UCC, that such rights shall not be
deemed proceeds of any property which is not intangible transition property,
and that the terms "account" and "general intangible" as defined under
Section 9-106 of the UCC and the term "instrument" as defined under Section
9-105 of the UCC shall, as used in the UCC, be deemed to exclude any
intangible transition property or any right, title or interest therein. The
Funding Law provides that the granting, perfection and enforcement of
security interests in intangible transition property are governed by the
provisions of the Funding Law rather than by Article 9 of the UCC. The
Funding Law further provides that a sale, assignment or other transfer of
intangible transition property which is expressly stated in the documents
governing the transaction to be a sale or other absolute transfer, in a
transaction approved in a transitional funding order, shall be treated as an
absolute transfer of all of the transferor's right, title and interest in, to
and under such intangible transition property which places the transferred
property beyond the reach of the transferor or its creditors, as in a true
sale, and not as a pledge or other financing of such intangible transition
property. The
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Funding Law states that the characterization of any such transfer as an
absolute transfer and the corresponding characterization of the transferee's
property interest shall not be defeated or adversely affected by, among other
things: (a) the commingling of revenues arising with respect to intangible
transition property with funds of the Utility or other funds of the assignee,
issuer or grantee; (b) granting to holders of transitional funding
instruments a preferred right to the intangible transition property, whether
direct or indirect; (c) the provision by the Utility, grantee, assignee or
issuer of any recourse, collateral or credit enhancement with respect to
transitional funding instruments; (d) the retention by the assigning party of
a partial interest in any intangible transition property, whether direct or
indirect, or whether subordinate or otherwise; or (e) the Utility's
responsibilities for collecting instrument funding charges and any retention
of bare legal title for the purpose of such collection activities. The
Funding Law further states that a sale, assignment or other transfer of
intangible transition property shall be deemed perfected as against third
persons, including any judicial lien creditors, when (a) the ICC has issued
the transitional funding order creating the intangible transition property,
and (b) a sale, assignment, or transfer of the intangible transition property
has been executed and delivered in writing. See "Security for the Notes --
Security Interest in Note Collateral."
LIMITATIONS ON THE AMOUNTS OF TRANSITIONAL FUNDING INSTRUMENTS, INTANGIBLE
TRANSITION PROPERTY AND INSTRUMENT FUNDING CHARGES WHICH CAN BE AUTHORIZED;
PERMITTED USE OF PROCEEDS
The Funding Law imposes several limitations and
restrictions on the power of the ICC to create intangible transition property
and to authorize the issuance of transitional funding instruments and the
imposition and collection of instrument funding charges.
Under the Funding Law, the ICC, in a transitional funding
order, can only create and establish intangible transition property in an
amount (which is the total dollar amount of instrument funding charges which
may be applied and invoiced over time) not to exceed the sum of: (a) the rate
base established by the ICC in the Utility's last rate case prior to December
16, 1997, plus (b) any expenditures required to be undertaken by the Utility
by the provisions of Section 16-128 of the Act, including labor severance
costs and employee retraining costs, plus (c) amounts necessary to fund debt
service and other reserves, commercially reasonable costs and fees necessary
in connection with the marketing of the transitional funding instruments,
plus (d) commercially reasonable costs incurred from and after December 16,
1997 or to be incurred which are associated with the issuance and
collateralization of the transitional funding instruments, plus (e)
commercially reasonable costs incurred from and after December 16, 1997 or to
be incurred which are associated with the issuance of the transitional
funding instruments, including costs incurred on and after such date, or to
be incurred in connection with transactions to recapitalize, refinance or
retire stock and/or debt, any associated taxes and the costs incurred to
obtain, collateralize, issue, service and/or administer transitional funding
instruments, including interest and other related fees, costs and charges,
minus (f) the amount of any intangible transition property previously created
and established at the request of and for the benefit of the Utility in a
prior transitional funding order.
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The Funding Law provides that transitional funding
instruments may not be issued prior to August 1, 1998, or after December 31,
2004. The aggregate dollar amount of transitional funding instruments which
may be authorized, in a transitional funding order, for issuance, together
with the amounts authorized for issuance in any prior transitional funding
order, may not exceed (a) between August 1, 1998 and July 31, 1999, the
Utility's total capitalization at December 31, 1996, times a percentage equal
to 25% multiplied by the ratio of the Utility's revenues from Illinois retail
electric customers during the year ended December 31, 1996 to its total
retail electric revenues for such year; and (b) subsequent to August 1, 1999,
the Utility's total capitalization at December 31, 1996, times a percentage
equal to 50% multiplied by the ratio of the Utility's revenues from Illinois
retail electric customers during the year ended December 31, 1996 to its
total retail electric revenues for such year.
The Funding Law requires as a condition to issuance of any
transitional funding order that the final date on which the Utility, grantee
or assignee shall be entitled to charge and collect instrument funding
charges related to the intangible transition property shall be set to occur
no later than December 31, 2008 (or December 31, 2010, if requested and
approved by the ICC as being in the public interest); provided, that the
authority to impose and collect instrument funding charges shall continue
beyond such date until such time as the related transitional funding
instruments have been paid in full.
Transitional funding instruments may only be authorized if
the ICC finds, in the related transitional funding order, that the Utility
seeking the transitional funding order will use the proceeds from the sale
and issuance of the transitional funding instruments for one or more of the
following purposes: (a) to refinance debt or equity, or both, in a manner
which the Utility reasonably demonstrates will result in an overall reduction
in its cost of capital, taking into account the costs of financing, and
provided that any proceeds transferred to a parent company through a common
stock repurchase transaction shall be used to retire publicly-traded common
stock of the parent company or to pay commercially reasonable transaction
costs associated with such retirement; (b) to fund debt service and other
reserves, commercially reasonable costs and fees necessary or desirable in
connection with the marketing of the transitional funding instruments; (c) to
pay for commercially reasonable costs associated with issuance and
collateralization of the transitional funding instruments; (d) to pay for the
commercially reasonable costs associated with the issuance of the
transitional funding instruments, including the costs incurred since December
16, 1997, or to be incurred, in connection with transactions to recapitalize,
refinance or retire stock and/or debt, any associated taxes, and the costs
incurred or to be incurred to obtain, collateralize, issue, service and
administer the transitional funding instruments including interest and other
related fees, costs and charges; and (e) to repay or retire fuel contracts or
obligations related to nuclear spent fuel incurred by the Utility in
providing electric power or energy services prior to December 16, 1997 and to
pay any expenditures required to be undertaken by the Utility by the
provisions of Section 16-28 of the Funding Law, including labor severance
costs and employee retraining costs. Moreover, the transitional funding order
must require the Utility to use at least 80% of the proceeds from issuance of
the transitional funding order for the purposes specified in
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(a) and (e) above, and to use no more than 20% of the maximum amount of
proceeds permitted for purposes other than those specified in (a) above. The
Funding Law prohibits a Utility from using the proceeds from issuance of
transitional funding instruments for the purpose of refinancing debt or
equity to such an extent that as of the date of application of such proceeds,
the common equity component of the Utility's capital structure, exclusive of
the portion that consists of obligations representing transitional funding
instruments, is reduced below the lesser of (1) 40% or (2) the common equity
percentage as of December 31, 1996, adjusted to reflect any write-off of
assets or common equity implemented or required to be implemented as a result
of the Amendatory Act. The Funding Law also prohibits the Utility from using
the proceeds from issuance of transitional funding instruments to repay or
retire obligations incurred by an affiliate of the Utility, other than in
connection with any refinancing of transitional funding instruments issued by
such affiliate, without consent of the ICC. Finally, the Funding Law provides
that any use of the proceeds from issuance of transitional funding
instruments, other than in accordance with the purposes specified in the
related transitional funding order, shall be void.
The Funding Law provides that the instrument funding
charges imposed on a customer or class of customers may not cause the rates
for tariffed services, including delivery charges, or its transition charges
to exceed the amounts which the customer otherwise would have paid; and that
the Utility may not, as the result of issuance of transitional funding
instruments, increase any of its rates for tariffed services, including
delivery charges, or its transition charges, above the levels which the
Utility would have been authorized to charge if the Utility were not
authorized to impose and collect instrument funding charges. See "Risk
Factors -- Reduction in Amount of Revenue From Applicable Rates."
IMPOSITION AND COLLECTION OF INSTRUMENT FUNDING CHARGES; ADJUSTMENT MECHANISM
The Funding Law empowers the ICC, in a transitional funding
order, to authorize the imposition and collection of a specific amount of
instrument funding charges projected to be sufficient to pay when due the
principal of and interest on the corresponding transitional funding
instruments, together with premium, servicing fees and other fees, costs and
charges related thereto, and to maintain any required reserves.
The Funding Law provides that concurrently with the
issuance of a transitional funding order and with the sale, pledge,
assignment or other transfer of, or the establishment, creation, and granting
of a Utility's, assignee's or grantee's rights in and to intangible
transition property and the issuance of transitional funding instruments, the
Utility shall begin to impose and collect the specified instrument funding
charges from retail customers, classes of retail customers, and any other
person or group of persons as set forth in the transitional funding order.
However, as a precondition to the imposition of any instrument funding
charges authorized in such transitional funding order, the Utility shall file
tariffs directing that the amount of the instrument funding charges be
deducted, stated, and collected separately from the amounts otherwise billed
by the Utility for base rates, transition charges and other rates for
tariffed services as set forth in the transitional funding
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order. The total amount of instrument funding charges authorized by the
transitional funding order are to be allocated among the customer classes of
the Utility on the basis of the ratio of each class' base rate revenues for
the year ended December 31, 1996 to the Utility's total base rate revenues
for that year, and are then to be expressed in a cents per kilowatt-hour
charge which is to be deducted and stated separately from the base rates,
transition charges and other rates for tariffed services paid by the
customers in each class. The Funding Law specifies that upon the
effectiveness of such tariffs, the amounts of instrument funding charges
thereby deducted and to be deducted shall become intangible transition
property as specified in the related transitional funding order. The Funding
Law expressly provides that the ICC has no authority to review the tariffs
filed by the Utility, except to confirm that the instrument funding charges
authorized in the transitional funding order have been deducted, stated, and
collected separately from base rates, transition charges and other rates for
tariffed services otherwise in effect at that time; and that the ICC may not
suspend such tariffs for any other reason.
The Funding Law requires the ICC to provide in any
transitional funding order for a procedure for periodic adjustments to the
instrument funding charges authorized in the transitional funding order in
order to ensure the repayment in accordance with projections set forth in
such transitional funding order of all transitional funding instruments
authorized therein and to reconcile the revenues received from instrument
funding charges during the applicable adjustment period with the revenues
projected to be received from such charges as set forth in the transitional
funding order. Unless the transitional funding order provides otherwise, the
Funding Law requires such adjustments whenever the instrument funding charges
actually collected during an adjustment period are greater or less that the
instrument funding charges projected in the related transitional funding
order to be collected during that period. The Funding Law states that the
Utility is to determine, within 90 days (or such shorter period as may be
specified in the documents relating to the transitional funding instruments)
of the end of each adjustment period, whether any such adjustments are
required. If adjustments are required, they are to be implemented by the
Utility, grantee, issuer or assignee, as applicable, with written notice to
the ICC, within such 90-day (or shorter) period after the end of the
adjustment period. The Funding Law provides that any adjustment is to be
calculated to include amounts necessary for recovery of any additional costs
incurred by the grantee, Utility, assignee or issuer as a result of the delay
in collections of instrument funding charges. If, as a result of an
adjustment, the amount of the instrument funding charges per kilowatt-hour
will exceed the amount per kilowatt-hour initially authorized by the ICC in
the related transitional funding order, the Utility shall file amendatory
tariffs with the ICC correspondingly reducing, by the amount of such excess,
the amounts otherwise billed by the electric utility for base rates,
transition charges and other rates for tariffed services. The Funding Law
provides that the ICC has no authority to review any such amendatory tariffs
except to confirm that the instrument funding charges have been deducted,
stated, and collected separately from base rates, transition charges and
other rates for tariffed services otherwise in effect at that time; and that
the ICC may not suspend such amendatory tariffs for any other reason. The
Funding Law further specifies that the failure of such amendatory tariff to
become effective for any reason shall
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not delay or impair the effectiveness of the adjustments otherwise required
as described above.
THE TRANSITIONAL FUNDING ORDER ISSUED AT THE REQUEST OF ILLINOIS POWER
The Funding Law authorizes the ICC to issue one or more
transitional funding orders in favor of the Grantee at the request of
Illinois Power (each, a "Transitional Funding Order"), in order to create and
establish the Intangible Transition Property which may be financed through
the issuance of transitional funding instruments, such as the Notes. The ICC
issued a Transitional Funding Order (the "Initial TFO") on September 10,
1998. The Initial TFO permits the sale of Notes in an aggregate principal
amount not to exceed $864 million.
The Funding Law authorizes the ICC, in a transitional
funding order, to authorize imposition of instrument funding charges on
retail customers, groups of retail customers and certain other persons
obligated to pay base rates, transition charges and other rates for tariffed
services from which such instrument funding charges have been deducted and
separately stated. The ICC is further authorized to specify the manner in
which the instrument funding charges shall be collected, and to authorize the
levying of general tariffs on retail customers of a Utility for the
collection of instrument funding charges. Pursuant to this authority, each
Transitional Funding Order will authorize and require Illinois Power, as
Servicer, to impose and collect IFC Charges on any retail customer, class of
retail customers or other person or group of persons obligated to pay any
Applicable Rates, from which IFC Charges have been deducted. Each
Transitional Funding Order will create and establish, among other things, the
related Intangible Transition Property and authorize the imposition and
collection of the related IFC Charges, which constitute separate
non-bypassable usage-based charges expressed in cents per kilowatt-hour
payable by Customers in an aggregate amount calculated to be sufficient to
(a) pay interest and make Scheduled Payments on the Notes, (b) pay all
related fees and expenses of the Trust and the Grantee, including the
Servicing Fee and any Administration Fee, (c) replenish the Capital
Subaccount up to the Required Capital Level, and (d) fund and maintain the
Overcollateralization Subaccount up to the Required Overcollateralization
Level. The Funding Law provides that the right to collect payments based on
the IFC Charges is a property right which may be pledged, assigned or sold.
Unless otherwise provided in the related Prospectus
Supplement, each Transitional Funding Order will provide that neither
Illinois Power nor any successor Utility may enter into any contracts with
any Customer obligated (or who would, but for such contract, be obligated) to
pay IFC Charges if, as a result thereof, such Customer would not receive
tariffed services (I.E., services subject to Applicable Rates), unless the
contract provides that the Customer will pay an amount each billing period to
the Grantee or its assigns, or to Illinois Power as Servicer, as applicable,
equal to the amount of IFC Charges that would have been billed if the
services provided under such contract were tariffed services. Unless
otherwise provided in the related Prospectus Supplement, each Transitional
Funding Order will further provide that any revenues received by Illinois
Power
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or a successor Utility from any such contracts shall, to the extent the IFC
Charges would be imposed on the customer if the services provided pursuant to
such contract were subject to Applicable Rates, be deemed to be proceeds of,
and included in, the Intangible Transition Property created by the related
Transitional Funding Order. However, Customers do not include retail
customers of Illinois Power not paying Applicable Rates as a result of
entering into a contract with Illinois Power before the Series Issue Date,
unless the customer has agreed in such contract to pay to the Grantee or its
assigns an amount equal to the amount of IFC Charges that would have been
billed if the services provided under such contract were subject to
Applicable Rates.
Unless otherwise provided in the related Prospectus
Supplement, each Transitional Funding Order will entitle the Trust, as the
assignee of the Intangible Transition Property from the Grantee, to receive
the payments made pursuant to the IFC Charges from all Customers through
December 31, 2008 or, if later, until the Trust has received IFC Collections
sufficient to retire all outstanding Series of Notes and cover related fees
and expenses. Such payments from the Customers are referred to herein as the
"IFC Payments." The Funding Law requires Illinois Power to submit a statement
of the final terms of any Series of Notes to the ICC within 90 days of the
receipt of proceeds from such issuance, and authorizes the ICC to require
Illinois Power to file periodic reports on its use of proceeds at intervals
of not less than one year. Each Transitional Funding Order will permit the
Servicer to calculate and implement adjustments of the IFC Charges from time
to time, in order to enhance the likelihood of retirement of each Series and
Class of Notes on a timely basis. See "-- Adjustments to Instrument Funding
Charges."
The IFC Charges authorized in any Transitional Funding
Order (which may be increased by the ICC in connection with the issuance of
any subsequent Transitional Funding Order) will be set forth in the related
Prospectus Supplement. In connection with the issuance and pricing of any
Series of Notes, Illinois Power will file revisions to its IFC Tariff with
the ICC to provide for, among other things, revisions to the IFC Charges
authorized in the related Transitional Funding Order, based on the specific
terms of such Series. The revised IFC Charges will also be set forth in the
related Prospectus Supplement. Each Transitional Funding Order will provide
that as each Series of Notes is issued, Illinois Power shall file revisions
to its IFC Tariff deducting and separately stating from other rates for
tariffed services the sum of the cents per kilowatt-hour charges relating to
that Series (plus, in connection with any subsequent Transitional Funding
Order increasing the IFC Charges, the cents per kilowatt-hour charges
relating to previously-issued Series), which shall be calculated using
projected kilowatt-hour sales and deliveries for the succeeding calendar
year, from Illinois Power's Applicable Rates.
"Applicable Rates" means any tariffed charges owed to
Illinois Power, including, without limitation, charges for "base rates",
"delivery services" or "transition charges" (including lump-sum payments of
such charges) as each such term is defined in the Act. Applicable Rates do
not include late charges or charges set forth in those tariffs specifically
and primarily to collect amounts related to decommissioning expense, taxes,
municipal infrastructure maintenance fees, franchise fees or other franchise
cost additions,
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costs imposed by local governmental units which are allocated and charged to
customers within the boundaries of such governmental units' jurisdictions,
renewable energy resources and coal technology development assistance
charges, energy assistance charges for the Supplemental Low-Income Energy
Assistance Fund, reimbursement for the costs of optional or non-standard
facilities and reimbursement for the costs of optional or non-standard
meters, or monies that will be paid to third parties (after deduction of
allowable administrative, servicing or similar fees) (collectively, "Excluded
Amounts"). Payments owed to the Grantee or the Trust in respect of IFC
Charges do not constitute Excluded Amounts. To the extent any Applicable Rate
reflects compensation owed by Illinois Power for power or energy supplied to
customers by a person or entity other than Illinois Power, the IFC Charge
will be deducted and stated separately from such Applicable Rates without
giving effect to such compensation. Administrative, servicing and similar
fees referred to in the parenthetical above means fees which Illinois Power
is expressly authorized under its current agreements with third parties by
statute, tariff or otherwise to deduct from monies owed to such parties to
cover its cost of processing such third-party payments. Charges associated
with Excluded Amounts are generally the subject of separate riders to
Illinois Power's rates, such that increases in such charges are collected
through an increase in the amount permitted to be collected under such rider,
rather than through an increased share of the Applicable Rates. As a result,
any increase in Excluded Amounts should not result in a material decrease in
the amount of Applicable Rates available to cover the amount of IFC Charges.
TRANSACTIONS PURSUANT TO THE TRANSITIONAL FUNDING ORDER
Pursuant to the authority granted by the Transitional
Funding Order, the Grantee will assign its rights in the Intangible
Transition Property to the Trust. The Trust will thereafter, at the times
and in the amounts permitted by the Funding Law and authorized by each
Transitional Funding Order, issue the Notes, which shall be secured by the
Intangible Transition Property and the other Note Collateral, to the public.
The Trust will remit the proceeds from the issuance of the Notes, less the
expenses of issuance, and such amounts of the proceeds necessary to fund the
Capital Subaccount, to the Grantee as consideration for the assignment to the
Trust of the Grantee's rights in the Intangible Transition Property. The
Grantee will distribute the amount of the proceeds received from the Trust to
the Grantee's sole member, Illinois Power, in consideration for Illinois
Power's actions requesting that the Intangible Transition Property be created
and vested in the Grantee.
The Grantee will also enter into the Servicing Agreement
with Illinois Power as Servicer, pursuant to which the Servicer, in
connection with and upon the issuance of each series of Notes, will impose
IFC Charges on Customers and will thereafter collect and remit the IFC
Charges to the Trust, as assignee of the Grantee's ownership interest in the
Intangible Transition Property. See "Servicing." The Servicing Agreement
provides that the Servicer will file revisions to the IFC Tariff with the ICC
in connection with each Series of Notes providing for the deduction of the
related IFC Charges.
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NON-BYPASSABLE INSTRUMENT FUNDING CHARGES
Each Transitional Funding Order will provide that the IFC
Charges are non-bypassable, meaning that Customers will still be required to
make payments with respect to the applicable IFC Charges even if a Customer
elects to purchase electricity from another supplier or another entity takes
over a portion of Illinois Power's existing service; provided, however, that
the IFC Charges must be deducted from Applicable Rates which could otherwise
be charged by Illinois Power to such Customers. If a Customer ceases to take
any tariffed services from Illinois Power or any successor Utility within
Illinois Power's service area, for example, by generating its own electricity
or by moving outside of Illinois Power's service area, then such Customer
will not owe any IFC Charges, except that if such Customer takes electric
power or energy from an ARES or another Utility, then such Customer may be
obligated under the Act to pay transition charges from which the IFC Charges
would continue to be deducted and stated separately. See "Electric Industry
Restructuring in Illinois -- Transition Charges."
ADJUSTMENTS TO INSTRUMENT FUNDING CHARGES
The Servicing Agreement and each Transitional Funding Order
will require the Servicer to calculate and implement adjustments to the IFC
Charges which are designed to enhance the likelihood that the IFC Collections
which are remitted to the Collection Account will be sufficient to (a) pay
interest and make Scheduled Payments on the Notes, (b) pay all related fees
and expenses of the Trust and the Grantee, including the Servicing Fee and
any Administration Fee, (c) replenish the Capital Subaccount up to the
Required Capital Level, and (d) fund and maintain the Overcollateralization
Subaccount up to the Required Overcollateralization Level.
The Servicing Agreement and unless otherwise provided in
the related Prospectus Supplement, each Transitional Funding Order, will
require the Servicer to calculate the "Debt Service Requirement" and the
"Debt Service Billing Requirement" for each Applicable Period. The "Debt
Service Requirement" for any period means the total dollar amount of IFC
Payments which the Servicer calculates to be needed to be collected in such
period to: (a) pay all interest and Scheduled Payments on the Notes as of the
Payment Date immediately following such period; (b) pay all fees and expenses
payable as set forth in the Indenture; (c) replenish the Capital Subaccount
for any prior withdrawals of funds therefrom; and (d) fund the
Overcollateralization Subaccount to its required level. The "Debt Service
Billing Requirement" for any period means the total dollar amount of IFC
Charges, taking into account write-offs and delays in collections, which the
Servicer calculates will need to be billed during such period in order to
generate IFC Collections in the full amount of the Debt Service Requirement
for such period. The calculation of the Debt Service Requirement and the Debt
Service Billing Requirement and the revised IFC Charges take into account, to
the extent available, among other things, (a) a comparison of the IFC Charges
calculated during the preceding Reconciliation Period and the amount
projected to be collected, and the resulting overcollection or shortfall, and
any interest costs resulting from any such shortfall, (b) updated assumptions
by the Servicer as to projected
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future usage of electricity by Customers, (c) future fees and expenses
relating to the Intangible Transition Property and the Notes, (d) amounts
available in the General Subaccount and Reserve Subaccount, (e) amounts
necessary to fund and replenish the Overcollateralization Subaccount and
Capital Subaccount to required levels, (f) amounts payable on the Notes, and
(g) expected delinquencies and write-offs, including amounts necessary for
recovery of any additional costs incurred by the Trust as a result of the
relevant delay in collections of IFC Charges, all assuming that there will be
no net earnings on any amounts in the Collection Account. The Debt Service
Requirement and the Debt Service Billing Requirement will be calculated by
the Servicer within the month following the end of each Reconciliation Period
and will be calculated for the next Applicable Period commencing on the
succeeding Adjustment Date, as described below.
The resulting revised Debt Service Billing Requirement for
the succeeding Applicable Period. In addition, any interest cost incurred or
to be incurred by the Trust as a result of having to delay scheduled
repayment of principal on the Notes, due to a shortfall in IFC Collections,
will be added to the Debt Service Billing Requirement the succeeding
Applicable Period. The resulting revised Debt Service Billing Requirement the
succeeding Applicable Period will be allocated among the IFC Customer Classes
of the Servicer subject to IFC Charges on the basis of their 1996 base rate
revenues, as set forth in "The Servicer -- Illinois Power Customer Base,
Electric Energy Consumption and Base Rates." The amount so allocated to each
class will be divided by the number of kilowatt-hours projected to be sold
and delivered to customers in the class by the Servicer in the succeeding
Applicable Period to determine the IFC Charges to be billed during such
Applicable Period. If, in connection with the foregoing allocations, the
forecasted revenues from Applicable Rates for any IFC Customer Class during
an Applicable Period is projected to be less than the IFC Charges allocated
to that class for the same period, the deficiency shall be ratably allocated
among the remaining IFC Customer Classes based on their percentages of the
1996 base rate revenues, recalculated to exclude such IFC Customer Class.
The Servicer will file corresponding revisions, if any, to
the IFC Tariff with the ICC by the third business day preceding the first day
of the second calendar month following the end of the Reconciliation Period,
to be effective on the first day of such second calendar month (the
"Adjustment Date"). The IFC Tariff will provide for the revised IFC Charges
to be deducted and separately stated from the Servicer's base rates,
transition charges and other rates for tariffed services, and for
corresponding reductions in such base rates, transition charges and other
rates for tariffed services; however, the IFC Tariff will not result in any
increases in the amounts of any of such base rates, transition charges and
other rates for tariffed services.
All Adjustments shall be implemented pursuant to the IFC
Tariff filed by Illinois Power in connection with the related Transitional
Funding Order. As required by the Funding Law, if, as a result of any
Adjustment, the IFC Charge, as so adjusted, will exceed the amount per
kilowatt-hour of the IFC Charge initially authorized by the ICC in such
Transitional Funding Order, then Illinois Power shall be obligated to file
Amendatory Tariffs adjusting the amounts otherwise billed by Illinois Power
for Applicable Rates, to offset the amount of such excess (or, if Illinois
Power shall have previously filed any such Amendatory Tariffs, the
incremental amount of such excess). However, the failure of such Amendatory
Tariff to become effective for any reason shall not delay or impair the
effectiveness of any such Adjustments.
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The Servicing Agreement will require the Servicer to
deliver promptly a written copy of all filings made with the ICC in
connection with any Adjustment, together with a copy of all material
supporting documents, to the Trust and the Indenture Trustee.
SALE AND ASSIGNMENT OF INTANGIBLE TRANSITION PROPERTY
On the initial Series Issuance Date, in accordance with the
requirements of the Funding Law and the terms of the Initial TFO and pursuant
to the initial Sale Agreement, the Grantee will sell, transfer and assign to
the Trust, without recourse, its entire right in, to and under the Intangible
Transition Property that is created by the Initial TFO (the "Initial
Intangible Transition Property") and in, to and under the related Basic
Documents (such sale, transfer and assignment to include all revenues,
collections, claims, rights, payments, money or proceeds, including, without
limitation, any revenues derived from lump-sum payments of transition
charges, condemnation proceedings or FERC stranded cost recoveries which are
allocable to the IFC Charges under the Servicing Agreement). The net proceeds
received by the Trust from the sale of the Notes, less the amount retained by
the Trust to fund the Capital Subaccount will be applied to the purchase of
the Initial Intangible Transition Property. Thereafter, the Grantee may agree
with the Trust to sell additional Intangible Transition Property ("Subsequent
Intangible Transition Property") to the Trust, subject to the satisfaction of
certain conditions, including the establishment and creation of such
Subsequent Intangible Transition Property (and the vesting thereof in the
Grantee) pursuant to a subsequent Transitional Funding Order. Such Subsequent
Intangible Transition Property will be sold to the Trust effective on a date
(a "Subsequent Transfer Date") specified in a subsequent Sale Agreement
between the Grantee and the Trust. The Trust will issue and sell additional
Notes in connection therewith.
The Grantee's entire right in, to and under the Initial
Intangible Transition Property was granted to the Grantee by the ICC in
accordance with the Initial TFO. The Grantee's rights in, to and under any
Subsequent Intangible Transition Property will, subject to the satisfaction
of certain conditions, be granted to the Grantee by the ICC in accordance
with a subsequent Transitional Funding Order related thereto.
The Trust will appoint the Servicer as custodian of the
documentation relating to the Intangible Transition Property. Illinois
Power's data systems will reflect the sale and assignment of the Intangible
Transition Property from the Grantee to the Trust. Illinois Power's financial
statements will indicate that the Intangible Transition Property has been
sold by the Grantee to the Trust and will not be available to creditors of
Illinois Power, although, unless otherwise specified in the related
Prospectus Supplement, for financial reporting and Federal income tax
purposes Illinois Power intends to treat the Notes as representing debt of
Illinois Power.
Subsequent Intangible Transition Property may be sold by
the Grantee to the Trust from time to time, solely in connection with the
issuance and sale of additional Notes by the Trust. Any such conveyance of
Subsequent Intangible Transition Property is subject to the following
conditions, among others:
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(a) the Grantee shall have entered into a written sale
agreement with the Trust;
(b) Illinois Power shall have received a subsequent
Transitional Funding Order issued by the ICC relating to such
Subsequent Intangible Transition Property;
(c) as of the applicable Subsequent Transfer Date,
the Grantee shall not be insolvent and shall not be made insolvent
by such conveyance;
(d) the Rating Agency Condition shall have been
satisfied with respect to such conveyance;
(e) Illinois Power shall have delivered to the Grantee, the
Trust, the Delaware Trustee and the Indenture Trustee an opinion of
independent tax counsel and/or a ruling from the IRS (as selected by,
and in form and substance reasonably satisfactory to, Illinois Power)
to the effect that, for federal income tax purposes, (i) the ICC's
issuance of the Transitional Funding Order creating and establishing
the Subsequent Intangible Transition Property in the Grantee, and the
assignment pursuant to such conveyance of such Subsequent Intangible
Transition Property will not result in gross income to the Grantee, the
Trust or Illinois Power, and the future revenues relating to the
Subsequent Intangible Transition Property and the assessment of the IFC
Charges (except for revenue related to certain lump-sum payments) will
be included in Illinois Power's gross income in the year in which the
related electrical service is provided to consumers, and (ii) such
conveyance will not adversely affect the characterization of the then
outstanding Notes as obligations of Illinois Power;
(f) as of the applicable Subsequent Transfer Date, no breach
by the Grantee of its representations, warranties or covenants in the
applicable Sale Agreement and no Servicer Default shall exist;
(g) as of the applicable Subsequent Transfer Date, the
Trust shall have sufficient funds available to pay the purchase
price for the Subsequent Intangible Transition Property to be
transferred on such date and all conditions to the issuance of new
series of Notes shall have been satisfied; and
(h) the Grantee and the Trust shall have taken any action
required to perfect the ownership interest or security interest (as the
case may be) of the Trust in the Subsequent Intangible Transition
Property and the proceeds thereof, free and clear of any liens.
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GRANT AGREEMENT
Under each Grant Agreement, the Grantee will agree, in
consideration of Illinois Power filing an application with the ICC requesting
a Transitional Funding Order creating and vesting in the Grantee the related
Intangible Transition Property, to remit to Illinois Power the net proceeds
remitted to it by the Trust from the sale of the Notes. To the extent that,
notwithstanding the Funding Law and the related Transitional Funding Order,
applicable law provides that Illinois Power has any interest in the
Intangible Transition Property or any part thereof, Illinois Power will agree
to sell, transfer, assign, set over and otherwise convey to the Grantee
without recourse all of Illinois Power's right, title and interest, if any,
in, to and under the Intangible Transition Property (such sale, transfer and
assignment to include all revenues, collections, claims, rights, payments,
money or proceeds, including, without limitation, any revenues derived from
lump-sum payments of transition charges, condemnation proceedings or FERC
stranded cost recoveries which are allocable to the IFC Charges under the
Servicing Agreement). Such sale, transfer, assignment, set over and
conveyance by Illinois Power contemplated under each Grant Agreement will be
expressly stated to be an absolute transfer pursuant to Section 18-108 of the
Funding Law.
In each Grant Agreement, Illinois Power will also
acknowledge and consent to any transfer, pledge, assignment or grant of a
security interest by the Grantee to the Trust pursuant to the related Sale
Agreement, and by the Trust to the Indenture Trustee for the benefit of the
Noteholders pursuant to the Indenture, of all right, title and interest of
the Grantee in, to and under the Intangible Transition Property and the
proceeds thereof, and the assignment of any or all of the Grantee's rights
and obligations under such Grant Agreement to the Trust and the Indenture
Trustee.
REPRESENTATIONS AND WARRANTIES OF ILLINOIS POWER
In each Grant Agreement, Illinois Power will make
representations and warranties to the Grantee to the effect, among other
things and with respect to the related Transitional Funding Order and
Intangible Transition Property, that: (a) the information provided by
Illinois Power to the Grantee with respect to the applicable Intangible
Transition Property (including the related Transitional Funding Order and the
related IFC Tariff) is correct in all material respects; (b) immediately
prior to the sale, transfer, assignment, set over and conveyance contemplated
under such Grant Agreement, Illinois Power's right, title and interest in and
to the related Intangible Transition Property, if any, is free and clear of
all security interests, liens, charges and encumbrances, no offsets, defenses
or counterclaims exist or have been asserted with respect thereto and
Illinois Power, in its capacity as Servicer or otherwise, will not at any
time assert any lien against or with respect to any of such Intangible
Transition Property; (c) at the related Series Issuance Date, the applicable
Intangible Transition Property has been validly granted to and vested in the
Grantee pursuant to the related Transitional Funding Order and, to the extent
applicable, such Grant Agreement, the Grantee owns all right, title and
interest to such Intangible Transition Property, free and clear of all liens
and rights of any other person (other than liens created
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pursuant to the related Sale Agreement and the Indenture) and all filings to
be made by Illinois Power (including filings with the ICC under the Funding
Law) necessary in any jurisdiction to give the Grantee a perfected ownership
interest in such Intangible Transition Property shall have been made, and no
further action is required under Illinois law to maintain such ownership
interest in such Intangible Transition Property; (d) under the laws of the
State of Illinois and the United States in effect on the related Series
Issuance Date: (i) Illinois Power was authorized to file the application for
the related Transitional Funding Order; (ii) Illinois Power filed such
application in proper form with the ICC requesting the issuance of a
Transitional Funding Order; (iii) the related Transitional Funding Order and
related IFC Tariff established, created and granted rights in and to the
related Intangible Transition Property and such Intangible Transition
Property and the right to impose and collect the related IFC Charges
constitute current and original property rights vested in the Grantee to the
fullest extent permitted by law; (iv) the Transitional Funding Order pursuant
to which any applicable Intangible Transition Property has been created has
been duly entered by the ICC and is in full force and effect; (v) the related
IFC Tariff is in full force and effect and is not subject to modification by
the ICC except as provided under the Funding Law; (vi) as of the issuance of
the related Notes, such Notes are entitled to certain protections provided in
the Funding Law and, accordingly, the related Transitional Funding Order is
not revocable by the ICC; (vii) the State of Illinois may not limit, alter,
impair or reduce the related Intangible Transition Property so as to
substantially impair the terms of any contract made by Illinois Power, the
Grantee or the Trust with the holders of the related Notes or impair the
rights and remedies of such holders unless the State of Illinois could
demonstrate that such impairment was necessary to advance a significant and
legitimate public purpose, and neither the Transitional Funding Order nor the
related Intangible Transition Property or IFC Charges are subject to
reduction, postponement, impairment or termination by subsequent action of
the ICC; (viii) the process by which the related Transitional Funding Order
was adopted and approved and the related IFC Tariff was filed, and such
Transitional Funding Order and IFC Tariff themselves, comply with all
applicable laws, rules and regulations; and (ix) no other approval or filing
with any other governmental body is required in connection with the grant of
the related Intangible Transition Property, except those that have been
obtained or made; (e) the assumptions used in calculating the IFC Charges
related to the applicable Intangible Transition Property are reasonable and
made in good faith; (f) upon the effectiveness of the applicable IFC Tariff:
(i) all of the related Intangible Transition Property constitutes a current
property right vested in the Grantee; (ii) the related Intangible Transition
Property includes, without limitation, (A) the right, title and interest in
and to the related IFC Charges authorized under the related Transitional
Funding Order, as adjusted from time to time, (B) the right, title and
interest in and to all revenues, collections, claims, payments, money, or
proceeds of or arising from the related IFC Charges set forth in such IFC
Tariff and (c) all rights to obtain adjustments to the related IFC Charges
pursuant to the related Transitional Funding Order; and (iii) the Grantee is
entitled to impose and collect the related IFC Charges described in the
related Transitional Funding Order and such IFC Tariff in an aggregate amount
equal to the principal amount of the Notes, all interest thereon, all amounts
required to be deposited in the Overcollateralization Subaccount and the
Capital Subaccount, and all related fees, costs and expenses in respect of
the Notes until they have been paid in full subject only to the
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applicable limitation set forth in the related Transitional Funding Order as
the maximum dollar amount of Intangible Transition Property created
thereunder; (g) Illinois Power is duly organized and validly existing as a
corporation in good standing under the laws of the State of Illinois, with
power and authority to own its properties and conduct its business as
currently owned or conducted and to execute, deliver and perform the terms of
such Grant Agreement, and had at all relevant times, and has the requisite
power, authority and legal right to request that the ICC issue the related
Transitional Funding Order; (h) the execution, delivery and performance of
such Grant Agreement have been duly authorized by Illinois Power by all
necessary corporate action; (i) such Grant Agreement constitutes a legal,
valid and binding obligation of Illinois Power, enforceable against Illinois
Power in accordance with its terms, subject to applicable insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws
relating to or affecting creditors' rights generally from time to time in
effect and to general principles of equity (including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing),
regardless of whether considered in a proceeding in equity or at law; (j) the
consummation of the transactions contemplated by such Grant Agreement does
not conflict with Illinois Power's Articles of Incorporation, by-laws or any
agreement to which Illinois Power is a party or bound, result in the creation
or imposition of any lien upon Illinois Power's properties pursuant to any
agreement or violate any law or any order, rule or regulation applicable to
Illinois Power; (k) no governmental approvals, authorizations or filings are
required for Illinois Power to execute, deliver and perform its obligations
under such Grant Agreement except those which have previously been obtained
or made and future filings to be made pursuant to the related Transitional
Funding Order and the Funding Law relating to Illinois Power's use of
proceeds from the transactions contemplated thereby and to reflect the final
terms of the related Series of Notes; and (l) except as disclosed in such
Grant Agreement, no court or administrative proceeding or investigation is
pending or, to Illinois Power's knowledge, threatened (i) asserting the
invalidity of the Funding Law, such Grant Agreement, any of the other related
Basic Documents or the related Notes, (ii) seeking to prevent the grant of
the related Intangible Transition Property to the Grantee or the consummation
of any of the transactions contemplated by such Grant Agreement or any of the
other related Basic Documents, (iii) seeking any determination or ruling that
could reasonably be expected to materially and adversely affect the
performance by Illinois Power of its obligations under, or the validity or
enforceability of, such Grant Agreement, any of the other related Basic
Documents or the related Notes, or (iv) which could reasonably be expected to
adversely affect the federal or state income tax attributes of the related
Notes.
COVENANTS OF ILLINOIS POWER
Illinois Power will covenant in each Grant Agreement, among
other things and with respect to the related Transitional Funding Order and
Intangible Transition Property, that so long as any of the Notes are
outstanding: (a) it will keep in full force and effect its existence, rights
and franchises as a corporation under the laws of the State of Illinois (or
any other State, the District of Columbia or the United States of America);
(b) it will preserve its qualification to do business to the extent that such
existence or qualification is or shall be necessary to protect the validity
and enforceability of the Grant Agreement and any of the
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other Basic Documents to which Illinois Power is a party; (c) except for the
conveyances under the Grant Agreement, it will not sell, pledge, assign or
transfer to any other person, or grant, create, incur, assume or suffer to
exist any lien on, any of the Intangible Transition Property or any interest
therein; (d) it will not at any time assert any lien against or with respect
to any of the Intangible Transition Property in its capacity as Servicer or
otherwise; (e) it will not seek to limit, alter, impair, reduce or otherwise
terminate the property rights of the Grantee or any assignee of the Grantee;
(f) it shall defend the right, title and interest of the Grantee in, to and
under the Intangible Transition Property against all claims of third parties
claiming through or under Illinois Power; (g) if it receives collections in
respect of the IFC Charges or the proceeds thereof in replacement therefor,
it will hold such payments in trust for the Servicer and to pay the Servicer
all payments received by it in respect thereof as soon as practicable after
receipt thereof by Illinois Power, but in no event later than two Business
Days after such receipt; (h) it shall notify the Grantee, the Trust and the
Indenture Trustee promptly after becoming aware of any lien on any of the
Intangible Transition Property other than the conveyances under the Grant
Agreement, the Sale Agreement and the Indenture; (i) it shall comply with its
organizational or governing documents and all laws, treaties, rules,
regulations and determinations of any governmental instrumentality applicable
to it, except to the extent that failure to so comply would not materially
adversely affect the Grantee's, the Trust's or the Indenture Trustee's
interests in the Intangible Transition Property; (j) it shall indicate in its
financial statements that it is not the owner of the Intangible Transition
Property and it shall not own or purchase any Notes; (k) upon the creation
and grant of the Intangible Transition Property to the Grantee pursuant to a
Transitional Funding Order, to the fullest extent permitted by law, including
applicable regulations of the ICC, the Grantee shall have all of the rights
of the owner of the Intangible Transition Property (including all of the
rights originally held by Illinois Power, if any, with respect to the related
Intangible Transition Property), including the right (subject to the terms of
the Servicing Agreement) to exercise any and all rights and remedies to
collect any amounts payable by any Customer or third party collection agent,
including any ARES, in respect of the Intangible Transition Property,
notwithstanding any objection or direction to the contrary by Illinois Power;
(l) except with respect to Federal and other applicable taxes, it shall not
make any statement or reference in respect of the Intangible Transition
Property that is inconsistent with the ownership interest of the Grantee; (m)
it shall execute and file such filings, and cause to be executed and filed
such filings as may be required by law to fully preserve, maintain, and
protect the interests of the Grantee in the Intangible Transition Property,
including all filings required under the Funding Law relating to the grant of
the Intangible Transition Property to the Grantee; (n) it shall institute any
action or proceeding necessary to compel performance by the ICC or the State
of Illinois of any of their obligations or duties under the Funding Law, the
related Transitional Funding Order and related Tariff, and will take such
legal or administrative actions as may be reasonably necessary to protect the
Grantee from claims, state actions or other actions or proceedings of third
parties which, if successfully pursued, would result in a breach of any
representation set forth in the Grant Agreement; (o) it shall not, prior to
the date which is one year and one day after the termination of the
Indenture, acquiesce, petition or otherwise invoke or cause any other Person
to invoke the process of any court or governmental authority for the purpose
of commencing or sustaining a case against the Grantee or the Trust under any
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Federal or state bankruptcy, insolvency or similar law or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of or for the Grantee or the Trust or any substantial part
of the property of the Grantee or the Trust, or ordering the winding up or
liquidation of the affairs of the Grantee or the Trust; (p) it shall, and
shall cause each of its subsidiaries to, pay all material taxes, assessments
and governmental charges imposed upon it or any of its properties or assets
or with respect to any of its franchises, business, income or property before
any penalty accrues thereon if the failure to pay any such taxes, assessments
and governmental charges would, after any applicable grace periods, notices
or other similar requirements, result in a lien on the Intangible Transition
Property; (q) neither Illinois Power nor any successor will cause or permit
the Grantee or the Trust to elect to be classified as an association taxable
as a corporation for federal income tax purposes; (r) neither Illinois Power
nor any successor thereto will enter into any contract with any Customer
obligated (or who would, but for such contract, be obligated) to pay IFC
Charges if, as a result thereof, such Customer would not receive tariffed
services, unless the contract provides that the Customer will pay an amount
to the Grantee or its assigns, or to Illinois Power as Servicer, as
applicable, equal to the amount such Customer would pay in IFC Charges; (s)
Illinois Power shall not initiate any material changes with respect to its
policies and procedures pertaining to credit (including requirements for
deposits from Customers), billing, collections (including procedures for
disconnection of service for non-payment) and restoration of service after
disconnection and shall not initiate any changes in any ICC tariffs relating
to the foregoing matters, which are likely to adversely affect Illinois
Power's ability to make timely recovery of amounts billed to customers except
for such changes required by applicable law; and (t) if Illinois Power
determines that the aggregate dollar amount of IFC Charges to be imposed and
collected is reasonably likely to exceed the maximum dollar amount of
Intangible Transition Property authorized by the Transitional Funding Orders
and any Notes remain outstanding, Illinois Power shall make a good faith
effort to take any and all subsequent regulatory action with the ICC to
obtain an order permitting the creation of additional Intangible Transition
Property in an amount sufficient to pay such Notes in full.
AMENDMENT OF GRANT AGREEMENTS
Each Grant Agreement may be amended from time to time by
Illinois Power and the Grantee, with prior written notice given to the Rating
Agencies and the prior written consent of the Trust, but without the consent
of any of the Noteholders, to cure any ambiguity, to correct or supplement
any provisions in such Grant Agreement or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
in such Grant Agreement or of modifying in any manner the rights of the
Noteholders; PROVIDED, HOWEVER, that such action shall not, as evidenced by
an officer's certificate delivered to the Trust, adversely affect in any
material respect the interests of any Noteholder.
Each Grant Agreement may also be amended from time to time
by Illinois Power and the Grantee, with prior written notice given to the
Rating Agencies and the prior written consent of the Trust, the Indenture
Trustee and Noteholders holding not less than a
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majority in principal amount of the then outstanding Notes of all Series
affected thereby, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of such Grant Agreement or of
modifying in any manner the rights of the Noteholders; PROVIDED, HOWEVER,
that no such amendment shall (a) increase or reduce in any manner the amount
of, or accelerate or delay the timing of, IFC Collections relating to the IFC
Charges, or (b) reduce the percentage of the outstanding principal amount of
the Notes, the Noteholders of which are required to consent to any such
amendment, without the consent of the Noteholders of all the outstanding
Notes.
INDEMNIFICATION OBLIGATIONS OF ILLINOIS POWER
Each Grant Agreement will provide that Illinois Power will
indemnify the Grantee, the Trust, the Indenture Trustee, the Delaware Trustee
and the Noteholders, and each of their respective officers, directors,
employees and agents for, and defend and hold harmless each such person from
and against, (a) any and all taxes (other than any taxes imposed on the
Noteholders) that may at any time be imposed on or asserted against any such
person as a result of the grant of the Intangible Transition Property to the
Grantee, or that may be imposed on or asserted against any such person under
existing law as of the closing date as a result of the Grantee's ownership
and assignment of the Intangible Transition Property, the Trust's issuance
and sale of the Notes, or the other transactions contemplated herein,
including, in each case, any sales, gross receipt, general corporation,
tangible personal property, privilege or license taxes (but excluding any
taxes imposed as a result of a failure of such person to properly withhold or
remit taxes imposed with respect to payments on any Note); (b) any and all
liabilities, obligations, losses, claims, actions, suits, damages, payments,
and reasonable costs or expenses, of any kind whatsoever that may be imposed
on, incurred by or asserted against any such person as a result of Illinois
Power's willful misconduct, bad faith or gross negligence in the performance
of (or reckless disregard of) its duties or observance of its covenants under
each Grant Agreement, or (c) Illinois Power' s breach of any of its
representations or warranties contained in each Grant Agreement.
Notwithstanding the foregoing, but subject to Illinois
Power's covenant to fully preserve, maintain and protect the interests of the
Grantee in the Intangible Transition Property, Illinois Power shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its obligations under each Grant Agreement.
SALE AGREEMENT
Under each Sale Agreement, the Grantee will agree, in
consideration of the Trust remitting to it the net proceeds received from the
issuance and sale of the Notes, to sell, transfer, assign set over or
otherwise convey to the Trust without recourse all of its right, title and
interest in and to the Intangible Transition Property created in connection
with such issuance (such sale, transfer and assignment to include all
revenues, collections, claims, rights, payments, money or proceeds,
including, without limitation, any revenues derived from lump-sum payments of
transition charges, condemnation proceedings or
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FERC stranded cost recoveries which are allocable to the IFC Charges under
the Servicing Agreement). Such sale, transfer, assignment, set over and
conveyance by the Grantee contemplated under each Sale Agreement will be
expressly stated to be an absolute transfer pursuant to Section 18-108 of the
Funding Law.
In the Sale Agreement, the Grantee will also acknowledge
and consent to any transfer, pledge, assignment or grant of a security
interest by the Trust to the Indenture Trustee for the benefit of the
Noteholders pursuant to the Indenture, of all right, title and interest of
the Trust in, to and under the related Intangible Transition Property and the
related assets, and the assignment of any or all of the Trust's rights and
obligations under each Sale Agreement to the Indenture Trustee.
REPRESENTATIONS AND WARRANTIES OF GRANTEE
In each Sale Agreement, the Grantee will make
representations and warranties to the Trust to the effect, among other
things, and with respect to the related Transitional Funding Order and
Intangible Transition Property, that: (a) the information provided by the
Grantee to the Trust with respect to the applicable Intangible Transition
Property and Related Assets (as defined in the Basic Documents) is correct in
all material respects; (b) at the related Series Issuance Date, the
applicable Intangible Transition Property is owned by the Grantee and is free
and clear of all security interests, liens, charges and encumbrances, and no
offsets, defenses or counterclaims exist or have been asserted with respect
thereto; (c) at the related Series Issuance Date, the applicable Intangible
Transition Property has been validly transferred and sold to the Trust and
all filings to be made by the Grantee (including filings with the ICC under
the Funding Law) necessary in any jurisdiction to give the Trust a first
perfected ownership interest in the applicable Intangible Transition Property
shall have been made, and no further action is required under Illinois law to
maintain such first priority perfected ownership interest in the applicable
Intangible Transition Property; (d) under the laws of the State of Illinois
and the United States in effect on the related Series Issuance Date: (i) the
Transitional Funding Order pursuant to which any applicable Intangible
Transition Property has been created has been duly entered by the ICC and is
in full force and effect; (ii) the related IFC Tariff is in full force and
effect and is not subject to modification by the ICC except as provided under
the Funding Law, (iii) as of the issuance of the related Notes, such Notes
are entitled to certain protections provided in the Funding Law and,
accordingly, the related Transitional Funding Order is not revocable by the
ICC; (iv) the State of Illinois may not limit, alter, impair or reduce the
related Intangible Transition Property so as to impair the terms of any
contract made by Illinois Power, the Grantee or the Trust with the holders of
the related Notes or impair the rights and remedies of such holders, unless
the State of Illinois could demonstrate that such impairment was necessary to
advance a significant and legitimate public purpose, and neither the
Transitional Funding Order nor the related Intangible Transition Property or
IFC Charges are subject to reduction, postponement, impairment or termination
by a subsequent action of the ICC; (v) the process by which the related
Transitional Funding Order was adopted and approved and the related IFC
Tariff was filed, and such Transitional Funding Order and IFC Tariff
themselves, comply with all applicable
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laws, rules and regulations; and (vi) no other approval or filing with any
other governmental body is required in connection with the grant of the
related Intangible Transition Property, except those that have been obtained
or made and those described in the related Grant Agreement; (e) the
assumptions used in calculating the IFC Charges related to the applicable
Intangible Transition Property are reasonable and made in good faith; (f)
upon the effectiveness of the applicable IFC Tariff: (i) all of the related
Intangible Transition Property constitutes a current property right vested in
the Grantee; (ii) the related Intangible Transition Property includes,
without limitation, (A) the right, title and interest in and to the related
IFC Charges authorized under the related Transitional Funding Order, as
adjusted from time to time, (B) the right, title and interest in and to all
revenues, collections, claims, payments, money, or proceeds of or arising
from the related IFC Charges set forth in such IFC Tariff, and (C) all rights
to obtain adjustments to the related IFC Charges pursuant to the related
Transitional Funding Order; and (iii) the Grantee is entitled to impose and
collect the related IFC Charges described in the related Transitional Funding
Order and such IFC Tariff in an aggregate amount equal to the principal
amount of the Notes, all interest thereon, all amounts required to be
deposited in the Overcollateralization Subaccount and the Capital Subaccount,
and all related fees, costs and expenses in respect of the Notes until they
have been paid in full subject only to the applicable limitation set forth in
the related Transitional Funding Order as to the maximum dollar amount of
Intangible Transition Property created thereunder; (g) the Grantee is duly
organized and validly existing as a limited liability company in good
standing under the laws of the State of Delaware, with power and authority to
own its properties and conduct its business as currently owned or conducted
and to execute, deliver and perform the terms of such Sale Agreement; (h) the
execution, delivery and performance of such Sale Agreement have been duly
authorized by the Grantee by all necessary company action; (i) such Sale
Agreement constitutes a legal, valid and binding obligation of the Grantee,
enforceable against the Grantee in accordance with its terms, subject to
applicable insolvency, reorganization, moratorium, fraudulent transfer and
other similar laws relating to or affecting creditors' rights generally from
time to time in effect and to general principles of equity (including,
without limitation, concepts of materiality, reasonableness, good faith and
fair dealing), regardless of whether considered in a proceeding in equity or
at law; (j) the consummation of the transactions contemplated by such Sale
Agreement does not conflict with the Grantee's operating agreement or
certificate of formation or any agreement to which the Grantee is a party or
bound, result in the creation or imposition of any lien upon the Grantee's
properties pursuant to any agreement or violate any law or any order, rule or
regulation applicable to the Grantee; (k) no governmental approvals,
authorizations or filings are required for the Grantee to execute, deliver
and perform its obligations under such Sale Agreement except those which have
previously been obtained or made and future filings to be made pursuant to
the related Transitional Funding Order and the Funding Law relating to
Illinois Power's use of proceeds from the transactions contemplated thereby
and to reflect the final terms of the related Series of Notes; and (l) except
as disclosed in such Sale Agreement, no court or administrative proceeding or
investigation is pending or, to the Grantee's knowledge, threatened (i)
asserting the invalidity of the Funding Law, such Sale Agreement, any of the
other related Basic Documents or the related Notes, (ii) seeking to prevent
the issuance of the related Notes or the consummation of any of the
transactions contemplated by such
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Sale Agreement or any of the other related Basic Documents, (iii) seeking any
determination or ruling that could reasonably be expected to materially and
adversely affect the performance by the Grantee of its obligations under, or
the validity or enforceability of, such Sale Agreement, any of the other
related Basic Documents or the related Notes, or (iv) which could reasonably
be expected to adversely affect the federal or state income tax attributes of
the related Notes.
COVENANTS OF THE GRANTEE
The Grantee will covenant in each Sale Agreement, among
other things and with respect to the related Transitional Funding Order and
Intangible Transition Property, that so long as any of the Notes are
outstanding: (a) it will keep in full force and effect its existence, rights
and franchises as a limited liability company under the laws of the State of
Delaware (or any other State, the District of Columbia or the United States
of America); (b) it will preserve its qualification to do business to the
extent that such existence or qualification is or shall be necessary to
protect the validity and enforceability of the Sale Agreement and any of the
other Basic Documents to which it is a party; (c) except for the conveyances
under the Sale Agreement, it will not sell, pledge, assign or transfer to any
other person, or grant, create, incur, assume or suffer to exist any lien on,
any of the Intangible Transition Property or related assets and it shall
defend the right, title and interest of the Trust and Indenture Trustee in,
to and under the Intangible Transition Property and related assets against
all claims of third parties claiming through or under the Grantee; (d) if it
receives collections in respect of the IFC Charges or the proceeds thereof or
in replacement therefor, it will hold such payments in trust for the Servicer
and to pay the Servicer all payments received by it in respect thereof as
soon as practicable after receipt thereof by the Grantee, but in no event
later than two Business Days after such receipt; (e) it shall notify the
Trust and the Indenture Trustee promptly after becoming aware of any lien on
any of the Intangible Transition Property and related assets other than the
conveyances under the Sale Agreement and the Indenture; (f) it shall comply
with its organizational or governing documents and all laws, treaties, rules,
regulations and determinations of any governmental instrumentality applicable
to it, except to the extent that failure to so comply would not materially
adversely affect the Trust's or the Indenture Trustee's interests in the
Intangible Transition Property or related assets or under any Basic Document
to which it is party, or the Grantee's performance of its obligations under
the Sale Agreement or under any Basic Document to which it is party; (g) it
shall indicate in its financial statements that it is not the owner of the
Intangible Transition Property and it shall not own or purchase any Notes;
(h) upon the sale of the Intangible Transition Property and related assets to
the Trust pursuant to a Sale Agreement, to the fullest extent permitted by
law, including applicable regulations of the ICC, the Trust shall have all of
the rights of the owner of the Intangible Transition Property and related
assets (including all of the rights originally held by the Grantee with
respect to the related Intangible Transition Property and related assets),
including the right (subject to the terms of the Servicing Agreement) to
exercise any and all rights and remedies to collect any amounts payable by
any Customer or third party collection agent, including any ARES, in respect
of the Intangible Transition Property, notwithstanding any objection or
direction to the contrary by the Grantee; (i) except with
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respect to Federal and other applicable taxes, it shall not make any
statement or reference in respect of the Intangible Transition Property and
related assets that is inconsistent with the ownership interest of the Trust;
(j) it shall execute and file such filings, and cause to be executed and
filed such filings as may be required by law to fully preserve, maintain, and
protect the interests of the Trust in the Intangible Transition Property and
related assets, including all filings required under the Funding Law relating
to the grant of the Intangible Transition Property to the Grantee; (k) it
shall institute any action or proceeding necessary to compel performance by
the ICC or the State of Illinois of any of their obligations or duties under
the Funding Law, the related Transitional Funding Order and related Tariff,
and will take such legal or administrative actions as may be reasonably
necessary to protect the Trust and Noteholders from claims, state actions or
other actions or proceedings of third parties which, if successfully pursued,
would result in a breach of any representation set forth in the Sale
Agreement; (l) it shall not, prior to the date which is one year and one day
after the termination of the Indenture, acquiesce, petition or otherwise
invoke or cause any other person to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Trust under any Federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of or for the Trust or any
substantial part of the property of the Trust, or ordering the winding up or
liquidation of the affairs of the Trust; (m) it shall, and shall cause each
of its subsidiaries to, pay all material taxes, assessments and governmental
charges imposed upon it or any of its properties or assets or with respect to
any of its franchises, business, income or property before any penalty
accrues thereon if the failure to pay any such taxes, assessments and
governmental charges would, after any applicable grace periods, notices or
other similar requirements, result in a lien on the Intangible Transition
Property or related assets; (n) except as otherwise expressly permitted, the
Grantee shall not waive, amend, modify, supplement or terminate any Basic
Document or any provision thereof without the written consent of the Trust;
(o) without derogating from the absolute nature of the assignment granted to
the Trust under the Sale Agreement or the rights of the Trust, the Grantee
will not, without the prior written consent of the Trust, amend, modify,
waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the terms of
any collateral securing the Notes or the Basic Documents, or waive timely
performance or observance by Illinois Power or the Servicer under the Grant
Agreement or the Servicing Agreement, respectively; (p) it will promptly
notify the Trust, in writing, of each default hereunder and each default on
the part of Illinois Power or the Servicer of their respective obligations
under the Grant Agreement or the Servicing Agreement; (q) the Grantee will
not elect, nor cause or permit the Trust to elect, to be classified as an
association taxable as a corporation for federal income tax purposes; and (r)
it will conduct its affairs separate from those of its members or affiliates.
In addition, so long as any of the Notes are outstanding,
the Grantee will covenant in each Sale Agreement that it shall not, except as
otherwise permitted thereunder: (a) sell, transfer, exchange or otherwise
dispose of any of its properties or assets; (b) assert any claim against the
Trust by reason of the payment of the taxes levied or assessed upon any part
of the Intangible Transition Property or the related assets; (c)
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terminate its existence or dissolve or liquidate in whole or in part; (d)
permit the sale and transfer hereunder not to constitute a valid first
priority ownership interest in the Intangible Transition Property and related
assets; (d) engage in any business other than acquiring, owning, financing,
transferring, assigning and otherwise managing the Intangible Transition
Property and related assets; (e) incur, assume, guarantee or otherwise become
liable, directly or indirectly, for any indebtedness; (f) make any loan or
advance or credit to, or guarantee (directly or indirectly or by an
instrument having the effect of assuring another's payment or performance on
any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire
(or agree contingently to do so) any stock, obligations, assets or securities
of, or any other interest in, or make any capital contribution to, any other
person; or (g) make any expenditure (by long-term or operating lease or
otherwise) for capital assets (either realty or personalty) in an aggregate
amount not to exceed $25,000.
AMENDMENT OF SALE AGREEMENTS
Each Sale Agreement may be amended from time to time by the
Grantee and the Trust, with prior written notice given to the Rating Agencies
and the prior written consent of the Indenture Trustee, but without the
consent of any of the Noteholders, to cure any ambiguity, to correct or
supplement any provisions in such Sale Agreement or for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions in such Sale Agreement or of modifying in any manner the rights of
the Noteholders; PROVIDED, HOWEVER, that such action shall not, as evidenced
by an officer's certificate delivered to the Indenture Trustee, adversely
affect in any material respect the interests of any Noteholder.
Each Sale Agreement may also be amended from time to time
by the Grantee and the Trust, with prior written notice given to the Rating
Agencies and the prior written consent of the Indenture Trustee and
Noteholders holding not less than a majority in principal amount of the then
outstanding Notes of all Series affected thereby, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of such Sale Agreement or of modifying in any manner the rights of
the Noteholders; PROVIDED, HOWEVER, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
IFC Collections relating to the IFC Charges, or (b) reduce the percentage of
the outstanding principal amount of the Notes, the Noteholders of which are
required to consent to any such amendment, without the consent of the
Noteholders of all the outstanding Notes.
INDEMNIFICATION OBLIGATIONS OF THE GRANTEE
Each Sale Agreement will provide that the Grantee will
indemnify the Trust, the Indenture Trustee, the Delaware Trustee and the
Noteholders, and each of their respective officers, directors, employees and
agents for, and defend and hold harmless each such person from and against,
(a) any and all taxes (other than any taxes imposed on
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the Noteholders) that may at any time be imposed on or asserted against any
such person as a result of the grant of the Intangible Transition Property to
the Grantee, or that may be imposed on or asserted against any such person
under existing law as of the closing date as a result of the Grantee's
ownership and assignment of the Intangible Transition Property, the Trust's
issuance and sale of the Notes, or the other transactions contemplated
herein, including, in each case, any sales, gross receipt, general
corporation, tangible personal property, privilege or license taxes (but
excluding any taxes imposed as a result of a failure of such person to
properly withhold or remit taxes imposed with respect to payments on any
Note); (b) any and all liabilities, obligations, losses, claims, actions,
suits, damages, payments, and reasonable costs or expenses, of any kind
whatsoever that may be imposed on, incurred by or asserted against any such
person as a result of the Grantee's willful misconduct, bad faith or gross
negligence in the performance of (or reckless disregard of) its duties or
observance of its covenants under each Sale Agreement, or (c) the Grantee's
breach of any of its representations or warranties contained in each Sale
Agreement.
Notwithstanding the foregoing, but subject to the Grantee's
covenant to fully preserve, maintain and protect the interests of the Trust
in the Intangible Transition Property, the Grantee shall not be under any
obligation to appear in, prosecute or defend any legal action that shall not
be incidental to its obligations under each Sale Agreement.
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CERTAIN PAYMENT, WEIGHTED AVERAGE LIFE
AND YIELD CONSIDERATIONS
The rate of principal payments on each Class of Notes, the
aggregate amount of each interest payment on each Class of Notes and the
actual maturity date of each Class of Notes might be related, in part, to the
rate and timing of receipt of IFC Collections. Accelerated receipts of IFC
Collections will not result in principal payments on the Notes earlier than
the dates in the Expected Amortization Schedule since receipts in excess of
the amounts necessary to make any Scheduled Payment on the Notes will be
deposited in the Reserve Subaccount for distribution in accordance with such
schedule, except in the event of an early redemption or the acceleration of
the maturity of the Notes after an Event of Default, in which event such
amounts will be released to pay such accelerated amounts. However, delayed
receipts of IFC Collections may result in principal payments on the Notes
that occur later than the related Expected Maturity Dates.
The actual payments on each date for each Class of Notes
and the weighted average life thereof will be affected primarily by the rate
of IFC Collections and the timing of receipt of such IFC Collections, as well
as amounts available in the Reserve Subaccount, the Overcollateralization
Subaccount and the Capital Subaccount. Since each IFC Charge will consist of
a charge per kilowatt hour of usage by the applicable class of Customers, the
IFC Collections and the rate of principal amortization on the Notes might
depend, in part, on actual electricity usage by Customers and the rate of
delinquencies and write-offs, including any defaults or delays in remitting
by ARES who are allowed to collect IFC Charges from Customers on behalf of
the Servicer. Although the amounts of the IFC Charges will be adjusted from
time to time based in part on the actual rate of IFC Collections, no
assurances are given that the Servicer will be able to forecast accurately
actual energy usage and the rate of delinquencies and write-offs or implement
adjustments to the IFC Charges that will cause IFC Collections to be received
at any particular rate. See "Risk Factors -- Unusual Nature of Intangible
Transition Property," "-- Potential Servicing Issues," "-- Uncertainties
Related to the Electric Industry Generally,"and "-- Reliance on Broad Base of
Customers," and "Description of the Intangible Transition Property
- -- Adjustments to Instrument Funding Charges." If IFC Collections are received
at a slower rate than expected, a Note may be retired later than expected.
Because principal will only be paid at a rate not faster than that
contemplated in the Expected Amortization Schedules, except in the event of
an early redemption or the acceleration of the maturity of the Notes after an
Event of Default, the Notes are not expected to mature earlier than
scheduled. A payment on a date that is earlier than forecasted will result in
a shorter weighted average life, and a payment on a date that is later than
forecasted will result in a longer weighted average life.
No assurances are given that the representations made
herein and in the Prospectus Supplement as to the particular factors that
will affect the rate of IFC Collections, the relative importance of such
factors, the percentage of the principal balance of the Notes that will be
paid as of any date or the overall rate of IFC Collections will be realized.
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In addition, pursuant to the terms of the Indenture, any
Series of Notes may be redeemed on any Payment Date if, after giving effect
to payments that would otherwise be made on such date, the outstanding
principal balance of such Series of Notes has been reduced to less than five
percent of the initial principal balance thereof. If specified in the
Prospectus Supplement related to any Series or Class of Notes, the Indenture
may also permit the redemption of any such Series or Class of Notes in full
on any Payment Date on or prior to December 31, 2004 using proceeds received
from the refinancing of any other Series or Class of Notes, through the
issuance of New Notes. The New Notes will be payable solely out of the
Intangible Transition Property and other Note Collateral. Redemption will
cause such Notes to be retired earlier than would otherwise be expected and
may adversely affect the yield to maturity of the Notes. There can be no
assurance as to whether any Series of Notes will be redeemed, or as to
whether Noteholders will be able to receive an equally attractive rate of
return upon reinvestment of the proceeds resulting from any such redemption.
THE TRUST
The Trust will be created for the specific purpose of
issuing the Notes. The Trust will be formed under the laws of the State of
Delaware pursuant to the Trust Agreement to be executed by the Delaware
Trustee and the Beneficiary Trustees (the Delaware Trustee and the
Beneficiary Trustees herein collectively referred to as the "Trustees"). The
Trust will not be an agency or instrumentality of the State of Illinois. The
Trust will have no significant assets other than the Intangible Transition
Property and the other Note Collateral. The Trust Agreement will not permit
the Trustees to engage in any activities not directly related to the Note
financing.
For a description of the Notes to be issued by the Trust,
see "Description of the Notes."
The fiscal year of the Trust will be the calendar year.
The Trust will be formed prior to the first offering of
Notes as a special purpose Delaware business trust and, as of the date of
this Prospectus, has not carried on any business activities and has no
operating history. Because the Trust does not have any operating history,
this Prospectus does not include any financial statements or related
information for the Trust.
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THE GRANTEE
The Grantee, Illinois Power Securitization Limited
Liability Company, a special purpose Delaware limited liability company, the
sole member of which is Illinois Power, was organized on ___________, 1998
for the exclusive purposes of (a) initially owning the Intangible Transition
Property established by the Transitional Funding Orders, (b) entering into a
Servicing Agreement with the Servicer in respect of the Intangible Transition
Property, (c) assigning all of its right, title and interest in the
Intangible Transition Property and the Servicing Agreement to the Trust, and
(d) engaging in only those other activities incidental thereto and necessary,
suitable or convenient thereto. In addition, the Grantee's limited liability
company agreement require it to operate in a manner such that it should not
be consolidated in the bankruptcy estate of Illinois Power in the event
Illinois Power becomes subject to such a proceeding.
The executive offices of Grantee are located at 500 South
27th Street, Decatur, Illinois 62521, and its telephone number is (217)
424-______.
The Grantee is a recently formed special purpose limited
liability company and, as of the date of this Prospectus, the Grantee has not
carried on any business activities and has no operating history. Audited
financial statement of the Grantee are included as an exhibit to this
Prospectus.
MANAGERS AND OFFICERS
The Grantee will be managed by its sole member, Illinois
Power, until the acquisition by the Grantee of any Intangible Transition
Property, whereupon management of the Grantee shall be vested entirely in its
management committee. In addition, the Grantee has entered into an
Administration Agreement with Illinois Power pursuant to which Illinois Power
will perform administrative functions of and provide facilities to the
Grantee, and the Grantee will compensate Illinois Power therefor.
The following is a list of the principal officers and
managers of the Grantee. All such persons have served in the capacities set
forth below since _____________, 1998, unless otherwise indicated, and all
managers have served in such capacity since _____________, 1998. The officers
and managers will devote such time as is necessary to the affairs of the
Grantee. The Grantee will have sufficient officers, managers and employees to
carry on its business.
<TABLE>
<CAPTION>
NAME AGE TITLE
<S> <C> <C>
</TABLE>
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<PAGE>
No compensation has been paid by the Grantee to any officer
or manager of the Grantee since the Grantee was formed. The officers and
managers of the Grantee, other than the Independent Manager, will not be
compensated by the Grantee for their services on behalf of the Grantee;
however, pursuant to the Administration Agreement, the Grantee will reimburse
Illinois Power for the services of those officers and managers who are also
employees of Illinois Power. The initial compensation for the Independent
Manager will be [$5,000]. Each officer serves in such capacity at the
discretion of the Grantee's Management Committee. Illinois Power is an
affiliate of the Grantee. The Grantee's organizational documents limit, to
the extent permitted by Delaware law, the personal liability of each officer
and manager of the Grantee to the Grantee for monetary damages resulting from
breaches of such officer's or manager's duty of care. The Grantee's
organizational documents provide that officers and managers of the Grantee
shall be indemnified against liabilities incurred in connection with their
services on behalf of the Grantee.
THE SERVICER
GENERAL
Illinois Power is engaged principally in the production,
purchase, transmission, distribution and sale of electricity and the
distribution, transportation and sale of natural gas, in the State of
Illinois. Its service area comprises approximately 15,000 square miles in
northern, central and southern Illinois. Illinois Power provides electric
service at retail in 310 incorporated municipalities, adjacent suburban areas
and numerous unincorporated areas having an estimated aggregate population of
1,265,000. Illinois Power provides gas service at retail in 257 incorporated
municipalities, adjacent suburban areas and numerous unincorporated areas
having an estimated aggregate population of 920,000. The larger cities which
Illinois Power serves are Decatur, East St. Louis (gas service only),
Champaign, Danville, Belleville, Granite City, Bloomington (electric service
only), Galesburg, Urbana and Normal (electric service only).
Illinois Power is regulated by the ICC and by the FERC.
ILLINOIS POWER CUSTOMER BASE, ELECTRIC ENERGY CONSUMPTION AND BASE RATES
Illinois Power's retail customer base is comprised of four
revenue reporting classes (each, a "Reporting Customer Class"): residential,
commercial, industrial and municipal customers. Residential customers
(including farms) are served on Illinois Power's Service Classifications
("SC") 2 and 3. Small commercial customers are served on SC 10, 12 (grain
drying usage), 13 (unmetered service), 14 (schools) and 15 (religious
facilities). Larger commercial and small industrial customers are generally
served on SC 11, 19 and 21. Large industrial customers are generally served
on SC 24 and 26 (firm service) and SC 30 and 35 and Rider S (non-firm
service). Optional day-ahead Real-Time Pricing Service is available to
non-residential customers under Riders DA-RTP and DA-RTP-II.
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Outdoor lighting service is provided under SC 39. Municipal customers are
served on SC 41, 42 and 45. Standby service for customer-owned generating
facilities is provided under SC 22. In addition, a number of commercial and
industrial customers take service under individually negotiated contracts,
including contracts entered into pursuant to SC 29 (Economic Development
Service) and Riders ECS and ECS Plus. Under Illinois law (and in contrast to
"contract service" and other competitive services as defined in Section
16-102 which was added to the Act by the Amendatory Act), these contracts are
considered tariffs.
The Reporting Customer Classes are broad groups that
include accounts with a wide range of load characteristics served under a
variety of rate designs. In order to align the per-kilowatt-hour IFC charges
with the electricity rate currently paid by a Customer more closely than
would occur using the Reporting Customer Classes or the current service
classifications, unless otherwise provided in the related Prospectus
Supplement, each Transitional Funding Order will provide that for purposes of
billing IFC Charges, Illinois Power's customer base will be divided into the
following seven (7) customer classes (each, an "IFC Customer Class") set
forth below, and that the total IFC charges billed for each Applicable Period
shall be allocated among the IFC Customer Classes on the basis of their
respective percentages of the 1996 base rate revenues of Illinois Power also
set forth below. See "Description of the Intangible Transition Property --
Adjustments to Instrument Funding Charges."
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Percentage of
1996 Base Rule
IFC Customer Class Description Revenues
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Residential SC 2 and 3 43.7%
- ------------------------------------------------------------------------------------------
Small Commercial SC 10, 11, 12, 13,
14 and 15 4.6%
- ------------------------------------------------------------------------------------------
Large Commercial SC 11 and 19 24.0%
- ------------------------------------------------------------------------------------------
Municipal SC 41, 42 and 45 3.0%
- ------------------------------------------------------------------------------------------
Industrial Firm SC 21, 22 and 29 8.0%
- ------------------------------------------------------------------------------------------
Industrial High Load SC 24 and 26 15.2%
Factor Firm
- ------------------------------------------------------------------------------------------
Industrial Non-Firm SC 30, 35 and 37 1.5%
- ------------------------------------------------------------------------------------------
</TABLE>
However, the IFC Tariff authorized by the Transitional Funding Order will
provide that if the IFC Charges for any Customer Class increase to an amount
such that the forecasted revenues from Applicable Rates for such IFC Customer
Class during an Applicable Period are projected to be less than the IFC
Charges allocated to such IFC Customer Class for the same period, the
deficiency shall be ratably allocated among the remaining IFC Customer
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Classes based on their percentages of the 1996 base rate revenues, recalculated
to exclude such IFC Customer Class.
The table below shows the billed electricity sales in megawatt
hours, billed revenues, average number of customers and average billed revenues
per kilowatt-hour, for each of the four (4) Reporting Customer Classes for the
first six months of 1998 and each of the five (5) preceding years:
BILLED ELECTRICITY SALES, BILLED REVENUES AND CUSTOMERS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---------- ----------- ---------- ----------- ---------- ----------
(1ST 6 MONTHS)
<S> <C> <C> <C> <C> <C> <C>
BILLED ELECTRICITY SALES (MW HOURS):
Residential............................ 4,600,145 4,534,601 4,744,598 4,771,417 4,704,198 2,248,752
Commercial............................. 3,264,855 3,583,456 3,785,633 3,876,383 3,919,311 1,936,192
Industrial............................. 8,153,278 8,621,879 8,655,006 8,398,830 8,442,601 4,218,773
Municipal.............................. 316,626 345,734 366,990 367,033 367,893 188,812
------------ ------------- ------------ ------------- ------------ ------------
Total............................. 16,334,904 17,085,670 17,552,227 17,413,663 17,434,003 8,592,529
BILLED REVENUES ($000S):
Residential............................ 442,611 467,777 497,669 483,708 490,035 222,162
Commercial............................. 255,764 296,795 318,731 316,341 327,466 151,359
Industrial............................. 340,957 370,824 387,966 356,985 381,339 175,690
Municipal.............................. 23,954 25,014 25,553 25,151 25,863 12,079
------------ ------------- ------------ ------------- ------------ ------------
Total............................. 1,063,286 1,160,410 1,229,919 1,182,185 1,224,703 561,290
AVERAGE NUMBER OF CUSTOMERS:
Residential............................ 499,366 494,156 490,727 495,855 497,085 505,440
Commercial............................. 56,801 56,378 56,180 56,792 57,041 57,923
Industrial (1)......................... 409 340 249 254 251 254
Municipal.............................. 7617 2,978 4,655 4,735 4,786 4,912
------------ ------------- ------------ ------------- ------------ ------------
Total............................. 557,293 553,852 551,811 557,636 559,163 568,529
AVERAGE BILLED REVENUE (CENTS PER
KILOWATT-HOUR):
Residential............................ 9.62 10.32 10.49 10.14 10.42 9.88
Commercial............................. 7.83 8.28 8.42 8.16 8.36 7.82
Industrial............................. 4.18 4.30 4.48 4.25 4.52 4.16
Municipal.............................. 7.57 7.24 6.96 6.85 7.03 6.40
------------ ------------- ------------ ------------- ------------ ------------
</TABLE>
(1) The decline in number of Industrial customers from 1993 to 1995 reflects a
change in Illinois Power's procedures for reporting number of customers.
Previously, each metered account was reported as a separate customer. Beginning
in 1994, separate metered accounts at the same premises are reported as a single
customer.
Principal factors influencing the number and electricity usage of
residential customers include population growth, weather (I.E., air
conditioning usage and, to a lesser extent, electric space heat usage),
price, increased saturation of electric appliances, the availability of more
energy-efficient appliances, changes in technology, and customer income.
Principal factors influencing the number and electricity usage of commercial
customers (which consist primarily of wholesale and retail trade
establishments) include population growth, service area economic growth,
commercial floor space and commercial
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employment. Principal factors influencing industrial electricity usage include
overall economic activity, developments in processes and technologies using
electricity, and increases in the efficiency with which industrial processes use
electric energy. The principal factors influencing municipal electricity usage
are similar to those which influence commercial usage.
For the year ended December 31, 1997, the 10 largest Customers
represented approximately 11.6% of Illinois Power's billed revenues. There
can be no assurance that current Customers will remain Customers or that the
levels of Customer concentration in the future will be similar to those set
forth above.
The table below shows the average revenue in cents per kilowatt-hour for
the twelve months ended December 31, 1997 for fully bundled services provided
by Illinois Power to customers in each of the seven (7) IFC Customer Classes,
based on tariffs then in effect but taking into account the fifteen percent
(15%) reduction in base rates for services charged to residential retail
customers, effective as of August 1, 1998:
<TABLE>
<CAPTION>
AVERAGE REVENUE IN CENTS
PER KILOWATT-HOUR FOR
IFC CUSTOMER CLASS FULLY-BUNDLED SERVICES(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Residential 8.15 CENTS
Small Commercial 9.84 CENTS
Large Commercial 7.43 CENTS
Municipal 8.77 CENTS
Industrial Firm 5.78 CENTS
Industrial High Load Factor Firm 4.59 CENTS
Industrial Non-Firm 1.40 CENTS
- ----------------------------------------------------------------- -------------------------------------------------
</TABLE>
- ------------------------
(1) Based on 1997 revenues excluding late charges, decommissioning charges,
add-on revenue taxes, charges for manufactured gas plant remediation costs,
and fuel adjustment charges and credits. In addition, the 1997 Residential
revenue per kilowatt-hour of 10.09 cents was reduced by 15% to represent the
rate reduction effective August 1, 1998. The resulting 1997 average revenue
per kilowatt-hour figures were further reduced by 0.31 cents per
kilowatt-hour to reflect the March 1998 base rate reduction associated with
elimination of Illinois Power's fuel adjustment clause.
Beginning October 1, 1999, Illinois Power will be required to offer to
certain non-residential customers in its service area delivery services
through which the customer can purchase electricity from other suppliers. By
May 1, 2002, Illinois Power will be
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required to offer delivery services to all retail customers in its service area.
Customers electing to take delivery services and purchasing their electricity
from other suppliers will be required to pay Illinois Power delivery services
charges and, until no later than December 31, 2006 (unless extended by the ICC
on petition by Illinois Power), transition charges. The average charge per
kilowatt-hour to a customer taking only delivery services from Illinois Power is
expected to be significantly lower than the average revenue per kilowatt-hour
shown in the immediately preceding table. See "Electric Restructuring in
Illinois -- Amendatory Act Overview" and "Risk Factors -- Reduction in Amount of
Revenues from Applicable Rates."
FORECASTING ELECTRICITY CONSUMPTION
Illinois Power historically has prepared annual forecasts of electric
energy (kilowatt-hour) sales for the following year and several years
thereafter. The principal uses of the electric energy forecasts have been for
shorter-term budgeting and rate-setting purposes. Illinois Power has also
prepared longer-term forecasts of customer peak demand and energy
consumption, primarily for use in facilities planning. Illinois Power most
recently updated its electric energy forecasting models in 1997. Econometric
models were developed for use in forecasting electric energy sales to the
residential, commercial and industrial customer classes. These econometric
models forecast electric energy sales as a function of electricity price,
income, employment, weather and other economic factors that influence
electricity sales. Known and measurable industrial plant additions,
expansions and closures are incorporated into the electricity sales
projections, based on information obtained by account managers assigned to
the larger customer accounts. Illinois Power uses economic and demographic
forecasts prepared by the Wharton Econometric Forecasting Association Group
as inputs to its forecasting models. Weather inputs to the forecasting models
are based on "normal" weather conditions which are based on twenty-year
averages for heating and cooling degree days.
FORECAST VARIANCES
Illinois Power conducts sales forecast variance analyses on a regular
basis to monitor how well forecasts track recorded consumption. This is
important for short-term resource procurement functions as well as for
budgeting and financial reporting.
Since Illinois Power updates its forecast on an annual basis, the table
below shows annual variances for forecasts prepared for one year in the
future. For example, the 1993 annual variance is based on a forecast prepared
in 1992. The annual variances for the aggregate combined Reporting Classes
referred to in the table below, which consist of all Reporting Customer
Classes, range from a low of 0.81% to a high of 2.64% in absolute terms.
There can be no assurance that the future variance between actual and
expected consumption in the aggregate or by Reporting Customer Class will be
similar to the historical experience set forth below.
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<TABLE>
<CAPTION>
ANNUAL FORECAST VARIANCES
---------------------------------------------------------------------------------------------
ELECTRICITY SALES
(MILLIONS OF
KILOWATT-HOURS) 1993 1994 1995 1996 1997 1998(1)
- ------------------------------------- ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
RESIDENTIAL
Forecast.......................... 4,541,195 4,603,481 4,691,053 4,725,547 4,787,546 2,255,653
Actual............................ 4,600,145 4,534,601 4,744,598 4,771,417 4,704,198 2,248,752
Variance.......................... 1.30% -1.50% 1.14% 0.97% -1.74% -0.31%
COMMERCIAL
Forecast.......................... 3,170,922 3,306,498 3,709,448 3,832,250 3,930,531 1,831,251
Actual............................ 3,264,855 3,583,456 3,785,633 3,876,383 3,919,311 1,936,192
Variance.......................... 2.96% 8.38% 2.05% 1.15% -0.29% 5.73%
INDUSTRIAL
Forecast.......................... 8,725,107 8,651,994 8,541,865 8,359,181 8,515,235 4,206,599
Actual............................ 8,153,278 8,621,879 8,655,006 8,398,830 8,442,601 4,218,773
Variance.......................... -6.55% -0.35% 1.32% 0.47% -0.85% 0.29%
MUNICIPAL
Forecast.......................... 340,331 320,744 348,259 356,847 379,566 270,009
Actual............................ 316,626 345,734 366,990 367,033 367,893 188,812
Variance.......................... -6.97% 7.79% 5.38% 2.85% -3.08% -30.07%
TOTAL
Forecast.......................... 16,777,555 16,882,717 17,290,625 17,273,825 17,612,878 8,563,512
Actual............................ 16,334,904 17,085,670 17,552,227 17,413,663 17,434,003 8,592,529
Variance.......................... -2.64% 1.20% 1.51% 0.81% -1.02% 0.34%
</TABLE>
(1) First six months
Illinois Power's forecast understated actual electric energy sales in
three of the five years. During the five-year period, there was no
discernible trend in the annual forecast variance. Many factors can
contribute to annual variances between actual electricity sales and the
amount of sales forecasted in the preceding year, including weather
conditions (I.E., if actual weather is significantly hotter or cooler than
"normal" weather) and economic conditions.
CREDIT POLICY; BILLING; COLLECTIONS; RESTORATION OF SERVICE
Illinois Power's policies and procedures pertaining to credit (including
requirements for deposits from customers), billing, collections (including
procedures for disconnection of service for non-payment) and restoration of
service after disconnection, are subject to and controlled, to a material
extent, by Illinois statutory requirements, rules and regulations of the ICC
and Illinois Power's filed tariffs. These statutory provisions, ICC
regulations and tariffs may change from time to time. In addition, to the
extent permitted by statutory provisions and regulatory requirements,
Illinois Power may change its policies and procedures and seek approval of
new tariffs governing these activities from time to time. Therefore, there
can be no assurance that the policies and procedures described in the next
four subsections will not be changed during the period that Illinois Power is
acting as Servicer, either as a result of changes in statutory laws or
regulation or, to the extent permitted by law, by Illinois Power. Illinois
Power will agree, in each Grant Agreement and the Servicing Agreement, not to
initiate any such changes which are likely to adversely affect Illinois
Power's ability to make timely recovery of amounts billed to Customers, except
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for any such changes required by applicable law. Under the Servicing Agreement,
any such changes initiated by Illinois Power will also apply to the servicing by
Illinois Power, as the Servicer, of the Intangible Transition Property.
CREDIT POLICY. Under Illinois law, Illinois Power is generally
required to provide service to all retail customers in its service area.
Illinois Power's review of the credit history of a new applicant for electric
service generally consists of a review to determine if the applicant has
previously received service from Illinois Power and, if so, whether there are
any delinquent billed amounts outstanding. Illinois Power relies on information
provided by the applicant, and on Illinois Power's customer information system,
to determine whether Illinois Power has previously served the customer and
whether any delinquent billed amounts are outstanding. In accordance with ICC
regulations, deposits may be required from certain applicants for service or
existing customer accounts to protect Illinois Power against losses. Accounts
from which deposits are most frequently obtained are new commercial and
industrial customers (I.E., applicants with limited or no credit history), and
residential customers with poor payment histories (as defined in ICC
regulations). However, under its current policies and procedures, Illinois Power
does not request a deposit from a residential customer after the first 24 months
of service. The maximum allowable amount of the deposit is one-sixth of the
projected annual billings to the customer for residential and small business
applicants or customers, and one-third of projected annual billing for other
non-residential customers. One-third of a requested deposit must be paid by the
customer within 12 days and the balance within two billing periods. The deposit
is refunded to a new customer after one year if the customer has not been
disconnected for non-payment, and has not paid a bill after the due date more
than three times during the year. The deposit is refunded to an existing
customer after one year if the customer has not been disconnected for
non-payment, and has not paid a bill after the due date more than five times
during the year.
BILLING PROCESS. Illinois Power generally bills each customer
once every 27 to 33 days, with approximately an equal number of bills being
distributed each "Servicer Business Day" (any day other than a Saturday, a
Sunday or a day on which the Servicer's offices are not open for business).
Those customers receiving both electric service and gas service from Illinois
Power receive a combined bill for the charges incurred for both types of service
during the Billing Period. Approximately 58% of Illinois Power's electric
service customers also receive gas service from Illinois Power. For the year
ending December 31, 1997, Illinois Power mailed out an average of 32,000 bills
on each Servicer Business Day to customers in its various customer categories.
Certain larger customer accounts are billed at or near the end of the calendar
month.
For accounts with potential billing errors, exception reports
are generated for manual review. This review examines accounts that have
abnormally high or low bills, potential meter-reading errors, and possible meter
malfunctions.
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Illinois Power may change its billing policies and procedures from time
to time. It is expected that any such changes would be designed to enhance
Illinois Power's ability to make timely recovery of amounts billed to
customers.
COLLECTION PROCESS. Illinois Power receives approximately 71% of its
total bill payments, by number of bills (both electric and gas), via the
United States mail. Approximately 25% of such bill payments are received
through third-party collection agents (such as currency exchanges, grocery
stores, banks and similar entities which offer payment of utility bills as a
convenience to their customers) and 4% are received electronically.
Bills are processed and mailed to customers one day after the customer's
meter is read. Bills are considered past due if not paid within 21 calendar
days for residential accounts and within 14 calendar days for commercial and
industrial accounts. Payment is considered timely if received by mail not
more than two days after the due date. These payment periods are established
by ICC regulations. In accordance with statutory requirements and regulations
pertaining to procurement by governmental entities, certain federal, State,
county and municipal customers are allowed 62 days to make net payment and,
in addition, Illinois Power may be limited under Illinois law in its ability
to impose late payment charges on such Customers. Customer payments are
deposited in Illinois Power's bank accounts and posted to customer accounts
within one day after receipt by Illinois Power and within two days after
receipt by a third-party collection agent. Payments are considered collected
when posted to the customer's account.
Under Illinois law, Illinois Power must waive one late payment charge
incurred by a residential customer during each twelve-month period. A
reminder notice is mailed to the customer if payment has not been received on
the account by two days after the due date of the most recent bill. If
non-payment continues, a service disconnection notice may be sent to the
customer through operation of a scoring system calculated by Illinois Power's
customer information system. The scoring of an account for this purpose is
based on factors including the age of the arrearage and the customer's years
of service, non-sufficient funds payment history, and disconnection history.
When dictated by the scoring system, a service disconnection notice is mailed
to notify the customer of disconnection activity scheduled for seven days
(ten calendar days) after the date of the notice. If the scoring system does
not dictate initiation of a service disconnection notice, another reminder
notice is included with the customer's next bill.
Customers are entitled to enter into deferred payment arrangements in
accordance with statutory requirements, ICC regulations and Illinois Power's
filed tariffs. Such payment agreements allow the customer to make partial
payments, or to extend an arrearage, during periods of financial hardship.
Service disconnection is not implemented against a customer who has entered
into and is abiding by a payment agreement. In addition, Illinois statutory
law and ICC regulations prohibit electric utilities from disconnecting
service under certain conditions, such as when the temperature is projected
to be below 32 degrees Fahrenheit or on weekends and holidays. Illinois Power
may also
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be subject to agreements with agencies administering the Low Income Home
Energy Assistance Program which limit Illinois Power's ability to disconnect
service to customers with respect to whom Illinois Power is receiving payment
under that program.
Illinois Power sends an unpaid final account to an external collection
agency two days after the final bill due date. After 45 days with the
collection agency, an unpaid account is returned to Illinois Power and held
for 15 days for any possible delayed payments. An account is charged off as
uncollectible if payment is not received by 63 days after the final bill due
date. The account is then returned to a collection agency for a period of one
year.
Illinois Power may change its collection policies and procedures from
time to time. It is expected that any such changes would be designed to
enhance Illinois Power's ability to make timely recovery of amounts billed to
customers.
RESTORATION OF SERVICE. Before restoring service that has been
disconnected for non-payment, Illinois Power has the right to require payment
of all of the following charges: (a) the total amount owing on an account
including any past-due balances, and a credit deposit, if requested; (b) any
miscellaneous charges associated with the reconnection of service (I.E.,
reconnection charges and/or returned check charges); (c) any charges assessed
for unusual costs incurred incidental to the disconnection or reconnection of
service which have resulted from the customer's actions or negligence; and
(d) any unpaid amounts from other accounts in the name of the customer of
record.
Illinois Power may change its restoration of service policies and
procedures from time to time. It is expected that any such changes would be
designed to enhance Illinois Power's ability to make timely recovery of
amounts billed to customers.
LOSS AND DELINQUENCY EXPERIENCE
The following table sets forth information relating to Illinois Power's
total billed electric revenues and net write-off experience for each
Reporting Customer Class for the first six months of 1998 and each of the
five preceding years. Such historical information is presented herein because
Illinois Power' s actual experience with respect to net write-offs and
delinquencies may affect the timing of IFC Payments. There can be no
assurance that the future uncollectible experience in the aggregate or by
Customer Class will be similar to the historical experience set forth below.
In addition, to the extent that an ARES is providing consolidated billing for
Illinois Power, there is no assurance that such an ARES will apply the same
credit and collection policies to Customers as would be applied by Illinois
Power, as the Servicer.
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<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
----- ----- ----- ----- ----- --------
(1ST 6 MONTHS)
<S> <C> <C> <C> <C> <C> <C>
BILLED REVENUES ($000S):
Residential.................................... $442,611 $467,777 $497,669 $483,708 $490,035 $222,162
Commercial..................................... 255,764 296,795 318,731 316,341 327,466 151,359
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Industrial..................................... 340,957 370,824 387,966 356,985 381,339 175,690
Municipal...................................... 23,954 25,014 25,645 25,151 25,863 12,079
-------- -------- -------- -------- -------- --------
Total............................ $1,063,286 $1,160,410 $1,229,919 $1,182,185 $1,224,703 $561,290
<CAPTION>
1993 1994 1995 1996 1997 1998
----- ----- ----- ----- ----- --------
(1ST 6 MONTHS)
<S> <C> <C> <C> <C> <C> <C>
NET ELECTRIC UNCOLLECTIBLES( $000S):
Residential.................................... $2,973 $5,267 $4,111 $5,135 $4,425 2,253
Commercial..................................... 426 859 461 621 557 248
Industrial..................................... 49 0 0 345 45 0
Municipal...................................... 60 65 0 0 0 0
-------- -------- -------- -------- -------- --------
Total............................ $3,508 $6,191 $4,572 $6,101 $5,027 2,501
<CAPTION>
1993 1994 1995 1996 1997 1998
----- ----- ----- ----- ----- --------
(1ST 6 MONTHS)
<S> <C> <C> <C> <C> <C> <C>
NET ELECTRIC UNCOLLECTIBLES AS A
PERCENTAGE OF BILLED REVENUE
Residential.................................... 0.67% 1.13% 0.83% 1.06% 0.90% 1.01%
Commercial..................................... 0.17% 0.29% 0.14% 0.20% 0.17% 0.16%
Industrial..................................... 0.01% 0.00% 0.00% 0.10% 0.01% 0.00%
Municipal...................................... 0.25% 0.26% 0.00% 0.00% 0.00% 0.00%
-------- -------- -------- -------- -------- --------
Total............................ 0.33% 0.53% 0.37% 0.52% 0.41% 0.45%
</TABLE>
During the five-year period 1993 through 1997, Illinois Power's net electric
uncollectible revenues and net electric uncollectible revenues as a percentage
of billed revenues showed no discernible trend.
DELINQUENCIES
The following table sets forth information relating to the delinquency
experience of Illinois Power for the residential, commercial and industrial
Reporting Customer Classes for the last six months of 1994, the years 1995
through 1997, and the first four months of 1988. This historical information
is presented because Illinois Power's actual experience with respect to
delinquent accounts may be indicative of the delinquency experience for
billings of IFC Charges. There can be no assurance that the future
delinquency experience in the aggregate or by Reporting Customer Class will
be similar to the historical experience set forth below.
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RESIDENTIAL, COMMERCIAL, INDUSTRIAL DELINQUENCY DATA
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-------- ---------- -------- --------- ----------
(JUN.-DEC.) (JAN.-APR.)
<S> <C> <C> <C> <C> <C>
RESIDENTIAL:
Not collected Within:
0-30 days 71.55% 69.60% 70.09% 69.62% 69.26%
31-60 days 21.90% 22.95% 23.80% 23.78% 22.46%
61-90 days 14.40% 15.89% 16.63% 16.19% 15.24%
COMMERCIAL:
Not collected Within:
0-30 days 61.32% 56.61% 56.81% 58.08% 59.08%
31-60 days 13.67% 11.63% 12.77% 12.01% 12.91%
61-90 days 6.71% 5.11% 5.44% 4.67% 5.70%
INDUSTRIAL:
Not collected Within:
0-30 days 58.19% 49.96% 53.37% 42.10% 39.63%
31-60 days 21.37% 12.04% 14.90% 11.31% 8.10%
61-90 days 17.55% 10.01% 12.30% 8.69% 6.94%
AMOUNT ($)
RESIDENTIAL:
Total Amt. Billed 294,135,514 504,642,868 490,477,817 496,572,835 148,658,707
Collected Within:
0-30 days 83,681,648 153,416,246 146,725,159 150,877,723 45,697,963
31-60 days 146,033,799 235,398,357 227,033,944 227,633,841 69,572,878
61-90 days 22,069,116 35,656,649 35,152,186 37,669,969 10,726,748
COMMERCIAL:
Total Amt. Billed 221,686,894 366,904,122 362,239,414 366,101,275 110,254,757
Collected Within:
0-30 days 85,759,238 159,201,104 156,443,822 153,481,825 45,121,365
31-60 days 105,616,868 165,015,765 159,542,278 168,649,748 50,896,220
61-90 days 15,425,797 23,953,931 26,549,609 26,871,999 7,955,166
INDUSTRIAL:
Total Amt. Billed 269,362,403 425,420,064 415,788,855 447,190,755 122,456,875
Collected Within:
0-30 days 112,630,037 212,867,509 193,883,080 258,936,387 73,926,391
31-60 days 99,160,362 161,332,079 159,967,091 137,668,954 38,608,755
61-90 days 10,302,459 8,650,908 10,810,301 11,724,623 1,421,795
</TABLE>
During the four-year period shown above, Illinois Power's delinquency experience
for electric billings showed no discernible trend.
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YEAR 2000 ISSUES
Illinois Power uses various software, systems and technology throughout
its businesses that will be affected by the date change in the Year 2000, and
any failure to address Year 2000 issues in a timely manner could result in a
material operational or financial risk. Illinois Power's approach to
addressing Year 2000 compliance issues is to upgrade or remediate software,
systems and technology that are not Year 2000 ready and that are not
otherwise being replaced in accordance with Illinois Power's business plans.
Illinois Power is in the process of replacing certain of its financial, human
resources, payroll, and customer service and billing software with new
software that is Year 2000 ready. In other cases, Illinois Power is upgrading
or remediating existing software to versions that are Year 2000 ready.
Additionally, Illinois Power is upgrading or remediating certain software and
engineering systems in its nuclear and fossil electricity generation
facilities and in its electrical gas transmission and distribution
facilities. Illinois Power is also in the process of evaluating whether Year
2000 compliance issues will affect any of its key suppliers. The total cost
of remediating or upgrading software and engineering systems, that are not
being replaced or upgraded in accordance with business plans, is currently
estimated to be approximately $19 million. The schedule for the
implementation of the Year 2000 ready software and systems contemplates that
such efforts will be over 50% complete by the end of 1998 and that critical
software and systems will be Year 2000 ready by the end of 1999.
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SERVICING
SERVICING PROCEDURES
The Servicer, on behalf of the Trust, will, among other
things, manage, service and administer, and make collections in respect of, the
Intangible Transition Property pursuant to the Servicing Agreement between the
Servicer and the Grantee. The Servicer's duties will also include filing IFC
Tariffs and revisions thereto with the ICC to provide for billing and collection
of the IFC Charges and the corresponding adjustments in other charges billed to
Customers, calculation and billing of all amounts based on the IFC Charges,
receipt and posting of all IFC Payments, responding to inquiries of Customers
and the ICC with respect to the Intangible Transition Property and the IFC
Charges, accounting for collections and furnishing monthly, quarterly and annual
statements to the Trust and the Indenture Trustee and taking action in
connection with periodic revisions to the IFC Charges as described below.
Pending deposit into the Collection Account, all IFC Payments received by the
Servicer may be invested by the Servicer at its own risk and for its own
benefit, and need not be segregated from other funds of the Servicer.
Each IFC Charge will be expressed as an amount per
kilowatt-hour of electricity sold or delivered to the applicable Customer,
regardless of whether the Customer purchases its electricity from Illinois Power
or from another electricity provider. The Servicer expects the aggregate amount
of the applicable IFC Charge to be separately identified on each Customer's bill
with an aggregate amount (which includes the applicable IFC Charges) to be paid
to the Servicer. Bills are sent to each Customer every 27 to 33 days.
Except as otherwise required by law with respect to taxes or
similar governmental charges included in bills and invoices to Customers, to the
extent that there is a shortfall in the amounts received by the Servicer from
(a) Customers it bills directly or (b) a third-party collection agent, including
an ARES, such shortfall will be allocated by the Servicer, in accordance with
the servicing standards set forth below, to the Trust and Illinois Power PRO
RATA, based on the amount of the Customer's bills constituting IFC Charges and
the amount constituting rates, other fees and charges not constituting IFC
Charges owed to Illinois Power or any successor (including charges for services
other than electric service, such as gas service, provided by Illinois Power),
or to a third party (such as taxes billed on behalf of the State of Illinois or
a municipality). If such amounts are billed and collected by Illinois Power for
an ARES pursuant to a consolidated billing arrangement, the total charges due to
the ARES will also be included in the proportional allocation of any partial
payment. In the event that an ARES or another Utility provides consolidated
billing to Customers for both the services provided by such ARES or other
Utility and delivery services provided by Illinois Power, partial payments made
to an ARES by such Customers are required by the Amendatory Act to be credited
first to amounts due to Illinois Power's tariffed services (including IFC
Charges collected on behalf of Noteholders), and the Servicer will allocate such
payments between the Trust and Illinois Power as otherwise described above. The
Servicer will be entitled to disconnect service to any Customer who fails to pay
IFC Charges billed on behalf of the Trust in accordance with the ICC's
regulations and other applicable
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law pertaining to disconnections, in the same manner as the Servicer may
disconnect the Customer for failure to pay any charges for tariffed service
billed thereby.
In addition, the Servicer will agree to advance its own funds
in order to institute any action or proceeding necessary to compel performance
by the ICC or the State of Illinois of any of their obligations or duties under
the Funding Law, any Transitional Funding Order or any IFC Tariff, and to take
such legal or administrative actions, including defending against or instituting
and pursuing legal actions and appearing or testifying in hearings or similar
proceedings, as may be reasonably necessary to block or overturn any attempts to
cause a repeal, modification, reversal or supplement to the Amendatory Act, the
Funding Law or the Transitional Funding Order or the rights of holders of
Intangible Transition Property, by legislative enactment or otherwise, that
would be adverse to the Grantee, the Trust or any Noteholders. The Servicer
would be entitled to reimbursement of its expenses advanced by it in connection
with such action or proceeding as an operating expense of the Trust in
accordance with the priority of payments as described in "Security for the Notes
- -- Allocations; Payments."
SERVICING STANDARDS AND COVENANTS
The Servicing Agreement will require the Servicer, in
servicing and administering the Intangible Transition Property, to employ or
cause to be employed procedures and exercise the same care it customarily
employs and exercises in servicing and administering bill collections for its
own account.
Consistent with the foregoing, in addition to certain
requirements described in "The Servicer -- Credit Policy; Billing; Collections;
Restoration of Service" above, the Servicer may, in its own discretion, waive
any late payment charge or any other fee or charge relating to delinquent
payments, if any, and may waive, vary or modify any terms of payment of any
amounts payable by a Customer, in each case, if such waiver or action (a) would
be in accordance with the Servicer's customary practices or those of any
Successor Servicer with respect to comparable assets that it services for
itself, (b) would not materially adversely affect the Noteholders and (c) would
comply with applicable law. In addition, the Servicer may write off any amounts
that it deems uncollectible in accordance with its customary practices.
In the Servicing Agreement, the Servicer will covenant that,
in servicing the Intangible Transition Property it will: (a) manage, service,
administer and make collections in respect of the Intangible Transition Property
with reasonable care and in accordance with applicable law, including all
applicable guidelines of the ICC, using the same degree of care and diligence
that the Servicer exercises with respect to bill collections for its own
account; (b) follow customary standards, policies and procedures for the
industry in performing its duties as Servicer; (c) use all reasonable efforts,
consistent with its customary servicing procedures, to enforce, and maintain
rights in respect of, the Intangible Transition Property; (d) comply with all
laws applicable to and binding on it relating to the Intangible Transition
Property; and (e) make all required submissions and provide all required
notifications with
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the ICC with respect to adjustments to the IFC Charges as described below
herein; provided, however, that any breach of the State Pledge that is being
contested, or any subsequent invalidation of the Funding Law, any Transitional
Funding Order, and/or the related IFC Tariff filed in connection therewith shall
not act to excuse any breach of any covenant by the Servicer under the Servicing
Agreement.
In addition, the Servicer will covenant that it will deduct
and remit IFC Charges paid by Customers under any contracts which provide that
such Customer is obligated thereunder to pay an amount equal to the amount of
IFC Charges that would be billed if the services provided under such contract
were services subject to Applicable Rates. See "Electric Industry Restructuring
in Illinois -- Instrument Funding Charges."
The Servicer will indemnify, defend and hold harmless the
Grantee, the Delaware Trustee, the Indenture Trustee and the Noteholders against
any costs, expenses, losses, claims, damages and liabilities that may be imposed
on, incurred by or asserted against any such person as a result of (a) the
Servicer's willful misconduct, bad faith or gross negligence in the performance
of its duties or observance of its covenants under the Servicing Agreement, or
(b) the Servicer's breach of any of its representations or warranties
thereunder.
REMITTANCES TO COLLECTION ACCOUNT
Under the terms of the IFC Tariff filed in connection with
each Transitional Funding Order, the Trust will begin to impose and collect the
related IFC Charges concurrently with the issuance of the Notes of any Series
(each, a "Series Issuance Date") and such right shall exist continuously
thereafter in accordance with the related Transitional Funding Order. The IFC
Charges shall be imposed and collected based upon the entire electricity
consumption of Customers included in bills issued to Customers on and after the
related Series Issuance Date, including that portion of the applicable Billing
Period during which electric service was provided prior to such Series Issuance
Date.
The Servicing Agreement provides, among other things, that
the Servicer will collect the IFC Payments on behalf of the Trust, as
assignee of the Grantee. The Servicer will remit to the Collection Account on
the tenth day of each month, or if such day is not a Business Day, on the
next Business Day (each such monthly date, a "Remittance Date"), all IFC
Payments received by the Servicer during the immediately preceding Billing
Period (the "Monthly IFC Amount") unless the Servicer fails to meet the
Remittance Conditions, in which case the Servicer will, within two Servicer
Business Days of receipt (each, a "Daily Remittance Date"), remit all IFC
Payments to the Collection Account. For these purposes, an IFC Payment will
be deemed to be received by the Servicer when it is posted by the Servicer to
the customer's account. In accordance with the Servicer's procedures for
processing customer payments, such posting occurs within one day after
receipt if payment is received by Illinois Power, and within two days after
receipt if payment is received by a third-party collection agent.
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A "Billing Period" is a period created by dividing the
calendar year into twelve consecutive periods of approximately twenty-one
(21) Servicer Business Days each, and represents the period during which the
Servicer typically renders a bill for electric service to each of its
customers.
The Servicing Agreement will require the Servicer to monitor
Illinois Power's receipt of any lump-sum payments of transition charges under
Section 16-108(h) of the Funding Law, and, concurrently with such receipt, to
set aside and allocate for the benefit of the Trust, as proceeds of the
Intangible Transition Property, an amount equal to the product of (a) the IFC
Charge which is then in effect for such Customer at the time of receipt and (b)
the total number of kilowatt hours utilized to compute the amount of such
lump-sum payment of transition charges. The Servicing Agreement will also
require the Servicer to monitor Illinois Power's receipt of any revenues derived
from condemnation proceedings, FERC stranded cost recoveries or any other
amounts which reflect compensation for lost revenues which would otherwise have
been attributable to Applicable Rates (collectively, "Lost Revenue Recoveries"),
and, concurrently with the receipt thereof, to set aside and allocate for the
benefit of the Trust, as proceeds of the Intangible Transition Property, an
amount equal to the product of (a) the total dollar amount of such Lost Revenue
Recoveries and (b) [a fraction, (1) the numerator of which equals the weighted
average of the IFC Charges applicable to all classes of Customers the revenues
from which are included in the calculation of such Lost Revenue Recoveries and
(2) the denominator of which equal the weighted average of the Applicable Rates
charged to such Customers, with such weighted averages to be in each case
calculated based on the respective IFC Charges and revenues applicable to such
classes for the most recent calendar year then ended.]
NO SERVICER ADVANCES
The Servicer will not be obligated to, and consequently will
not make any advances of interest or principal on the Notes.
SERVICING COMPENSATION
On each Payment Date, the Servicer will be entitled to receive
an amount equal to one-fourth of the annual Servicing Fee specified in the
related Prospectus Supplement. The Servicing Fee (together with any portion of
the Servicing Fee that remains unpaid from prior Payment Dates) will be paid
solely to the extent funds are available therefor as described under "Security
for the Notes -- Allocations; Payments." The Servicing Fee will be paid prior to
the payment of any amounts in respect of interest on and principal of the Notes.
The Servicer will be entitled to retain as additional compensation net
investment income on IFC Payments received by the Servicer prior to remittance
thereof to the Collection Account and the portion of late fees, if any, paid by
Customers relating to the IFC Payments.
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ALTERNATIVE RETAIL ELECTRIC SUPPLIERS AND OTHER THIRD-PARTY COLLECTORS
Under Illinois Power's current practices, customers are
allowed to pay their electricity bills indirectly through use of third-party
collection agents, such as currency exchanges, grocery stores, banks and similar
entities which offer payment of utility bills as a convenience to their
customers. Unless otherwise provided in the related Prospectus Supplement, the
ICC will approve procedures in each Transitional Funding Order that would (a)
require any third party (including the collection agents described above and any
ARES that is required to collect IFC Charges) who bills or collects IFC Charges
on behalf of Customers to either (i) remit IFC Collections to the Servicer
within seven days of receipt or (ii) pay such IFC Charges to the Servicer within
fifteen days of billing by Illinois Power irrespective of whether payments have
been received from the ultimate customer, (b) allow the Servicer, within ten
days after a default by any such third-party in remitting IFC Collections, to
give notice thereof to the defaulting entity and if it does not receive payment
or other response initiating dispute resolution within five days thereafter, to
assume or transfer to another third party that defaulting entity's billing and
collection responsibilities, (c) grant the Servicer access to information on
total monthly kilowatt usage by the applicable Customers not otherwise available
to the Servicer to the extent reasonably required for the Servicer to calculate
and, if applicable, bill the related IFC Charges owed by such Customers, and (d)
allow the Servicer, pursuant to a tariff subject to applicable regulatory
approval, to impose such other terms with respect to credit and collection
policies as may be reasonably necessary to prevent the then current rating of
the Notes from being withdrawn or downgraded. Unless otherwise provided in the
related Prospectus Supplement, each IFC Tariff filed in connection with the
related Transitional Funding Order will require a third-party collection agent,
including any ARES, which assumes payment responsibilities under clause (a)(ii)
above and which does not have investment-grade credit ratings (at least BBB- or
the equivalent) to post a deposit or comparable security equal to one month's
estimated IFC Collections collected by such third party collector.
In addition, unless otherwise provided in the related
Prospectus Supplement, each Transitional Funding Order will provide that (a) a
third party collector who is or otherwise becomes obligated to remit payments to
Illinois Power on a more frequent basis than as set forth above, shall remit the
IFC Charges at the same time as such other payments and (b) a third-party
collector disputing payments shall pay the undisputed portion of its collections
to Illinois Power and shall pay the disputed amount under protest pending a
resolution of the matter, subject to refund with interest to the extent the
third-party collector is successful in the dispute. Unless otherwise provided in
the related Prospectus Supplement, such procedures will be described in each
Transitional Funding Order and in the related IFC Tariff filed by Illinois Power
under the Funding Law to authorize the imposition and collection of the related
IFC Charges. Nonetheless, there can be no assurance that an ARES or other
third-party collection agent will apply the same credit and collection policies
and procedures to Customers as would be applied by Illinois Power. In addition,
the Servicer will have no meaningful ability to control the collection
procedures of third-party collection agents who simply forward payments on
behalf of Customers and not
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pursuant to contractual arrangements with Illinois Power or pursuant to
consolidated billing procedures. See "Risk Factors -- Potential Servicing
Issues--Reliance on Alternative Retail Electric Suppliers."
SERVICER REPRESENTATIONS AND WARRANTIES
In the Servicing Agreement, the Servicer will make
representations and warranties to the Grantee, which will be assigned to the
Trust, to the effect, among other things, that: (a) the Servicer is a
corporation duly organized and in good standing under the laws of the State
of Illinois, with power and authority to own its properties and conduct its
business as currently owned or conducted and to execute, deliver and carry
out the terms of the Servicing Agreement; (b) the execution, delivery and
carrying out of the Servicing Agreement have been duly authorized by the
Servicer by all necessary corporate action; (c) the Servicing Agreement
constitutes a legal, valid and binding obligation of the Servicer,
enforceable against the Servicer in accordance with its terms subject to
applicable insolvency, reorganization, moratorium, fraudulent transfer and
other similar laws relating to or affecting creditors' rights generally from
time to time in effect, and to general principles of equity; (d) the
consummation of the transactions contemplated by the Servicing Agreement does
not conflict with the Servicer's articles of incorporation or bylaws or any
agreement to which the Servicer is a party or bound, result in the creation
or imposition of any lien upon the Servicer's properties or violate any law
or any order, rule or regulation applicable to the Servicer; (e) the Servicer
has all licenses necessary for it to perform its obligations under the
Servicing Agreement (except where the failure to have such licenses would not
be reasonably likely to have a material adverse effect on the Servicer or an
adverse effect on the Intangible Transition Property); (f) no governmental
approvals, authorizations or filings are required for the Servicer to
execute, deliver and perform its obligations under the Servicing Agreement
except those which have previously been obtained or made, and those which the
Servicer is required to make in the future; or other than the tariff filings
required by the Funding Law (which the Servicer covenants to make in a timely
fashion); and (g) except as disclosed in the Servicing Agreement, no court or
administrative proceeding or investigation is pending or, to the Servicer's
knowledge, threatened (i) asserting the invalidity of, or seeking to prevent
the consummation of the transactions contemplated by, the Servicing Agreement
or, (ii) seeking a determination that might materially and adversely affect
the performance by the Servicer of its obligations thereunder, or (iii)
relating to the Servicer which could reasonably be expected to adversely
affect the federal or state income tax attributes of the Notes.
In the event of a breach by the Servicer of any of its
representations and warranties described in the preceding paragraph, the
Servicer will indemnify, defend and hold harmless the Grantee, the Trust, the
Indenture Trustee, the Delaware Trustee and the Noteholders against any losses,
claims, damages, liabilities and reasonable costs or expenses incurred as a
result thereof.
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STATEMENTS BY SERVICER
On or before each Remittance Date, the Servicer will prepare
and furnish to the Grantee, the Trust, the Delaware Trustee, the Indenture
Trustee and the Rating Agencies a statement for the applicable calendar month
(the "Monthly Servicer's Certificate") setting forth the aggregate amount of IFC
Payments remitted by the Servicer to the Collection Account. In addition, the
Servicer will prepare, and the Indenture Trustee will furnish to the Noteholders
on each Payment Date the quarterly Servicer's Certificate described under
"Security for the Notes -- Reports to Noteholders."
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement will provide that a firm of
independent public accountants retained by the Servicer at the Servicer's
expense will furnish to the Grantee, the Trust, the Indenture Trustee and the
Rating Agencies on or before September 30 of each year, beginning September 30,
1999, a statement as to compliance by the Servicer during the preceding twelve
months ended June 30 (or, in the case of the first such statement, the period
from the Closing Date to June 30, 1999), with certain standards relating to the
servicing of the Intangible Transition Property. This report (the "Annual
Accountant's Report") shall state that such firm has performed certain
procedures in connection with the Servicer's compliance with the servicing
procedures of the Servicing Agreement, identifying the results of such
procedures and including any exceptions noted. The Annual Accountant's Report
will also indicate that the accounting firm providing such report is independent
of the Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
The Servicing Agreement will also provide for delivery to the
Grantee, the Trust, the Indenture Trustee and the Rating Agencies, on or before
September 30 of each year, commencing September 30, 1999, of a certificate
signed by an officer of the Servicer stating that the Servicer has fulfilled its
obligations in all material respects under the Servicing Agreement throughout
the preceding twelve months ended June 30 (or in the case of the first such
certificate, the period from the Closing Date to June 30, 1999) or, if there has
been a default in the fulfillment of any such material obligation, describing
each such default. The Servicer has agreed to give the Grantee, the Trust, the
Indenture Trustee and the Rating Agencies notice of certain Servicer Defaults
under the Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders by a request in writing addressed to the Indenture Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicing Agreement will provide that Illinois Power may
not resign from its obligations and duties as Servicer thereunder, except upon
(a) either (i) a determination that Illinois Power's performance of such duties
is no longer permissible under applicable law, disregarding any breach of the
State Pledge that is being contested, or any subsequent
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invalidation of the Funding Law, any Transitional Funding Order and/or the
related IFC Tariff filed in connection therewith or (ii) satisfaction of the
Rating Agency Condition and (b) to the extent required under any Transitional
Funding Order, the approval by the ICC of such resignation. No such resignation
will become effective until a Successor Servicer has assumed Illinois Power's
servicing obligations and duties under the Servicing Agreement.
The Servicing Agreement will further provide that neither
the Servicer nor any of its directors, officers, employees, and agents will
be under any liability to Grantee, the Indenture Trustee, the Trust, the
Delaware Trustee, the Noteholders, or any other person, except as provided
under the Servicing Agreement, for taking any action or for refraining from
taking any action pursuant to the Servicing Agreement, or for errors in
judgment; provided, however, that neither the Servicer nor any such person
will be protected against any liability that would otherwise be imposed by
reason of willful misconduct, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Servicing Agreement will provide that the
Servicer is under no obligation to appear in, prosecute, or defend any legal
action that is not incidental to its servicing responsibilities under the
Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in the Servicing Agreement,
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the properties and assets of the Servicer substantially
as a whole or, with respect to its obligations as Servicer, which corporation or
other entity in each of the foregoing cases assumes the obligations of the
Servicer, will be the successor of the Servicer under the Servicing Agreement.
SERVICER DEFAULTS
"Servicer Defaults" under the Servicing Agreement will
include, among other things, (a) any failure by the Servicer to make any
required deposit into the Collection Account, which failure continues unremedied
for three Servicer Business Days after written notice from the Grantee, the
Trust or the Indenture Trustee is received by the Servicer or after discovery by
the Servicer; (b) any failure by the Servicer or Illinois Power, as the case may
be, duly to observe or perform in any material respect any other covenant or
agreement in the Servicing Agreement, or any other Basic Document to which it is
a party, which failure materially and adversely affects the rights of
Noteholders and which continues unremedied for 30 days after the giving of
notice of such failure (i) to the Servicer or Illinois Power, as the case may
be, by the Grantee, the Trust or the Indenture Trustee or (ii) to the Servicer
or Illinois Power, as the case may be, by holders of Notes evidencing not less
than 25 percent in principal amount of the outstanding Notes of all Series; (c)
any representation or warranty made by the Servicer in the Servicing Agreement
shall prove to have been incorrect when made, which has a material adverse
effect on the Grantee, the Trust or the Noteholders and which material adverse
effect continues unremedied for a period of 60 days after the giving of notice
to the Servicer by the Grantee, the Trust or the Indenture
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Trustee; and (d) certain events of insolvency, or similar proceedings with
respect to the Servicer or the Grantee and certain actions by the Servicer or
the Grantee indicating its insolvency, reorganization pursuant to bankruptcy
proceedings, or inability to pay its obligations.
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default under the Servicing Agreement
remains unremedied, either the Indenture Trustee or holders of Notes evidencing
not less than 25 percent in principal amount of then outstanding Notes of all
Series may by written notice terminate all the rights and obligations of the
Servicer (other than the Servicer's indemnity obligation) under the Servicing
Agreement, whereupon a Successor Servicer appointed by the Grantee, with the
Trust's prior written consent, will succeed to all the responsibilities, duties
and liabilities of the Servicer under the Servicing Agreement and will be
entitled to compensation arrangements in accordance with the terms of the
Servicing Agreement, which compensation may be higher in amount than the amount
paid to the Servicer if the Successor Servicer is not able to bill IFC Charges
together with charges for electric utility services provided to Customers. In
addition, upon a Servicer Default, each of the following shall be entitled to
apply to the ICC for sequestration and payment of revenues arising with respect
to the Intangible Transition Property: (1) the Noteholders and the Indenture
Trustee as beneficiary of any statutory lien permitted by the Funding Law; (2)
the Grantee or its assignees; (3) the Trust; or (4) pledgees or transferees of
the Intangible Transition Property. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Default other than
such appointment has occurred, such trustee or official may have the power to
prevent the Indenture Trustee or the Noteholders from effecting a transfer of
servicing. See "Risk Factors -- Bankruptcy and Creditors' Rights Issues
- --Potential Bankruptcy of the Servicer." The Indenture Trustee may appoint, or
petition the ICC or a court of competent jurisdiction for the appointment of, a
successor servicer which satisfies criteria specified by the Rating Agencies if,
within 30 days after notice of termination is given, the Grantee shall not have
appointed a Successor Servicer. The Indenture Trustee may make such arrangements
for compensation to be paid to any such Successor Servicer.
WAIVER OF PAST DEFAULTS
Noteholders holding at least a majority in principal amount of
the then outstanding Notes of all Series, on behalf of all Noteholders, may
waive any default by the Servicer in the performance of its obligations under
the Servicing Agreement and its consequences, except a default in making any
required deposits to the Collection Account in accordance with the Servicing
Agreement. The Servicing Agreement provides that no such waiver will impair the
Noteholders' rights with respect to subsequent defaults.
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SUCCESSOR SERVICER
If for any reason a third party assumes the role of the
Servicer under the Servicing Agreement (in such role, the "Successor Servicer"),
the Servicing Agreement will require the Servicer being replaced to cooperate
with the Grantee, the Trust, the Delaware Trustee, the Indenture Trustee and the
Successor Servicer in terminating such replaced Servicer's rights and
responsibilities under the Servicing Agreement, including the transfer to the
Successor Servicer of all cash amounts then held by the Servicer for remittance
or subsequently acquired. The Servicing Agreement will provide that the Servicer
shall be liable for all reasonable out-of-pocket costs and expenses (including
attorneys' fees and expenses) incurred in transferring servicing
responsibilities to the Successor Servicer. Any Successor Servicer must satisfy
the requirements of the Act and any requirements of ICC regulations.
AMENDMENT
The Servicing Agreement may be amended by the parties thereto,
without the consent of the Noteholders, but with five Business Days' prior
written notice to the Rating Agencies and the consent of the Indenture Trustee,
to cure any ambiguity, to correct or supplement any provision or for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of that agreement or of modifying in any manner the rights of the
Noteholders, provided that such action will not, as certified in a certificate
of an officer of the Servicer delivered to the Indenture Trustee, the Grantee
and the Delaware Trustee, adversely affect in any material respect the interest
of any Noteholder. The Servicing Agreement may also be amended by the Servicer
and Grantee with the consent of the Indenture Trustee and the holders of Notes
evidencing at least a majority in principal amount of the then outstanding Notes
of all Series and Classes for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such agreement or
of modifying in any manner the rights of the Noteholders; provided, however,
that no such amendment may (a) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, IFC Collections or the timing of
adjustments to IFC Charges or (b) reduce the aforesaid percentage of the Notes
the holders of which are required to consent to any such amendment, without the
consent of the holders of all the outstanding Notes.
TERMINATION
The obligations of the Servicer and Grantee pursuant to the
Servicing Agreement will terminate upon the payment to the Indenture Trustee,
and corresponding distribution to the Noteholders of all amounts required to be
paid or distributed to them pursuant to the Servicing Agreement, the Notes and
the Indenture.
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DESCRIPTION OF THE NOTES
GENERAL
The Trust will issue the Notes pursuant to the terms of an
Indenture (the "Indenture")between the Trust and the Indenture Trustee. The
particular terms of the Notes of any Series will be established in a
supplement to the Indenture or a Trust issuance certificate and, in either
case, the material terms thereof will be described in the related Prospectus
Supplement. This summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the terms and provisions of
the Indenture and related supplements or Trust issuance certificates thereto,
forms of which are filed as exhibits to the Registration Statement.
The Notes may be issued in one or more Series, any one or
more of which may be comprised of one or more Classes. Classes of Notes may
differ as to the interest rate and the timing, sequential order and amount of
distributions of principal or interest, or both. Each Series of Notes may
include one or more Classes of Notes that accrue interest at a variable rate
based on the index described in the related Prospectus Supplement. Each such
series will be secured by a Swap Agreement, in addition to the security
provided under the Indenture. See " -- Floating Rate Notes" below. While the
specific terms of only the Series of Notes (and the Classes of such Series
(if any)) in respect of which this Prospectus is being delivered will be
described in the related Prospectus Supplement, the terms of such Series and
any Classes thereof will not be subject to prior review of or consent of the
holders of outstanding Notes. All Notes of the same Series will be identical
in all respects except for the denominations thereof, unless such Series is
comprised of more than one Class, in which case all Notes of the same Class
will be identical in all respects except for the denominations thereof.
All Notes issued under the Indenture will be payable solely
from, and secured solely by, a pledge of and lien on the Intangible
Transition Property and certain other funds as provided in the Indenture. See
"Security for the Notes -- Pledge of Note Collateral." All Notes issued under
the Indenture, irrespective of when issued, shall have a parity lien on the
Note Collateral, although Floating Rate Notes shall also be secured by a Swap
Agreement which relates solely to such series. See "-- Conditions of Issuance
of Additional Series."
The Prospectus Supplement for a Series of Notes will
describe, among other things, the following terms of such Series and, if
applicable, the Classes thereof: (a) the designation of the Series and, if
applicable, the Classes thereof, (b) the principal amount, (c) the annual
rate at which interest accrues (the "Note Interest Rate"), or if the Trust
has entered into a Swap Agreement with respect to such Series, the index on
which a variable rate of interest will be based, (d) the dates on which
payments of interest and principal are scheduled to occur (each such date, a
"Payment Date"), (e) the scheduled maturity date (the "Expected Maturity
Date") and the final termination date of the Series (the "Final Maturity
Date"), (f) the initial Adjustment Date of, and the Reconciliation Period
for, such
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Series, (g) the issuance date of the Series (the "Series Issuance Date"), (h)
the place or places for the payment of principal and interest, (i) the
authorized denominations, (j) the provisions for optional redemption of such
Series or Class by the Trust, (k) the Expected Amortization Schedule for
principal of such Series and, if applicable, the Classes thereof, (l) the
initial IFC Charges authorized in connection with the issuance of such Series
by the related Transitional Funding Order, and the IFC Charges imposed as of
the date of issuance of such Series, (m) the total dollar amount of
Intangible Transition Property authorized by the related Transitional Funding
Order, (n) any other terms of such Series and any Class thereof that are not
inconsistent with the provisions of the Notes and that will not result in any
Rating Agency reducing or withdrawing its then current rating of any
outstanding Series or Class of Notes (the notification in writing by each
Rating Agency to the Servicer, the Grantee, the Indenture Trustee and the
Delaware Trustee that any action will not result in such a reduction or
withdrawal is referred to herein as the "Rating Agency Condition"), (o) the
identity of the Indenture Trustee, the Delaware Trustee and the Beneficiary
Trustees, and (p) the terms of any Swap Agreement executed solely to permit
the issuance of any Floating Rate Notes.
The Notes do not constitute a debt or liability of the
State of Illinois or any political subdivision thereof and do not represent
an interest in or obligation of Illinois Power or any of its affiliates. The
Notes will not be guaranteed or insured by Illinois Power or any of its
affiliates. Transitional Funding Orders authorizing issuance of the Notes do
not constitute a pledge of the full faith and credit of the State of Illinois
or of any of its political subdivisions. The issuance of the Notes under the
Funding Law shall not directly, indirectly or contingently obligate the State
of Illinois or any political subdivision thereof to levy or to pledge any
form of taxation therefor or to make any appropriation for their payment.
INTEREST AND PRINCIPAL
Interest will accrue on the principal balance of a Class of
Notes at the per annum rate either specified in or determined in the manner
specified in the related Prospectus Supplement and will be payable on the
Payment Dates specified in the related Prospectus Supplement. IFC
Collections, including such amounts as are available in the Reserve
Subaccount and the Overcollateralization Subaccount and, if necessary, the
amounts available in the Capital Subaccount, will be used to make interest
payments to the Noteholders of each Class on each Payment Date with respect
thereto. See "Security for the Notes -- Allocations; Payments."
Principal of the Notes of each Class will be payable in the
amounts and on the Payment Dates specified in the related Prospectus
Supplement, but only to the extent that amounts in the Collection Account are
available therefor, and subject to the other limitations described below. See
"Security for the Notes -- Allocations; Payments." Each Prospectus Supplement
will set forth the Expected Amortization Schedule for each Series of Notes
and, if applicable, the Classes of such Series. On any Payment Date, unless
an Event of Default has occurred and is continuing and the Notes have been
declared due and payable, the Indenture Trustee will make payments on the
Notes only until the outstanding
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principal balances thereof have been reduced to the principal balances
specified in the applicable Expected Amortization Schedule for such Payment
Date (each, a "Scheduled Payment"). Any IFC Collections in excess of amounts
payable as (a) expenses of the Grantee, the Delaware Trustee and the
Indenture Trustee, (b) payments of interest on and principal of the Notes,
(c) allocations to the Capital Subaccount, and (d) allocations to the
Overcollateralization Subaccount (all as described herein under "Security for
the Notes -- Allocations; Payments") will be retained by the Indenture Trustee
in the Reserve Subaccount for payment on subsequent Payment Dates. However,
if insufficient IFC Collections are received with respect to any Payment
Date, and amounts in the Collection Account are not sufficient to make up the
shortfall, principal of any Class of Notes may be payable later than expected
as described herein. See "Risk Factors -- Unusual Nature of the Intangible
Transition Property" and "Risk Factors -- Nature of the Notes -- Uncertain
Payment Amounts and Weighted Average Life." The entire unpaid principal
amount of the Notes of all Series will be due and payable on the date on
which an Event of Default (other than a breach by the State of Illinois of
the State Pledge) has occurred and is continuing, if the Indenture Trustee or
holders of not less than a majority in principal amount of the Notes of all
Series then outstanding have declared the Notes to be immediately due and
payable. See "Security for the Notes -- Events of Default; Rights Upon Event
of Default."
Unless the context requires otherwise, all references in
this Prospectus to principal of the Notes of a Series includes any premium
that might be payable thereon if Notes of such Series are redeemed, as
described in the related Prospectus Supplement.
PAYMENTS ON THE NOTES
The Indenture Trustee will pay on each Payment Date to the
holders of each Class of Notes all principal and interest payable with
respect thereto (other than Special Payments, as defined in the Indenture)
or, in lieu of such interest, payments under any related Swap Agreement with
respect to interest. Each such payment other than the final payment with
respect to any Note will be made by the Indenture Trustee to the holders of
record of the Notes of the applicable Class on the Record Date in respect of
such Payment Date. The final payment on any Note, however, will be made only
upon presentation and surrender of such Note at the office or agency of the
Indenture Trustee specified in the notice given by the Indenture Trustee with
respect to such final payment.
If interest on the Notes of any Series is not paid when
due, such defaulted interest shall be paid (plus interest on such defaulted
interest at the applicable Note Interest Rate to the extent lawful) to the
persons who are Noteholders on a subsequent Special Record Date (as defined
in the Indenture), which date shall be at least five Business Days prior to
the Special Payment Date (as defined in the Indenture). The Trust shall fix
or cause to be fixed any such Special Record Date and Special Payment Date,
and, at least 20 days before any such Special Record Date, the Trust shall
mail to each affected Noteholder a notice that states the Special Record
Date, the Special Payment Date and the amount of defaulted interest (plus
interest on such defaulted interest) to be paid.
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At such time, if any, as the Notes of any Class are issued
in the form of Definitive Notes and not to DTC or its nominee, payments by
the Indenture Trustee with respect to such Class on a Payment Date or a
Special Payment Date will be made by check mailed to each holder of a
Definitive Note of such Class of record on the applicable Record Date at its
address appearing on the register maintained with respect to the Notes of
such Series, or, upon application by a holder of any Class of Notes in the
principal amount of $10,000,000 or more to the Indenture Trustee not later
than the applicable Record Date, by wire transfer to an account maintained by
the payee in New York, New York. The final payment for each Class of Notes,
however, will be made only upon presentation and surrender of the Notes of
such Class at the office or agency of the Indenture Trustee specified in the
notice given by the Indenture Trustee of such final payment. The Indenture
Trustee will mail such notice of the final payment to the Noteholders of such
Class, specifying the date set for such final payment and the amount of such
payment.
If any Special Payment Date or other date specified herein
for distribution of any payments to Noteholders is not a Business Day,
payments scheduled to be made on such Special Payment Date or other date may
be made on the next succeeding Business Day and no interest shall accrue upon
such payment during the intervening period. "Business Day" means any day
other than a Saturday, a Sunday or a day on which banking institutions or
trust companies in New York, New York, Wilmington, Delaware, or Chicago,
Illinois are, or DTC is, authorized or obligated by law, regulation or
executive order to remain closed.
FLOATING RATE NOTES
If any Floating Rate Notes of any Class are offered, the
Trust will enter into one or more swap agreements (each, a "Swap Agreement")
with a counterparty (each, a "Swap Counterparty") identified and having the
terms described in the related Prospectus Supplement. Generally, pursuant to
a Swap Agreement, on each Payment Date, the Trust will be obligated to pay to
the Swap Counterparty, solely from payments received with respect to such
Class of Notes, an amount equal to the interest due on a notional amount
equal to the principal amount of the Class of Notes outstanding as of the
close of business on the preceding Payment Date, after giving effect to all
payments of principal made to the Floating Rate Noteholders on such preceding
Payment Date calculated at a fixed swap rate (which rate will be used to
calculate IFC Payments), and the Swap Counterparty will be obligated to pay
to the Trust an amount equal to the product of (a) the floating rate on the
Floating Rate Notes and (b) the principal balance of the Floating Rate Notes
as of the close of business on the preceding Payment Date after giving effect
to all payments of principal made to the Floating Rate Noteholders on such
preceding Payment Date. See "Risk Factors -- Nature of the Notes --
Additional Risks of Floating Rate Notes."
REGISTRATION AND TRANSFER OF THE NOTES
If so specified in the related Prospectus Supplement, one
or more Classes of Notes will be issued in definitive form and will be
transferable and exchangeable at the
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office of the registrar identified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, no service
charge will be made for any such registration or transfer of such Notes, but
the owner may be required to pay a sum sufficient to cover any tax or other
governmental charge.
Each Class of Notes will be issued in the minimum initial
denominations set forth in the related Prospectus Supplement and, except as
otherwise provided in the related Prospectus Supplement, in integral
multiples thereof.
Payments of interest and principal will be made on each
Payment Date to the Noteholders in whose names the Notes were registered on
the related Record Date.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, one
or more Classes of Notes initially may be Book-Entry Notes, which are
initially represented by one or more Notes registered in the name of Cede, as
nominee of DTC, or another securities depository, and are available only in
the form of book-entries. Any Book-Entry Notes will initially be registered
in the name of Cede, the nominee of DTC. Holders may also hold Notes of a
Class through Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") or
the Euroclear System ("Euroclear") (in Europe), if they are participants in
such systems or indirectly through organizations that are participants in
such systems.
Cede, as nominee for DTC, will hold the global Note or
Notes. CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective Depositaries (as defined
herein) which in turn will hold such positions in customers' securities
accounts in the Depositaries' names on the books of DTC. Citibank, N.A. will
act as depositary for CEDEL and Morgan Guaranty Trust Company of New York
will act as depositary for Euroclear (in such capacities, the "Depositaries").
DTC is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York UCC, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act, as amended. DTC was created to hold securities for its
participating organizations, which are the Participants, and facilitate the
settlement of securities transactions between Participants through electronic
book-entry changes in accounts of its Participants, thereby eliminating the
need for physical movement of securities. Participants include underwriters,
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to Indirect Participants, which are others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
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Transfers between Participants will occur in accordance
with DTC rules. Transfers between CEDEL Participants (as defined herein) and
Euroclear Participants (as defined herein) will occur in accordance with
their respective rules and operating procedures.
Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or indirectly through
CEDEL Participants or Euroclear Participants, on the other, will be effected
in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary. Cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time).
The relevant European international clearing system will, if the transaction
meets its settlement requirements, deliver instructions to its Depositary to
take action to effect final settlement on its behalf by delivering or
receiving notes in DTC, and making or receiving distributions in accordance
with normal procedures for same-day funds settlement applicable to DTC. CEDEL
Participants and Euroclear Participants may not deliver instructions directly
to the Depositaries.
Because of time-zone differences, credits of securities
received in CEDEL or Euroclear as a result of a transaction with a
Participant will be made during subsequent settlement processing and dated
the Business Day following the DTC settlement date. Such credits or any
transactions in such Notes settled during such processing will be reported to
the relevant Euroclear or CEDEL Participant on such Business Day. Cash
received in CEDEL or Euroclear as a result of sales of Notes by or through a
CEDEL Participant or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the Business Day
following settlement in DTC.
Noteholders that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Notes may do so only through Participants and Indirect
Participants. In addition, Noteholders will receive all payments of principal
of and interest on the Notes from the Indenture Trustee through DTC and its
Participants. Under a book-entry format, Noteholders will receive
distributions after the related Payment Date, as the case may be, because,
while payments are required to be forwarded to Cede, as nominee for DTC, on
each such date, DTC will forward such distributions to its Participants,
which thereafter will be required to forward them to Indirect Participants or
holders of beneficial interests in the Notes. The Indenture Trustee, the
Grantee, the Servicer and any paying agent, transfer agent or registrar may
treat the registered holder in whose name any Note is registered (expected to
be Cede) as the absolute owner thereof (whether or not such Note is overdue
and notwithstanding any notice of ownership or writing thereon or any notice
to the contrary) for the purpose of making payments and for all other
purposes.
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Unless and until Definitive Notes (as defined below) are
issued, it is anticipated that the only "holder" of Book-Entry Notes of any
Series will be Cede, as nominee of DTC. Noteholders will only be permitted to
exercise their rights as Noteholders indirectly through Participants and DTC.
All references herein to actions by Noteholders thus refer to actions taken
by DTC upon instructions from its Participants, and all references herein to
payments, notices, reports and statements to Noteholders refer to payments,
notices, reports and statements to Cede, as the registered holder of the
Notes, for distribution to the beneficial owners of the Notes in accordance
with DTC procedures.
While any Book-Entry Notes of a Series are outstanding
(except under the circumstances described below), under the rules,
regulations and procedures creating and affecting DTC and its operations (the
"Rules"), DTC is required to make book-entry transfers among Participants on
whose behalf it acts with respect to the Book-Entry Notes and is required to
receive and transmit payments of principal of, and interest on, the
Book-Entry Notes. Participants with whom Noteholders have accounts with
respect to Book-Entry Notes are similarly required to make book-entry
transfers and receive and transmit such payments on behalf of their
respective Noteholders. Accordingly, although Noteholders will not possess
physical Notes, the Rules provide a mechanism by which Noteholders will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in
turn act on behalf of Indirect Participants and certain banks, the ability of
holders of beneficial interests in the Notes to pledge Notes to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of such Notes, may be limited due to the lack of a Definitive Note
for such Notes.
DTC has advised the Indenture Trustee that it will take any
action permitted to be taken by a Noteholder under the Indenture and the
related Prospectus Supplement only at the direction of one or more
Participants to whose account with DTC the Notes are credited. Additionally,
DTC has advised the Indenture Trustee that it may take actions with respect
to the Noteholders' Interest that might conflict with other of its actions
with respect thereto.
CEDEL is incorporated under the laws of Luxembourg as a
professional depository. CEDEL holds securities for its participating
organizations ("CEDEL Participants") and facilitates the clearance and
settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of securities. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars.
CEDEL provides to CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. CEDEL interfaces with
domestic markets in several countries. As a professional depository, CEDEL is
subject to regulation by the Luxembourg Monetary Institute. CEDEL
Participants are recognized financial institutions around the world including
underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations
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and certain other organizations and may include any underwriters, agents or
dealers with respect to a Series of Notes offered hereby. Indirect access to
CEDEL is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need
for physical movement of securities and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of
29 currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to
the arrangements for cross-market transfers with DTC described above. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office (the "Euroclear Operator"), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for Euroclear on behalf of Euroclear Participants.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries. Indirect
access to Euroclear is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York
banking corporation that is a member bank of the Federal Reserve System. As
such, it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
Securities clearance accounts and cash accounts with the
Euroclear Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of Euroclear and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific securities to specific
securities clearance accounts. The Euroclear Operator acts under the Terms
and Conditions only on behalf of Euroclear Participants, and has no record of
or relationship with persons holding through Euroclear Participants.
Payments with respect to Notes held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant systems' rules and
procedures, to the extent received by its Depositary. Such payments will be
subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "Certain United States Federal Income Tax
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Considerations." CEDEL or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Noteholder under the
Indenture or the relevant Prospectus Supplement on behalf of a CEDEL
Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of Notes among
participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
DEFINITIVE NOTES
Notes of a Class will be issued in registered form to
Noteholders, or their nominees, rather than to DTC (such Notes being referred
to herein as "Definitive Notes") only under the circumstances provided in the
Indenture, which will include (a) the Administrator (initially, Illinois
Power) advising the Indenture Trustee in writing that DTC is no longer
willing or able to properly discharge its responsibilities as nominee and
depository with respect to the Book-Entry Notes of such Class and the
Administrator being unable to locate a qualified successor, (b) the
Administrator (with written notice to the Indenture Trustee), electing to
terminate the book-entry system through DTC, or (c) after the occurrence of a
Servicer Default, holders of Notes representing not less than 50 percent of
the aggregate outstanding principal amount of the Notes of any Series
maintained as Book-Entry Notes advising the Indenture Trustee, Administrator,
the Trust and DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of
Noteholders of such Series. Upon issuance of Definitive Notes of a Class,
such Notes will be transferable directly (and not exclusively on a book-entry
basis) and registered holders will deal directly with the Indenture Trustee
with respect to transfers, notices and payments.
Upon surrender by DTC of the definitive securities
representing the Notes and instructions for registration, the Indenture
Trustee will issue the Notes in the form of Definitive Notes, and thereafter
the Indenture Trustee will recognize the holders of such Definitive Notes as
Noteholders under the Indenture.
Payment of principal of and interest on the Notes will be
made by the Indenture Trustee directly to Noteholders in accordance with the
procedures set forth herein and in the Indenture and the related Prospectus
Supplement. Interest payments and principal payments will be made to
Noteholders in whose names the Definitive Notes were registered at the close
of business on the related Record Date. Payments will be made by check mailed
to the address of such Noteholder as it appears on the register maintained by
the Indenture Trustee or in such other manner as may be provided in the
related Trust issuance certificate or supplement to the Indenture and except
that with respect to Book-Entry Notes, payments will be made by wire transfer
as described in the Indenture. The final payment on any Note (whether
Definitive Notes or Notes registered in the name of
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Cede), however, will be made only upon presentation and surrender of such
Note on the final payment date at such office or agency as is specified in
the notice of final payment to Noteholders. The Indenture Trustee will
provide such notice to registered Noteholders not later than the fifth day
prior to the month of the Final Payment Date.
Definitive Notes will be transferable and exchangeable at
the offices of the transfer agent and registrar, which initially will be the
Indenture Trustee. No service charge will be imposed for any registration of
transfer or exchange, but the transfer agent and registrar may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
OPTIONAL REDEMPTION
Pursuant to the terms of the Indenture, a Series of Notes
may be redeemed on any Payment Date if, after giving effect to payments that
would otherwise be made on such date, the outstanding principal balance of
such Series of Notes has been reduced to less than five percent of the
initial principal balance thereof. If specified in the Prospectus Supplement
related to any Series or Class of Notes, the Indenture may also permit the
redemption of such Series or Class of Notes in full on any Payment Date on or
prior to December 31, 2004 using proceeds received from the refinancing of
any other Series or Class of Notes, through the issuance of an additional
Series of Notes (the "New Notes"). The New Notes will be payable solely out
of the Intangible Transition Property and other Note Collateral. No
redemption shall be permitted under the Indenture unless each Rating Agency
with respect to any Notes that will remain outstanding after such redemption
shall have affirmed the then current rating of all such outstanding Notes.
Upon any redemption of any Series or Class of Notes, the Trust will have no
further obligations under the Indenture with respect thereto. The Notes may
be so redeemed upon payment of the outstanding principal amount of the Notes
and accrued but unpaid interest thereon as of the date of redemption,
together with all outstanding fees and expenses related thereto. Unless
otherwise specified in the related Prospectus Supplement, notice of such
redemption will be given by the Trust to the Indenture Trustee, the Rating
Agencies and each holder of Notes to be redeemed, by first-class mail,
postage prepaid, mailed not less than 25 days nor more than 50 days prior to
the date of redemption.
CONDITIONS OF ISSUANCE OF ADDITIONAL SERIES
The issuance of any additional Series of Notes is subject
to the following conditions, among others:
(a) appropriate documentation required by the Indenture
and Trust Agreement, including supplements thereto, shall have been
authorized, executed and delivered by all parties required to do so
by the terms of the relevant documents;
(b) the Grantee shall have irrevocably assigned all of
its right, title and interest in the Intangible Transition Property
to the Trust and a filing required by
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Section 18-107 of the Funding Law shall have been made with respect to
such assignment;
(c) the Rating Agency Condition shall have been
satisfied with respect to
such issuance;
(d) Illinois Power shall have delivered to the Grantee,
the Trust, the Delaware Trustee and the Indenture Trustee an opinion of
independent tax counsel and/or a ruling from the IRS (as selected by,
and in form and substance reasonably satisfactory to, Illinois Power)
to the effect that, for federal income tax purposes, (i) such issuance,
and the transfer of the Note proceeds to Illinois Power, will not
result in gross income to the Grantee, the Trust or Illinois Power and
(ii) such issuance will not adversely affect the characterization of
the then outstanding Notes as obligations of Illinois Power;
(e) no Event of Default shall have occurred and be
continuing under the Indenture;
(f) as of the date of issuance, the Trust shall have
sufficient funds available to pay the purchase price for the Intangible
Transition Property, as well as the costs of issuance of the Series of
Notes (to the extent not payable from Note proceeds) and all conditions
to the issuance of a new series of Notes shall have been satisfied or
waived; and
(g) delivery by the Trust to the Indenture Trustee
of certain certificates and opinions specified in the Indenture.
LIST OF NOTEHOLDERS
Upon written request of any Noteholder or group of
Noteholders of any Series or of all outstanding Series of Notes evidencing
not less than 10 percent of the aggregate outstanding principal amount of the
Notes of such Series or all Series, as applicable, the Indenture Trustee will
afford such Noteholder or Noteholders access during business hours to the
current list of Noteholders of such Series or of all outstanding Series, as
the case may be, for purposes of communicating with other Noteholders with
respect to their rights under the Indenture.
The Indenture does not provide for any annual or other
meetings of Noteholders.
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SECURITY FOR THE NOTES
GENERAL
The Notes issued under the Indenture are payable solely
from and secured solely by a pledge of and lien of the Intangible Transition
Property and the other Note Collateral as provided in the Indenture. See
"Description of the Intangible Transition Property." As noted under the
heading, "Description of the Notes," the Trust will issue the Notes pursuant
to the terms of the Indenture. The particular terms of the Notes of any
series will be established in a supplement to the Indenture or a Trust
issuance certificate and material terms thereof will be described in the
Prospectus Supplement for the related Series of Notes.
This summary does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the terms and
provisions of the Indenture and supplements or Trust issuance certificate
related thereto, forms of which are filed as exhibits to the Registration
Statement.
PLEDGE OF NOTE COLLATERAL
To secure the payment of principal of and interest on the
Notes, the Indenture will grant to the Indenture Trustee a security interest
in all of the Trust's right, title and interest in and to (a) all of the
Intangible Transition Property and, to the fullest extent permitted by law,
all proceeds thereof, (b) the Grant Agreements, Sale Agreements and Servicing
Agreements, (c) the Collection Account and all amounts or investment property
on deposit therein or credited thereto from time to time, (d) with respect to
any Floating Rate Notes only, any Swap Agreement entered into with respect to
the issuance of such Floating Rate Notes, (e) all rights to compel Illinois
Power, as Servicer (or any successor) to file for and obtain adjustments to
the IFC Charges in accordance with Section 18-104(d) of the Funding Law, the
Transitional Funding Orders and all IFC Tariffs filed with the ICC in
connection therewith, (f) all present and future claims, demands, causes and
choses in action in respect of any or all of the foregoing and all payments
on or under the foregoing and (g) all proceeds in respect of any or all of
the foregoing; provided, however, that (1) the cash transferred to the Trust
by the Grantee which is not held in the Capital Subaccount, including cash
that has been released to the Grantee or as it directs following retirement
of all Series of Notes, (2) net investment earnings which have been released
to the Trust by the Indenture Trustee pursuant to the terms of the Indenture,
(3) the Overcollateralization Amount that has been released to the Grantee or
as it directs following retirement of all Series of Notes, and (4) amounts
deposited with the Trust on any Series Issuance Date for payment of costs of
issuance with respect to the related Series of Notes (together with any
interest earnings thereon) will not be covered by the foregoing security
interest. The foregoing assets to which the Trust, as assignee of Grantee,
will grant the Trustee a security interest are referred to collectively as
the "Note Collateral" herein.
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SECURITY INTEREST IN NOTE COLLATERAL
CREATION AND PERFECTION OF SECURITY INTEREST UNDER THE
FUNDING LAW. Section 18-107 of the Funding Law provides that neither
Intangible Transition Property, nor any right, title or interest in the
Intangible Transition Property, shall constitute property in which a security
interest may be created under the UCC nor shall any such rights be deemed
proceeds of any property which is not Intangible Transition Property. Rather,
Section 18-107(c) of the Funding Law provides that a valid and enforceable
security interest in Intangible Transition Property shall attach and be
perfected only by the means set forth in that Section 18-107(c).
Specifically, Section 18-107(c) provides that, to the extent that
transitional funding instruments, such as the Notes, are purported to be
secured by Intangible Transition Property, as specified in the applicable
Transitional Funding Order, the lien of the transitional funding instruments
shall attach automatically to such Intangible Transition Property from the
time of issuance of the transitional funding instruments. Section 18-107(c)
of the Funding Law provides that such lien shall be a valid and enforceable
security interest in Intangible Transition Property, securing the
transitional funding instruments, and shall be continuously perfected if,
before the date of issuance of the applicable transitional funding
instruments, or within no more than 10 days thereafter, a filing has been
made by or on behalf of the holder with the Chief Clerk of the ICC stating
that such transitional funding instruments have been issued.
The liens provided under Section 18-107(c) are enforceable
against the electric utility, any assignee, grantee or issuer and all third
parties, including judicial lien creditors. Moreover, a perfected lien in
intangible transition property is a continuously perfected security interest
in all then existing or thereafter arising revenues and proceeds arising with
respect to such intangible transition property, whether or not the electric
power and energy included in the calculation of such revenues and proceeds
have been provided. The lien created by Section 18-107(c) is perfected and
ranks prior to any other lien, including any judicial lien, which
subsequently attaches to the intangible transition property, and to any other
rights created by the Transitional Funding Order or any revenues or proceeds
of the foregoing.
The relative priority of the lien created by Section
18-107(c) of the Funding Law is not defeated or adversely affected by (a)
changes to the Transitional Funding Order or to the related instrument
funding charges payable by any retail customer, class of retail customers or
other person or group of persons obligated to pay such charges or (b)
(subject to the tracing requirements of federal bankruptcy law) the
commingling of revenues arising with respect to intangible transition
property or grantee instruments with funds of the Utility or other funds of
the assignee, issuer or grantee.
Section 18-107(c)(5) of the Funding Law provides that the
ICC shall maintain segregated records which reflect the date and time of
receipt of all filings made under Section 18-107(c). See "-- Filings Made
With Respect to Intangible Transition Property."
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RIGHT OF FORECLOSURE. Section 18-107(c)(4) of the Funding
Law provides that, if an event of default occurs under the transitional
funding instruments, the holders thereof or their authorized representatives,
as secured parties, may foreclose or otherwise enforce the lien in the
intangible transition property securing the transitional funding instruments,
subject to the rights of any third parties holding prior security interests
therein (perfected in the manner described in such subsection). Upon
application by such holders or their authorized representatives, the ICC
shall order the sequestration and payment to the holders or their authorized
representatives of revenues arising with respect to the intangible transition
property pledged to the holders. Section 18-107(c)(4) of the Funding Law
provides that any such order shall remain in full force and effect
notwithstanding any bankruptcy, reorganization or other insolvency
proceedings with respect to the Utility, grantee, assignee or issuer. See
"Risk Factors -- Bankruptcy and Creditors' Rights Issues -- Potential
Bankruptcy of Illinois Power or the Grantee."
FILINGS MADE WITH RESPECT TO THE INTANGIBLE TRANSITION
PROPERTY. Illinois Power, as Servicer, will pledge in the Servicing
Agreement to file with the ICC on or before the date of issuance of any
Series of Notes the filing required by Section 18-107(c)(1) to perfect the
lien of the Indenture Trustee in the Intangible Transition Property. The
Grantee will represent in the Sale Agreement, at the time of issuance of any
Series of Notes, that no prior filing has been made under the terms of
Section 18-107 of the Funding Law with respect to such Intangible Transition
Property, other than a filing which provides the Indenture Trustee with a
first priority perfected security interest in such Intangible Transition
Property on a parity basis with that securing any outstanding Notes, if any.
DESCRIPTION OF INDENTURE ACCOUNTS
COLLECTION ACCOUNT. Pursuant to the Indenture, a segregated
identifiable account (the "Collection Account") will be established with an
Eligible Institution. The Collection Account will be held by the Indenture
Trustee for the benefit of the Noteholders and the Trust. The Collection
Account will consist of four subaccounts: a general subaccount (the "General
Subaccount"), a reserve subaccount (the "Reserve Subaccount"), a subaccount
for the Overcollateralization Amount with respect to each Series of Notes
(the "Overcollateralization Subaccount") and a capital subaccount (the
"Capital Subaccount"). All amounts in the Collection Account not allocated to
any other subaccount will be allocated to the General Subaccount. Unless the
context indicates otherwise, references herein to the Collection Account
include each of the subaccounts contained therein.
An "Eligible Institution" means (a) the corporate trust
department of the Indenture Trustee or (b) a depository institution organized
under the laws of the United States of America or any one of the states
thereof or the District of Columbia (or any domestic branch of a foreign
bank), which (i) has either (A) a long-term unsecured debt rating of "AAA" by
S&P and "A2" by Moody's or (B) a certificate of deposit rating of "A-l +" by
S&P and "P-l" by Moody's, or any other long-term, short-term or certificate
of deposit rating acceptable to the Rating Agencies and (ii) whose deposits
are insured by the Federal Deposit Insurance Corporation (the "FDIC").
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Funds in the Collection Account may be invested in any of
the following (subject to additional restrictions in the Indenture): (a)
direct obligations of, or obligations fully and unconditionally guaranteed as
to timely payment by, the United States of America, (b) demand deposits, time
deposits, certificates of deposit or bankers' acceptances of Eligible
Institutions which are described in clause (b) of the preceding paragraph,
(c) commercial paper (other than commercial paper issued by Illinois Power or
any of its affiliates) having, at the time of investment or contractual
commitment to invest, a rating in the highest rating category from each
Rating Agency from which a rating is available, (d) money market funds which
have the highest rating from each Rating Agency from which a rating is
available, (e) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States of America or
certain agencies or instrumentalities thereof, entered into with certain
depository institutions or trust companies, or (f) any other investment
permitted by each Rating Agency (collectively, the "Eligible Investments"),
in each case which mature on or before the Business Day preceding the next
Payment Date. The Indenture Trustee will have access to the Collection
Account for the purpose of making deposits in, and withdrawals from, the
Collection Account in accordance with the Indenture.
The Servicer will remit to the Collection Account, on each
Remittance Date, IFC Payments as described under "Servicing -- Remittances to
Collection Account."
GENERAL SUBACCOUNT. The General Subaccount will hold all
funds held in the Collection Account that are not held in the other three
subaccounts. The Servicer will remit all IFC Payments to the General
Subaccount. On each Payment Date, the Indenture Trustee will draw on amounts
in the General Subaccount to pay expenses of the Trust and the Grantee and to
pay interest and make Scheduled Payments on the Notes and to make other
payments and transfers in accordance with the terms of the Indenture.
RESERVE SUBACCOUNT. IFC Collections available with respect
to any Payment Date in excess of amounts necessary to (a) pay interest and
make Scheduled Payments on the Notes (or, if the Notes have been declared due
and payable, to pay the Notes in full), (b) pay all related fees and expenses
of the Trust and the Grantee, including the Servicing Fee and any
Administration Fee, (c) replenish the Capital Subaccount up to the Required
Capital Level, and (d) fund and maintain the Overcollateralization Subaccount
up to the Required Overcollateralization Level, will be allocated to the
Reserve Subaccount.
OVERCOLLATERALIZATION SUBACCOUNT. Each Transitional
Funding Order will provide that the Trust, as the assignee of the Intangible
Transition Property created thereby, is entitled to collect an additional
amount (for any Series, the "Overcollateralization Amount") specified in the
related Prospectus Supplement which is intended to enhance the likelihood
that payments on the Notes will be made in accordance with their Expected
Amortization Schedules. Each Transitional Funding Order will permit the
Servicer to set the IFC Charges at levels that are expected to produce IFC
Collections in amounts that exceed the amounts expected to be required to pay
interest and make Scheduled Payments on the Notes, and to pay all related
fees and expenses of the Trust and the Grantee, including the
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Servicing Fee and any Administration Fee, in order to collect the
Overcollateralization Amount. The Overcollateralization Amount established in
connection with each Series of Notes will be specified in the related
Prospectus Supplement, but will not be less than 0.50 percent of the initial
principal balance of such Series of Notes, and will be collected over the
expected life of the Notes of such Series (I.E., over the period from the
Series Issuance Date of the Notes of such Series through the latest Expected
Maturity Date for any Note in such Series). The Overcollateralization Amount
for all Series of Notes will be held in the Overcollateralization Subaccount.
The amount required to be on deposit in the Overcollateralization Subaccount
as of any Payment Date with respect to each Series, as specified in the
schedule set forth in the related Prospectus Supplement, is referred to
herein as the "Required Overcollateralization Level."
Amounts in the Overcollateralization Subaccount will be
invested in Eligible Investments, and the Trust will be entitled to earnings
thereon, subject to the limitations described under "-- Allocations;
Payments." Amounts in the Overcollateralization Subaccount are intended to
cover any shortfall in IFC Collections that might otherwise occur on any
Payment Date or at the last Scheduled Maturity Date for any Series or Class
of Notes. Any amounts remaining in the Overcollateralization Subaccount with
respect to a particular Series of Notes in excess of the amounts required to
pay such Series of Notes in full at the Final Maturity Date will be paid to
the Grantee or as it directs.
CAPITAL SUBACCOUNT. Upon the issuance of each Series of
Notes, the Trust will retain proceeds in an amount which will be at least
equal to 0.50 percent of the initial principal amount of such Series of
Notes, less $100,000 in the aggregate for all Series of Notes. Such amount
(with respect to each Series, the "Required Capital Level") will be deposited
into the Capital Subaccount.
ALLOCATIONS; PAYMENTS
On each Payment Date, the Indenture Trustee will apply, at
the direction of the Servicer, all amounts on deposit in the Collection
Account (including net earnings thereon), as of the most recent Remittance
Date to pay the following amounts in the following priority:
(a) all amounts owed by the Trust to the Delaware
Trustee and the Indenture Trustee will be paid to such persons;
(b) the Servicing Fee and all unpaid Servicing Fees
from any prior Payment Dates will be paid to the Servicer;
(c) the Administration Fee and all unpaid
Administration Fees (or any portions thereof), if any, from prior Payment
Dates will be paid to the Administrator;
(d) so long as no Default or Event of Default has
occurred or would be caused by such payment, all other accrued and unpaid
Operating Expenses will be paid to
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the persons entitled thereto, provided that the amount paid on each Payment
Date pursuant to this clause (d) may not exceed $100,000;
(e) any overdue Quarterly Interest (together with, to
the extent lawful, interest on such overdue Quarterly Interest at the
applicable Note Interest Rate) and then Quarterly Interest with respect to
each Series of Notes will be paid to the Noteholders together with any net
payment due to a Swap Counterparty;
(f) principal on any Series of the Notes payable as a
result of an Event of Default or on the Final Maturity Date for such Series
of Notes will be paid to the Noteholders of the applicable Series;
(g) the Scheduled Payment for any Series of Notes
based on priorities described in each Prospectus Supplement will be paid to
the Noteholders of the applicable Series;
(h) unpaid Operating Expenses will be paid to the
persons entitled thereto;
(i) the amount, if any, by which the Required Capital
Level with respect to all outstanding Series of Notes exceeds the amount in
the Capital Subaccount as of such Payment Date will be allocated to the
Capital Subaccount;
(j) the amount, if any, by which the Required
Overcollateralization Level with respect to all outstanding Series of Notes
exceeds the amount in the Overcollateralization Subaccount as of such Payment
Date will be allocated to the Overcollateralization Subaccount;
(k) funds up to the net earnings on amounts in the
Collection Account for the prior quarter without cumulation will be released
to the Trust;
(l) if any Series of Notes has been retired as of such
Payment Date, the excess of the amount in the Overcollateralization
Subaccount over the aggregate Required Overcollateralization Level with
respect to all Series of Notes remaining outstanding will be released to the
Grantee;
(m) if any Series of Notes has been retired as of such
Payment Date, the excess of the amount in the Capital Subaccount over the
aggregate Required Capital Level with respect to all Series of Notes
remaining outstanding will be released to the Grantee;
(n) the balance, if any, will be allocated to the
Reserve Subaccount for payment on subsequent Payment Dates; and
(o) following the repayment of all outstanding Series
of Notes, the balance, if any, will be released to the Grantee.
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If on any Payment Date funds on deposit in the General
Subaccount are insufficient to make the transfers contemplated by clauses (a)
through (g) above, the Indenture Trustee will (x) first, draw from amounts on
deposit in the Reserve Subaccount, (y) second, draw from amounts on deposit
in the Overcollateralization Subaccount, and (z) third, draw from amounts on
deposit in the Capital Subaccount, up to the amount of such shortfall, in
order to make the transfers described above. If amounts on deposit in the
Capital Subaccount or the Overcollateralization Subaccount are used to pay
such amounts or make such transfers, as the case may be, subsequent
Adjustments shall take into account, among other things, such amounts and on
subsequent Payment Dates the Capital Subaccount or the Overcollateralization
Subaccount, as the case may be, will be replenished to the extent IFC
Collections exceed amounts required to pay amounts having a higher priority
of payment, as more fully described above. In addition, if on any Payment
Date funds on deposit in the General Subaccount are insufficient to make the
transfers described in clauses (i) and (j) above, the Indenture Trustee will
draw from amounts on deposit in the Reserve Subaccount to make such transfers
notwithstanding the fact that, on such Payment Date, the allocation
contemplated by clause (h) above may not have been fully satisfied. If on any
Payment Date when there is more than one Series of Notes outstanding, funds
on deposit in the Collection Account are insufficient to make the transfers
contemplated by clauses (e) and (f) above, such funds will be allocated among
the various Series and Classes pro rata, as specified in the related
Prospectus Supplement.
For purposes of the foregoing allocations:
"Administration Fee" means the fee payable each month to
Illinois Power (or any successor Administrator) as the Administrator under
the Administration Agreement between Illinois Power and the Grantee.
"Quarterly Interest" means, with respect to any Payment
Date and any Series of Notes, the quarterly interest for such date and Series
as specified in the related Prospectus Supplement.
Payments to the Noteholders of a Series will be made to
such holders as specified in the related Prospectus Supplement.
STATE PLEDGE
The Funding Law provides: "The State [of Illinois] pledges
to and agrees with the holders of any transitional funding instruments who
may enter into contracts with an electric utility, grantee, assignee or
issuer pursuant to this Article XVIII [I.E., the Funding Law] that the State
will not in any way limit, alter, impair or reduce the value of intangible
transition property created by, or instrument funding charges approved by, a
transitional funding order so as to impair the terms of any contract made by
such electric utility, grantee, assignee or issuer with such holders or in
any way impair the rights and remedies of such holders until the pertinent
grantee instruments or, if the related transitional funding order does not
provide for the issuance of grantee instruments, the pertinent transitional
funding
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instruments and interest, premium and other fees, costs and charges related
thereto, as the case may be, are fully paid and discharged. Electric
utilities, grantees and issuers are authorized to include these pledges and
agreements of the State in any contract with the holders of transitional
funding instruments or with any assignees pursuant to this Article XVIII
[of the Funding Law] and any assignees are similarly authorized to include
these pledges and agreements of the State in any contract with any issuer,
holder or any other assignee. Nothing in this Article XVIII
[of the Funding Law] shall preclude the State of Illinois from requiring
adjustments as may otherwise be allowed by law to the electric utility's base
rates, transition charges, delivery services charges, or other charges for
tariffed services, so long as any such adjustment does not directly affect or
impair any instrument funding charges previously authorized by a transitional
funding order issued by the [ICC]."
Each Transitional Funding Order will provide that the
Noteholders and the Indenture Trustee for the benefit of the Noteholders
shall be entitled to the benefit of the pledges and agreements of the State
of Illinois set forth in Section 18-105(b) of the Funding Law and that each
of Illinois Power, the Grantee and the Trust is authorized to include such
pledges and agreements in any contract with the Noteholders, the Indenture
Trustee or with any assignees pursuant to Section 18-105(b) of the Funding
Law. The Grantee will include these pledges and agreements of the State of
Illinois in each Sale Agreement to the Trust and the Trust, in turn, has
included these pledges and agreements in the Indenture for the benefit of the
Indenture Trustee and Noteholders.
REPORTS TO NOTEHOLDERS
On or prior to each Payment Date, Special Payment Date or
any other date specified in the Indenture for payments with respect to any
Class of Notes, the Indenture Trustee will deliver to the Noteholders of such
Class a statement with respect to such payment to be made on such Payment
Date, Special Payment Date or other date, as the case may be, setting forth
the following information:
(a) the amount of the payment to Noteholders
allocable to (i) principal and (ii) interest;
(b) the aggregate outstanding principal balance of the
Notes, after giving effect to payments allocated to
principal reported under (a) above; and
(c) the difference, if any, between the amount specified
in (b) above and the principal amount scheduled to be
outstanding on such date according to the Expected
Amortization Schedule.
Within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of the Notes,
the Indenture Trustee will mail to each person who at any time during such
calendar year has been a Noteholder and received any payment thereon, a
statement containing certain information for the purposes of such
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Noteholder's preparation of Federal and state income tax returns. See
"Certain United States Federal Income Tax Considerations."
SUPPLEMENTAL INDENTURES
The Trust and the Indenture Trustee may, from time to time,
and without the consent of the Noteholders of any Series, enter into one or
more agreements supplemental to the Indenture for various purposes described
in the Indenture, including (1) to add to the covenants for the benefit of
the Noteholders; (2) to cure any ambiguity or correct or supplement any
provision in the Indenture or in any supplemental indenture which may be
inconsistent with any other provision in the Indenture or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under the Indenture; provided that any such action shall
not adversely affect the interests of the Noteholders; (3) to evidence the
succession of another person to the role of the Indenture Trustee in
accordance with the terms of the Indenture; (4) to effect qualification under
the Trust Indenture Act of 1939, as amended; or (5) to set forth the terms of
any additional Series of Notes or to provide for the terms of any Swap
Agreement.
In addition, the Trust and the Indenture Trustee may, with
the consent of Noteholders holding not less than a majority of the aggregate
outstanding principal amount of the Notes of all affected Series or Classes,
enter into one or more indentures supplemental to the Indenture for the
purpose of, among other things, adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture. No such
supplement, however, may, without the consent of each Noteholder of each
Series or Class affected thereby, take certain actions enumerated in the
Indenture, including (a) reduce in any manner the amount of, or delay the
timing of, deposits or payments on any Note, (b) reduce the aforesaid
percentage of the aggregate outstanding principal amount of the Notes the
holders of which are required to consent to any such supplement, (c) modify
the provisions in the Indenture relating to amendments with the consent of
Noteholders to decrease any minimum percentage of Noteholders required to
approve such amendments or (d) cause any material adverse federal income tax
consequences to Illinois Power, the Grantee, the Trust, the Delaware Trustee,
the Indenture Trustee or the then existing Noteholders. Promptly following
the execution of any such supplement to the Indenture, the Indenture Trustee
will furnish written notice of the substance of such amendment to each
Noteholder.
Any supplement to the Indenture or Trust issuance
certificate executed in connection with the issuance of one or more
additional Series of Notes will not be considered an amendment to the
Indenture.
CERTAIN COVENANTS OF THE DELAWARE TRUSTEE AND THE TRUST
The Trust may not consolidate with or merge into, or
convert into, any other entity, unless (a) the entity formed by or surviving
such consolidation or merger or conversion is organized under the laws of the
United States, any state thereof or the District
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of Columbia, (b) such entity expressly assumes by an indenture supplemental
to the Indenture the Trust's obligation to make due and punctual payments
upon the Notes and the performance or observance of every agreement and
covenant of the Trust under the Indenture, (c) no Default (as defined in the
Indenture) or Event of Default will have occurred and be continuing
immediately after such merger or consolidation or conversion, (d) the Rating
Agency Condition will have been satisfied with respect to such transaction,
(e) Illinois Power shall have delivered to the Grantee, the Trust, the
Delaware Trustee and the Indenture Trustee an opinion of independent tax
counsel (as selected by, and in form and substance reasonably satisfactory
to, Illinois Power, and which may be based on a ruling from the IRS) to the
effect that, for federal income tax purposes, such consolidation or merger or
conversion will not result in an adverse federal income tax consequence to
Illinois Power, the Grantee, the Trust, the Delaware Trustee, the Indenture
Trustee or the then existing Noteholders and such consolidation or merger
complies with the Indenture, (f) the Trust shall have delivered to the
Indenture Trustee an officer's certificate and an opinion of counsel, each
stating that all conditions precedent therein in the Indenture provided for
relating to such transaction have been complied with and (g) any action as is
necessary to maintain the lien and security interest created by the Indenture
and the Funding Law will have been taken.
The Trust may not sell, convey, exchange or transfer or
otherwise dispose of any of the properties or assets of the Trust to any
person or entity, unless (a) the person or entity acquiring the properties
and assets (i) is a United States citizen or an entity organized under the
laws of the United States, any state thereof or the District of Columbia,
(ii) expressly assumes by an indenture supplemental to the Indenture the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of every agreement and covenant of the Trust under
the Notes, (iii) expressly agrees by such supplemental indenture that all
right, title and interest so conveyed or transferred will be subject and
subordinate to the rights of Noteholders, (iv) unless otherwise specified in
the supplemental indenture referred to in clause (ii) above, expressly agrees
to indemnify, defend and hold harmless the Delaware Trustee against and from
any loss, liability or expense arising under or related to the Indenture and
the Notes, and (v) expressly agrees by means of such supplemental indenture
that such person (or if a group of persons, then one specified person) shall
make all filings with the Commission (and any other appropriate person)
required by the Exchange Act in connection with the Notes, (b) no Event of
Default will have occurred and be continuing immediately after such
transaction, (c) the Rating Agency Condition will have been satisfied with
respect to such transaction, (d) Illinois Power shall have delivered to the
Grantee, the Trust, the Delaware Trustee and the Indenture Trustee an opinion
of independent tax counsel (as selected by, and in form and substance
reasonably satisfactory to, Illinois Power, and which may be based on a
ruling from the IRS) to the effect that such disposition will not result in a
material adverse federal income tax consequence to Illinois Power, the
Grantee, the Trust, the Delaware Trustee, the Indenture Trustee or the then
existing Noteholders, (e) the Trust shall have delivered to the Indenture
Trustee an officer's certificate and an opinion of counsel, each stating that
such conveyance or transfer complies with the Indenture and all conditions
precedent therein provided for
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relating to such transaction have been complied with and (f) any action as is
necessary to maintain the lien and security interest created by the Indenture
shall have been taken.
The Trust will not, among other things, for so long as any
Notes are outstanding (a) except as expressly permitted by the Indenture,
sell, transfer, exchange or otherwise dispose of any of the assets of the
Trust, unless directed to do so by the Indenture Trustee, (b) claim any
credit on, or make any deduction from the principal or interest payable in
respect of, the Notes (other than amounts properly withheld under the Code)
or assert any claim against any present or former Noteholder because of the
payment of taxes levied or assessed upon any part of the Intangible
Transition Property and the other Note Collateral, (c) to the extent
permitted by applicable law, terminate the existence of, or dissolve or
liquidate in whole or in part, the Trust, (d) permit the validity or
effectiveness of the Notes to be impaired, (e) permit the lien of the
Indenture to be amended, hypothecated, subordinated, terminated or discharged
or permit any person to be released from any covenants or obligations with
respect to the Notes except as may be expressly permitted by the Indenture,
(f) permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance, other than the lien and security interest granted under
the Indenture, to be created on or extend to or otherwise arise upon or
burden the Note Collateral or any part thereof or any interest therein or the
proceeds thereof (other than tax liens arising by operation of law with
respect to amounts not yet due) or (g) permit the lien granted under the
Indenture not to constitute a valid first priority security interest in the
Note Collateral.
The Trust may not engage in any business other than
financing, purchasing, owning and managing the Intangible Transition Property
and the other Note Collateral and the issuance of the Notes in the manner
contemplated by the Notes, the Sale Agreements, the Servicing Agreement, the
Trust Agreement, the Grant Agreements, or certain related documents
(collectively, the "Basic Documents") and activities incidental thereto.
The Trust will not issue, incur, assume, guarantee or
otherwise become liable for any indebtedness except for the Notes.
The Trust will not, except as contemplated by the Basic
Documents, make any loan or advance or credit to, or guarantee, endorse or
otherwise become contingently liable in connection with the obligations,
stocks or dividends of, or own, purchase, repurchase or acquire (or agree
contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other person.
The Trust will not, except as contemplated by the Basic Documents, make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty). The Trust will not, directly or indirectly,
make payments to or distributions from the Collection Account except in
accordance with the Basic Documents.
The Trust will not make any payments, distributions or
dividends to any holder of beneficial interests in the Trust in respect of
such beneficial interest for any calendar month unless no Event of Default
shall have occurred and be continuing and any such
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payments do not cause the book value of the remaining equity in the Trust to
decline below 0.50% of the initial principal amount of all Series of Notes
issued and outstanding pursuant to the Indenture.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
An "Event of Default" with respect to any Series of Notes
is defined in the Indenture as being: (a) a default for five days in the
payment of any interest on any Note; (b) a default in the payment of the then
unpaid principal of any Note on the Final Maturity Date; (c) a default in the
payment of the optional redemption price for any Note on the optional
redemption date therefor; (d) a default in the observance or performance of
any covenant or agreement of the Trust made in the Indenture (other than a
default under clauses (a) through (c) above) and the continuation of any such
default for a period of 30 days after notice thereof is given to the Trust by
the Indenture Trustee or to the Trust and the Indenture Trustee by the
holders of at least 25 percent in principal amount of the Notes of such
Series then outstanding; (e) any representation or warranty made by the
Delaware Trustee in the Indenture on behalf of the Trust or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not
having been cured within 30 days after notice thereof is given to the Trust
by the Indenture Trustee or to the Trust and the Indenture Trustee by the
holders of at least 25 percent in principal amount of the Notes of such
Series then outstanding; (f) certain events of bankruptcy, insolvency,
receivership or liquidation of the Trust; (g) a breach by the State of
Illinois or any of its agencies (including the ICC), officers or employees of
the State Pledge; or (h) any other event designated as such in a Trust
issuance certificate or series supplement relating to such Series.
If an Event of Default (other than as specified in clause
(g) above) should occur and be continuing with respect to any Series of
Notes, the Indenture Trustee or holders of not less than a majority in
principal amount of the Notes of all Series then outstanding may declare the
principal of the Notes of all Series to be immediately due and payable. Such
declaration may, under certain circumstances set forth in the Indenture, be
rescinded by the holders of a majority in principal amount of the Notes of
all Series then outstanding. If an Event of Default as specified in clause
(g) above has occurred, then, as the sole and exclusive remedy for such
breach, the Servicer shall be obligated to institute (and the Indenture
Trustee, for the benefit of the Noteholders, shall be entitled and empowered
to institute) any suits, actions or proceedings at law, in equity or
otherwise, to enforce the State Pledge and to collect any monetary damages as
a result of a breach thereof, and each of the Servicer and the Indenture
Trustee may prosecute any such suit, action or proceeding to final judgment
or decree. The Servicer would be required to advance its own funds in order
to bring any such suits, actions or proceedings and, for so long as such
legal actions were pending, the Servicer would, unless otherwise prohibited
by applicable law or court or regulatory order in effect at such time, be
required to bill and collect the IFC Charges, perform Adjustments and
discharge its obligations under the Servicing Agreement. The Servicer would
be entitled to reimbursement of its expenses
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advanced by it in connection with such legal or administrative action as an
operating expense of the Trust under the Indenture.
If the Notes of all Series have been declared to be due and
payable following an Event of Default, the Indenture Trustee may, in its
discretion, either sell the Intangible Transition Property or elect to have
the Trust maintain possession of the Intangible Transition Property and
continue to apply IFC Collections as if there had been no declaration of
acceleration. There is likely to be a limited market, if any, for the
Intangible Transition Property following a foreclosure thereon, in light of
the preceding default, the unique nature of the Intangible Transition
Property as an asset and other factors discussed herein. In addition, the
Indenture Trustee is prohibited from selling the Intangible Transition
Property following an Event of Default with respect to any Series, other than
a default in the payment of any principal or redemption price or a default
for five days or more in the payment of any interest on any Note of any
Series unless (a) the holders of all the outstanding Notes of all Series
consent to such sale, (b) the proceeds of such sale are sufficient to pay in
full the principal of and the accrued interest on the outstanding Notes of
all Series or (c) the Indenture Trustee determines that the proceeds of the
Note Collateral would not be sufficient on an ongoing basis to make all
payments on the Notes of all Series as such payments would have become due if
the Notes had not been declared due and payable, and the Indenture Trustee
obtains the consent of the holders of 66 2/3 percent of the aggregate
outstanding amount of the Notes of all Series.
Subject to the provisions of the Indenture relating to the
duties of the Indenture Trustee, if an Event of Default occurs and is
continuing, the Indenture Trustee will be under no obligation to exercise any
of the rights or powers under the Notes at the request or direction of any of
the holders of Notes of any Series if the Indenture Trustee reasonably
believes it will not be adequately indemnified against the costs, expenses
and liabilities which might be incurred by it in complying with such request.
Subject to such provisions for indemnification and certain limitations
contained in the Indenture, the holders of not less than a majority in
principal amount of the outstanding Notes of all Series (or, if less than all
Series or Classes are affected, the affected Series, Class or Classes) will
have the right to direct the time, method and place of conducting any
proceeding or any remedy available to the Indenture Trustee and the holders
of a majority in principal amount of the Notes of all Series then outstanding
may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal or interest or a default in respect of a
covenant or provision of the Indenture that cannot be modified without the
waiver or consent of all of the holders of the outstanding Notes of all
Series or Classes affected thereby.
With respect to the Notes, no holder of any Note of any
Series will have the right to institute any proceeding with respect to the
Notes, unless (a) such holder previously has given to the Indenture Trustee
written notice of a continuing Event of Default with respect to such Series,
(b) the holders of not less than 25 percent in principal amount of the
outstanding Notes of all Series have made written request of the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee,
(c) such holder or holders have offered the Indenture Trustee satisfactory
indemnity, (d) the Indenture Trustee has for
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60 days failed to institute such proceeding and (e) no direction inconsistent
with such written request has been given to the Indenture Trustee during such
60-day period by the holders of a majority in principal amount of the
outstanding Notes of all Series.
In addition, the Servicer will covenant that it will not
prior to the date which is one year and one day after the termination of the
Indenture, institute against the Grantee, the Trust or the Delaware Trustee
any bankruptcy, reorganization or other proceeding under any Federal or state
bankruptcy or similar law, subject to the right of the ICC to order
sequestration and payment of revenues arising with respect to the Intangible
Transition Property.
Neither the Delaware Trustee in its individual capacity nor
the Indenture Trustee in its individual capacity, nor any holder of any
ownership interest in the Trust, nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, successors or assigns
will, in the absence of an express agreement to the contrary, be personally
liable for the payment of the principal of or interest on the Notes of any
Series or for the agreements of the Trust contained in the Indenture.
ACTIONS BY NOTEHOLDERS
Subject to certain exceptions, the holders of a majority of
the aggregate outstanding amount of the Notes of all Series (or, if less than
all Series or Classes are affected, the affected Series or Class or Classes)
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Indenture Trustee, or exercising
any trust or power conferred on the Indenture Trustee under the Indenture;
provided that: (1) such direction shall not be in conflict with any rule of
law or with the Indenture and would not involve the Indenture Trustee in
personal liability or expense; (2) the Indenture Trustee shall not have
determined that the action might materially adversely affect the rights of
any Noteholder not consenting to such actions; (3) the Indenture Trustee may
take any other action deemed proper by the Indenture Trustee which is not
inconsistent with such direction. In circumstances under which the Indenture
Trustee is required to seek instructions from the holders of the Notes of any
Class with respect to any such action or vote, the Indenture Trustee will
take such action or vote for or against any proposal in proportion to the
principal amount of the corresponding Class, as applicable, of Notes taking
the corresponding position.
ANNUAL COMPLIANCE STATEMENT
The Trust will be required to file annually with the
Indenture Trustee and the Rating Agencies a written statement as to the
fulfillment of its obligations under the Notes.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain United
States federal income and estate tax considerations relevant to the purchase,
ownership and disposition of the Notes by the beneficial owners thereof
("Noteholders"). The discussion is limited to Noteholders and, except as
specifically addressed herein, does not address the tax consequences to
subsequent purchasers of Notes. This summary does not purport to be a
complete analysis of all the potential United States federal income and
estate tax effects relating to the purchase, ownership and disposition of the
Notes. There can be no assurance that the Internal Revenue Service (the
"IRS") will take a similar view of such consequences. Further, the discussion
does not address all aspects of taxation that might be relevant to particular
purchasers in light of their individual circumstances (including the effect
of any state, local, non-United States or other tax laws) or to certain types
of purchasers (including dealers in securities, insurance companies,
financial institutions and tax-exempt entities) subject to special treatment
under United States federal tax law.
The discussion below is based on the Internal Revenue Code
of 1986, as amended (the "Code"), administrative pronouncements, judicial
decisions, existing, proposed and temporary United States Treasury
Regulations, all in effect as of the date hereof, all of which are subject to
change at any time, and any such change may be applied retroactively. Because
individual circumstances may differ, each prospective purchaser of a Note is
strongly urged to consult its own tax advisor with respect to its particular
tax situation and the particular tax effects of any state, local, non-United
States or other tax laws and possible changes in the tax laws. The discussion
below assumes that the Notes are held as capital assets within the meaning of
Section 1221 of the Code.
PERSONS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT
THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE UNITED STATES
FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS
ANY TAX CONSEQUENCES TO THEM ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
NON-UNITED STATES TAXING JURISDICTION.
With respect to each Series of Notes, Illinois Power
expects to receive a ruling from the IRS to the effect that, among other
things, (i) the Trust's issuance and sale of the Notes and the transfer of
the Note proceeds to Illinois Power will not result in gross income to the
Grantee, the Trust or Illinois Power and (ii) the Notes will constitute
obligations of Illinois Power. For a given Series of Notes, however, Illinois
Power may decide that, in lieu of obtaining a ruling from the IRS, Illinois
Power will rely on an opinion from its tax counsel to the effect that, among
other things, the Notes will constitute obligations of Illinois Power. The
IRS ruling or the tax opinion will be discussed in the related Prospectus
Supplement. The following discussion assumes that, based on such ruling or
tax opinion, the Notes will constitute indebtedness of Illinois Power for
federal income and estate tax purposes.
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TAX CONSEQUENCES TO UNITED STATES NOTEHOLDERS
UNITED STATES NOTEHOLDER. As used herein, the term "United
States Noteholder" means a Noteholder who or which is, for United States
federal income tax purposes, (a) a citizen or resident of the United States,
(b) a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any State thereof (including the
District of Columbia) or (c) an estate or trust described in Section
7701(a)(30) of the Code. The term also includes certain Noteholders who are
former citizens or residents of the United States whose income and gain from
the Notes will be subject to United States taxation.
PAYMENTS OF INTEREST. Interest paid on a Note will
generally be taxable to a United States Noteholder as ordinary interest
income at the time it accrues or is received in accordance with the United
States Noteholder's method of accounting for United States federal income tax
purposes. The preceding sentence assumes that, in the case of Floating Rate
Notes, the Floating Rate Notes will qualify as "variable rate debt
instruments" as defined in Treasury Regulation Section 1.1275-5(a) and that
interest on such Floating Rate Notes will be unconditionally payable, or will
be constructively received under Section 451 of the Code, in cash or in
property at least annually at a single "qualified floating rate" or
"objective rate". If such assumption is incorrect with respect to a Floating
Rate Note, the taxation of interest on such Floating Rate Note will be
addressed in the related Prospectus Supplement.
ORIGINAL ISSUE DISCOUNT. Because it is expected that the
stated principal amount of the Notes will not exceed the issue price of such
Notes by more than a statutory DE MINIMIS amount (I.E., 0.25% of the
principal amount of a Note multiplied by the weighted average maturity of
such Note), the Notes should not be issued with "original issue discount."
Any amount by which the issue price to the public of a Series or Class of
Notes is less than the stated principal amount of the Notes by such DE
MINIMIS amount will be taken into income by a United States Noteholder as
gain from the retirement of a Note (as described below under "--Sale,
Exchanges, Redemption or Retirement of the Notes"), in proportion to
principal payments made on the Notes, subject to special rules for taxpayers
making certain elections otherwise.
MARKET DISCOUNT AND PREMIUM. A Noteholder attempting to
sell a Note in the secondary market should be aware that a subsequent
Noteholder who purchases a Note at a discount might be subject to the "market
discount" rules of the Code. Also, a subsequent Noteholder who purchases a
Note at a premium may elect to amortize and deduct the premium over the
remaining term of the Note in accordance with rules set forth in Section 171
of the Code.
SALE, EXCHANGES, REDEMPTION OR RETIREMENT OF THE NOTES.
Upon the sale, exchange, redemption or retirement of a Note, a United States
Noteholder will recognize taxable gain or loss equal to the difference
between the amount realized on such sale, exchange, redemption or retirement
(not including any amount attributable to accrued but
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unpaid interest) and such Noteholder's adjusted tax basis in the NOTE. To the
extent the amount realized is attributable to accrued but unpaid interest,
the amount recognized by the United States Noteholder will be treated as a
payment of interest. See "-- Payments of Interest" above. A United States
Noteholder's adjusted tax basis in a Note generally will equal the cost of
the Note to such Noteholder, reduced by any principal payments received by
such Noteholder.
Gain or loss recognized on the sale, exchange, redemption
or retirement of a Note will be capital gain or loss. For non-corporate
taxpayers, capital gain recognized on the disposition of an asset (including
a Note) held for more than one year is subject to United States federal
income tax at a maximum rate of 20% (recently enacted legislation eliminated
the long-term capital gain tax rate differential between capital assets held
for more than 18 months and capital assets held for more than one year but
not more than 18 months). Capital gain on the disposition of an asset
(including a Note) held for not more than one year is taxed at the rates
applicable to ordinary income (I.E., up to 39.6%). The distinction between
capital gain or loss and ordinary income or loss is relevant for purposes of,
among other things, limitations on the deductibility of capital losses.
TAX CONSEQUENCES TO NON-UNITED STATES NOTEHOLDERS
Under present United States federal income and estate tax
law, and subject to the discussion below concerning backup withholding:
(a) payments of principal and interest (including original
issue discount, if any) on a Note by the Trust or any paying agent to a
Noteholder that is not a United States Noteholder, as defined above
(hereinafter, "Non-United States Noteholder"), will not be subject to
withholding of United States federal income tax, provided that, in the
case of interest, (i) such Noteholder does not own, actually or
constructively, 10 percent or more of the total combined voting power
of all classes of stock of Illinois Power entitled to vote, (ii) such
Noteholder is not, for United States federal income tax purposes, a
controlled foreign corporation related, directly or indirectly, to
Illinois Power through stock ownership, (iii) such Noteholder is not a
bank receiving interest described in Section 881(c)(3)(A) of the Code,
and (iv) the certification requirements under Section 871(h) or Section
881(c) of the Code and Treasury Regulations thereunder (summarized
below) are met;
(b) a Non-United States Noteholder will not be subject to
United States federal income tax on gain recognized on the sale,
exchange, redemption, retirement or other disposition of such Note,
unless (i) such Noteholder is a non-resident alien individual who is
present in the United States for 183 days or more in the taxable year
of disposition, and certain conditions are met or (ii) such gain is
effectively connected with the conduct by such Noteholder of a trade or
business in the United States; and
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(c) a Note held by an individual who is not a citizen or
resident (as defined for United States federal estate tax purposes) of
the United States at the time of his death will not be subject to
United States federal estate tax as a result of such individual's
death, provided that, at the time of such individual's death, (i) the
individual does not own, actually or constructively, 10 percent or more
of the total combined voting power of all classes of stock of Illinois
Power entitled to vote and (ii) payments with respect to such Note, if
received at the time of the individual's death, would not have been
effectively connected with the conduct by such individual of a trade or
business in the United States.
Sections 871(h) and 881(c) of the Code and United States
Treasury Regulations thereunder require that, in order to obtain the
exemption from withholding tax described in paragraph (a) above, either (A)
the beneficial owner of a Note must certify, under penalties of perjury, to
the Trust or paying agent, as the case may be, that such owner is a
Non-United States Noteholder and must provide such owner's name and address,
or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution") and holds the Note on behalf of
the beneficial owner thereof must certify, under penalties of perjury, to the
Trust or paying agent, as the case may be, that such certificate has been
received from the beneficial owner by it or by a Financial Institution
between it and the beneficial owner and must furnish the payor with a copy
thereof. A certificate described in this paragraph is effective only with
respect to payments of interest made to the certifying Non-United States
Noteholder after issuance of the certificate in the calendar year of its
issuance and the two immediately succeeding calendar years. Under temporary
United States Treasury Regulations, the foregoing certification may be
provided by the beneficial owner of a Note on IRS Form W-8.
Notwithstanding the foregoing, interest described in
Section 871(h)(4) of the Code is subject to United States withholding tax at
a 30% rate (or such lower rate as may be provided by an applicable treaty).
In general, interest described in Section 871(h)(4) of the Code includes
(subject to certain exceptions) any interest, the amount of which is
determined by reference to receipts, sales or other cash flow of the issuer
or a related person, any income or profits of the issuer or a related person,
any change in the value of any property of the issuer or a related person or
any dividends, partnership distribution or similar payments made by the
issuer or a related person. Interest described in Section 871(h)(4) of the
Code may include other types of contingent interest identified by the IRS in
future Treasury Regulations. The Trust does not currently expect to issue
Notes, the interest on which is described in Section 871(h)(4) of the Code.
However, if such Notes are issued, the taxation of such Notes will be
addressed in the related Prospectus Supplement.
On October 14, 1997, the IRS published in the Federal
Register final Regulations (the "1997 Final Regulations") which affect the
United States taxation of Non-United States Noteholders. As promulgated, the
1997 Final Regulations will be effective for payments after December 31,
1998, regardless of the issue date of the instrument with
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respect to which such payments are made, subject to certain transition rules.
The IRS thereafter announced its intention to amend the 1997 Final
Regulations to extend this date to December 31, 1999, subject to certain
transition rules. The discussion under this heading and under "-- Backup
Withholding and Information Reporting," below, is not intended to be a
complete discussion of the provisions of the 1997 Final Regulations or the
subsequent IRS announcement, and prospective purchasers of the Notes are
urged to consult their tax advisors concerning the tax consequences of their
acquiring, holding and disposing of the Notes in light of the 1997 Final
Regulations.
The 1997 Final Regulations provide documentation procedures
designed to simplify compliance by withholding agents. The 1997 Final
Regulations generally do not affect the documentation rules described above,
but add other certification options. Under one such option, a withholding
agent will be allowed to rely on an intermediary withholding certificate
furnished by a "qualified intermediary" (as defined below) on behalf of one
or more beneficial owners (or other intermediaries) without having to obtain
the beneficial owner certificate described above. "Qualified intermediaries"
include: (a) foreign financial institutions or foreign clearing organizations
(other than a United States branch or United States office of such
institution or organization) or (b) foreign branches or offices of United
States financial institutions or foreign branches or offices of United States
clearing organizations, which, as to both (a) and (b), have entered into
withholding agreements with the IRS. In addition to certain other
requirements, qualified intermediaries must obtain withholding certificates,
such as revised IRS Form W-8 (see below), from each beneficial owner. Under
another option, an authorized foreign agent of a United States withholding
agent will be permitted to act on behalf of the United States withholding
agent, provided certain conditions are met.
For purposes of the certification requirements, the 1997
Final Regulations generally treat, as the beneficial owners of payments on a
Note, those persons that, under United States tax principles, are the
taxpayers with respect to such payments, rather than persons such as nominees
or agents legally entitled to such payments. In the case of payments to an
entity classified as a foreign partnership under United States tax
principles, the partners, rather than the partnership, generally will be
required to provide the required certifications to qualify for the
withholding exemption described above. A payment to a United States
partnership, however, is treated for these purposes as payment to a United
States payee, even if the partnership has one or more foreign partners. The
1997 Final Regulations provide certain presumptions with respect to
withholding for Noteholders not furnishing the required certifications to
qualify for the withholding exemption described above. In addition, the 1997
Final Regulations will replace a number of current tax certification forms
(including IRS Form W-8 and IRS Form 4224, discussed below) with a single,
revised IRS Form W-8 (which, in certain circumstances, requires information
in addition to that previously required). Under the 1997 Final Regulations,
this Form W-8 will remain valid until the last day of the third calendar year
following the year in which the certificate is signed. The 1997 Final
Regulations contained detailed rules, which might be changed in light of the
recent IRS announcement that the effective date will be postponed,
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governing tax certifications during the transition period prior to and
immediately following the effectiveness of the 1997 Final Regulations.
If a Non-United States Noteholder is engaged in a trade or
business in the United States, and if interest on the Note, or gain
recognized on the sale, exchange, redemption, retirement or other disposition
of a Note, is effectively connected with the conduct of such trade or
business, the Non-United States Noteholder, although exempt from withholding
of United States income tax, will generally be subject to regular United
States income tax on such interest or gain in the same manner as if it were a
United States Noteholder. See "-- Tax Consequences to United States
Noteholders" above. In lieu of the certificate described above, such a
Noteholder must provide to the withholding agent a properly executed IRS Form
4224 (or successor form) in order to claim an exemption from withholding. In
addition, if such Non-United States Noteholder is a foreign corporation, it
may be subject to a branch profits tax equal to 30% (or such lower rate
provided by an applicable treaty) of its effectively connected earnings and
profits for the taxable year, subject to certain adjustments. For purposes of
the branch profits tax, interest on, and any gain recognized on the sale,
exchange, redemption, retirement or other disposition of, a Note will be
included in the effectively connected earnings and profits of such Non-United
States Noteholder if such interest or gain is effectively connected with the
conduct by the Non-United States Noteholder of a trade or business in the
United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, a 31 %
backup withholding tax and information reporting requirements apply to
certain payments of principal and interest made to, and to the proceeds of
sale before maturity by, certain Noteholders.
In the case of a non-corporate United States Noteholder,
backup withholding will apply only if (a) such Noteholder fails to furnish
its Taxpayer Identification Number ("TIN") (which, for an individual, is his
or her Social Security number) to the payor in the manner required, (b) such
Noteholder furnishes an incorrect TIN and the payor is so notified by the
IRS, (c) the payor is notified by the IRS that such Noteholder has failed
properly to report payments of interest or dividends or (d) under certain
circumstances, such Noteholder fails to certify, under penalties of perjury,
that it has furnished a correct TIN and has not been notified by the IRS that
it is subject to backup withholding for failure to report interest or
dividend payments. Backup withholding does not apply with respect to payments
made to certain exempt recipients, such as a corporation (within the meaning
of Section 7701(a) of the Code) and tax-exempt organizations. United States
Noteholders should consult their tax advisors regarding their qualification
for exemption from backup withholding and the procedure for obtaining such an
exemption if applicable.
The amount of any backup withholding from a payment to a
United States Noteholder will be allowed as a credit against such
Noteholder's United States federal
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income tax liability and may entitle such Noteholder to a refund, provided
that the required information is furnished to the IRS.
In the case of a Non-United States Noteholder, under
currently applicable United States Treasury Regulations, backup withholding
and information reporting will not apply to payments of principal or interest
made by the Trust or any paying agent thereof on a Note (absent actual
knowledge that the Noteholder is a United States Noteholder) if such
Noteholder has provided the required certification under penalties of perjury
that it is not a United States Noteholder (as defined above) or has otherwise
established an exemption. If such Noteholder does not provide the required
certification, such Noteholder may nevertheless avoid backup withholding or
information reporting in the circumstances described below, but might be
subject to withholding of United States federal income tax as described above
under "-- Tax Consequences to Non-United States Noteholders."
Under currently applicable United States Treasury
Regulations, if payments of principal or interest are collected outside the
United States by a foreign office of a custodian, nominee or other agent
acting on behalf of a beneficial owner of a Note, such custodian, nominee or
other agent will not be required to apply backup withholding to such payments
made to such beneficial owner, and generally will not be subject to
information reporting requirements. However, if such custodian, nominee or
other agent is a United States person, a controlled foreign corporation for
United States tax purposes or a foreign person 50 % or more of whose gross
income is effectively connected with a United States trade or business for a
specified three-year period, information reporting (but not backup
withholding) will be required unless such custodian, nominee or other agent
has in its records documentary evidence that the beneficial owner is not a
United States Noteholder and certain other conditions are met or the
beneficial owner otherwise establishes an exemption.
Under currently applicable United States Treasury
Regulations, payments on the sale, exchange, redemption, retirement or other
disposition of a Note made to or through a foreign office of a broker
generally will not be subject to backup withholding, and generally will not
be subject to information reporting requirements. Such payments, however,
will be subject to information reporting (but not backup withholding) if the
broker is, for United States federal income tax purposes, a United States
person, a controlled foreign corporation or a foreign person 50% or more of
whose gross income is effectively connected with a United States trade or
business for a specified three-year period, unless the broker has in its
records documentary evidence that the beneficial owner is not a United States
Noteholder and certain other conditions are met or the beneficial owner
otherwise establishes an exemption. Payments made to or through the United
States office of a broker will be subject to backup withholding and
information reporting unless the Non-United States Noteholder certifies,
under penalties of perjury, that it is not a United States person or
otherwise establishes an exemption.
In general, the 1997 Final Regulations do not significantly
alter the substantive backup withholding and information reporting
requirements described above.
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As under current law, backup withholding and information reporting will not
apply to (i) payments to a Non-United States Noteholder of principal and
interest and (ii) payments to a Non-United States Noteholder on the sale,
exchange, redemption, retirement or other disposition of a Note, in each case
if such Non-United States Noteholder provides the required certification to
establish an exemption from the withholding of United States federal income
tax or otherwise establishes an exemption. Similarly, even if a Non-United
States Noteholder does not provide such certification or otherwise establish
an exemption, unless the payor has actual knowledge that the payee is a
United States Noteholder, backup withholding will not apply to (a) payments
of interest made outside the United States to certain offshore accounts and
(b) payments on the sale, exchange, redemption, retirement or other
disposition of a Note effected outside the United States. However,
information reporting (but not backup withholding) will apply to (a) payments
of interest made by a payor outside the United States and (b) payments on the
sale, exchange, redemption, retirement or other disposition of a Note
effected outside the United States if payment is made by a broker that is,
for United States federal income tax purposes, (i) a United States person,
(ii) a controlled foreign corporation, (iii) a United States branch of a
foreign bank or foreign insurance company, (iv) a foreign partnership
controlled by United States persons or engaged in a United States trade or
business or (v) a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a United States trade or business
for a specified three-year period, in each case unless such payor or broker
has in its records documentary evidence that the beneficial owner is not a
United States Noteholder and certain other conditions are met or the
beneficial owner otherwise establishes an exemption (in which case neither
information reporting nor backup withholding will apply). As noted above, the
IRS has announced that the 1997 Final Regulations will be amended to be
effective generally for payments after December 31, 1999, subject to certain
transition rules.
Non-United States Noteholders should consult their tax
advisors regarding the application of information reporting and backup
withholding in their particular situations, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available.
Any amounts withheld from a payment to a Non-United States Noteholder under
the backup withholding rules will be allowed as a credit against such
Noteholder's United States federal income tax liability and may entitle such
Noteholder to a refund, provided that the required information is furnished
to the IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON A NOTEHOLDER'S PARTICULAR SITUATION. PROSPECTIVE
PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
NOTES, INCLUDING THE TAX CONSEQUENCES UNDER FEDERAL, STATE, LOCAL, NON-UNITED
STATES AND OTHER TAX LAWS AND THE EFFECTS OF CHANGES IN SUCH LAWS.
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ERISA CONSIDERATIONS
ERISA and/or Section 4975 of the Code impose certain
requirements on employee benefit plans and certain other plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and certain collective investment funds or insurance company general or
separate accounts in which such plans, accounts or arrangements are invested,
that are subject to the fiduciary responsibility and prohibited transaction
provisions of ERISA and/or Section 4975 of the Code (collectively, "Plans"),
and on persons who are fiduciaries with respect to Plans, in connection with
the investment of assets that are treated as "plan assets" of any Plan for
purposes of applying Title I of ERISA and Section 4975 of the Code ("Plan
Assets"). ERISA imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and
the requirement that a Plan's investments be made in accordance with the
documents governing the Plan. Generally, any person who has discretionary
authority or control respecting the management or disposition of Plan Assets,
and any person who provides investment advice with respect to Plan Assets for
a fee or other consideration, is a fiduciary with respect to such Plan Assets.
ERISA and Section 4975 of the Code prohibit a broad range
of transactions involving Plan Assets and persons who have certain specified
relationship to a Plan or its Plan Assets ("parties in interest" under ERISA
and "disqualified persons" under the Code (collectively, "Parties in
Interest")), unless a statutory or administrative exemption is available.
Parties in Interest and Plan fiduciaries that participate in a prohibited
transaction may be subject to penalties imposed under ERISA and/or excise
taxes imposed pursuant to Section 4975 of the Code, unless a statutory or
administrative exemption is available. These prohibited transactions
generally are set forth in Section 406 of ERISA and Section 4975 of the Code.
Certain transactions involving the purchase, holding or
transfer of the Notes might be deemed to constitute prohibited transactions
under ERISA and/or Section 4975 of the Code if assets of the Trust were
deemed to be Plan Assets. Regulations issued by the United States Department
of Labor, set forth in 29 C.F.R. Section 2510.3-101 (the "Plan Asset
Regulations"), provide rules regarding when assets of an entity, such as the
Trust, would be treated as Plan Assets. Under those rules, the assets of the
Trust would be treated as Plan Assets of a Plan for the purposes of ERISA and
Section 4975 of the Code only if the Plan acquires an equity interest in the
Trust and none of the exceptions contained in the Plan Asset Regulations is
applicable. An equity interest is defined under the Plan Asset Regulations as
an interest in an entity other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Although there is no authority directly on point, it is anticipated
that the Notes should be treated as indebtedness under local law without any
substantial equity features for purposes of the Plan Asset Regulations.
Accordingly, the assets of the Trust should not be treated as Plan Assets.
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Without regard to whether the Notes are treated as an
equity interest for such purposes, the acquisition or holding of Notes by or
on behalf of a Plan or with Plan Assets could be considered to give rise to a
prohibited transaction if Illinois Power, the Trust, the Indenture Trustee,
the Delaware Trustee, the Grantee, the Administrator, the Servicer, any Swap
Counterparty, any Underwriter or any of their respective affiliates is or
becomes a Party in Interest with respect to such Plan. In this event, certain
exemptions from the prohibited transaction rules could be applicable
depending on the type and circumstances of the fiduciary making the decision
to acquire Notes. Included among these exemptions are Prohibited Transaction
Class Exemption ("PTCE") 75-1, which exempts certain transactions involving
Plans and certain broker-dealers, reporting dealers and banks, PTCE 90-1,
which exempts certain transactions between insurance company separate
accounts and Parties in Interest, PTCE 91-38, which exempts certain
transactions between bank collective investment funds and Parties in
Interest, PTCE 84-14, which exempts certain transactions effected on behalf
of a Plan by a "qualified professional asset manager", PTCE 95-60, which
exempts certain transactions between insurance company general accounts and
Parties in Interest and PTCE 96-23, which exempts certain transactions
effected on behalf of a Plan by an "in-house asset manager" (collectively,
the "Exemptions"). Even if the conditions specified in one or more of the
Exemptions are met, the scope of the relief provided by the Exemptions might
or might not cover all acts which might be construed as prohibited
transactions.
Nevertheless, a Plan generally should not purchase Notes if
Illinois Power, the Indenture Trustee, the Delaware Trustee, the Grantee, the
Administrator, the Servicer, any Swap Counterparty, any Underwriter or any of
their respective affiliates either (a) has investment discretion with respect
to the investment of assets of such Plan; (b) has authority or responsibility
to give or regularly gives investment advice with respect to assets of such
Plan for a fee and pursuant to an agreement or understanding that such advice
will serve as a primary basis for investment decisions with respect to such
assets and that such advice will be based on the particular investment needs
of such Plan; or (c) is an employer maintaining or contributing to such Plan.
A party that is described in clause (a) or (b) of the preceding sentence is a
fiduciary under ERISA with respect to the Plan, and any such purchase might
result in a "prohibited transaction" under ERISA or the Code for which no
exemption may be available.
ANY FIDUCIARY OR OTHER PLAN INVESTOR CONSIDERING WHETHER TO
PURCHASE ANY CLASS OR SERIES OF NOTES ON BEHALF OF OR WITH PLAN ASSETS OF ANY
PLAN SHOULD CONSULT WITH ITS LEGAL ADVISORS.
Certain employee benefit plans, such as governmental plans
(as defined in Section 3(31) of ERISA) and certain church plans (as defined
in Section 3(33) of ERISA), are not subject to the requirements of ERISA or
Section 4975 of the Code. Accordingly, except as provided in the applicable
Prospectus Supplement, assets of such plans may be invested in the Notes of
any Class or Series without regard to the ERISA considerations described
herein, subject to the provisions of other applicable federal and state law.
However, any such plan that is qualified and exempt from taxation under
Sections 401(a)
140
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and 501(a) of the Code is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
USE OF PROCEEDS
The Trust will pay over the proceeds received from each
sale of a Series of Notes (net of the expenses of issuance and amounts
required to fund the Capital Subaccount) to the Grantee as the consideration
for Grantee's assignment of its ownership rights in the Intangible Transition
Property and Related Assets (as defined in the Basic Documents) to the Trust.
The Grantee will declare distributions to its sole member, Illinois Power, in
the amount of the proceeds received from the Trust net of the expenses of
issuance and amounts required to fund the Capital Subaccount and thereby
transfer such proceeds to Illinois Power in consideration for Illinois
Power's request in each application for a Transitional Funding Order that the
related Intangible Transition Property be granted to and vested in the
Grantee.
Subject to the limitations on the use of proceeds described
in "Description of the Intangible Transition Property -- Limitations on the
Amounts of Transitional Funding Instruments, Intangible Transition Property
and Instrument Funding Charges Which Can Be Authorized; Permitted Uses of
Proceeds," and to market conditions, Illinois Power anticipates using the
aggregate net proceeds which it receives from the Grantee to redeem, retire
or refinance mortgage bonds and notes, together with certain premia
anticipated in connection with such redemptions, to redeem preferred stock
and securities, to repurchase common equity from its parent company,
including commissions in connection with such repurchases, and to pay any
transaction costs incurred in connection with such redemptions, retirements,
refinancings and repurchases. Illinois Power's parent company will use the
proceeds it receives from any repurchase of Illinois Power common equity to
repurchase the parent company's publicly-traded common stock, including
payment of commissions thereon.
PLAN OF DISTRIBUTION
The Notes of each Series may be sold to or through
underwriters named in the related Prospectus Supplement (the "Underwriters")
by a negotiated firm commitment underwriting and public reoffering by the
Underwriters or such other underwriting arrangement as may be specified in
the related Prospectus Supplement or may be offered or placed either directly
or through agents. The Grantee and the Trust intend that Notes will be
offered through such various methods from time to time and that offerings may
be made concurrently through more than one of such methods or that an
offering of a particular Series of Notes may be made through a combination of
such methods.
The distribution of Notes may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at market prices prevailing
141
<PAGE>
at the time of sale, at prices related to such prevailing market prices or in
negotiated transactions or otherwise at varying prices to be determined at
the time of sale.
In connection with the sale of the Notes, Underwriters or
agents may receive compensation in the form of discounts, concessions or
commissions. Underwriters may sell Notes to certain dealers at prices less a
concession. Underwriters may allow and such dealers may reallow a concession
to certain other dealers. Underwriters, dealers and agents that participate
in the distribution of the Notes of a Series may be deemed to be underwriters
and any discounts or commissions received by them from the Trust and any
profit on the resale of the Notes by them may be deemed to be underwriting
discounts and commissions under the Securities Act. Any such Underwriters or
agents will be identified, and any such compensation received from the Trust
will be described in the related Prospectus Supplement.
Under agreements which may be entered into by the Grantee
and the Trust, Underwriters and agents who participate in the distribution of
the Notes may be entitled to indemnification by the Grantee and Illinois
Power and against certain liabilities, including liabilities under the
Securities Act.
The Underwriters may, from time to time, buy and sell
Notes, but there can be no assurance that an active secondary market will
develop and there is no assurance that any such market, if established, will
continue.
RATINGS
It is a condition of issuance of each Class of Notes that
at the time of issuance such Class receive the rating indicated in the
related Prospectus Supplement, which will be in one of the four highest
categories, from at least one Rating Agency.
A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by
the assigning Rating Agency. No person is obligated to maintain the rating on
any Note, and, accordingly, there can be no assurance that the ratings
assigned to any Class of Notes upon initial issuance will not be lowered or
withdrawn by a Rating Agency at any time thereafter. If a rating of any Class
of Notes is revised or withdrawn, the liquidity of such Class of Notes may be
adversely affected. In general, ratings address credit risk and do not
represent any assessment of the rate of principal payments on the Notes.
LEGAL MATTERS
Certain legal matters relating to the Notes will be passed
upon by Schiff Hardin & Waite, Chicago, Illinois, counsel to Illinois Power,
the Grantee and the Trust. Certain United States federal income tax
consequences of the issuance of the Notes will be
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passed upon by Mayer Brown & Platt, Chicago, Illinois, tax counsel to
Illinois Power, the Grantee and the Trust. Certain legal matters relating to
the Notes will be passed upon by Richards, Layton & Finger, P.A., Wilmington,
Delaware, Delaware counsel to the Trust and the Delaware Trustee, and by
Brown & Wood LLP, New York, New York, counsel to the Underwriters.
EXPERTS
The financial statements of Illinois Power Securitization
Limited Liability Company as of September 11, 1998 and for the period from
September 10, 1998 (date of inception) through September 11, 1998 included in
this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
DEFINED TERM DEFINED ON PAGE
- ------------ ---------------
<S> <C>
1997 Final Regulations..............................................................................134
Act................................................................................................. 1
Adjustment Date..................................................................................... 13
Adjustments......................................................................................... 13
Administrator....................................................................................... 5
Administration Agreement............................................................................ 5
Administration Fee..................................................................................123
Amendatory Act...................................................................................... 50
Amendatory Tariff................................................................................... 14
Annual Accountant's Report..........................................................................102
Applicable Rates.................................................................................... 10
ARES................................................................................................ 28
Basic Documents.....................................................................................127
Beneficiary Trustee................................................................................. 6
Billing Period...................................................................................... 22
Book-Entry Notes.................................................................................... 27
Business Day........................................................................................109
Capital Subaccount..................................................................................119
Cede................................................................................................110
CEDEL...............................................................................................110
CEDEL Participants..................................................................................112
Class............................................................................................... 6
Code................................................................................................ 28
Collection Account..................................................................................119
Commission..........................................................................................(iv)
Cooperative.........................................................................................113
Customers........................................................................................... 9
Daily Remittance Date............................................................................... 22
Debt Service Billing Requirement.................................................................... 65
Debt Service Requirement............................................................................ 65
Definitive Notes....................................................................................114
Delaware Trustee.................................................................................... 5
Depositaries........................................................................................110
Downgrade Event..................................................................................... 49
DTC.................................................................................................(v)
Eligible Institution................................................................................119
Eligible Investments................................................................................120
ERISA............................................................................................... 28
Euroclear...........................................................................................110
Euroclear Operator..................................................................................113
Euroclear Participants..............................................................................113
144
<PAGE>
Event of Default.................................................................................... 16
Exchange Act........................................................................................ 4
Excluded Amounts.................................................................................... 10
Exemptions..........................................................................................140
Expected Amortization Schedule...................................................................... 16
Expected Maturity Date..............................................................................106
FDIC................................................................................................119
FERC................................................................................................ 37
Final Maturity Date................................................................................. 15
Financial Institution...............................................................................134
Floating Rate Notes................................................................................. 3
Funding Law......................................................................................... 2
General Subaccount.................................................................................. 18
Grant Agreement..................................................................................... 2
Grantee............................................................................................. 9
ICC................................................................................................. 5
IFC Charges......................................................................................... 9
IFC Collections..................................................................................... 6
IFC Customer Class.................................................................................. 85
IFC Payments........................................................................................ 12
IFC Tariff.......................................................................................... 2
Illinois Power...................................................................................... 1
Illinova............................................................................................ 4
Indenture...........................................................................................106
Indenture Trustee................................................................................... 8
Indirect Participants............................................................................... 27
Initial Intangible Transition Property.............................................................. 67
Initial TFO......................................................................................... 62
Intangible Transition Property...................................................................... 13
IRS.................................................................................................131
Lost Revenue Recoveries............................................................................. 99
Monthly IFC Amount.................................................................................. 21
Monthly Servicer's Certificate......................................................................102
Moody's............................................................................................. 45
New Notes........................................................................................... 18
Non-United States Noteholder........................................................................133
Note Collateral.....................................................................................117
Note Interest Rate..................................................................................106
Noteholders.........................................................................................131
Notes...............................................................................................(i)
Operating Expenses.................................................................................. 22
Overcollateralization Amount........................................................................ 20
Overcollateralization Subaccount.................................................................... 18
Participants........................................................................................ 27
Parties in Interest.................................................................................139
145
<PAGE>
Payment Date........................................................................................ 14
Plan Asset Regulations..............................................................................139
Plan Assets.........................................................................................139
Plans...............................................................................................139
PTCE................................................................................................140
Quarterly Interest..................................................................................123
Rating Agency....................................................................................... 8
Rating Agency Condition............................................................................. 47
Record Date......................................................................................... 13
Registration Statement.............................................................................. 14
Remittance Conditions...............................................................................(i)
Remittance Date..................................................................................... 45
Remitted IFC Payments............................................................................... 21
Reporting Customer Class............................................................................ 84
Required Capital Level.............................................................................. 21
Required Overcollateralization Level................................................................ 20
Reserve Subaccount.................................................................................. 18
Rules...............................................................................................112
S&P................................................................................................. 45
Sale Agreement...................................................................................... 2
Scheduled Payment................................................................................... 16
Securities Act......................................................................................(iv)
Series.............................................................................................. 6
Series Issuance Date................................................................................ 21
Servicer............................................................................................ 4
Servicer Business Day............................................................................... 22
Servicer Defaults...................................................................................103
Servicing Agreement................................................................................. 2
Servicing Fee....................................................................................... 26
Servicing Standard.................................................................................. 22
State Pledge........................................................................................ 14
Subsequent Intangible Transition Property........................................................... 67
Subsequent Transfer Date............................................................................ 67
Successor Servicer..................................................................................105
Swap Agreement...................................................................................... 2
Swap Counterparty...................................................................................109
Terms and Conditions................................................................................113
Transitional Funding Order.......................................................................... 1
Trust............................................................................................... 5
Trust Agreement..................................................................................... 5
UCC................................................................................................. 45
Underwriters........................................................................................141
United States Noteholder............................................................................132
Utilities........................................................................................... 1
Utility............................................................................................. 1
</TABLE>
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements Page
- ----------------------- -------
<S> <C>
Report of Independent Public Accountants F-2
Statement of Operations F-3
Balance Sheet F-4
Statement of Changes in Members' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
To the Member of Illinois Power
Securitization Limited Liability Company
September 15, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the accompanying balance sheet and the related statements of
operations and changes in member's equity and of cash flows present fairly,
in all material respects, the financial position of Illinois Power
Securitization Limited Liability Company at September 11, 1998, and the
results of its operations and its cash flows for the period from September
10, 1998 (date of inception) through September 11, 1998 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
F-2
<PAGE>
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
STATEMENT OF OPERATIONS
For the Period from September 10, 1998 (date of inception) to
September 11, 1998
<TABLE>
<CAPTION>
<S> <C>
Revenues $ --
Expenses $ --
--------
Net Income (Loss) $ --
--------
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
BALANCE SHEET
September 11, 1998
<TABLE>
<CAPTION>
Assets
<S> <C>
Total Assets $ --
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Member's Equity
<S> <C>
Member's Equity $ 1,000
Less: Equity Contribution Due from Illinois Power Company (1,000)
--------
Total Liabilities and Member's Equity $ --
--------
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
STATEMENT OF CHANGES IN MEMBER'S EQUITY
For the Period from September 10, 1998 (date of inception) to
September 11, 1998
<TABLE>
<CAPTION>
<S> <C>
Member's Equity at Inception $ --
Add: Contributed Equity 1,000
Less: Equity Contribution Due from Illinois Power Company 1,000
--------
Member's Equity at End of Period $ --
--------
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
STATEMENT OF CASH FLOWS
For the Period from September 10, 1998 (date of inception) to
September 11, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ --
--------
Net Cash Used in Operating Activities $ --
--------
Cash Flows from Investing Activities:
Equity Contribution in Illinois Power Special Purpose Trust $ --
--------
Net Cash Used in Investing Activities $ --
--------
Cash Flows from Financing Activities:
Net Cash Provided by Financing Activities $ --
--------
Net Increase/(Decrease) in Cash $ --
Cash at Inception --
--------
Cash at End of Period $ --
--------
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements include the accounts of Illinois Power
Securitization Limited Liability Company (IPS), a special purpose
Delaware limited liability company, whose sole member is Illinois Power
Company (IP). IP, the principal subsidiary of Illinova Corporation
(Illinova), is engaged in the production, purchase, transmission,
distribution and sale of electricity to a diverse base of customers. IPS
was formed on September 10, 1998, for the exclusive purposes of (i)
initially owning the "intangible transition property" (described below),
(ii) assigning all of its right, title and interest in the intangible
transition property and the Intangible Transition Property Servicing
Agreement (servicing agreement) to Illinois Power Special Purpose Trust
(Trust) (described below) and (iii) entering into the servicing agreement
with IP (the servicer) in respect to the intangible transition property.
The Trust is a special purpose Delaware business trust which will issue
Transitional Funding Trust Notes (Notes) secured by the intangible
transition property to investors and will remit the proceeds to IPS in
consideration for the transferring of its interest in the intangible
transition property. IPS, in turn, will remit the net proceeds to IP in
consideration for IP's actions in applying for and obtaining the
Transitional Funding Order from the Illinois Commerce Commission (ICC)
creating the intangible transition property in IPS. The Trust anticipates
that the Notes will be issued sometime in the fourth quarter of 1998.
IPS was organized solely to acquire, own, hold, administer, service or
enter into agreements regarding the receipt and servicing of, intangible
transition property, along with certain other related assets. The Trust
will be organized with the sole purpose of limited business activities as
are necessary or reasonably related to the issuance of the Notes. IPS and
the Trust are structured and are to be operated in a manner such that even
in the event of bankruptcy proceeds against IP, the assets of IPS and the
Trust will not be consolidated into the bankruptcy estate of IP.
The intangible transition property is the separate property right, as
created under the Transition Funding Order issued by the ICC to IP on
September 10, 1998, including, without limitation, the right, title and
interest to impose and collect instrument funding charges (IFC). IFC's
are non-bypassable, usage-based, per kilowatt-hour charges to be imposed
on designated consumers of electricity.
F-7
<PAGE>
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF ACCOUNTING POLICIES
(a) GENERAL
IPS follows the accrual method of accounting. IPS will pay
its own operating expenses and liabilities from its own
separate assets. Administrative and general expenses incurred
by IP on behalf of IPS will be reimbursed by IPS in
accordance with the Administration Agreement approved by the
ICC.
(b) RESIDUAL INTEREST IN THE TRUST
Certain proceeds derived from the sale of the Notes will be
retained for the benefit of the Trust in a Capital Subaccount.
IPS will have the residual interest in the Trust.
(c) INCOME TAXES
As a limited liability company, the member intends for IPS
to be treated as a partnership for tax purposes. Income and
losses are passed through to the member and, accordingly,
there is no provision for income taxes.
(d) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
3. SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Notwithstanding the non-recourse nature of the transactions, IP
(individually, as Servicer or otherwise) will be required under the
transaction documents (i) to make certain representations and warranties
with respect to, among other things, the validity of IPS and its
assignees' title to the intangible transition property and (ii) to observe
certain covenants for the benefit of IPS and its assignees. IP will also
be required to indemnify IPS and its assignees against any breaches of
such representations, warranties and covenants and to protect such parties
against certain other losses, which result from actions or inactions of IP.
F-8
<PAGE>
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS (Concluded)
IP will act as the initial servicer (in such capacity, together with any
successor-in-interest, the "Servicer") for IPS under the transaction
documents. IPS rights under the Servicing Agreement will be assigned to the
Trust. The transaction documents will contain provisions allowing the
Servicer to be replaced under limited circumstances. The Servicer will be
paid a servicing fee in consideration for billing and collecting the IFCs on
behalf of the Trust, calculating the reconciliation and true-up adjustments
and performing related services. Such servicing fees shall be paid to the
Servicer from the IFC collections.
F-9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF INSURANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............................................... $295
Blue sky fees and expenses.................................................................. *
Printing and engraving expenses............................................................. *
Accountants' fees and expenses.............................................................. *
Trustees' fees and expenses................................................................. *
Legal fees and expenses..................................................................... *
Rating Agency fees.......................................................................... *
Miscellaneous fees and expenses............................................................. *
----
Total.................................................................... $ *
----
----
</TABLE>
- -----------------
All of the fees, costs and expenses set forth above will be paid by the Trust.
*To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Title 12, Section 3817 of the Delaware Code (the "Delaware Act")
provides that subject to such standards and restrictions, if any, as are set
forth in its governing instrument, a Delaware Business Trust may and has the
power to indemnify and hold harmless any trustee or beneficial owner or other
person from and against any and all claims and demands. The Delaware Act also
provides that the absence of a provision for indemnity in the governing
instrument of a business trust shall not be construed to deprive any trustee
or beneficial owner or other person of any right to indemnity which is
otherwise available to such person under the laws of the State of Delaware.
Section 6.07 of the Indenture provides that the Trust shall indemnify
the Indenture Trustee and its officers, directors, employees and agents against
any loss, liability or expense incurred by it in connection with the
administration of the trust and the performance of its duties under the
Indenture, except for any loss, liability or expense incurred as a result of the
Indenture Trustee's own willful misconduct, negligence or bad faith.
Section 18-108 of the Delaware Limited Liability Company Act provides
that subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement, a limited liability company may and has the
power to indemnify and hold harmless any member or other person from and against
any and all claims and demands whatsoever. Section 10.1 of the Limited Liability
Company Agreement of the Grantee provides that the Grantee shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Grantee) by reason of the fact that he is or was a manager,
officer, employee or agent of the Grantee, or is or was serving at the request
of the Grantee as a manager, director, officer, employee or agent of another
company, partnership, joint venture, trust or other enterprise, against
II-1
<PAGE>
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Grantee, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Under Section 8.75 of the Illinois Business Corporation Act of 1983
(the "BCA"), Illinois Power Company ("Illinois Power") 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 him 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 his
being or having been a director, officer, employee or agent of Illinois
Power, or serving or having served at the request of Illinois Power as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. Section 8.75 of the BCA 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 director, officer,
employee or agent of Illinois Power 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 By-Laws of Illinois Power provide, in substance, that Illinois
Power shall indemnify any person against expense (including attorney's fees),
judgments, fines and amount paid in settlement actually and reasonably
incurred by him 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 his being or having been a director, officer, employee,
trustee or fiduciary of Illinois Power, or serving or having served at the
request of Illinois Power 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, employee or agent and
shall inure to the benefit of his heirs, executors and administrators. In
addition, Illinois Power's Amended and Restated Articles of Incorporation
provide indemnification protection to the full extent permitted by the BCA
and further provide that a director of Illinois Power shall not be personally
liable to Illinois Power or its shareholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to Illinois Power or its shareholders, (ii)
for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 8.65 of the BCA
or (iv) for any transaction from which the director derived an improper
benefit.
Illinois Power presently has an insurance policy which, among other
things, includes liability insurance coverage for officers and directors
under which officers and directors are covered against any "losses" arising
from any claim or claims made against them by reason of any "wrongful act" in
their respective capacities of directors or officers. "Loss" is specifically
defined to exclude fines and penalties as well as matters deemed uninsurable
under the law pursuant to which the insurance policy shall be construed. The
policy also contains other specific exclusions, including illegally obtained
personal profit or advantages, and dishonesty. The policy also provides for
reimbursement to Illinois Power, subject to certain deductibles, for loss
incurred by having indemnified officers or directors as authorized by state
statute, Illinois Power's By-Laws or any other agreement.
II-2
<PAGE>
The indemnification provided by the Delaware Code, the Delaware
Limited Liability Company Act, the Grantee's Limited Liability Company
Agreement and the Indenture is not exclusive of any other rights to which the
Delaware Trustee, the Indenture Trustee, the members and managers of the
Grantee, the officers and directors of Illinois Power and any beneficial
owner of the Trust may be entitled.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
-------- -------------------
<S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Formation of the Registrant.
3.2 Limited Liability Company Agreement of the
Registrant.
4.1 Form of Trust Agreement.
4.2 Form of Transitional Funding Trust Note.
4.3 Form of Indenture.
*5.1 Opinion of Schiff Hardin & Waite.
10.1 Form of Sale Agreement.
10.2 Form of Grant Agreement.
10.3 Form of Servicing Agreement.
10.4 Form of Administration Agreement.
*23.1 Consent of Schiff Hardin & Waite (included in Exhibit
5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
25 Form T-1.
99.1 Application for Transitional Funding Order.
99.2 Transitional Funding Order.
</TABLE>
* To be filed by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The Registrant, on behalf of the Illinois Power Special Purpose
Trust (the "Trust") hereby undertakes as follows:
(a)(1) To do, or, pursuant to the Administration Agreement to cause
Illinois Power Company (the "Administrator") to file, during any period in
which offers or sales are being made, a post-effective amendment to this
Registration Statement: (i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the Registration
Statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement (notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of a prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement); and (iii) to include any material
information with respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such information in
the Registration Statement; provided, however, that (a)(1)(i) and (a)(1)(ii)
do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering hereof.
(3) To remove, or to cause the Administrator to remove, from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Trust's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934), with respect to the Trust
that is incorporated by reference in the Registration Statement shall be deemed
to be a new registration statement relating to the securities to be offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) That insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to the Delaware Trustee, the
Indenture Trustee, the managers and members of the Grantee and the directors
and officers of the Administrator pursuant to the provisions described in
Item 15 above, or otherwise, the Registrant, the Grantee and the
Administrator have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred
II-4
<PAGE>
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Delaware Trustee, Indenture Trustee, the managers or members of the Grantee,
or the directors or officers of the Administrator in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of each issue.
(d) That, for purposes of determining any liability under the
Securities Act of 1933, as amended, 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 registrant pursuant
to Rule 424(b)(i) or (4) or 497(h) under the Securities Act of 1933, as
amended, shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(e) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended, in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act of 1939, as amended.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant 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, State of Illinois, on this 15th day
of September, 1998.
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
By: ILLINOIS POWER COMPANY
Its: Sole Member
By: /S/ Robert A. Schultz
-------------------------
Robert A. Schultz, Vice
President-Finance
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
------- ------------------- -----------
<S> <C> <C>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Formation of the Registrant.
3.2 Limited Liability Company Agreement of the Registrant.
4.1 Form of Trust Agreement.
4.2 Form of Transitional Funding Trust Note.
4.3 Form of Indenture.
*5.1 Opinion of Schiff Hardin & Waite.
10.1 Form of Sale Agreement.
10.2 Form of Grant Agreement.
10.3 Form of Servicing Agreement.
10.4 Form of Administration Agreement.
*23.1 Consent of Schiff Hardin & Waite (included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
25 Form T-1.
99.1 Application for Transitional Funding Order.
99.2 Transitional Funding Order.
</TABLE>
*To be filed by amendment.
II-7
<PAGE>
EXHIBIT 3.1
Certificate of Formation
CERTIFICATE OF FORMATION
OF
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
A DELAWARE LIMITED LIABILITY COMPANY
THIS CERTIFICATE OF FORMATION ("Certificate of Formation") of Illinois
Power Securitization Limited Liability Company (the "Company"), is being duly
executed and filed by Illinois Power Company, as an authorized person, as of
September 10, 1998, to form a limited liability company under the Delaware
Limited Liability Company Act (6 Del. C. Sections 18-101 ET SEQ.) (the "Act").
ARTICLE I
NAME
The name of the Company is Illinois Power Securitization Limited Liability
Company.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Company in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent at such
address is The Corporation Trust Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the 10th day of September, 1998.
ILLINOIS POWER COMPANY,
as an authorized person
By: /s/ Robert A. Schultz
---------------------------
Name: Robert A. Schultz
Title: Vice President-Finance
<PAGE>
EXHIBIT 3.2
Limited Liability
Company Agreement
LIMITED LIABILITY COMPANY AGREEMENT
OF
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
A DELAWARE LIMITED LIABILITY COMPANY
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of
Illinois Power Securitization Limited Liability Company, a Delaware limited
liability company (the "Company"), is made and entered into as of September
10, 1998, by Illinois Power Company, an Illinois corporation, as the sole
member of the Company (the "Sole Member"). Pursuant to Section 18-201(d) of
the Act (as defined herein) this Agreement shall be effective as of September
10, 1998.
WHEREAS, the Sole Member has caused to be filed a Certificate of
Formation with the Secretary of State of the State of Delaware (the
"Secretary") to organize the Company under and pursuant to the Act (as herein
defined);
WHEREAS, upon the terms and subject to the conditions set forth
herein, the Sole Member is concurrently with the execution of this Agreement
acquiring a Membership Interest (as herein defined) in the Company; and
WHEREAS, in accordance with the Act, the Sole Member desires to
enter into this Agreement to set forth the respective rights, powers and
interests of the Sole Member with respect to the Company and its Membership
Interest therein and to provide for the management of the business and
operations of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the Sole
Member, intending to be legally bound, hereby agrees as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. Except as otherwise herein expressly provided, the
following terms and phrases shall have the meanings as set forth
below:
"ACT" shall mean the Delaware Limited Liability Company Act,
6 Del. C. Sections 18-101 ET SEQ., as the same may hereafter be amended from
time to time.
"AFFILIATE" shall mean, when used with reference to a specific
Person, any other Person that, directly or indirectly, through one or more
intermediaries, Controls, is Controlled by or is under common Control with
such specific Person.
<PAGE>
"AGREEMENT" shall mean this instrument comprising the Limited
Liability Company Agreement of the Company, as amended, modified,
supplemented or restated from time to time in accordance with this Agreement.
"BASIC DOCUMENTS" shall mean all agreements, instruments and
other documents entered into from time to time by the Company in connection
with the acquisition and sale of intangible transition property under the
Funding Law, and the issuance of transitional funding instruments by the
Company or by any assign of such intangible transition property including,
but not limited to, any Agreement Relating to Grant of Intangible Transition
Property, any Intangible Transition Property Sale Agreement, the Intangible
Transition Property Servicing Agreement, any Declaration of Trust, the
Administration Agreement and all other documents and certificates delivered
in connection therewith.
"BUSINESS DAY" shall mean any day that is not a Saturday, Sunday
or a day on which banking institutions in the State of Illinois, the State of
New York or The Depository Trust Company are authorized or obligated by law
or executive order to close.
"CAPITAL CONTRIBUTION" shall mean, with respect to the Sole
Member, the amount of cash and the initial value of any Contributed Property
(net of liabilities to which such property is subject).
"CERTIFICATE" shall mean the Certificate of Formation of the
Company originally filed with the Secretary on September 10, 1998 as
described in Section 2.1, and as further amended, modified, supplemented, or
restated from time to time.
"COMPANY" shall have the meaning assigned to such term in the
preamble hereto.
"CONTRIBUTED PROPERTY" shall mean any property or other assets,
in such form as may be permitted by the Act, but excluding cash, contributed
or deemed contributed to the Company with respect to the Membership Interest
held by the Sole Member.
"CONTROL" shall mean any of the following: (a) in the case of a
corporation, ownership, directly or through ownership of other Entities, of
at least ten percent (10%) of all the voting stock (exclusive of stock which
is voting only as required by applicable law or in the event of nonpayment of
dividends and pays dividends only on a nonparticipating basis at a fixed or
floating rate); (b) in the case of any other Entity, ownership, directly or
through ownership of other Entities, of at least ten percent (10%) of all of
the beneficial equity interests therein, (calculated by a method that
excludes from equity interests, ownership interests that are nonvoting
(except as required by applicable law or in the event of nonpayment of
dividends or distributions) and pay dividends or distributions only on a
non-participating basis at a fixed or floating rate); (c) in any case, the
ability, whether by the direct or indirect ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the
directors of a corporation, to select the managing partner of a partnership,
to select a manager of a limited liability company, or otherwise to select,
or have the power to remove and then select, a majority of those Persons
exercising governing authority over an Entity or to exercise governing
authority over
2
<PAGE>
an Entity; (d) in the case of a limited partnership, being the sole general
partner, any of the general partners to the extent each has equal management
control and authority, or the managing general partner or managing general
partners thereof; (e) in the case of a limited liability company that has one
or more managers, being a manager; or (f) in the case of a trust, being
trustee thereof or any Person having the right to select any such trustee
without the consent of any other Person.
"ENTITY" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, foundation, trust,
business trust, real estate investment trust or association.
"EVENT OF BANKRUPTCY" shall mean, with respect to any Person,
that such Person shall (a) institute proceedings to be adjudicated bankrupt
or insolvent, (b) consent to the institution of bankruptcy or insolvency
proceedings against it, (c) file a petition seeking or consent to
reorganization or relief under any applicable federal or state law relating
to bankruptcy, (d) consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of such Person or
a substantial part of its property, (e) make a general assignment for the
benefit of creditors or (f) admit in writing its inability to pay its debts
generally as they become due.
"FUNDING LAW" shall mean the Electric Utility Transitional
Funding Law of 1997, 220 ILCS 5/18-101 ET SEQ.
"GAAP" shall mean generally accepted accounting principles in
effect in the United States from time to time.
"ILLINOIS POWER AFFILIATED GROUP" shall mean the Sole Member,
Illinova Corporation, an Illinois corporation and any Affiliate of such
companies (other than the Company).
"INDEPENDENT MANAGER" shall mean a natural person who is familiar
with and has experience with asset securitization and is not at the time of
appointment, has not been at any time preceding such appointment and is not
during the term of such appointment (other than as incidental to such
person's role as Independent Manager): (a) a member, stockholder, partner,
director, manager, officer or employee of any member of the Illinois Power
Affiliated Group; (b) a customer, supplier or other person who derives more
than ten percent (10%) of its purchases or revenues from its activities with
the Company or any member of the Illinois Power Affiliated Group; or (c) a
member of the family of any such member, stockholder, partner, director,
manager, officer, employee, customer or supplier.
"INTANGIBLE TRANSITION PROPERTY" shall have the meaning specified
in Section 2.3.
"MANAGEMENT AGREEMENT" shall mean the agreement of the members of
the Management Committee in the form attached hereto as Exhibit B. The
Management Agreement shall be deemed incorporated into, and part of, this
Agreement.
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"MANAGEMENT COMMITTEE" shall mean a committee formed upon or
prior to the acquisition by the Company of Intangible Transition Property and
composed of not less than three nor more than five individuals, at least one
of whom at all times must qualify as an Independent Manager. The Company
shall be without authority to take the actions specified herein as requiring
the vote or consent of the Management Committee absent the currently
effective appointment of an Independent Manager to the Management Committee.
"MANAGER" shall mean a member of the Management Committee.
"MEMBER" shall mean a member of the Company.
"MEMBERSHIP INTEREST" shall mean, with respect to a Member, the
limited liability company interest of the Member in the Company.
"NET CASH FLOWS" shall mean the excess of revenue over expenses
less any reserves the Management Committee considers appropriate or necessary
for the conduct of business.
"PERSON" shall mean any natural person or Entity.
"SALE AGREEMENTS" shall have the meaning specified in Section 2.3.
"SECRETARY" shall have the meaning assigned to such term in the
first recital of this Agreement.
"SOLE MEMBER" shall have the meaning assigned to such term in the
preamble hereto.
ARTICLE 2
FORMATION AND BUSINESS OF THE COMPANY
2.1 FORMATION. The Company has been organized as a Delaware limited
liability company under and pursuant to the Act by filing on
September 10, 1998, a Certificate of Formation with the Secretary
as required by the Act by Illinois Power Company, as an authorized
person under the Act. To the extent that the rights or obligations
of the Sole Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this
Agreement shall, to the extent permitted by the Act, control.
2.2 NAME. The name of the Company shall be "Illinois Power
Securitization Limited Liability Company." The business of the
Company may be conducted under that name or, upon compliance with
applicable laws, any other name that the Sole Member deems
appropriate or advisable. The Sole Member shall cause to be filed
any fictitious name certificates and similar filings, and any
amendments thereto that the Management Committee considers
appropriate or advisable.
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2.3 PURPOSE. The purpose for which the Company is formed is limited
solely to:
(a) acquire, own, hold, administer, service or enter into
agreements regarding the receipt and servicing of "intangible transition
property" as such term is defined in the Funding Law as of the date hereof
("INTANGIBLE TRANSITION PROPERTY"), which Article is also known as the
Electric Utility Transitional Funding Law of 1997, along with certain other
related assets;
(b) manage, sell, assign, pledge, collect amounts due on or
otherwise deal with the intangible transition property and related assets to
be so acquired in accordance with the terms of the "Sale Agreements" as
defined below;
(c) enter into, perform and comply with one or more sale
agreements, assignment agreements, or other agreements providing for the sale
of the aforementioned intangible transition property and related assets
(collectively, the "SALE AGREEMENTS") and to enter into, perform and comply
with such servicing agreements, interest rate swap agreements, administration
agreements, collection account agreements and other similar agreements as may
be necessary or desirable in connection with such Sale Agreements;
(d) enter into, perform and comply with one or more declarations
of trust related to the creation of one or more Delaware business trusts to
be formed in connection with the transactions contemplated by the Sale
Agreements; and
(e) engage in any lawful act or activity and to exercise any
powers permitted to limited liability companies formed under the laws of the
State of Delaware that, in either case, are incidental to and necessary,
suitable or convenient for the accomplishment of the above-mentioned purposes.
The Company shall not engage in any activity other than in connection
with the foregoing or other than as required or authorized by the terms of
any Sale Agreements or other agreement referenced above. The Company shall
have all powers reasonably necessary or convenient to effect the foregoing
purposes, including all powers granted under the Act. The Company, and the
Sole Member or any Manager, including the Independent Manager, on behalf of
the Company, may enter into and perform the Basic Documents and all
documents, agreements, certificates or financing statements contemplated
thereby or related thereto, all without any further act, vote or approval of
any Member, Manager or other Person, notwithstanding any other provisions of
this Agreement (including Section 6.1), the Act, or other applicable law,
rule or regulation. The authorization set forth in the preceding sentence
shall not be deemed a restriction on the power and authority of the Sole
Member or any Manager, including the Independent Manager, to enter into other
agreements or documents on behalf of the Company.
2.4 PRINCIPAL OFFICE. The location of the principal place of business
of the Company shall be at such location as shall be selected from
time to time by the Sole Member.
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2.5 REGISTERED AGENT AND REGISTERED OFFICE. The registered agent of
the Company shall be the initial registered agent named in the
Certificate or such other Person or Persons as the Sole Member may
designate from time to time in the manner provided by the Act. The
registered office of the Company required by the Act to be
maintained in the State of Delaware shall be the initial registered
office named in the Certificate or such other office (which need
not be a place of business of the Company) as the Sole Member may
designate from time to time in the manner provided by the Act.
2.6 SEPARATE EXISTENCE. The Company shall:
(a) Maintain in full effect its existence, rights and franchises
as a limited liability company under the laws of the State of Delaware and
obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect the
validity and enforceability of this Agreement and each other instrument or
agreement necessary or appropriate to the proper administration hereof and
to permit and effectuate the undertakings contemplated hereby.
(b) Maintain with commercial banking institutions its own
deposit account or accounts separate from those of any Affiliate of the
Illinois Power Affiliated Group.
(c) Ensure that, to the extent that it shares the same officers
or other employees with its Sole Member or any Affiliate of the Illinois
Power Affiliated Group, the salaries of and the expenses related to
providing benefits to such officers and other employees shall be fairly
allocated among such entities, and each such entity shall bear its fair
share of the salary and benefit costs associated with all such common
officers and employees.
(d) Pay all of its operating expenses incurred by it from the
assets of the Company, and ensure that, to the extent that it jointly
contracts with its Sole Member or any Affiliate of the Illinois Power
Affiliated Group to do business with vendors or service providers or to
share overhead expenses, the costs incurred in so doing shall be allocated
fairly among such entities, and each such entity shall bear its fair share
of such costs.
(e) Maintain a principal executive and administrative office
through which its business is conducted separate from those of its Sole
Member and any Affiliate of the Illinois Power Affiliated Group. To the
extent that the Company and its Sole Member or any Affiliate of the
Illinois Power Affiliated Group have offices in contiguous space, there
shall be fair and appropriate allocation of overhead costs among them,
and each such entity shall bear its fair share of such expenses.
(f) Observe all necessary, appropriate and customary
formalities, including, but not limited to, holding all regular and special
Members' meetings, and meetings of the Company's Management Committee,
appropriate to authorize all action on behalf of the Company, keeping all
resolutions or consents necessary to authorize actions taken or to be
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taken, and maintaining accurate and separate books, records and accounts,
including, but not limited to, payroll and intercompany transaction
accounts.
(g) At all times from and after the entry into any Sale
Agreement and the acquisition of any Intangible Transition Property, vest
the management of the Company in the Management Committee and ensure that
its Management Committee shall at all times include at least one
Independent Manager.
(h) Refrain from commingling its assets with those of the Sole
Member or any member of the Illinois Power Affiliated Group (except as
contemplated by any Sale Agreement and any servicing or administration
agreements entered into in connection therewith).
(i) Act solely in its own name and through its own authorized
managers and agents, and no Affiliate of the Illinois Power Affiliated
Group shall be appointed to act as agent of the Company, except as
expressly contemplated by the Basic Documents.
(j) Ensure that no Affiliate of the Illinois Power Affiliated
Group shall advance funds to the Company, or otherwise guaranty debts of
the Company, except as provided in the Basic Documents; PROVIDED, HOWEVER,
that any Affiliate of the Illinois Power Affiliated Group may provide funds
to the Company in connection with the initial capitalization of the Company
or as thereafter permitted by the Basic Documents with any subsequent
capitalization.
(k) Not enter into any guaranty, or otherwise become liable,
with respect to any obligation of any Affiliate of the Illinois Power
Affiliated Group and not hold itself out, or permit itself to be held out,
as having agreed to pay or as being liable for the debts of Illinois Power
or any other member of the Illinois Power Affiliated Group.
(l) Comply with all restrictions on its business and operations
as set forth in the Section 2.3.
2.7 LIMITATION ON CERTAIN ACTIVITIES. Notwithstanding any other
provisions of this Agreement or the Certificate, the Company, and
the Sole Member or Management Committee on behalf of the Company,
shall not:
(a) engage in any business or activity other than as set forth in
Article 2 hereof;
(b) without the affirmative vote of its Sole Member and (at any
time after the formation of the Management Committee) the affirmative vote
of all of the Managers, initiate any Event of Bankruptcy with respect to
the Company or take any company action in furtherance of any such Event of
Bankruptcy;
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(c) merge or consolidate with, or convert into, any other Person
or, except to the extent permitted by each Sale Agreement, sell all or
substantially all of its assets or acquire all or substantially all of the
assets or capital stock or other ownership interest of any other Person;
(d) incur any indebtedness or assume or guarantee any
indebtedness of any Person (other than the indebtedness incurred under the
Sale Agreements); or
(e) to the fullest extent permitted by law, without the
affirmative vote of its Member and (at any time after the formation of the
Management Committee) the affirmative vote of all Managers, execute any
dissolution, liquidation, or winding up of the Company.
To the fullest extent permitted by applicable law, including without
limitation Section 18-1101(c) of the Act, the fiduciary duty of each Manager,
including the Independent Manager, in respect of any decision on any matter
referred to in this Section 2.7 shall be owed solely to the Company
(including its creditors) and not to the Sole Member or any other holders of
equity interest in the Company as may exist at such time.
2.8 NO STATE LAW PARTNERSHIP. No provisions of this Agreement
(including, without limitation, the provisions of Article 6) shall
be deemed or construed to constitute a partnership (including,
without limitation, a limited partnership) or joint venture, or the
Sole Member a partner or joint venturer of or with any Manager or
the Company, for any purposes.
2.9 ADDRESS OF THE SOLE MEMBER. The address of the Sole Member is set
forth on EXHIBIT A, as amended from time to time, attached hereto
and made a part hereof.
ARTICLE 3
TERM
3.1 COMMENCEMENT. The Company's term commenced upon the filing of the
Certificate with the Secretary on September 10, 1998.
3.2 CONTINUATION. Notwithstanding any provision of this Agreement,
the bankruptcy (as defined in Section 18-101(1) of the Act and
including any event described in Section 18-304(a) of the Act) of
any Member will not cause the Sole Member to cease to be a member
of the Company, and upon the occurrence of such an event, the
business of the Company shall continue without dissolution.
Notwithstanding any other provision of this Agreement, each Member
waives any right it might have under Section 18-801 of the Act to
agree in writing to dissolve the Company, including upon the
occurrence of the bankruptcy (as defined in Section 18-101(1) of
the Act and including any event described in Section 18-304(a) of
the Act) of any
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Member or the occurrence of any other event which under the Act
would otherwise cause any Member to cease to be a member of the
Company.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 CAPITAL CONTRIBUTION. The Sole Member has made an initial capital
contribution of $1,000. The Sole Member may be required or shall
be permitted to contribute additional Capital Contributions in cash
or property to the Company on such terms and conditions as may be
agreed to by the Sole Member from time to time. The amounts so
contributed by the Sole Member shall be credited to the Sole
Member's capital account, as provided in Section 4.2 below. The
Sole Member shall have a Membership Interest of one hundred percent
(100%) of the Company.
4.2 CAPITAL ACCOUNT. The Company shall establish an individual capital
account for the Sole Member.
4.3 NO INTEREST ON OR RETURN OF CAPITAL CONTRIBUTION. No Member shall
be entitled to interest on its Capital Contribution or capital
account. Except as provided herein or by law, no Member shall have
a right to demand or receive the return of its Capital
Contribution.
ARTICLE 5
ALLOCATIONS; BOOKS
5.1 ALLOCATIONS OF INCOME AND LOSS.
(a) BOOK ALLOCATIONS. The net income and net loss of the
Company shall be allocated entirely to the Sole Member.
(b) TAX ALLOCATIONS. Because the Company is not making (and
will not make) an election to be treated as an association taxable as a
corporation under Section 301.7701-3(a) of the U.S. Treasury Regulations,
and because the Company is a business entity that has a single owner and is
not a corporation, it shall be disregarded as an entity separate from its
owner for federal income tax purposes under Section 301.7701-3(b)(1) of the
U.S. Treasury Regulations. Accordingly, all items of income, gain, loss,
deduction and credit of the Company for all taxable periods will be treated
for federal income tax purposes, and for state and local income and other tax
purposes to the extent permitted by applicable law, as realized or incurred
directly by the Sole Member. To the extent not so permitted, all items of
income, gain, loss, deduction and credit of the Company shall be allocated
entirely to the Sole Member.
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5.2 BOOKS OF ACCOUNT. At all times during the continuance of the
Company, the Company shall maintain or cause to be maintained full,
true, complete and correct books of account in accordance with
GAAP, using the fiscal year and taxable year of the Sole Member.
In addition, the Company shall keep all records required to be kept
pursuant to the Act.
5.3 DISTRIBUTIONS. The Company may distribute all or any portion of
Net Cash Flows to the Sole Member upon the unanimous vote of the
Management Committee; provided that the Management Committee shall
not authorize such distributions more frequently than monthly.
Notwithstanding any provision to the contrary contained in this
Agreement, the Company shall not be required to make a distribution
to any Member on account of its interest in the Company if such
distribution would violate Section 18-607 of the Act or any other
applicable law or any Basic Documents.
ARTICLE 6
MANAGEMENT OF THE COMPANY
6.1 MANAGEMENT OF COMPANY. At all times from and after the Company's
entry into any Sale Agreement or acquisition of any Intangible
Transition Property, the property and business of the Company shall
be controlled and managed by the Management Committee; PROVIDED,
HOWEVER, that except as otherwise provided in this Agreement, the
Sole Member acting alone can bind or execute any instrument on
behalf of the Company, and may sign all checks, drafts, and other
instruments obligating the Company to pay money. Prior to the
entry into any Sale Agreement and the acquisition of any Intangible
Transition Property, the Sole Member shall appoint an Independent
Manager. In the event that the Independent Manager resigns or is
removed as Independent Manager, the Sole Member shall appoint, as
soon as reasonably practicable, a successor Independent Manager.
The Company shall pay the Independent Manager an annual fee of not
less than $3,500 per year. Each Manager, including the
Independent Manager, is hereby deemed to be a "manager" within the
meaning of Section 18-101(10) of the Act.
6.2 RESIGNATION OF MANAGER. Notwithstanding anything herein to the
contrary, the Independent Manager may not resign as a Manager of
the Company without the consent of the Sole Member.
6.3 DUTIES OF MANAGERS. Each Manager shall execute and deliver the
Management Agreement.
6.4 REMOVAL OF MANAGERS. A Manager (including the Independent Manager)
may be removed, at any time, with or without cause, upon the
written election of the Sole Member.
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ARTICLE 7
DISSOLUTION, LIQUIDATION AND WINDING-UP
7.1 DISSOLUTION. The Company shall continue until dissolved and its
affairs wound up upon the occurrence of the earliest of the
following events:
(a) the election to dissolve the Company made in writing by the
Sole Member and each Manager, including without limitation the Independent
Manager, as permitted by the Basic Documents;
(b) the sale or other disposition of all or substantially all of
the assets of the Company in accordance with the Basic Documents;
(c) the occurrence of any event that causes the last remaining
Member of the Company to cease to be a member of the Company unless the
business of the Company is continued without dissolution in a manner
permitted by the Act; or
(d) the entry of a decree of judicial dissolution of the Company
pursuant to Section 18-802 of the Act.
7.2 ACCOUNTING. In the event of the dissolution, liquidation and
winding-up of the Company, a proper accounting shall be made of the
capital account of the Sole Member and of the net income or net
loss of the Company from the date of the last previous accounting
to the date of dissolution.
7.3 CERTIFICATE OF CANCELLATION. As soon as possible following the
occurrence of any of the events specified in Section 7.1 and the
completion of the winding up of the Company, the Person winding up
the business and affairs of the Company shall cause to be executed
a Certificate of Cancellation of the Certificate in such form as
shall be prescribed by the Secretary and file the Certificate of
Cancellation of the Certificate as required by the Act.
7.4 WINDING UP. Upon the occurrence of any event specified in
Section 7.1, the Company shall continue solely for the purpose of
winding up its affairs in an orderly manner, liquidating its
assets, and satisfying the claims of its creditors. The Sole
Member, or if the Sole Member has ceased to be a member of the
Company, then any Member so designated by the then current
Members of the Company, shall be responsible for overseeing the
winding up and liquidation of the Company, shall take full
account of the liabilities of the Company and its assets, shall
either cause its assets to be sold or distributed, and if sold as
promptly as is consistent with obtaining the fair market value
thereof, shall cause the proceeds therefrom, to the extent
sufficient therefor, to be applied and distributed as provided in
Section 7.5.
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7.5 ORDER OF PAYMENT OF LIABILITIES UPON DISSOLUTION. After
determining that all known debts and liabilities of the Company,
including all contingent, conditional or unmatured liabilities of
the Company, in the process of winding-up, including, without
limitation, debts and liabilities to the Sole Member in the event
it is a creditor of the Company to the extent otherwise permitted
by law, have been paid or adequately provided for, the remaining
assets shall be distributed in cash or in kind to the Members of
the Company.
7.6 LIMITATIONS ON PAYMENTS MADE IN DISSOLUTION. Except as otherwise
specifically provided in this Agreement, the Members of the Company
shall only be entitled to look solely to the assets of Company for
the return of its positive capital account balance and shall have
no recourse for its Capital Contribution and/or share of net income
(upon dissolution or otherwise) against any of the Independent
Manager or the Management Committee.
7.7 LIMITATION ON LIABILITY. Except as otherwise provided by the Act,
the debts, obligations and liabilities of the Company, whether
arising in contract, tort or otherwise, shall be solely the debts,
obligations and liabilities of the Company, and no Member or
Manager shall be obligated personally for any such debt, obligation
or liability of the Company solely by reason of being a Member or a
Manager.
ARTICLE 8
TRANSFER AND ASSIGNMENT
8.1 TRANSFER OF MEMBERSHIP INTERESTS.
(a) The Sole Member may transfer its Membership Interest, but
the transferee shall not be admitted as a Member except in accordance with
Section 8.2. Until the transferee is admitted as a Member, the Sole Member
shall continue to be the sole member of the Company and to be entitled to
exercise any rights or powers of a Member of the Company with respect to the
Membership Interest transferred.
(b) To the fullest extent permitted by law, any purported
transfer of any Membership Interest in violation of the provisions of this
Agreement shall be wholly void and shall not effectuate the transfer
contemplated thereby. Notwithstanding anything contained herein to the
contrary, the Sole Member may not transfer any Membership Interest in
violation of any provision of this Agreement or in violation of any
applicable Federal or state securities laws.
8.2 ADMISSION OF TRANSFEREE AS MEMBER. A transferee of a Membership
Interest desiring to be admitted as a Member must execute a
counterpart of, or an agreement adopting, this Agreement and shall
not be admitted without the unanimous affirmative vote of the
Management Committee, which vote must include the affirmative vote
of the Independent Manager. Upon admission of the transferee as
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a Member, the transferee shall have, to the extent of the
Membership Interest transferred, the rights and powers and shall
be subject to the restrictions and liabilities of the Sole Member
under this Agreement and the Act. The transferee shall also be
liable, to the extent of the Membership Interest transferred, for
the unfulfilled obligations, if any, of the transferor Member to
make Capital Contributions, but shall not be obligated for
liabilities unknown to the transferee at the time such transferee
was admitted as a Member and that could not be ascertained from
this Agreement. Whether or not the transferee of a Membership
Interest becomes a Member, the Sole Member is not released from
any liability to the Company under this Agreement or the Act.
ARTICLE 9
GENERAL PROVISIONS
9.1 NOTICES. All notices, offers or other communications required or
permitted to be given pursuant to this Agreement shall be in
writing and may be personally served or sent by United States mail
and shall be deemed to have been given when delivered in person or
three business days after deposit in United States mail, registered
or certified, postage prepaid, and properly addressed, by or to the
appropriate party. For purposes of this Section 9.1, the addresses
of the parties hereto shall be as set forth on EXHIBIT A hereto.
The address of any party hereto may be changed by a notice in
writing given in accordance with the provisions of this Section
9.1.
9.2 CONTROLLING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including,
without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of
the State of Delaware, notwithstanding any conflict-of-laws
doctrines of such state or other jurisdiction to the contrary.
9.3 EXECUTION OF COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and
all of which shall together constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as the signatories.
9.4 SEVERABILITY. The provisions of this Agreement are independent of
and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for
any reason any other or others of them may be invalid or
unenforceable in whole or in part.
9.5 ENTIRE AGREEMENT. This Agreement contains the entire understanding
among the parties hereto with respect to the subject matter hereof,
and supersedes all prior and
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contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein
contained.
9.6 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS.
(a) The power to alter, amend or repeal this Agreement shall be
only on the consent of the Sole Member, PROVIDED, that the Company shall not
adopt a new Limited Liability Company Agreement or alter, amend or repeal any
provision of Sections 2.3, 2.6, 2.7, 3.2, 6.2, 7.1, 8.2, 9.6 and 9.11 of this
Agreement (the "Restricted Provisions") without the unanimous affirmative
vote of the Management Committee, which vote must include the affirmative
vote of the Independent Manager.
(b) The Company's power to alter, amend or repeal the
Certificate shall be vested in the Sole Member; PROVIDED, that the Company
shall not amend, alter, change or repeal any provision of the Restricted
Provisions without the unanimous affirmative vote of the Management
Committee, which vote must include the affirmative vote of the Independent
Manager. Upon obtaining the approval of any amendment, supplement or
restatement as to the Certificate, the Company shall cause a Certificate of
Amendment or Amended and Restated Certificate to be prepared, executed and
filed in accordance with the Act.
9.7 PARAGRAPH HEADINGS. The paragraph headings in this Agreement are
for convenience and they form no part of this Agreement and shall
not affect its interpretation.
9.8 GENDER, ETC. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context indicates is
appropriate. The term "including" shall mean "including, but not
limited to."
9.9 NUMBER OF DAYS. In computing the number of days (other than
Business Days) for purposes of this Agreement, all days shall be
counted, including Saturdays, Sundays and holidays; PROVIDED,
HOWEVER, that if the final day of any time period falls on a
Saturday, Sunday or holiday on which national banks are or may
elect to be closed, then the final day shall be deemed to be the
next day which is not a Saturday, Sunday or such holiday.
9.10 ASSURANCES. The Sole Member shall hereafter execute and deliver
such further instruments and do such further acts and things as may
be reasonably required or useful to carry out the intent and
purpose of this Agreement and as are not inconsistent with the
terms hereof.
9.11 ENFORCEMENT BY INDEPENDENT MANAGER. Notwithstanding any other
provision of this Agreement, the Sole Member agrees that this
Agreement (including without limitation, Sections 2.3, 2.6, 2.7,
3.2, 6.2, 7.1, 8.2, 9.6 and 9.11) constitutes a legal,
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valid and binding agreement of the Sole Member, and is
enforceable against the Sole Member by the Independent Manager in
accordance with its terms. The Independent Manager is an
intended beneficiary of this Agreement.
ARTICLE 10
INDEMNIFICATION
10.1 INDEMNIFICATION. Subject to Section 10.3 of this Article, the
Company shall, to the fullest extent permitted by law, indemnify
any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Company) by reason of the fact that he is or was a manager,
officer, employee or agent of the Company, or is or was serving at
the request of the Company as a manager, director, officer,
employee or agent of another company, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was
unlawful.
10.2 INDEMNIFICATION FOR SUITS BY OR IN RIGHT OF COMPANY. Subject to
Section 10.3 of this Article, the Company shall, to the fullest
extent permitted by law, indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor by reason of the fact
that he is or was a manager, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a
manager, director, officer, employee or agent of another company,
partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Company; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Company unless and
only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and
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reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
10.3 AUTHORIZATION. Any indemnification under this Article (unless
ordered by a court) shall be made by the Company only as authorized
in the specific case upon a determination that indemnification of
the manager, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct
set forth in Section 10.1 or Section 10.2, of this Article, as the
case may be. Such determination shall be made (a) by independent
legal counsel in a written opinion or (b) by the Sole Member to
the extent, however, that a manager, officer, employee or agent of
the Company has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the
necessity of authorization in the specific case.
10.4 GOOD FAITH. For purposes of any determination under Section 10.3
of this Article, a person shall be deemed to have acted in good
faith and in a manner he/she reasonably believed to be in or not
opposed to the best interests of the Company, or, with respect to
any criminal action or proceeding, to have had no reasonable cause
to believe his/her conduct was unlawful, if the action is based on
the records or books of account of the Company or another
enterprise, or on information supplied to him by the officers of
the Company or another enterprise in the course of their duties, or
on the advice of legal counsel for the Company or another
enterprise or on information or records given or reports made to
the Company or another enterprise by an independent certified
public accountant or by an appraiser or other expert selected with
reasonable care by the Company or another enterprise. The term
"another enterprise" as used in this Section 10.4 shall mean any
other Company or any partnership, joint venture, trust or other
enterprise of which such person is or was serving at the request of
the Company as a manager, director, officer, employee or agent.
The provisions of this Section 10.4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct
set forth in Sections 10.1 or 10.2 of this Article, as the case may
be.
10.5 COURT ACTION. Notwithstanding any contrary determination in the
specific case under Section 10.3 of this Article, and
notwithstanding the absence of any determination thereunder, any
manager, officer, employee or agent may apply to any court of
competent jurisdiction in the State of Delaware for indemnification
to the extent otherwise permissible under Sections 10.1 and 10.2 of
this Article. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the
manager, officer, employee or agent is proper in the circumstances
because he has met the applicable standards of conduct set forth in
Section 10.1 and 10.2 of this Article, as the case may be. Notice
of any application
16
<PAGE>
for indemnification pursuant to this Section 10.5 shall be given
to the Company promptly upon the filing of such application.
10.6 EXPENSES. Expenses incurred in defending or investigating a
threatened or pending action, suit or proceeding may be paid by the
Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the
manager, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be
indemnified by the Company as authorized in this Article.
10.7 NON-EXCLUSIVITY. The indemnification and advancement of expenses
provided by or granted pursuant to this Article shall not be deemed
exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under
any by-law, agreement, contract, vote or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the
policy of the Company that indemnification of the persons specified
in Sections 10.1 and 10.2 of this Article shall be made to the
fullest extent permitted by law. The provisions of this Article
shall not be deemed to preclude the indemnification of any person
who is not specified in Section 10.1 or 10.2 of this Article but
who the Company has the power of obligation to indemnify under the
provisions of the Act, or otherwise.
10.8 INSURANCE. The Company may purchase and maintain insurance on
behalf of any person who is or was a manager, officer, employee or
agent of the Company, or is or was serving at the request of the
Company as a manager, director, officer, employee or agent of
another company, partnership, joint venture, trust or other
enterprise against any liability asserted against him/her and
incurred by him/her in any such capacity, or arising out of his/her
status as such, whether or not the Company would have the power or
the obligation to indemnify him/her against such liability under
the provisions of this Article.
10.9 CONSOLIDATION/MERGER. For purposes of this Article, references
to "the Company" shall include, in addition to the resulting
Company, any constituent Company (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had the power and
authority to indemnify its managers, directors, officers, and
employees or agents, so that any person who is or was a manager,
director, officer, employee or agent of such constituent Company,
or is or was serving at the request of such constituent Company
as a manager, director, officer, employee or agent of another
Company, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this
Article with respect to the resulting or surviving Company as he
would have with respect to such constituent Company if its
separate existence had continued.
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10.10 HEIRS, EXECUTORS, AND ADMINISTRATORS. The indemnification and
advancement of expenses provided by, or granted pursuant to, this
section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a manager,
director, office, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such a person.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Sole Member hereto has executed this
Agreement or caused this Agreement to be executed on its behalf as of the
date first above written.
ILLINOIS POWER COMPANY
By: /s/ Robert A. Schultz
----------------------------
Name: Robert A. Schultz
Title: Vice President-Finance
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EXHIBIT A
NOTICE ADDRESS OF SOLE MEMBER
NAME OF MEMBER NOTICE ADDRESS
Illinois Power Company 500 South 27th Street
Decatur, Illinois 62525
Attn: Treasury Department
<PAGE>
EXHIBIT B
MANAGEMENT AGREEMENT
_________, 1998
Illinois Power Securitization Limited Liability Company
c/o Illinois Power Company
500 South 27th Street
Decatur, Illinois 62525
RE: MANAGEMENT AGREEMENT - ILLINOIS POWER SECURITIZATION LIMITED
LIABILITY COMPANY
Ladies and Gentlemen:
For good and valuable consideration, each of the undersigned
persons, who have been designated as members of the management committee of
Illinois Power Securitization Limited Liability Company, a Delaware limited
liability company (the "Company") in accordance with the Limited Liability
Company Agreement of the Company, dated as of September 10, 1998, as it may
be amended or restated from time to time (the "LLC Agreement"), hereby agree:
1. To accept such person's rights and authority as a member of
the Management Committee (as defined in the LLC Agreement) under the LLC
Agreement and to perform and discharge such person's duties and obligations
as a member of the Management Committee under the LLC Agreement and agrees
that such rights, authority, duties and obligations under the LLC Agreement
shall continue until such person's successor as a member of the Management
Committee is designated or until such person's resignation or removal as a
member of the Management Committee in accordance with the LLC Agreement. A
member of the Management Committee is designated as a "manager" of the
Company within the meaning of the Delaware Limited Liability Company Act.
2. THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND ALL RIGHTS AND
REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Management
Agreement as of the day and year first above written.
__________________________________
Name:
__________________________________
Name:
__________________________________
Name:
__________________________________
Name:
__________________________________
Name:
2
<PAGE>
EXHIBIT 4.1
Form of Declaration of Trust
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ILLINOIS POWER SPECIAL PURPOSE TRUST
DECLARATION OF TRUST
Dated as of , 1998
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
As Delaware Trustee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . 1
SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.2 Office . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.3 Purposes and Powers. . . . . . . . . . . . . . . . . . . . 2
SECTION 2.4 Declaration of Trust . . . . . . . . . . . . . . . . . . . 3
SECTION 2.5 Trust Estate . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.6 Liability of the Grantee . . . . . . . . . . . . . . . . . 4
SECTION 2.7 Title to Trust Estate. . . . . . . . . . . . . . . . . . . 4
SECTION 2.8 Situs of Trust . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III - DELIVERY OF CERTAIN DOCUMENTS. . . . . . . . . . . . . . . . . . 5
SECTION 3.1 Documents Relating to Registration of Notes. . . . . . . . 5
SECTION 3.2 Documents Relating to Issuance of Notes. . . . . . . . . . 6
SECTION 3.3 Documents Relating to Sale Agreements. . . . . . . . . . . 6
SECTION 3.4 Subsequent Sale Agreements . . . . . . . . . . . . . . . . 6
ARTICLE IV - ACTIONS BY TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.1 Prior Notice to the Grantee with Respect to Certain
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.2 Action by the Grantee with Respect to Certain Matters. . . 9
SECTION 4.3 Action by the Grantee with Respect to Bankruptcy . . . . . 9
SECTION 4.4 Restrictions on Grantee Power. . . . . . . . . . . . . . . 9
SECTION 4.5 Application of Trust Funds . . . . . . . . . . . . . . . . 9
ARTICLE V - THE TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5.1 Duties . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5.2 Rights of the Delaware Trustee . . . . . . . . . . . . . .11
SECTION 5.3 Acceptance of Trusts and Duties. . . . . . . . . . . . . .11
SECTION 5.4 Action upon Instruction by the Grantee . . . . . . . . . .13
SECTION 5.5 Furnishing of Documents. . . . . . . . . . . . . . . . . .14
SECTION 5.6 Representations and Warranties . . . . . . . . . . . . . .14
SECTION 5.7 Reliance: Advice of Counsel. . . . . . . . . . . . . . . .16
SECTION 5.8 Trustees May Own Notes . . . . . . . . . . . . . . . . . .17
SECTION 5.9 Compensation and Indemnity . . . . . . . . . . . . . . . .17
SECTION 5.10 Replacement of a Trustee . . . . . . . . . . . . . . . . .17
SECTION 5.11 Merger or Consolidation of Delaware Trustee. . . . . . . .18
<PAGE>
SECTION 5.12 Appointment of Co-Trustee or Separate Trustee. . . . . . .18
SECTION 5.13 Eligibility Requirements for Delaware Trustee. . . . . . .20
ARTICLE VI - TERMINATION OF DECLARATION. . . . . . . . . . . . . . . . . . . .20
SECTION 6.1 Termination of Declaration . . . . . . . . . . . . . . . .20
SECTION 6.2 [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE VII - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 7.1 No Legal Title to Trust Estate . . . . . . . . . . . . . .21
SECTION 7.2 Limitations on Rights of Others. . . . . . . . . . . . . .21
SECTION 7.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 7.4 Severability . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 7.5 Amendments Without Consent of Holders. . . . . . . . . . .21
SECTION 7.6 Amendments With Consent of Holders . . . . . . . . . . . .22
SECTION 7.7 Form of Amendments . . . . . . . . . . . . . . . . . . . .23
SECTION 7.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 7.9 Successors and Assigns . . . . . . . . . . . . . . . . . .23
SECTION 7.10 No Petition Covenant . . . . . . . . . . . . . . . . . . .23
SECTION 7.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 7.12 Governing Law. . . . . . . . . . . . . . . . . . . . . . .23
EXHIBITS
Exhibit A Form of Certificate of Trust
ii
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THIS IS A DECLARATION OF TRUST, dated as of ________, 1998 (as
amended or restated from time to time, the "Declaration"), by FIRST UNION
TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, acting
hereunder not in its individual or corporate capacity but solely as Delaware
trustee (the "Delaware Trustee"), and __________ and ____________, each as a
Beneficiary Trustee and acting hereunder solely for the limited purposes
specified in SECTION 3.1 (collectively, the "Beneficiary Trustees" and,
together with the Delaware Trustee, the "Trustees"), created for the purpose
of holding assets (the "Trust Estate" as herein defined) assigned and
transferred to the Trust by Illinois Power Securitization Limited Liability
Company, a Delaware special purpose limited liability company (the "Grantee")
pursuant to the terms of the Sale Agreement or a Subsequent Sale Agreement
and pledging and assigning the same in accordance with the terms hereof for
the benefit of the Grantee and, at the direction of the Grantee, for the
benefit of the holders of Notes to be issued by the trust created hereby, as
provided herein and in the other Basic Documents.
NOW, THEREFORE, the Delaware Trustee hereby agrees to hold all
assets and funds in trust transferred to it hereunder, to assign and pledge
the same as Note Collateral for Notes, as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS. All references herein to "the
Declaration" or "this Declaration" are to this Declaration of Trust, all
references herein to the "Note Issuer" are to the trust created hereunder as
issuer of the Notes and all references herein to Articles, Sections,
subsections, Schedules and Exhibits are to Articles, Sections, subsections,
Schedules and Exhibits of this Declaration, unless otherwise specified.
Unless otherwise defined herein, capitalized terms used herein and not
otherwise defined herein shall have the meanings set forth in [that certain
Indenture (including Appendix A thereto) dated as of the date hereof between
Illinois Power Special Purpose Trust, as the Note Issuer, and Harris Trust
and Savings Bank, as the Indenture Trustee], [Appendix A hereto,] as the same
may be amended, supplemented or modified from time to time.
ARTICLE II
ORGANIZATION
SECTION 2.1 NAME. The Trust created hereby shall be known as
"Illinois Power Special Purpose Trust," the "Note Issuer" or "IPSPT," in
which name the Delaware Trustee may conduct the business of the Trust, make
and execute contracts and other instruments on behalf of the Trust and sue
and be sued on behalf of the Trust. In addition, the Delaware Trustee may
conduct the business of the Trust in its own name, as trustee hereunder, to
the extent deemed necessary or appropriate by the Delaware Trustee, in its
sole discretion.
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SECTION 2.2 OFFICE. The office of the Trust shall be in care of
the Delaware Trustee at the Corporate Trust Office or at such other address
in Delaware as the Delaware Trustee may designate by written notice to the
Grantee.
SECTION 2.3 PURPOSES AND POWERS. The purpose of the Trust is to
engage in the following activities:
(a) to acquire, manage, administer, pledge, assign, sell and collect
Intangible Transition Property and all other Note Collateral or other
assets constituting the Trust Estate;
(b) to retain and pledge as security the Capital Contribution;
(c) to register, or cause the registration, of the Notes as
contemplated by SECTION 3.1 for purposes of issuance and sale;
(d) to issue and sell Notes in accordance with a Trustee's Issuance
Certificate pursuant to the Indenture and any supplemental indenture or
Trustee's Issuance Certificate thereunder or to another indenture, note
purchase agreement or similar agreement that may be described in the Sale
Agreement or any Subsequent Sale Agreement entered into in accordance with
the terms hereof, and to sell, transfer or exchange Notes pursuant to the
terms of any underwriting agreement or other agreement entered into
pursuant to the terms of the Sale Agreement or any Subsequent Sale
Agreement;
(e) to acquire property and assets from the Grantee pursuant to the
Sale Agreement or any Subsequent Sale Agreement, to make payments on the
Notes, to make distributions of any amounts released to the Trust and
forever discharged from the terms of the Indenture and to pay the
organizational, start-up and transactional expenses of the Trust;
(f) to establish, acquire, hold and terminate any Swap Agreements
upon the terms of and as provided in the Sale Agreement or any Subsequent
Sale Agreement;
(g) to assign, grant, transfer, pledge, mortgage and convey the
Intangible Transition Property and all other Note Collateral pursuant to
the terms of the Indenture;
(h) to enter into and perform its obligations and exercise its rights
under the Basic Documents to which it is a party;
(i) to execute and deliver any Trustee's Issuance Certificate
authorized pursuant to the Sale Agreement or any Subsequent Sale Agreement;
(j) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
2
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(k) subject to compliance with the Basic Documents and the
requirements of any related Sale Agreement, to engage in such other
activities as may be required in connection with conservation of the Trust
Estate and the making of payments to the holders of Notes from time to
time.
The Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of the Basic
Documents or as required by applicable law.
SECTION 2.4 DECLARATION OF TRUST. The Delaware Trustee hereby
declares that it shall hold the Trust Estate in trust as herein provided for
the benefit of the Grantee and the rights of the Holders of the Notes under
the Basic Documents, from and after the date hereof until termination of this
Trust as herein provided, subject to the obligations of the Trust under the
Basic Documents. It is the intention that the Trust shall constitute a
business trust under the Business Trust Act and that this Declaration shall
constitute the governing instrument of such business trust. The Delaware
Trustee shall have all rights, powers and duties set forth herein and, to the
extent not inconsistent herewith, in the Business Trust Act with respect to
accomplishing the purposes of the Trust. The Delaware Trustee and the
Beneficiary Trustees agree to file the Certificate of Trust pursuant Section
3810 ET SEQ. of the Business Trust Act in connection with the formation of
the Trust as a business trust under the Business Trust Act.
SECTION 2.5 TRUST ESTATE. Prior to, or contemporaneously with,
the issuance of each Series of Notes:
(a) the Grantee and the Trust shall enter into a Sale Agreement
pursuant to which the Grantee shall assign to the Trust the related
Intangible Transition Property and the Related Assets which the Trust shall
accept and pledge, pursuant to the Indenture, as collateral for such Series
of Notes that the Trust will issue and sell (the proceeds of such sale
shall be applied, under the terms of the related Sale Agreement, to pay
obligations of the Grantee incurred for the purpose of inducing Illinois
Power to request the ICC's issuance to the Grantee of the related
Intangible Transition Property); and
(b) the Capital Subaccount shall be funded up to the Required Capital
Level with respect to each Series of Notes, such amount to be held in the
Capital Subaccount in accordance with the Indenture.
(c) Upon the assignment of related Intangible Transition Property and
the Related Assets and the transfer and conveyance of the Required Capital
Level as described in paragraphs (a) and (b) above, the Grantee shall be
the sole beneficial owner of the Trust, such beneficial interest to be
evidenced by the maintenance of the Certificate Register, as defined in
SECTION 5.1(h) below.
3
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The Grantee shall pay organizational expenses (including all fees and
expenses associated with the preparation, filing and prosecution of the
documents referred to in SECTION 3.1) of the Trust as they may arise or
shall, upon the request of the Delaware Trustee, promptly reimburse the
Delaware Trustee for any such expenses paid by the Delaware Trustee.
SECTION 2.6 LIABILITY OF THE GRANTEE.
(a) Other than to the extent it specifically agrees in this
Declaration or otherwise, the Grantee shall not have any personal liability
for any liability or obligation of the Trust. The Grantee shall be liable
directly to and shall indemnify any injured party for all losses, claims,
damages, liabilities and expenses of the Trust to the extent that the
Grantee would be liable if the Trust were a limited partnership under the
Delaware Revised Uniform Limited Partnership Act in which the Grantee were
a general partner (and the Grantee shall be liable to and indemnify the
Trust for any such losses, claims, damages, liabilities and expenses paid
or otherwise borne by the Trust to the extent that the Grantee would have
been so liable if the Trust had no assets and the injured party had made a
claim directly against the Grantee); PROVIDED, HOWEVER, that the Grantee
shall not be liable for: (i) any obligations which by their terms or nature
are nonrecourse to the Grantee, including, without limitation, any losses
incurred by a Holder of a Note in its capacity as an investor in the Notes;
or (ii) any losses, claims, damages, liabilities and expenses arising out
of the imposition by any taxing authority of any federal, state or local
income or franchise taxes or any other taxes imposed on or measured by
gross or net income, gross or net receipts, capital, net worth and similar
items (including any interest, penalties or additions with respect thereto)
upon the Delaware Trustee, in its individual capacity, either of the
Beneficiary Trustees, any Holder, the Indenture Trustee, or any other
Person acting as depositary, trustee or agent with respect to any Note
(including any liabilities, costs or expenses with respect thereto) with
respect to the Intangible Transition Property not specifically indemnified
or represented to hereunder. Any third party creditors of the Trust (other
than in connection with the obligations described in the proviso to the
preceding sentence, for which the Grantee shall not be liable) shall be
deemed third party beneficiaries of this SECTION 2.6.
(b) Except as otherwise provided in the Servicing Agreement, any
property of the Trust not necessary for the payment of the Trust's
obligations or required to be set aside or paid to any account and which is
released to the Note Issuer free from the lien of the Indenture as provided
in Section 8.02 thereof shall be released to the Grantee as specified in an
officer's certificate of the Grantee.
SECTION 2.7 TITLE TO TRUST ESTATE. Legal title to the Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Trust Estate to be vested in a trustee or trustees, in which case title
shall be deemed to be vested in the Delaware Trustee, a co-trustee and/or a
separate trustee, as the case may be.
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SECTION 2.8 SITUS OF TRUST. The Trust shall be located and
administered in the State of Delaware. All bank accounts maintained by the
Delaware Trustee and the Indenture Trustee on behalf of the Trust shall be
located in the State of Delaware or Illinois. The Trust shall not have any
employees in any state other than Delaware; PROVIDED, HOWEVER, that nothing
herein shall restrict or prohibit the Delaware Trustee (in its individual
capacity but not as Delaware Trustee) from having employees within or without
the State of Delaware. Payments shall be received by the Trust only in
Delaware or Illinois, and payments shall be made by the Trust only from
Delaware or Illinois. The only office of the Trust shall be the Corporate
Trust Office in Delaware. To the greatest extent possible, the Delaware
Trustee shall conduct the Trust's activities from Delaware, sign documents on
behalf of the Trust in Delaware and maintain bank accounts (other than those
accounts maintained under the Indenture) and business records on behalf of
the Trust in Delaware.
ARTICLE III
DELIVERY OF CERTAIN DOCUMENTS
SECTION 3.1 DOCUMENTS RELATING TO REGISTRATION OF NOTES. The
Beneficiary Trustees, acting singly or jointly, are hereby authorized and
directed to:
(a) execute and file on behalf of the Trust with the SEC a
registration statement on Form S-3, including any pre-effective or
post-effective amendments to such registration statement (including the
prospectus, the prospectus supplement and the exhibits contained
therein), relating to the Notes;
(b) determine the states in which to take appropriate action to
qualify or register for sale all or part of the Notes and to take any and
all such acts as they deem necessary or advisable to comply with the
applicable laws of any of those states, including the execution and filing
on behalf of the Trust of such applications, reports, surety bonds,
irrevocable consents, appointments of attorney for service of process and
other papers and documents as shall be necessary or desirable in connection
therewith; and
(c) to do or cause to be done all such other acts or things and to
execute and deliver all such instruments and documents that any Beneficiary
Trustee shall deem necessary or appropriate to carry out the intent of this
Section.
In the event that any filing referred to above is required by the rules and
regulations of the SEC or any state securities or "Blue Sky" laws, to be
executed on behalf of the Trust by the Delaware Trustee, then the Delaware
Trustee, not in its individual capacity, but solely in its capacity as trustee
of the Trust, is hereby authorized and directed to join in any such filing and
to execute on behalf of the Trust any and all of the foregoing.
5
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SECTION 3.2 DOCUMENTS RELATING TO ISSUANCE OF NOTES. The Delaware
Trustee is hereby directed to execute and deliver from time to time, in
accordance with the terms of a Sale Agreement, and as instructed in writing by
the Grantee, Trustee's Issuance Certificates and all other documents and
instruments as may be necessary or desirable to issue each Series of Notes
pursuant to the provisions of the Indenture.
SECTION 3.3 DOCUMENTS RELATING TO SALE AGREEMENTS. The Delaware
Trustee is hereby directed to execute and deliver all agreements, documents,
certificates, and other instruments as may be required under and pursuant to the
terms of the Sale Agreement and any Subsequent Sale Agreements.
SECTION 3.4 SUBSEQUENT SALE AGREEMENTS. The Delaware Trustee on
behalf of the Trust shall from time to time execute and deliver Subsequent Sale
Agreements at the written direction of the Grantee upon delivery by the Grantee
to the Delaware Trustee, and receipt by the Delaware Trustee, or the causing to
occur by the Grantee, of the following:
(a) GRANTEE ACTION. The Grantee shall authorize and direct the
execution, authentication and delivery of such Subsequent Sale Agreement by
the Delaware Trustee.
(b) AUTHORIZATIONS. An Opinion of Counsel that no authorization,
approval or consent of any governmental body or bodies at the time having
jurisdiction in the premises is required for the valid execution and
delivery by the Grantee of such Subsequent Sale Agreement, except for such
authorizations, approvals or consents of governmental bodies that have been
obtained and copies of which have been delivered with such Opinion of
Counsel.
(c) AUTHORIZING CERTIFICATE. A certificate of a Responsible Officer
of the Grantee certifying that the Grantee has duly authorized the
execution and delivery of such Subsequent Sale Agreement.
(d) CERTIFICATE OF THE GRANTEE. A certificate of a Responsible
Officer of the Grantee, dated as of the Series Issuance Date, to the effect
that, in the case of the Intangible Transition Property to be sold pursuant
to such Subsequent Sale Agreement immediately prior to the conveyance
thereof to the Trust pursuant to such Subsequent Sale Agreement:
(i) the Grantee is the owner of such Intangible Transition
Property, free and clear of any lien, mortgage, pledge, charge,
security interest, adverse claim or other encumbrance; the Grantee has
not assigned any interest or participation in such Intangible
Transition Property and the proceeds thereof other than to the Trust
pursuant to such Subsequent Sale Agreement (or, if assigned, it has
been released); the Grantee has the power and right to convey such
Intangible Transition Property and the proceeds thereof to the Trust;
and the Grantee, subject to the terms of such Subsequent Sale
Agreement, has validly conveyed to the Trust all of its right, title
and interest in and to such Intangible Transition Property and the
proceeds thereof,
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free and clear of any lien, mortgage, pledge, charge, security
interest, adverse claim or other encumbrance; and
(ii) the copy of the Subsequent Funding Order attached to such
Subsequent Sale Agreement creating such Intangible Transition Property
is true and correct.
(e) OPINION OF COUNSEL. An Opinion of Counsel dated the Series
Issuance Date, subject to the customary exceptions, qualifications and
assumptions contained therein, to the effect that:
(i) the Grantee is duly formed and is validly existing in good
standing under the laws of the jurisdiction of its organization;
(ii) the Grantee has the power and authority to execute and
deliver such Subsequent Sale Agreement, and such Subsequent Sale
Agreement has been duly authorized, executed and delivered by the
Grantee;
(iii) such Subsequent Sale Agreement is a valid and binding
agreement of the Grantee, enforceable in accordance with its terms,
except as such enforceability may be subject to bankruptcy,
insolvency, reorganization and other similar laws affecting the rights
of creditors generally and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
at law);
(iv) upon the delivery of such fully executed Subsequent Sale
Agreement to the Trust and the payment of the purchase price of the
Intangible Transition Property and the Related Assets conveyed thereby
by the Trust to the Grantee pursuant to such Subsequent Sale
Agreement, then (I) the transfer of the Intangible Transition Property
and the Related Assets by the Grantee to the Trust pursuant to such
Subsequent Sale Agreement conveys the Grantee's right, title and
interest in such Intangible Transition Property and the Related Assets
to the Trust and will be treated under state law as an absolute
transfer of all of the Grantee's right, title, and interest in such
Intangible Transition Property and the Related Assets, other than for
federal and state income and franchise tax purposes, (II) such
transfer of such Intangible Transition Property and the Related Assets
is perfected, (III) such transfer has priority over any other
assignment of the Intangible Transition Property and the Related
Assets and (IV) such Intangible Transition Property and the Related
Assets is free and clear of all liens created prior to its transfer to
the Trust pursuant to such Subsequent Sale Agreement; and
(v) such other matters as the Delaware Trustee may reasonably
require.
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(f) RATING AGENCY CONDITION. The Delaware Trustee shall receive
evidence reasonably satisfactory to it that the Rating Agency Condition
will be satisfied upon the execution and delivery of any Notes to be issued
in connection with the execution and delivery of such Subsequent Sale
Agreement.
(g) OTHER REQUIREMENTS. Such other documents, certificates,
agreements, instruments or opinions as the Delaware Trustee may reasonably
require.
ARTICLE IV
ACTIONS BY TRUSTEES
SECTION 4.1 PRIOR NOTICE TO THE GRANTEE WITH RESPECT TO CERTAIN
MATTERS. Except as otherwise provided in this ARTICLE IV, the Delaware Trustee
shall not take action with respect to the following matters, unless (i) the
Delaware Trustee shall have notified the Grantee in writing of the proposed
action at least 30 days before the taking of such action, and (ii) the Grantee
shall not have notified the Delaware Trustee in writing prior to the 30th day
after such notice is given that the Grantee has withheld consent or provided
alternative direction:
(a) the initiation of any action, claim or lawsuit by the Trust and
the compromise of any action, claim or lawsuit brought by or against the
Trust (other than any action, claim or lawsuit brought by the Servicer in
the name of the Trust to enforce the terms of any Intangible Transition
Property or other related right);
(b) the election by the Trust to file an amendment to the Certificate
of Trust (except in such cases where such amendment is required by the
Business Trust Act);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Holder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Holder is not required and such
amendment materially adversely affects the interest of the Grantee; or
(e) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee, or the consent to the
assignment by the Note Registrar, Paying Agent or Indenture Trustee of its
obligations under the Indenture or this Declaration, as applicable.
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SECTION 4.2 ACTION BY THE GRANTEE WITH RESPECT TO CERTAIN MATTERS.
(a) The Delaware Trustee shall have the power to consent to the
appointment of a successor Servicer only in accordance with the provisions
of Section 7.02 of the Servicing Agreement and subject to any approval
required by the terms of the Indenture.
(b) Except as otherwise expressly agreed by the Grantee (or, with
respect to CLAUSE (ii), the amendment provisions of any Basic Document),
the Delaware Trustee shall not (i) take any action with respect to any
election by the Trust to file an amendment to the Certificate of Trust,
(ii) amend, change, modify or terminate any Basic Document, or (iii) sell
the Intangible Transition Property transferred to the Trust pursuant to the
Sale Agreement or any Subsequent Sale Agreement or any interest therein
after termination of the Indenture.
SECTION 4.3 ACTION BY THE GRANTEE WITH RESPECT TO BANKRUPTCY. No
Trustee shall have any power to commence a voluntary proceeding in bankruptcy
relating to the Trust; PROVIDED, HOWEVER, the Delaware Trustee may commence a
voluntary proceeding in bankruptcy relating to the Trust with the prior approval
of the Grantee and the delivery to the Delaware Trustee of a certificate signed
by the Grantee and certifying that the Grantee reasonably believes that the
Trust is insolvent.
SECTION 4.4 RESTRICTIONS ON GRANTEE POWER. The Grantee shall not
direct any of the Trustees to take or refrain from taking any action if such
action or inaction would be contrary to any obligation of the Trust, the
Delaware Trustee or a Beneficiary Trustee (as the case may be) under this
Declaration or any other Basic Document or would be contrary to SECTION 2.3, nor
shall any Trustee be obligated to follow any such direction, if given.
SECTION 4.5 APPLICATION OF TRUST FUNDS. Pursuant to the terms of
the Indenture, for so long as there are any outstanding Notes, the Trust shall
cause the Indenture Trustee to establish and maintain the Collection Account and
all subaccounts thereof under the Indenture for the benefit of Holders of the
Notes and the Trust. The funds held in the Collection Account and such
subaccounts shall be deposited, invested, administered, allocated and
distributed in the manner set forth in the Indenture.
ARTICLE V
THE TRUSTEES
SECTION 5.1 DUTIES.
(a) Each Trustee undertakes to perform such duties, and only such
duties, as are specifically set forth for such Trustee in this Declaration,
including, in the case of the Delaware Trustee, the administration of the
Trust in the interest of the Grantee and the rights of the Holders of the
Notes under the Basic Documents and the provisions of this Declaration. No
implied covenants or obligations shall be read into this Declaration.
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(b) Notwithstanding the foregoing, the Delaware Trustee shall be
deemed to have discharged all of its duties and responsibilities hereunder
and under the Basic Documents to the extent the Servicer has agreed in the
Servicing Agreement or the Administrator has agreed in the Administration
Agreement to perform any act or to discharge any duty of the Delaware
Trustee or the Trust hereunder or under any other Basic Document, and the
Delaware Trustee shall not be liable for the default or failure of the
Servicer or the Administrator, as applicable, to carry out its obligations
under such agreements.
(c) In the absence of bad faith on its part, a Trustee may
conclusively rely upon certificates or opinions furnished to such Trustee
and conforming to the requirements of this Declaration in determining the
truth of the statements and the correctness of the opinions contained
therein; PROVIDED, HOWEVER, that such Trustee shall have examined such
certificates or opinions so as to determine compliance of the same with the
requirements of this Declaration.
(d) A Trustee may not be relieved from liability for its own grossly
negligent action, its own grossly negligent failure to act or its own
willful misconduct, except that:
(i) this SECTION 5.1(d) shall not limit the effect of SECTIONS
5.1(a) or 5.1(b);
(ii) the Delaware Trustee shall not be liable (x) for any error
of judgment made in good faith by a Responsible Officer unless it is
proved that the Delaware Trustee was grossly negligent in ascertaining
the pertinent facts or (y) with respect to any action it takes or
omits to take in good faith in accordance with a direction received by
it hereunder or pursuant to any Basic Document; and
(iii) a Beneficiary Trustee shall not be liable (x) for any
error of judgment made in good faith by such Beneficiary Trustee
unless it is proved that such Beneficiary Trustee was grossly
negligent in ascertaining the pertinent facts or (y) with respect to
any action such Beneficiary Trustee takes or omits to take in good
faith in accordance with a direction received by such Beneficiary
Trustee hereunder or pursuant to any Basic Document.
(e) Monies received, if any, by the Delaware Trustee hereunder need
not be segregated in any manner except to the extent required by law or the
Basic Documents, may be deposited under such general conditions as may be
prescribed by law, and the Delaware Trustee shall not be liable for any
interest thereon.
(f) No Trustee shall take any action that (i) is inconsistent with
the purposes of the Trust set forth in SECTION 2.3, or (ii) would, to the
actual knowledge of such Trustee, if such Trustee is a Beneficiary Trustee,
or to the actual knowledge of a Responsible Officer of the Delaware
Trustee, result in the Trust's becoming taxable as a corporation. The
Grantee
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shall not direct or cause the Trustees to take action that would violate
the provisions of this SECTION 5.1(f).
(g) The Delaware Trustee shall maintain an office or offices or
agency or agencies where notices and demands to or upon the Trust or the
Delaware Trustee in respect of the Basic Documents may be served. The
Delaware Trustee initially designates the Corporate Trust Office as its
principal office for such purposes. The Delaware Trustee shall give prior
written notice to the Grantee of any change in the location of any such
office or agency. In no event, however, shall the Delaware Trustee change
the office or agency designated for the foregoing purposes to any other
jurisdiction unless the Delaware Trustee has received an opinion of
independent tax counsel (as selected by, and in form and substance
reasonably satisfactory to, Illinois Power) that such jurisdiction will not
impose any additional tax upon the Trust solely as a result of the
maintenance of such office or agency in such jurisdiction.
(h) The Delaware Trustee shall keep or cause to be kept, at its
Corporate Trust Office at One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801, Attention: Corporate Trust Administration, a
register or registers for the purpose of registering the name and address
of the beneficial owner of the Trust (the "Certificate Register"). The
Delaware Trustee shall be the registrar (the "Certificate Registrar") and
shall, with the consent of the Administrator, provide for the registration
of the identity of the beneficial owner and, subject to such reasonable
regulations as it may prescribe, registration of transfers of such
beneficial interest. The provisions of this Section 5.1(h) shall apply to
the Delaware Trustee in its role as Certificate Registrar, for so long as
the Delaware Trustee shall act as Certificate Registrar hereunder.
SECTION 5.2 RIGHTS OF THE DELAWARE TRUSTEE. The Delaware Trustee
is hereby authorized and directed to execute and deliver, on behalf of the
Trust, the Basic Documents and each certificate or other document attached as an
exhibit to or contemplated by the Basic Documents to which the Trust is to be a
party, in such form as the Grantee shall approve as evidenced conclusively by
the Delaware Trustee's execution thereof. In addition to the foregoing, the
Delaware Trustee is authorized, but shall not be obligated, to take all actions
required of the Trust pursuant to the Basic Documents. The Delaware Trustee is
further authorized from time to time to take such action as the Servicer shall
request with respect to any Basic Document that the Servicer shall determine to
be necessary or appropriate in connection with its servicing obligations under
the Servicing Agreement.
SECTION 5.3 ACCEPTANCE OF TRUSTS AND DUTIES. Except as otherwise
provided in this ARTICLE V, in accepting the trusts hereby created, each Trustee
acts solely as a trustee hereunder and not in its individual capacity and all
Persons having any claim against a Trustee by reason of the transactions
contemplated by this Declaration or any other Basic Document shall look only to
the Trust Estate for payment or satisfaction thereof. Each Trustee accepts the
trusts hereby created and agrees to perform such Trustee's duties hereunder with
respect to such trusts but only upon the terms of this Declaration and the other
Basic Documents. The Delaware Trustee also agrees to disburse all moneys
actually received by it constituting part of the Trust Estate upon the terms of
this
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Declaration and the other Basic Documents. No Trustee shall be liable or
accountable hereunder or under any Basic Document under any circumstances,
except for (i) such Trustee's grossly negligent action, such Trustee's
grossly negligent failure to act or such Trustee's own willful misconduct or
(ii) the inaccuracy of any representation or warranty made by such Trustee in
its individual capacity to the Grantee. In particular, but not by way of
limitation:
(a) no Trustee shall at any time have any responsibility or liability
for or with respect to the legality, validity and enforceability of any
Intangible Transition Property, or the perfection and priority of any
security interest created in the Note Collateral (or any portion thereof)
or the maintenance of any such perfection and priority, or for or with
respect to the sufficiency of the Note Collateral or its ability to
generate the payments to be distributed to the holders of any Note or any
other creditors of the Trust, including, without limitation: the existence
and ownership of any Intangible Transition Property; the validity of the
assignment of any Intangible Transition Property to the Trust or of any
intervening assignment; or the compliance by the Grantee or the Servicer
with any representation or warranty made under any Basic Document or in any
related document or the accuracy of any such representation or warranty or
any action of the Servicer, the Administrator, the Grantee or any other
Person taken in the name of such Trustee;
(b) no Trustee shall be liable with respect to any action taken or
omitted to be taken by such Trustee in accordance with the instructions of
the Servicer, the Administrator or the Grantee;
(c) no provision of this Declaration or any other Basic Document
shall require a Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of such Trustee's rights or
powers hereunder or under any other Basic Document, if such Trustee shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
or provided to such Trustee;
(d) under no circumstances shall any Trustee be liable for
indebtedness evidenced by or other obligations of the Trust arising under
any of the Basic Documents, including, without limitation, the principal of
and interest on any outstanding Notes;
(e) no Trustee shall be responsible for or in respect of nor makes
any representation as to the validity or sufficiency of any provision of
this Declaration or for the due execution hereof by the Grantee or for the
form, character, genuineness, sufficiency, value or validity of either the
Trust or the Trust Estate or for or in respect of the validity or
sufficiency of the Basic Documents, the Notes (other than the execution of
the Notes), the Note Collateral or any Intangible Transition Property or
related documents, and no Trustee shall in any event assume or incur any
liability, duty or obligation to any Holder of Notes, other than as
expressly provided for herein and in the other Basic Documents;
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(f) no Trustee shall be liable for the default or misconduct of the
Servicer, the Administrator, the Indenture Trustee or the Grantee under any
of the Basic Documents or otherwise, and no Trustee shall have any
obligation or liability to perform the obligations of the Trust under this
Declaration or the other Basic Documents that are required to be performed
by the Servicer under the Servicing Agreement or the Administrator under
the Administration Agreement, the Indenture Trustee under the Indenture or
the Grantee hereunder;
(g) no Trustee shall be under any obligation to exercise any of the
rights or powers vested in such Trustee by this Declaration, or to
institute, conduct or defend any litigation under this Declaration or any
other Basic Document or in relation to this Declaration or any other Basic
Document, at the request, order or direction of the Grantee unless the
Grantee has offered to such Trustee security or indemnity satisfactory to
such Trustee against the costs, expenses and liabilities that may be
incurred by such Trustee (including, without limitation, the reasonable
fees and expenses of such Trustee's counsel) therein or thereby; the right
of a Trustee to perform any discretionary act enumerated in this
Declaration or in any other Basic Document shall not be construed as a
duty, and such Trustee shall only be answerable for such Trustee's gross
negligence or willful misconduct in the performance of any such act; and
(h) the provisions of this Declaration, to the extent that they
restrict the duties and liabilities of a Trustee otherwise existing at law
or in equity, are agreed and accepted by the Trust, the Grantee, the
Servicer, the Administrator, the Indenture Trustee, the Holders and all
other Persons who may succeed to any duties and liabilities of a Trustee.
SECTION 5.4 ACTION UPON INSTRUCTION BY THE GRANTEE.
(a) The Grantee may by written instruction direct a Trustee in the
management of the Trust PROVIDED that, so long as any Notes remain
outstanding, the operation and management of the Trust will be restricted
as provided in the Indenture.
(b) Notwithstanding the foregoing, a Trustee shall not be required to
take any action hereunder or under any other Basic Document if such Trustee
shall have reasonably determined, or shall have been advised by counsel,
that such action is likely to result in liability on the part of such
Trustee or is contrary to the terms hereof or of any other Basic Document
or is otherwise contrary to law.
(c) Whenever a Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Declaration or
any other Basic Document, or is unsure as to the application, intent,
interpretation or meaning of any provision of this Declaration or the other
Basic Documents, such Trustee shall promptly give notice (in such form as
shall be appropriate under the circumstances) to the Grantee requesting
instruction as to the course of action to be adopted, and, to the extent
such Trustee acts in good faith in accordance with any such instruction
received, such Trustee shall not be liable on account
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of such action to any Person. If a Trustee shall not, in the reasonable
judgment of such Trustee, have received appropriate instructions within
ten days of such notice (or within such shorter period of time as
reasonably may be specified in such notice or may be necessary under the
circumstances), such Trustee may, but shall be under no duty to, take or
refrain from taking such action which is consistent, in such Trustee's
view, with this Declaration or the other Basic Documents, and as such
Trustee shall deem to be in the best interests of the Grantee, and such
Trustee shall have no liability to any Person for any such action or
inaction.
SECTION 5.5 FURNISHING OF DOCUMENTS. A Trustee shall furnish to
the Grantee, promptly upon receipt of a written request therefor, duplicates or
copies of all reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to such Trustee under the Basic
Documents.
SECTION 5.6 REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATION AND WARRANTIES OF DELAWARE TRUSTEE. First
Union Trust Company, National Association hereby represents and warrants to
the other parties hereto that:
(i) It is a national banking association duly organized,
validly existing and in good standing under the federal laws of the
United States.
(ii) It has full power, authority and legal right to execute,
deliver and perform this Declaration, and has taken all necessary
action to authorize the execution, delivery and performance by it of
this Declaration.
(iii) The execution, delivery and performance by it of this
Declaration (i) do not violate any requirement of Federal law or the
law of the State of Delaware governing its banking and trust powers or
any order, writ, judgment or decree of any court, arbitrator or
governmental authority applicable to it or any of its assets, (ii) do
not violate any provision of its corporate charter or by-laws, or
(iii) do not violate any provision of; or constitute, with or without
notice or lapse of time, a default under, or result in the creation or
imposition of any Lien on any properties included in the Trust
pursuant to the provisions of any mortgage, indenture, contract,
agreement or other undertaking to which it is a party, which
violation, default or Lien could reasonably be expected to have a
materially adverse effect on its performance or its ability to perform
its duties as a Trustee under this Declaration or on the transactions
contemplated in this Declaration.
(iv) Its execution, delivery and performance of this
Declaration shall not require the authorization, consent or approval
of; the giving of notice to, the filing or registration with, or the
taking of any other action in respect of; any governmental authority
or agency regulating the banking and corporate trust
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activities of banks or trust companies in the jurisdiction in which
the Trust was formed (except for the filing of the Certificate of
Trust with the Delaware Secretary of State).
(v) This Declaration has been duly executed and delivered by
it and constitutes the legal, valid and binding agreement of it,
enforceable against it in accordance with the terms of such agreement,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, and other similar laws affecting the enforcement of
creditors' rights in general and by general principles of equity,
regardless of whether such enforceability is considered in a
proceeding in equity or at law.
(b) REPRESENTATIONS AND WARRANTIES OF BENEFICIARY TRUSTEES. Each
Beneficiary Trustee hereby represents and warrants to the other parties
hereto that:
(i) The execution, delivery and performance by it of this
Declaration (i) shall not violate any Requirement of Law or any order,
writ, judgment or decree of any court, arbitrator or governmental
authority applicable to such Beneficiary Trustee or any of such
Beneficiary Trustee's assets and (ii) shall not violate any provisions
of, or constitute, with or without notice or lapse of time, a default
under or result in the creation or imposition of any Lien on any
properties included in the Trust pursuant to the provisions of any
mortgage, indenture, contract, agreement or other undertaking to which
it is a party, which violation, default or Lien could reasonably be
expected to have a materially adverse effect on its performance or its
ability to perform its duties as a Trustee under this Declaration or
on the transactions contemplated in this Declaration.
(ii) The execution, delivery and performance of this
Declaration by such Beneficiary Trustee shall not require the
authorization, consent or approval of, the giving of notice to, the
filing or registration with, or the taking of any other action in
respect of, any governmental authority or agency (except for the
filing of the Certificate of Trust with the Delaware Secretary of
State).
(iii) This Declaration has been duly executed and delivered by
such Beneficiary Trustee and constitutes the legal, valid and binding
agreement of such Beneficiary Trustee, enforceable against it in
accordance with the terms of such agreement, except as enforceability
may be limited by bankruptcy, insolvency, reorganization and other
similar laws affecting the enforcement of creditors' rights in general
and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
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SECTION 5.7 RELIANCE: ADVICE OF COUNSEL.
(a) A Trustee shall incur no liability to anyone in acting upon any
signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document or paper believed by
such Trustee to be genuine and believed by such Trustee to be signed by the
proper party or parties and need not investigate any fact or matter
pertaining to or in any such document. A Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of
any corporate party as conclusive evidence that such resolution has been
duly adopted by such body and that the same is in full force and effect.
As to any fact or matter the method of the determination of which is not
specifically prescribed herein, a Trustee may for all purposes hereof rely
on a certificate, signed by the president or any vice president or by the
treasurer or other authorized officers of the relevant party, as to such
fact or matter, and such certificate shall constitute full protection to
such Trustee for any action taken or omitted to be taken by such Trustee in
good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Declaration and
the other Basic Documents, the Delaware Trustee: (i) may, at the expense of
[Grantee], act directly or through its agents, attorneys, custodians or
nominees (including the granting of a power of attorney to its officers to
execute and deliver any Basic Document, Note or other documents related
thereto and to take any action in connection therewith on behalf of the
Delaware Trustee) pursuant to agreements entered into with any of them, and
the Delaware Trustee shall not be liable for the conduct or misconduct of
such agents, attorneys, custodians or nominees if such agents, attorneys,
custodians or nominees shall have been selected by the Delaware Trustee
with reasonable care; and (ii) may, at the expense of [Grantee], consult
with counsel, accountants and other professionals to be selected with
reasonable care by it. The Delaware Trustee shall not be liable for
anything done, suffered or omitted in good faith by it in accordance with
the opinion or advice of any such counsel, accountant or other such Persons
and which, according to such opinion or advice, is not contrary to this
Declaration or any other Basic Document.
SECTION 5.8 TRUSTEES MAY OWN NOTES. A Trustee in such Trustee's
individual or any other capacity may become the owner or pledgee of Notes and
may deal with Illinois Power, the Grantee, the Indenture Trustee, the Servicer
and their respective Affiliates in transactions in the same manner as such
Trustee would have if such Trustee were not a trustee under this Agreement.
SECTION 5.9 COMPENSATION AND INDEMNITY. A Trustee shall receive
as compensation for services hereunder such fees as have been separately
agreed upon before the date hereof between the Servicer and such Trustee, and
such Trustee shall be entitled to be reimbursed by the Servicer for such
Trustee's other reasonable expenses hereunder including the reasonable
compensation expenses and disbursements of such agents, custodians, nominees,
representatives, experts and counsel as such Trustee may employ in connection
with the exercise and performance of such Trustee's rights and duties
hereunder. The Servicer shall, to the fullest extent permitted by
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law, indemnify each Trustee and such Trustee's successors, assigns, agents
and servants in accordance with the provisions of a separate agreement or
agreements to be entered into from time to time by and between the Servicer
and such Trustee. The indemnities contained in this SECTION 5.9 shall survive
the resignation or termination of a Trustee or the termination of this
Declaration. Any amounts paid to a Trustee pursuant to this ARTICLE V shall
be deemed not to be a part of the Trust Estate immediately after such
payment. Each Trustee acknowledges that no recourse may be had against the
Grantee, the Trust or the Trust Estate with respect to this SECTION 5.9.
SECTION 5.10 REPLACEMENT OF A TRUSTEE.
(a) A Trustee may resign at any time and be discharged from the
trusts hereby created by giving 30 days' prior written notice thereof to
the Servicer. The Servicer may appoint a successor Trustee by delivering a
written instrument to the resigning Trustee and the successor Trustee. If
no successor Trustee shall have been appointed and have accepted
appointment within 30 days after the giving of such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for
the appointment of a successor Trustee. The Servicer shall remove a
Trustee if:
(i) in the case of the Delaware Trustee, such Trustee shall
cease to be eligible in accordance with the provisions of SECTION 5.13
and shall fail to resign after written request therefor by the
Servicer;
(ii) such Trustee shall be adjudged bankrupt or insolvent;
(iii) a receiver or other public officer shall be appointed or
take charge or control of such Trustee or of such Trustee's property
or affairs for the purpose of rehabilitation, conservation or
liquidation; or
(iv) such Trustee shall otherwise be incapable of acting.
(b) If a Trustee resigns or is removed or if a vacancy exists in the
office of a Trustee for any reason, the Servicer shall promptly appoint a
successor Trustee by written instrument, in duplicate (one copy of which
instrument shall be delivered to the outgoing Trustee so removed and one
copy to the successor Trustee) and shall pay any fees and expenses owed to
the outgoing Trustee.
(c) Any resignation or removal of a Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this SECTION 5.10
shall not become effective until a written acceptance of appointment is
delivered by the successor Trustee to the outgoing Trustee and the Servicer
and any fees and expenses due to the outgoing Trustee are paid. Any
successor Trustee appointed pursuant to this SECTION 5.10 to serve as
Delaware Trustee shall be eligible to act in such capacity in accordance
with SECTION 5.13 and, following compliance with the preceding sentence,
shall become fully vested with all the rights, powers, duties and
obligations of its predecessor under this Declaration, with like effect as
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if originally named as Delaware Trustee. The Servicer shall provide notice
of such resignation or removal of the Delaware Trustee to the Rating
Agencies. Such successor Delaware Trustee shall promptly file an amendment
to the Certificate of Trust with the Secretary of State identifying the
name and principal place of business of such successor Delaware Trustee in
the State of Delaware.
(d) The predecessor Trustee shall upon payment of such Trustee's fees
and expenses deliver to the successor Trustee all documents and statements
and monies held by such Trustee under this Declaration. The Servicer and
the predecessor Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly
vesting and confirming in the successor Trustee all such rights, powers,
duties and obligations.
(e) Upon acceptance of appointment by a successor Delaware Trustee
pursuant to this SECTION 5.10 the Servicer shall mail notice of the
successor of such Delaware Trustee to the Rating Agencies, the Indenture
Trustee and the Holders.
(f) No Trustee shall be personally liable for any action or omission
of any successor Trustee.
SECTION 5.11 MERGER OR CONSOLIDATION OF DELAWARE TRUSTEE. Any
corporation into which the Delaware Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Delaware Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Delaware Trustee, shall be the successor of the Delaware Trustee
hereunder, provided such corporation shall be eligible pursuant to SECTION 5.13,
and without the execution or filing of any instrument or any further act on the
part of any of the parties hereto; PROVIDED, HOWEVER, that the Delaware Trustee
shall mail notice of such merger or consolidation to the Servicer, the Rating
Agencies and the Indenture Trustee and provided further that the Delaware
Trustee shall file an amendment to the Certificate of Trust as required under
Section 5.10.
SECTION 5.12 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
(a) Notwithstanding any other provisions of this Declaration, at any
time, for the purpose of meeting any legal requirements of any jurisdiction
in which any part of the Trust Estate may at the time be located, the
Servicer and the Delaware Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Delaware Trustee to act as co-trustee or co-trustees,
jointly with the Delaware Trustee, or as separate trustee or trustees, of
all or any part of the Trust Estate, and to vest in such Person or Persons,
in such capacity, such title to the Trust Estate, or any part thereof; and,
subject to the other provisions of this SECTION 5.12, such powers, duties,
obligations, rights and trusts as the Servicer and the Delaware Trustee may
consider necessary or desirable. If the Servicer shall not have joined in
such appointment within 15 days after the receipt by it of a request so to
do, the Delaware Trustee alone shall have the
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power to make such appointment. No co-trustee or separate trustee under
this Declaration shall be required to meet the terms of eligibility as a
successor trustee pursuant to SECTION 5.13 and no notice of the
appointment of any co-trustee or separate trustee shall be required
pursuant to SECTION 5.10.
(b) Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions
and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Delaware Trustee shall be conferred upon and
exercised or performed by the Delaware Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Delaware Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts are to
be performed, the Delaware Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust
Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-
trustee, but solely at the direction of the Delaware Trustee;
(ii) no trustee under this Declaration shall be personally
liable by reason of any act or omission of any other trustee under
this Declaration; and
(iii) the Servicer and the Delaware Trustee acting jointly may
at any time accept the resignation of or remove any separate trustee
or co-trustee.
(c) Any notice, request or other writing given to the Delaware
Trustee shall be deemed to have been given to each of the then separate
trustees and co-trustees, as effectively as if given to each of them.
Every instrument appointing any separate trustee or co-trustee shall refer
to this Declaration and the conditions of this ARTICLE V. Each separate
trustee and co- trustee, upon its acceptance of the trusts conferred, shall
be vested with the estates or property specified in its instrument of
appointment, either jointly with the Delaware Trustee or separately, as may
be provided therein, subject to all of the provisions of this Declaration,
specifically including every provision of this Declaration relating to the
conduct of; affecting the liability of or affording protection to the
Delaware Trustee. Each such instrument shall be filed with the Delaware
Trustee and a copy thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time appoint the
Delaware Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under
or in respect of this Declaration on its behalf and in its name. If any
separate trustee or co-trustee shall die, become incapable of acting,
resign or be removed, all of its estates, properties, rights, remedies and
trusts shall vest in and be exercised by the Delaware Trustee, to the
extent permitted by law, without the appointment of a new or successor
trustee.
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SECTION 5.13 ELIGIBILITY REQUIREMENTS FOR DELAWARE TRUSTEE. The
Delaware Trustee shall at all times: (a) be a corporation satisfying the
provisions of Section 3807(a) of the Business Trust Act; (b) be authorized to
exercise corporate trust powers; (c) have a combined capital and surplus of at
least $[50,000,000] and be subject to supervision or examination by federal or
state authorities; and (d) have (or have a parent which has) a long-term
unsecured debt rating of at least "BBB-" by S&P and at least "Baa3" by Moody's.
If such corporation shall publish reports of condition at least annually,
pursuant to law or the requirements of the aforesaid supervising or examining
authority, then for the purpose of this SECTION 5.13, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Delaware Trustee shall cease to be eligible in accordance with the
provisions of this SECTION 5.13, the Delaware Trustee shall resign immediately
in the manner and with the effect specified in SECTION 5.10.
ARTICLE VI
TERMINATION OF DECLARATION
SECTION 6.1 TERMINATION OF DECLARATION.
(a) This Declaration (other than SECTION 5.9) and the Trust shall
terminate and be of no further force or effect on the earlier of: (i) the
final distribution by the Delaware Trustee or the Indenture Trustee of all
monies or other property or proceeds of the Trust Estate in accordance with
the terms of this Declaration and the other Basic Documents; (ii) [December
31, 2020;] or (iii) if the Grantee so elects, the day following the date on
which the aggregate Outstanding Amount of the Notes is zero (the "Trust
Termination Date").
(b) To the extent permitted by applicable law, the Grantee shall not
be entitled to revoke, dissolve, annul or terminate the Trust.
(c) Any funds remaining in the Trust after such Trust Termination
Date shall be deemed property of the Grantee, and, upon the Grantee's
request, shall be distributed by the Indenture Trustee or the Delaware
Trustee to the Grantee.
(d) Upon the winding up of the Trust and after satisfaction of
creditors of the Trust as provided by applicable law, the Delaware Trustee
shall cause the Certificate of Trust to be canceled by filing a certificate
of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Act.
SECTION 6.2 [RESERVED].
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ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NO LEGAL TITLE TO TRUST ESTATE. The Grantee shall not
have legal title to any part of the Trust Estate. The Grantee shall be entitled
to receive distributions with respect to its ownership interest therein to the
extent not inconsistent with this Declaration and in accordance with the other
Basic Documents. No transfer, by operation of law or otherwise, of any right,
title, and interest of the Grantee to and in its ownership interest in the Trust
Estate shall operate to terminate this Declaration or the trusts hereunder or
entitle any transferee to an accounting or to the transfer to it of legal title
to any part of the Trust Estate.
SECTION 7.2 LIMITATIONS ON RIGHTS OF OTHERS. Except as otherwise
provided in SECTION 2.7, the provisions of this Declaration are solely for the
benefit of the Trustees, the Grantee, the Servicer and, to the extent expressly
provided herein, the Indenture Trustee and the Holders, and nothing in this
Declaration, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Trust Estate or
under or in respect of this Declaration or any covenants, conditions or
provisions contained herein.
SECTION 7.3 NOTICES. All demands, notices and communications upon
or to the Grantee, the Servicer, the Delaware Trustee, the Beneficiary Trustees
or the Rating Agencies under this Declaration shall be in writing, personally
delivered, sent by electronic facsimile (with hard copy to follow via first
class mail) or mailed by first class mail or sent by overnight courier, and
shall be deemed to have been duly given upon receipt: (a) in the case of the
Grantee, at the following address: to Illinois Power Company, 500 South 27th
Street, Decatur, Illinois 62525, with a copy to Schiff Hardin & Waite, 6600
Sears Tower, Chicago, Illinois 60606, Attention: Owen E. MacBride; (b) in the
case of the Servicer, at the following address: to Illinois Power Company, 500
South 27th Street, Decatur, Illinois 62525 with a copy to Schiff Hardin & Waite,
6600 Sears Tower, Chicago, Illinois 60606, Attention: Owen E. MacBride; (c) in
the case of the Trust or the Delaware Trustee, to the Delaware Trustee at its
Corporate Trust Office, with a copy to Richards Layton & Finger, One Rodney
Square, 920 King Street, Wilmington, Delaware 19801, Attention Doneene Damon;
(d) in the case of the Beneficiary Trustees, to _________________________, and
(e) in the case of any Rating Agencies, at the address for notices set forth in
the Indenture.
SECTION 7.4 SEVERABILITY. If any one or more of the covenants,
agreements, provisions or terms of this Declaration shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
or terms of this Declaration and shall in no way affect the validity or
enforceability of the other provisions of this Declaration.
SECTION 7.5 AMENDMENTS WITHOUT CONSENT OF HOLDERS. This
Declaration may be amended by the Delaware Trustee, the Beneficiary Trustees and
the Grantee with the prior written consent of the Indenture Trustee but without
the consent of any of the Holders (but with prior notice to the Rating Agencies)
to (i) cure any ambiguity; (ii) correct or supplement any provision in this
Declaration that may be defective or inconsistent with any other provision in
this Declaration; (iii)
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add or supplement any liquidity, credit or other enhancement arrangement for
the benefit of any Holders (provided that if any such addition shall affect
any series of Holders differently than any other series of Holders, then such
addition shall not, as evidenced by an Opinion of Counsel, adversely affect
in any material respect the interests of any series of Holders); (iv) add to
the covenants, restrictions or obligations of the Delaware Trustee for the
benefit of the Holders; (v) evidence and provide for the acceptance of the
appointment of a successor trustee with respect to the Trust Estate and add
to or change any provisions as shall be necessary to facilitate the
administration of the trusts hereunder by more than one trustee pursuant to
ARTICLE V; or (vi) add, change or eliminate any other provision of this
Declaration in any manner that shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of the
Holders; provided, that this Declaration shall not be amended in any manner
which affects the rights of the Grantee hereunder or under the Basic
Documents without the prior written consent of the Grantee or receipt of an
Opinion of Counsel to the Grantee to the effect that such amendment does not
adversely affect, in any manner, the interests of the Grantee under this
Declaration.
SECTION 7.6 AMENDMENTS WITH CONSENT OF HOLDERS. This Declaration
may be amended from time to time by the Delaware Trustee, the Beneficiary
Trustees and the Grantee with the consent of the Indenture Trustee and the
Holders whose Notes evidence not less than a majority of the Outstanding Amount
of the Notes as of the close of business on the preceding Payment Date (which
consent, whether given pursuant to this SECTION 7.6 or pursuant to any other
provision of this Declaration, shall be conclusive and binding on such Person
and on all future holders of such Notes and of any Notes issued upon the
transfer thereof or in exchange thereof or in lieu thereof whether or not
notation of such consent is made upon the Notes) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Declaration, or of modifying in any manner the rights of the Holders;
PROVIDED, HOWEVER, that no such amendment shall (a) increase or reduce in any
manner the amount of; or accelerate or delay the timing of; payments that shall
be required to be made on any Note without the consent of the Holder thereof (it
being understood that the issuance of any Note after the Closing Date as
contemplated by this Declaration and the Indenture and the specification of the
terms and provisions thereof pursuant to a Trustee's Issuance Certificate shall
not be deemed to have such effect for purposes hereof); (b) adversely affect the
rating of any series of Notes without the consent of the holders of two-thirds
of the Outstanding Amount of such series of Notes; or (c) reduce the aforesaid
percentage required to consent to any such amendment, without the consent of all
the Holders of the Notes then outstanding. Prior to the execution of any such
amendment, supplement or consent, the Delaware Trustee shall furnish written
notification of the substance of such amendment, supplement or consent to the
Rating Agencies.
SECTION 7.7 FORM OF AMENDMENTS.
(a) Promptly after the execution of any amendment, supplement or
consent pursuant to SECTIONS 7.5 OR 7.6 the Delaware Trustee shall furnish
written notification of the substance of such amendment or consent to the
Indenture Trustee.
(b) It shall not be necessary for the consent of the Indenture
Trustee pursuant to SECTION 7.6 to approve the particular form of any
proposed amendment or consent, but it
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shall be sufficient if such consent shall approve the substance thereof.
The manner of obtaining such consents (and any other consents of
Holders provided for in this Declaration or in any other Basic Document)
and of evidencing the authorization of the execution thereof by Holders
shall be subject to such reasonable requirements as the Delaware Trustee
may prescribe.
(c) Promptly after the execution of any amendment to the Certificate
of Trust, the Delaware Trustee shall cause the filing of such amendment
with the Secretary of State.
(d) Prior to the execution of any amendment to this Declaration or
the Certificate of Trust, the Delaware Trustee shall be entitled to receive
and rely upon an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Declaration. The Delaware
Trustee may, but shall not be obligated to, enter into any such amendment
that affects the Delaware Trustee's own rights, duties or immunities under
this Declaration or otherwise.
SECTION 7.8 COUNTERPARTS. This Declaration may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
SECTION 7.9 SUCCESSORS AND ASSIGNS. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of the Grantee,
the Trust and the Trustees and their respective successors and permitted
assigns, all as herein provided.
SECTION 7.10 NO PETITION COVENANT. Notwithstanding any other
provision of this Declaration or any other Basic Document and notwithstanding
any prior termination of this Declaration, the Trust (or any of the Trustees
on behalf of the Trust) and the Grantee shall not, prior to the date which is
one year and one day after the termination of this Declaration with respect
to the Grantee acquiesce, petition or otherwise invoke or cause the Grantee
or the Trust to invoke the process of any governmental authority for the
purpose of commencing or sustaining a case against the Grantee under any
federal or state bankruptcy, insolvency or similar law or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Grantee or any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Grantee.
SECTION 7.11 HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 7.12 GOVERNING LAW. THIS DECLARATION SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO
ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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IN WITNESS WHEREOF, the Delaware Trustee has caused this Declaration
of Trust to be duly executed by its officer hereunto duly authorized and the
Beneficiary Trustees have duly executed this Declaration of Trust, as of the day
and year first above written.
DELAWARE TRUSTEE:
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION
By: _______________________________
Name: _____________________________
Title: ____________________________
BENEFICIARY TRUSTEES:
___________________________________
Name:
___________________________________
Name:
Acknowledged, accepted and agreed
on this ___ day of ___________, 1998.
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
By: ________________________________
Name: ______________________________
Title: ___________________________
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EXHIBIT A TO THE
DECLARATION OF TRUST
CERTIFICATE OF TRUST OF
ILLINOIS POWER SPECIAL PURPOSE TRUST
THIS CERTIFICATE OF TRUST of Illinois Power Special Purpose Trust (the
"Trust"), dated as of ___________, 1998, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware Business
Trust Act (12 DEL. C., Section 3801 ET SEQ. (the "Act")).
(i) NAME. The name of the business trust formed hereby is
Illinois Power Special Purpose Trust.
(ii) DELAWARE TRUSTEE. The name and business address of the
trustee of the Trust in the State of Delaware is FIRST UNION TRUST
COMPANY, NATIONAL ASSOCIATION, One Rodney Square, 920 King Street, 1st
Floor, Wilmington, Delaware 19801, Attention: Corporate Trust
Administration.
(iii) EFFECTIVE DATE. This Certificate of Trust shall be
effective on _________, 1998.
IN WITNESS WHEREOF, the undersigned, being all of the trustees of the
Trust, have executed this Certificate of Trust in accordance with Section
3811(a) of the Act.
FIRST UNION TRUST COMPANY, NATIONAL
ASSOCIATION not in its individual
capacity but solely as Delaware Trustee
By: ___________________________________
Name: _________________________________
Title: ________________________________
______________________________________
[Beneficiary Trustee]
______________________________________
[Beneficiary Trustee]
<PAGE>
EXHIBIT 4.2
Form of Transitional
Funding Trust Note
SEE EXHIBIT B ATTACHED TO EXHIBIT 4.3 TO REGISTRATION STATEMENT,
FORM OF INDENTURE
<PAGE>
EXHIBIT 4.3
Form of Indenture
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ILLINOIS POWER SPECIAL PURPOSE TRUST,
NOTE ISSUER
AND
HARRIS TRUST AND SAVINGS BANK,
INDENTURE TRUSTEE
------------------------------------
INDENTURE
DATED AS OF [ ], 1998
------------------------------------
ISSUABLE IN SERIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I -- DEFINITIONS AND INCORPORATION BY REFERENCE. . . . . . . . . . . . 3
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.02. Incorporation by Reference of Trust Indenture
Act. . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.03. Rules of Construction. . . . . . . . . . . . . . . . . . 3
ARTICLE II -- THE NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.01. Form . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.02. Denominations; Notes Issuable in Series. . . . . . . . . 4
SECTION 2.03. Execution Authentication and Delivery. . . . . . . . . . 6
SECTION 2.04. Temporary Notes. . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.05. Registration; Registration of Transfer and
Exchange of Notes. . . . . . . . . . . . . . . . . . . 7
SECTION 2.06. Mutilated, Destroyed, Lost or Stolen Notes . . . . . . . 8
SECTION 2.07. Persons Deemed Owner . . . . . . . . . . . . . . . . . . 9
SECTION 2.08. Payment of Principal, Premium if any, and
Interest; Interest on Overdue Principal;
Principal, Premium, if any, and Interest
Rights Preserved . . . . . . . . . . . . . . . . . . . 9
SECTION 2.09. Cancellation . . . . . . . . . . . . . . . . . . . . . .10
SECTION 2.10. Outstanding Amount; Authentication and Delivery
of Notes . . . . . . . . . . . . . . . . . . . . . . .11
SECTION 2.11. Book-Entry Notes . . . . . . . . . . . . . . . . . . . .18
SECTION 2.12. Notices to Clearing Agency . . . . . . . . . . . . . . .19
SECTION 2.13. Definitive Notes . . . . . . . . . . . . . . . . . . . .19
SECTION 2.14. CUSIP Number . . . . . . . . . . . . . . . . . . . . . .20
SECTION 2.15. Letter of Representations. . . . . . . . . . . . . . . .20
SECTION 2.16. Release of Note Collateral . . . . . . . . . . . . . . .20
SECTION 2.17 Special Terms Applicable to Subsequent
Transfers of Certain Notes . . . . . . . . . . . . . .20
SECTION 2.18. Tax Treatment. . . . . . . . . . . . . . . . . . . . . .21
SECTION 2.19. State Pledge . . . . . . . . . . . . . . . . . . . . . .21
ARTICLE III -- COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 3.01. Payment of Principal, Premium, if any,
and Interest . . . . . . . . . . . . . . . . . . . . .22
SECTION 3.02. Maintenance of Office or Agency. . . . . . . . . . . . .22
SECTION 3.03. Money for Payments To Be Held in Trust . . . . . . . . .23
SECTION 3.04. Existence. . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 3.05. Protection of Note Collateral. . . . . . . . . . . . . .24
SECTION 3.06. Opinions as to Note Collateral . . . . . . . . . . . . .25
(i)
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SECTION 3.07. Performance of Obligations; Servicing SEC
Filings. . . . . . . . . . . . . . . . . . . . . . . .26
SECTION 3.08. Certain Negative Covenants . . . . . . . . . . . . . . .28
SECTION 3.09. Annual Statement as to Compliance. . . . . . . . . . . .29
SECTION 3.10. Note Issuer May Consolidate, etc., Only on
Certain Terms. . . . . . . . . . . . . . . . . . . . .29
SECTION 3.11. Successor or Transferee. . . . . . . . . . . . . . . . .31
SECTION 3.12. No Other Business. . . . . . . . . . . . . . . . . . . .32
SECTION 3.13. No Borrowing . . . . . . . . . . . . . . . . . . . . . .32
SECTION 3.14. Servicer's Obligations . . . . . . . . . . . . . . . . .32
SECTION 3.15. Guarantees Loans Advances and Other Liabilities. . . . .32
SECTION 3.16. Capital Expenditures.. . . . . . . . . . . . . . . . . .32
SECTION 3.17. Restricted Payments. . . . . . . . . . . . . . . . . . .32
SECTION 3.18. Notice of Events of Default. . . . . . . . . . . . . . .33
SECTION 3.19. Further Instruments and Acts . . . . . . . . . . . . . .33
SECTION 3.20. Purchase of Subsequent Intangible
Transition Property. . . . . . . . . . . . . . . . . .33
ARTICLE IV -- SATISFACTION AND DISCHARGE; DEFEASANCE . . . . . . . . . . . . .35
SECTION 4.01. Satisfaction and Discharge of Indenture Defeasance . . .35
SECTION 4.02. Conditions to Defeasance . . . . . . . . . . . . . . . .36
SECTION 4.03. Application of Trust Money . . . . . . . . . . . . . . .38
SECTION 4.04. Repayment of Moneys Held by Paying Agent . . . . . . . .38
ARTICLE V -- REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
SECTION 5.01. Events of Default. . . . . . . . . . . . . . . . . . . .38
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment. . . . . . . . . . . . . . . . . . . . . . .40
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Indenture Trustee . . . . . . . . . . .41
SECTION 5.04. Remedies; Priorities . . . . . . . . . . . . . . . . . .43
SECTION 5.05. Optional Preservation of the Note Collateral . . . . . .44
SECTION 5.06. Limitation of Suits. . . . . . . . . . . . . . . . . . .44
SECTION 5.07. Unconditional Rights of Holders To Receive
Principal, Premium, if any, and Interest . . . . . . .45
SECTION 5.08. Restoration of Rights and Remedies . . . . . . . . . . .45
SECTION 5.09. Rights and Remedies Cumulative . . . . . . . . . . . . .45
SECTION 5.10. Delay or Omission Not a Waiver . . . . . . . . . . . . .46
SECTION 5.11. Control by Holders . . . . . . . . . . . . . . . . . . .46
SECTION 5.12. Waiver of Past Defaults. . . . . . . . . . . . . . . . .46
SECTION 5.13. Undertaking for Costs. . . . . . . . . . . . . . . . . .47
SECTION 5.14. Waiver of Stay or Extension Laws . . . . . . . . . . . .47
SECTION 5.15. Action on Notes. . . . . . . . . . . . . . . . . . . . .47
SECTION 5.16. Performance and Enforcement of Certain
Obligations. . . . . . . . . . . . . . . . . . . . . .48
(ii)
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ARTICLE VI -- THE INDENTURE TRUSTEE. . . . . . . . . . . . . . . . . . . . . .48
SECTION 6.01. Duties of Indenture Trustee. . . . . . . . . . . . . . .48
SECTION 6.02. Rights of Indenture Trustee. . . . . . . . . . . . . . .50
SECTION 6.03. Individual Rights of Indenture Trustee . . . . . . . . .50
SECTION 6.04. Indenture Trustee's Disclaimer . . . . . . . . . . . . .51
SECTION 6.05. Notice of Defaults . . . . . . . . . . . . . . . . . . .51
SECTION 6.06. Reports by Indenture Trustee to Holders. . . . . . . . .51
SECTION 6.07. Compensation and Indemnity . . . . . . . . . . . . . . .52
SECTION 6.08. Replacement of Indenture Trustee . . . . . . . . . . . .52
SECTION 6.09. Successor Indenture Trustee by Merger. . . . . . . . . .53
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee. . . . . .54
SECTION 6.11. Eligibility; Disqualification. . . . . . . . . . . . . .55
SECTION 6.12. Preferential Collection of Claims Against
Note Issuer. . . . . . . . . . . . . . . . . . . . . .55
SECTION 6.13. Representations and Warranties of Indenture
Trustee. . . . . . . . . . . . . . . . . . . . . . . .55
ARTICLE VII -- HOLDERS' LISTS AND REPORTS. . . . . . . . . . . . . . . . . . .56
SECTION 7.01. Note Issuer To Furnish Indenture Trustee
Names and Addresses of Holders . . . . . . . . . . . .56
SECTION 7.02. Preservation of Information; Communications
to Holders . . . . . . . . . . . . . . . . . . . . . .56
SECTION 7.03. Reports by Note Issuer . . . . . . . . . . . . . . . . .56
SECTION 7.04. Reports by Indenture Trustee . . . . . . . . . . . . . .57
ARTICLE VIII -- ACCOUNTS, DISBURSEMENTS AND RELEASES . . . . . . . . . . . . .57
SECTION 8.01. Collection of Money. . . . . . . . . . . . . . . . . . .57
SECTION 8.02. Collection Account . . . . . . . . . . . . . . . . . . .58
SECTION 8.03. General Provisions Regarding the Collection
Account. . . . . . . . . . . . . . . . . . . . . . . .61
SECTION 8.04. Release of Note Collateral . . . . . . . . . . . . . . .62
SECTION 8.05. Opinion of Counsel . . . . . . . . . . . . . . . . . . .62
SECTION 8.06. Reports by Independent Accountants . . . . . . . . . . .62
ARTICLE IX -- SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . .63
SECTION 9.01. Supplemental Indentures Without Consent of
Holders. . . . . . . . . . . . . . . . . . . . . . . .63
SECTION 9.02. Supplemental Indentures with Consent of
Holders. . . . . . . . . . . . . . . . . . . . . . . .64
SECTION 9.03. Execution of Supplemental Indentures.. . . . . . . . . .66
SECTION 9.04. Effect of Supplemental Indenture . . . . . . . . . . . .66
SECTION 9.05. Conformity with Trust Indenture Act. . . . . . . . . . .66
SECTION 9.06. Reference in Notes to Supplemental Indentures. . . . . .67
(iii)
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ARTICLE X -- REDEMPTION OF NOTES . . . . . . . . . . . . . . . . . . . . . . .67
SECTION 10.01. Optional Redemption by Note Issuer . . . . . . . . . . .67
SECTION 10.02. Form of Optional Redemption Notice . . . . . . . . . . .67
SECTION 10.03. Notes Payable on Optional Redemption Date. . . . . . . .68
ARTICLE XI -- MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . .68
SECTION 11.01. Compliance Certificates and Opinions, etc. . . . . . . .68
SECTION 11.02. Form of Documents Delivered to Indenture
Trustee. . . . . . . . . . . . . . . . . . . . . . . .70
SECTION 11.03. Acts of Holders. . . . . . . . . . . . . . . . . . . . .71
SECTION 11.04. Notices, etc. to Indenture Trustee, Note
Issuer and Rating Agencies . . . . . . . . . . . . . .72
SECTION 11.05. Notices to Holders Waiver. . . . . . . . . . . . . . . .72
SECTION 11.06. Conflict with Trust Indenture Act. . . . . . . . . . . .73
SECTION 11.07. Effect of Headings and Table of Contents . . . . . . . .73
SECTION 11.08. Successors and Assigns . . . . . . . . . . . . . . . . .73
SECTION 11.09. Separability . . . . . . . . . . . . . . . . . . . . . .73
SECTION 11.10. Benefits of Indenture. . . . . . . . . . . . . . . . . .73
SECTION 11.11. Legal Holidays . . . . . . . . . . . . . . . . . . . . .74
SECTION 11.12. Governing Law. . . . . . . . . . . . . . . . . . . . . .74
SECTION 11.13. Counterparts . . . . . . . . . . . . . . . . . . . . . .74
SECTION 11.14. Recording of Indenture . . . . . . . . . . . . . . . . .74
SECTION 11.15. Trust Obligation . . . . . . . . . . . . . . . . . . . .74
SECTION 11.16. No Recourse to Note Issuer . . . . . . . . . . . . . . .74
SECTION 11.17. Inspection . . . . . . . . . . . . . . . . . . . . . . .74
SECTION 11.18. No Petition. . . . . . . . . . . . . . . . . . . . . . .75
</TABLE>
EXHIBIT A-1 -- Form of Sale Agreement
EXHIBIT A-2 -- Form of Servicing Agreement
EXHIBIT B -- Form of Notes
EXHIBIT C -- Form of Trustee's Issuance Certificates
EXHIBIT D -- Form of Series Supplement
(iv)
<PAGE>
INDENTURE dated as of [ ], 1998, between ILLINOIS POWER SPECIAL
PURPOSE TRUST, a Delaware business trust (the "Note Issuer"), and Harris
Trust and Savings Bank, a banking corporation organized under the laws of
the State of Illinois, as trustee (the "Indenture Trustee").
In consideration of the mutual agreements herein contained, each
party agrees as follows for the benefit of the other and each of the
Holders:
RECITALS OF THE NOTE ISSUER
The Note issuer has duly authorized the execution and delivery of
this Indenture and the creation and issuance of Notes issuable in Series
hereunder, each Series to be of substantially the tenor set forth herein
and in the respective Trustee's Issuance Certificate or Series Supplement
relating to each such Series of Notes.
The Notes shall be non-recourse obligations and shall be secured
by and payable solely out of the proceeds of the Intangible Transition
Property and the other Note Collateral. If and to the extent that such
proceeds of Intangible Transition Property and the other Note Collateral
are insufficient to pay all amounts owing with respect to the Notes, then,
except as otherwise expressly provided hereunder, the Holders of the Notes
shall have no Claim in respect of such insufficiency against the Note
Issuer, and the Holders, by their acceptance of the Notes, waive any such
Claim.
All things necessary to (a) make the Notes, when executed by the
Note Issuer and authenticated and delivered by the Indenture Trustee
hereunder and duly issued by the Note Issuer, valid obligations, and (b)
make this Note Indenture a valid agreement of the Note Issuer, in each
case, in accordance with their respective terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That the Note Issuer, in consideration of the premises herein
contained and of the purchase of the Notes by the Holders and of other good
and lawful consideration, the receipt and sufficiency of which are hereby
acknowledged, and to secure, equally and ratably without prejudice,
priority or distinction, except as specifically otherwise set forth in this
Indenture, the payment of the Notes, the payment of all other amounts due
under or in connection with this Indenture and the performance and
observance of all of the covenants and conditions contained herein or in
such Notes, has hereby executed and delivered this Indenture and by these
presents does hereby convey, grant and assign, transfer and pledge, in each
case, in and unto the Indenture Trustee, its successors and assigns
forever, for the benefit of the Holders, all and singular in the property
hereinafter described (hereinafter referred to as the "NOTE COLLATERAL"),
to wit:
<PAGE>
GRANTING CLAUSE
The Note Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as Indenture Trustee for the benefit of the Holders of the
Notes from time to time issued and outstanding, all of the Note Issuer's
right, title and interest in and to (a) the Intangible Transition Property
created under and pursuant to the 1998 Funding Order, and transferred by
the Grantee to the Note Issuer pursuant to the Sale Agreement (including,
to the fullest extent permitted by law, all revenues, collections, claims,
rights, payments, money or proceeds of or arising from the IFCs authorized
in the 1998 Funding Order and any tariffs filed pursuant thereto and any
Allocable IFC Revenue Amounts), (b) all Intangible Transition Property
created under and pursuant to any Subsequent Funding Order, and transferred
by the Grantee to the Note Issuer pursuant to a Subsequent Sale Agreement
(including, to the fullest extent permitted by law, all revenues,
collections, claims, rights, payments, money or proceeds of or arising from
the IFCs authorized in such Subsequent Funding Order and any tariffs filed
pursuant thereto), (c) the Grant Agreement, the Sale Agreement and all
property and interests in property transferred under the Sale Agreement,
(d) each Subsequent Grant Agreement, Subsequent Sale Agreement and all
property and interests in property transferred under any Subsequent Sale
Agreement, (e) the Servicing Agreement, (f) the Collection Account, all
subaccounts thereof and all amounts of cash or investment property on
deposit therein or credited thereto from time to time, (g) any interest
rate exchange agreement which is executed in connection with the issuance
of Floating Rate Notes, (h) all rights to compel the Servicer to file for
and obtain adjustments to the IFCs in accordance with Section 18-104(d) of
the Funding Law, the 1998 Funding Order or any Subsequent Funding Order or
any Tariff filed in connection therewith, (i) all present and future
claims, demands, causes and chooses in action in respect of any or all of
the foregoing, and (j) all payments on or under, and all proceeds in
respect of, any or all of the foregoing; it being understood that the
following do not constitute Note Collateral: (i) the cash contributed to
the Note Issuer by the Grantee which is not held in the Capital Subaccount,
including cash that has been released to the Grantee or as it directs
pursuant to Section 8.02(d) following retirement of a Series of Notes, (ii)
net investment earnings which have been released to the Note Issuer
pursuant to Section 8.02(d), (iii) the Overcollateralization Amount with
respect to a Series of Notes that has been released to the Grantee or as it
directs pursuant to Section 8.02(d), following retirement of such Series of
Notes and (iv) amounts deposited with the Note Issuer on any Series
Issuance Date, including the Closing Date, for payment of costs of issuance
with respect to the related Series (together with any interest earnings
thereon), it being understood that such amounts described in clauses (i)
and (iv) above shall not be subject to Section 3.18.
The foregoing Grant is made in trust to secure the payment of
principal of and premium, if any, interest on, and any other amounts owing
in respect of, the Notes equally and ratably without prejudice, priority or
distinction, except as expressly provided in this Indenture, and to secure
compliance with the provisions of this Indenture with respect to the Notes,
all as provided in this Indenture. This Indenture constitutes a security
agreement within the meaning of the UCC to the extent that, under Illinois
law, the provisions of the UCC are applicable hereto.
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The Indenture Trustee, as trustee on behalf of the Holders,
acknowledges such Grant and accepts the trusts under this Indenture in
accordance with the provisions of this Indenture.
AND IT IS HEREBY COVENANTED, DECLARED AND AGREED between the
parties hereto that all Notes are to be issued, countersigned and delivered
and that all of the Note Collateral is to be held and applied, subject to
the further covenants, conditions, releases, uses and trusts hereinafter
set forth, and the Note Issuer, for itself and any successor, does hereby
covenant and agree to and with the Indenture Trustee and its successors in
said trust, for the benefit of the Holders, as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS. Except as otherwise specified herein
or as the context may otherwise require, the capitalized terms used herein
shall have the respective meanings set forth in Appendix A attached hereto
and made a part hereof for all purposes of this Indenture.
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Indenture Securities" means the Notes.
"Indenture Security Holder" means a Holder.
"Indenture to be Qualified" means this Indenture.
"Indenture Trustee" or "Institutional Trustee" means the
Indenture Trustee.
"Obligor" on the indenture securities means the Note Issuer and
any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
have the meanings assigned to them by such definitions.
SECTION 1.03. RULES OF CONSTRUCTION. Unless the context
otherwise requires:
(i) a term has the meaning assigned to it;
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(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) the words "herein," "hereof," "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
THE NOTES
SECTION 2.01. FORM. The Notes and the Indenture Trustee's
certificate of authentication shall be in substantially the forms set forth
in Exhibit B, with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture or by
the related Trustee's Issuance Certificate or Series Supplement, if any,
and may have such letters, numbers or other marks of identification and
such legends or endorsements placed thereon as may, consistently herewith,
be determined by the officers executing such Notes, as evidenced by their
execution of such Notes. Any portion of the text of any Note may be set
forth on the reverse thereof, with an appropriate reference thereto on the
face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved
or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the officers executing such Notes,
as evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The
terms of the Notes set forth in Exhibit B are part of the terms of this
Indenture.
SECTION 2.02. DENOMINATIONS; NOTES ISSUABLE IN SERIES. The
Notes shall be issuable in the Minimum Denomination specified in the
applicable Trust Issuance Certificate or Series Supplement, if any, in
either case executed on behalf of the Trust by an Authorized Officer of the
Delaware Trustee and, except as otherwise provided in such Trustee's
Issuance Certificate or Series Supplement, if any, in integral multiples
thereof.
The Notes may, at the election of and as authorized by a
Responsible Officer of the Note Issuer, be issued in one or more Series
(each comprised of one or more Classes), and shall be designated generally
as the "Notes" of the Note Issuer, with such further particular
4
<PAGE>
designations added or incorporated in such title for the Notes of any
particular Series or Class as a Responsible Officer of the Note Issuer may
determine. Each Note shall bear upon its face the designation so selected
for the Series or Class to which it belongs. All Notes of the same Series
shall be identical in all respects except for the denominations thereof,
unless such Series is comprised of one or more Classes, in which case all
Notes of the same Class shall be identical in all respects except for the
denominations thereof. All Notes of a particular Series or, if such Series
is comprised of one or more Classes, all Notes of a particular Class
thereof, in each case issued under this Indenture, shall be in all respects
equally and ratably entitled to the benefits hereof without preference,
priority, or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and
provisions of this Indenture.
Each Series of Notes shall be created by a Trustee's Issuance
Certificate or Series Supplement, as the case may be, authorized by a
Responsible Officer of the Note Issuer and establishing the terms and
provisions of such Series. The several Series and Classes thereof may
differ as between Series and Classes, in respect of any of the following
matters:
(1) designation of the Series and, if applicable, the Classes
thereof,
(2) the principal amount;
(3) the Note Interest Rate;
(4) the Payment Dates;
(5) the Scheduled Maturity Date;
(6) the Final Maturity Date;
(7) the Series Issuance Date;
(8) the place or places for the payment of interest, principal
and premium, if any;
(9) the Minimum Denominations;
(10) the Expected Amortization Schedule;
(11) provisions with respect to the definitions set forth in
Appendix A hereto;
(12) whether or not the Notes of such Series are to be
Book-Entry Notes and the extent to which Section 2.11
should apply;
5
<PAGE>
(13) any redemption provisions applicable to the Notes of such
Series and the price or prices at which and the terms and
conditions upon which Notes of such Series shall be
redeemed or purchased;
(14) to the extent applicable, the extent to which payments on
the Notes of the related Series are subordinate to or PARI
PASSU in right of payment of principal and interest to
other Notes; and
(15) any other provisions expressing or referring to the terms
and conditions upon which the Notes of the applicable
Series or Class are to be issued under this Indenture that
are not in conflict with the provisions of this Indenture
and as to which the Rating Agency Condition is satisfied.
SECTION 2.03. EXECUTION AUTHENTICATION AND DELIVERY. The Notes
shall be executed on behalf of the Note Issuer by any of its Responsible
Officers. The signature of any such Responsible Officer on the Notes may be
manual or facsimile.
Notes bearing the manual or facsimile signature of individuals
who were at any time Responsible Officers of the Note Issuer shall bind the
Note Issuer, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of
such Notes or did not hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Note Issuer may deliver Notes executed by
the Note Issuer to the Indenture Trustee pursuant to an Issuer Order for
authentication; and the Indenture Trustee shall authenticate and deliver
such Notes as in this Indenture provided and not otherwise.
No Note shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for
therein executed by the Indenture Trustee by the manual signature of one of
its authorized signatories, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.
SECTION 2.04. TEMPORARY NOTES. Pending the preparation of
Definitive Notes, the Note Issuer may execute, and upon receipt of an
Issuer Order the Indenture Trustee shall authenticate and deliver,
Temporary Notes which are printed, lithographed, typewritten, mimeographed
or otherwise produced, of the tenor of the Definitive Notes in lieu of
which they are issued and with such variations not inconsistent with the
terms of this Indenture as the officers executing such Notes may determine,
as evidenced by their execution of such Notes.
If Temporary Notes are issued, the Note Issuer will cause
Definitive Notes to be prepared without unreasonable delay. After the
preparation of Definitive Notes, the temporary
6
<PAGE>
Notes shall be exchangeable for Definitive Notes upon surrender of the
Temporary Notes at the office or agency of the Note Issuer to be maintained
as provided in Section 3.02, without charge to the Holder. Upon surrender
for cancellation of any one or more Temporary Notes, the Note Issuer shall
execute and the Indenture Trustee shall authenticate and deliver in
exchange therefor a like principal amount of Definitive Notes of authorized
denominations. Until so delivered in exchange, the Temporary Notes shall in
all respects be entitled to the same benefits under this Indenture as
Definitive Notes.
SECTION 2.05. REGISTRATION; REGISTRATION OF TRANSFER AND
EXCHANGE OF NOTES. The Note Issuer shall cause to be kept a register (the
"Note Register") in which, subject to such reasonable regulations as it may
prescribe, the Note Issuer shall provide for the registration of Notes and
the registration of transfers of Notes. The Indenture Trustee shall be
"Note Registrar" for the purpose of registering Notes and transfers of
Notes as herein provided. Upon any resignation of any Note Registrar, the
Note Issuer shall promptly appoint a successor or, if it elects not to make
such an appointment, assume the duties of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the
Note Issuer as Note Registrar, the Note Issuer will give the Indenture
Trustee prompt written notice of the appointment of such Note Registrar and
of the location, and any change in the location, of the Note Register, and
the Indenture Trustee shall have the right to inspect the Note Register at
all reasonable times and to obtain copies thereof, and the Indenture
Trustee shall have the right to rely upon a certificate executed on behalf
of the Note Registrar by a Responsible Officer thereof as to the names and
addresses of the Holders of the Notes and the principal amounts and number
of such Notes.
Upon surrender for registration of transfer of any Note at the
office or agency of the Note Issuer to be maintained as provided in Section
3.02, the Note Issuer shall execute, and the Indenture Trustee shall
authenticate and the Holder shall obtain from the Indenture Trustee, in the
name of the designated transferee or transferees, one or more new Notes in
any Minimum Denominations, of the same Series (and, if applicable, Class)
and aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other
Notes in any Minimum Denominations, of the same Series (and, if applicable,
Class) and aggregate principal amount, upon surrender of the Notes to be
exchanged at such office or agency. Whenever any Notes are so surrendered
for exchange, the Note Issuer shall execute, and the Indenture Trustee
shall authenticate and the Holder shall obtain from the Indenture Trustee,
the Notes which the Holder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
other Notes shall be the valid obligations of the Note Issuer, evidencing
the same debt, and entitled to the same benefits under this Indenture, as
the Notes surrendered upon such registration of transfer or exchange.
7
<PAGE>
Every Note presented or surrendered for registration of transfer
or exchange shall be duly endorsed by, or be accompanied by (a) a written
instrument of transfer in form satisfactory to the Indenture Trustee duly
executed by the Holder thereof or such Holder's attorney duly authorized in
writing, with such signature guaranteed by an institution which is a member
of one of the following recognized Signature Guaranty Programs: (i) The
Securities Transfer Agent Medallion Program (STAMP); (ii) The New York
Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion
Program (SEMP); or (iv) such other guarantee program acceptable to the
Indenture Trustee, and (b) such other documents as the Indenture Trustee
may require.
No service charge shall be made to a Holder for any registration
of transfer or exchange of Notes, but the Note Issuer or Indenture Trustee
may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration
of transfer or exchange of Notes, other than exchanges pursuant to Section
2.04 or 9.06 not involving any transfer.
The preceding provisions of this Section notwithstanding, the
Note Issuer shall not be required to make, and the Note Registrar need not
register transfers or exchanges (i) of Notes that have been selected for
redemption pursuant to Article X, (ii) of any Note that has been submitted
within 15 days preceding the due date for any payment with respect to such
Note or (iii) of Unregistered Notes unless Section 2.17 has been complied
with in connection with such transfer or exchange.
SECTION 2.06. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If
(i) any mutilated Note is surrendered to the Indenture Trustee, or the
Indenture Trustee receives evidence to its satisfaction of the destruction,
loss or theft of any Note, and (ii) there is delivered to the Indenture
Trustee such security or indemnity as may be required by it to hold the
Note Issuer and the Indenture Trustee harmless, then, in the absence of
notice to the Note Issuer, the Note Registrar or the Indenture Trustee that
such Note has been acquired by a protected purchaser, the Note Issuer shall
execute and, upon its request, the Indenture Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Note, a replacement Note of like Series (and, if applicable,
Class), tenor and principal amount, bearing a number not contemporaneously
outstanding; PROVIDED, HOWEVER, that if any such destroyed, lost or stolen
Note, but not a mutilated Note, shall have become or within seven days
shall be due and payable, or shall have been called for redemption, instead
of issuing a replacement Note, the Note Issuer may pay such destroyed, lost
or stolen Note when so due or payable or upon the Optional Redemption Date
without surrender thereof If, after the delivery of such replacement Note
or payment of a destroyed, lost or stolen Note pursuant to the proviso to
the preceding sentence, a purchaser of the original Note in lieu of which
such replacement Note was issued presents for payment such original Note,
the Note Issuer and the Indenture Trustee shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered
or any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person and shall be
entitled to recover upon the security or indemnity
8
<PAGE>
provided therefor to the extent of any loss, damage, cost or expense
incurred by the Note Issuer or the Indenture Trustee in connection
therewith.
Upon the issuance of any replacement Note under this Section, the
Note Issuer and/or the Indenture Trustee may require the payment by the
Holder of such Note of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Indenture
Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Note shall
constitute an original additional contractual obligation of the Note
Issuer, whether or not the mutilated, destroyed, lost or stolen Note shall
be found at any time or enforced by any Person, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and
all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.07. PERSONS DEEMED OWNER. Prior to due presentment
for registration of transfer of any Note, the Note Issuer, the Indenture
Trustee and any agent of the Note Issuer or the Indenture Trustee may treat
the Person in whose name any Note is registered (as of the day of
determination) as the owner of such Note for the purpose of receiving
payments of principal of and premium, if any, and interest on such Note and
for all other purposes whatsoever, whether or not such Note be overdue, and
neither the Note Issuer, the Indenture Trustee nor any agent of the Note
Issuer or the Indenture Trustee shall be affected by notice to the
contrary.
SECTION 2.08. PAYMENT OF PRINCIPAL, PREMIUM IF ANY, AND
INTEREST; INTEREST ON OVERDUE PRINCIPAL; PRINCIPAL, PREMIUM, IF ANY, AND
INTEREST RIGHTS PRESERVED.
(a) The Notes shall accrue interest as provided in the related
Trustee's Issuance Certificate or Series Supplement at the applicable Note
Interest Rate specified therein, and such interest shall be payable on each
Payment Date as specified therein. Any installment of interest, principal
or premium, if any, payable on any Note which is punctually paid or duly
provided for by the Note Issuer on the applicable Payment Date shall be
paid to the Person in whose name such Note (or one or more Predecessor
Notes) is registered on the Record Date for such Payment Date, by check
mailed first-class, postage prepaid to such Person's address as it appears
on the Note Register on such Record Date or in such other manner as may be
provided in the related Trustee's Issuance Certificate or Series
Supplement, if any, except that with respect to Book Entry Notes payments
will be made by wire transfer in immediately available funds to the account
designated by the Holder of the applicable Global Note unless and until
such Global Note is exchanged for Definitive Notes (in which event payments
shall be made as provided above) and except for the
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final installment of principal and premium, if any, payable with respect to
such Note on a Payment Date which shall be payable as provided below. The
funds represented by any such checks returned undelivered shall be held in
accordance with Section 3.03 hereof
(b) The principal of each Note of each Series (and, if
applicable, Class) shall be paid, to the extent funds are available
therefor in the Collection Account, in installments on each Payment Date
specified in the related Trustee's Issuance Certificate or Series
Supplement, if any. Notwithstanding the foregoing, the entire unpaid
principal amount of the Notes of a Series shall be due and payable, if not
previously paid, on the date on which an Event of Default shall have
occurred and be continuing with respect to such Series, if the Indenture
Trustee or the Holders of the Notes representing not less than a majority
of the Outstanding Amount of the Notes of all Series have declared the
Notes to be immediately due and payable in the manner provided in Section
5.02. All payments of principal and premium, if any, on the Notes of any
Series shall be made pro rata to the Holders entitled thereto. The
Indenture Trustee shall notify the Person in whose name a Note is
registered at the close of business on the Record Date preceding the
Payment Date on which the Note Issuer expects that the final installment of
principal of and premium, if any, and interest on such Note will be paid.
Such notice shall be mailed no later than five days prior to such final
Payment Date and shall specify that such final installment will be payable
only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. Notices in connection with redemptions of Notes shall be
mailed to Holders as provided in Section 10.02.
(c) If interest on the Notes of any Series is not paid when
due, such defaulted interest shall be paid (plus interest on such defaulted
interest at the applicable Note Interest Rate to the extent lawful) to the
Persons who are Holders on a subsequent Special Record Date, which date
shall be at least five Business Days prior to the Special Payment Date. The
Note Issuer shall fix or cause to be fixed any such Special Record Date and
Special Payment Date, and, at least 20 days before any such Special Record
Date, the Note Issuer shall mail to each affected Holder a notice that
states the Special Record Date, the Special Payment Date and the amount of
defaulted interest (plus interest on such defaulted interest) to be paid.
SECTION 2.09. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to
any Person other than the Indenture Trustee, be delivered to the Indenture
Trustee and shall be promptly canceled by the Indenture Trustee. The Note
Issuer may at any time deliver to the Indenture Trustee for cancellation
any Notes previously authenticated and delivered hereunder which the Note
Issuer may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly canceled by the Indenture Trustee. No Notes
shall be authenticated in lieu of or in exchange for any Notes canceled as
provided in this Section, except as expressly permitted by this Indenture.
All canceled Notes may be held or disposed of by the Indenture Trustee in
accordance with its standard retention or disposal policy as in effect at
the time.
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SECTION 2.10. OUTSTANDING AMOUNT; AUTHENTICATION AND DELIVERY OF
NOTES. The aggregate Outstanding Amount of Notes that may be authenticated
and delivered under this Indenture shall be limited as provided in Section
3.08.
Notes of each Series created and established by a Trustee's
Issuance Certificate or Series Supplement, if any, may from time to time be
executed by the Note Issuer and delivered to the Indenture Trustee for
authentication and thereupon the same shall be authenticated and delivered
by the Indenture Trustee upon Issuer Request and upon delivery by the Note
Issuer to the Indenture Trustee, and receipt by the Indenture Trustee, or
the causing to occur by the Note Issuer, of the following; PROVIDED,
HOWEVER, that compliance with such conditions and delivery of such
documents shall only be required in connection with the original issuance
of a Note or Notes of such Series:
(1) NOTE ISSUER ACTION. An Issuer Order authorizing and
directing the execution, authentication and delivery of
the Notes by the Indenture Trustee and specifying the
principal amount of Notes to be authenticated.
(2) AUTHORIZATIONS. The Funding Order related to such Series
shall be in full force and effect and be Final.
(3) OPINIONS.
(a) An Opinion of Counsel that the applicable Funding
Order is in full force and effect and Final and
that no other authorization, approval or consent
of any governmental body or bodies at the time
having jurisdiction in the premises is required
for the valid issuance, authentication and
delivery of such Notes, except for such
registrations as are required under the Blue Sky
and securities laws of any State or such
authorizations, approvals or consents of
governmental bodies that have been obtained and
copies of which have been delivered with such
Opinion of Counsel.
(b) An Opinion of Counsel that no authorization,
approval or consent of any governmental body or
bodies at the time having jurisdiction in the
premises is required for the valid execution and
delivery by the Note Issuer of each of the Basic
Documents to which the Note Issuer is a party,
except for such authorizations, approvals or
consents of governmental bodies that have been
obtained and copies of which have been delivered
with such Opinion of Counsel.
(4) AUTHORIZING CERTIFICATE. A certificate of a Responsible
Officer of the Note Issuer certifying that (i) the Note
Issuer has duly authorized the execution and delivery of
this Indenture and the related Trustee's Issuance
Certificate
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or Series Supplement, as the case may be, and the
execution and delivery of the Notes of such Series and
(ii) that the Trustee's Issuance Certificate or Series
Supplement, as the case may be, for such Series of Notes
shall be in the form attached thereto, which Trustee's
Issuance Certificate or Series Supplement, as the case may
be, shall comply with the requirements of Section 2.02
hereof.
(5) THE NOTE COLLATERAL. The Note Issuer shall have made or
caused to be made all filings with the ICC pursuant to the
Funding Order and the Funding Law and all other filings
necessary to perfect the Grant of the Note Collateral to
the Indenture Trustee and the lien of this Indenture.
(6) CERTIFICATES OF THE NOTE ISSUER AND THE GRANTEE.
(a) An Officer's Certificate from the Note Issuer,
dated as of the Series Issuance Date:
(i) to the effect that (A) the Note Issuer is not in
Default under this Indenture and that the
issuance of the Notes applied for will not
result in any Default or in any breach of any of
the terms, conditions or provisions of or
constitute a default under the Funding Order or
any indenture, mortgage, deed of trust or other
agreement or instrument to which the Note Issuer
is a party or by which it or its property is
bound or any order of any court or
administrative agency entered in any Proceeding
to which the Note Issuer is a party or by which
it or its property may be bound or to which it
or its property may be subject; and (B) that all
conditions precedent provided in this Indenture
relating to the authentication and delivery of
the Notes applied for have been complied with;
(ii) to the effect that the Note Issuer has not
assigned any interest or participation in the
Note Collateral except for the Grant contained
in this Indenture; the Note Issuer has the power
and right to Grant the Note Collateral to the
Indenture Trustee as security hereunder; and the
Note Issuer, subject to the terms of this
Indenture, has Granted to the Indenture Trustee
all of its right, title and interest in and to
such Note Collateral free and clear of any lien,
mortgage, pledge, charge, security interest,
adverse claim or other encumbrance arising as a
result of actions of the Note Issuer or through
the Note Issuer, except the lien of this
Indenture;
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(iii) to the effect that the Note Issuer has appointed
the firm of Independent certified public
accountants as contemplated in Section 8.06
hereof;
(iv) to the effect that attached thereto are duly
executed, true and complete copies of the Grant
Agreement and the Sale Agreement or Subsequent
Grant Agreement and Subsequent Sale Agreement,
as applicable, and the Servicing Agreement; and
(v) stating that all filings with the ICC pursuant
to the Funding Law and the Funding Order and all
UCC financing statements with respect to the
Note Collateral which are required to be filed
by the terms of the Funding Order, the Funding
Law, the Grant Agreement and the Sale Agreement
or Subsequent Grant Agreement and Subsequent
Sale Agreement, as applicable, the Servicing
Agreement and this Indenture have been filed as
required.
(b) An Officer's Certificate from the Grantee, dated as of
the Series Issuance Date, to the effect that, in the
case of the Intangible Transition Property, immediately
prior to the conveyance thereof to the Note Issuer
pursuant to the Sale Agreement or the Subsequent Sale
Agreement, as applicable:
(i) the Grantee was the owner of such Intangible
Transition Property, free and clear of any Lien;
the Grantee had not assigned any interest or
participation in such Intangible Transition
Property and the proceeds thereof other than to
the Note Issuer pursuant to the Sale Agreement
or Subsequent Sale Agreement, as applicable; the
Grantee has the power and right to convey such
Intangible Transition Property and the proceeds
thereof to the Note Issuer; and the Grantee,
subject to the terms of the Sale Agreement or
the Subsequent Sale Agreement, as applicable,
has validly conveyed to the Note Issuer all of
its right, title and interest in and to such
Intangible Transition Property and the proceeds
thereof, free and clear of any lien, mortgage,
pledge, charge, security interest, adverse claim
or other encumbrance; and
(ii) the attached copy of the Funding Order creating
such Intangible Transition Property is true and
correct.
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(7) OPINION OF TAX COUNSEL. Illinois Power shall have delivered
to the Grantee, the Note Issuer, the Delaware Trustee and
the Indenture Trustee an opinion of independent tax counsel
and/or a ruling from the Internal Revenue Service (as
selected by, and in form and substance reasonably
satisfactory to, Illinois Power) to the effect that, for
federal income tax purposes, (i) such issuance of the Notes,
and transfer of the Note Proceeds to Illinois Power, will
not result in gross income to the Grantee, the Note Issuer
or Illinois Power and (ii) such issuance will not
materially adversely affect the characterization of the then
Outstanding Notes as obligations of Illinois Power.
(8) OPINION OF COUNSEL. Unless otherwise specified in a
Trustee's Issuance Certificate or Series Supplement, if any,
an Opinion of Counsel, portions of which may be delivered by
counsel for the Note Issuer, portions of which may be
delivered by counsel for the Grantee and the Servicer, and
portions of which may be delivered by counsel for the
Indenture Trustee, dated the Series Issuance Date, in each
case subject to the customary exceptions, qualifications and
assumptions contained therein, to the collective effect
that:
(a) the Indenture has been duly qualified under the Trust
Indenture Act and either the related Trustee's Issuance
Certificate or Series Supplement, if any, has been duly
qualified under the Trust Indenture Act or no such
qualification of the Trustee's Issuance Certificate or
Series Supplement is necessary;
(b) all instruments furnished to the Indenture Trustee
pursuant to this Indenture conform to the requirements
set forth in this Indenture and constitute all of the
documents required to be delivered hereunder for the
Indenture Trustee to authenticate and deliver the Notes
applied for, and all conditions precedent provided for
in this Indenture relating to the authentication and
delivery of the Notes have been complied with;
(c) the Note Issuer has the power and authority to execute
and deliver the Trustee's Issuance Certificate, the
Series Supplement, if any, and this Indenture and to
issue the Notes, and each of the Trustee's Issuance
Certificate, the Series Supplement, if any, and this
Indenture, and the Notes have been duly authorized and
the Note Issuer is duly formed and is validly existing
in good standing under the laws of the jurisdiction of
its organization;
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(d) the Trustee's Issuance Certificate, the Series
Supplement, if any, and the Indenture have been duly
authorized, executed and delivered by the Note Issuer;
(e) the Notes applied for have been duly authorized and
executed and, when authenticated in accordance with the
provisions of the Indenture and delivered against
payment of the purchase price therefor, will constitute
valid and binding obligations of the Note Issuer,
entitled to the benefits of the Indenture and any
related Trustee's Issuance Certificate or Series
Supplement;
(f) this Indenture, the Grant Agreement or the Subsequent
Grant Agreement as applicable, the Sale Agreement or
the Subsequent Sale Agreement as applicable, the
Servicing Agreement and the related Trustee's Issuance
Certificate or Series Supplement, if any, are valid and
binding agreements of the Note Issuer, enforceable in
accordance with their respective terms, except as such
enforceability may be subject to bankruptcy,
insolvency, reorganization and other similar laws
affecting the rights of creditors generally and general
principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity
or at law);
(g) in accordance with the Funding Law, the Funding Order
(A) creates Intangible Transition Property in an amount
not less than the amount, if any, specified in the
Trustee's Issuance Certificate or Series Supplement, if
any, which was vested by the Funding Order in the
Grantee; (B) approves and authorizes the sale, transfer
and assignment by the Grantee of such Intangible
Transition Property to the Note Issuer; (C) approves
the issuance and sale by the Note Issuer of the Notes
to be issued on such Series Issuance Date in an
aggregate principal amount which equals or exceeds the
initial Outstanding Amount of the Notes referred to in
(1) above; and (D) declares and establishes that such
Notes are Transitional Funding Instruments within the
meaning of Section 18-102 of the Funding Law; and
(h) (A) at the time of the issuance of such Notes the lien
of this Indenture in favor of the Holders in the
Intangible Transition Property attaches automatically;
(B) such lien has been perfected in accordance with
Section 18-107(c) of the Funding Law and in accordance
with the Funding Order; (C) such lien is valid and
enforceable against Illinois Power, the Servicer, the
Grantee, the
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Note Issuer, and all third parties, including judgment
lien creditors; and (D) such lien ranks prior to any
other lien which subsequently attaches to the
Intangible Transition Property;
(i) with respect to the Note Collateral other than the
Intangible Transition Property, upon the giving of
value by the Indenture Trustee to the Note Issuer with
respect to such Note Collateral, (A) this Indenture,
together with any related Trustee's Issuance
Certificate or Series Supplement, creates in favor of
the Indenture Trustee a security interest in the rights
of the Note Issuer in such Note Collateral, and such
security interest is enforceable against Illinois
Power, the Servicer, the Grantee, the Note Issuer and
all third parties, (B) such security interest is
perfected, and (C) such perfected security interest is
of first priority;
(j) either (A) the Registration Statement covering the
Notes is effective under the Securities Act and, to
such counsel's knowledge, no stop order suspending the
effectiveness of such Registration Statement has been
issued under the Securities Act and no proceedings for
that purpose have been initiated or are pending or
threatened by the SEC or (B) the Notes are exempt from
the registration requirements under the Securities Act;
(k) the Note Issuer is not now and, assuming that the Note
Issuer uses the proceeds of the sale of the Notes for
the purpose of acquiring Intangible Transition Property
in accordance with the terms of the Sale Agreement or
the Subsequent Sale Agreement, as applicable, following
the sale of the Notes to the underwriter, underwriters,
placement agent or agents or similar Person, neither
the Note Issuer nor the Grantee will be required to be
registered under the Investment Company Act of 1940, as
amended;
(l) the Grant Agreement or Subsequent Grant Agreement, as
applicable, is a valid and binding agreement of
Illinois Power enforceable against Illinois Power in
accordance with its terms and the Sale Agreement or
Subsequent Sale Agreement as applicable, is a valid and
binding agreement of the Grantee enforceable against
the Grantee in accordance with its terms, except in
each case as such enforceability may be subject to
bankruptcy, insolvency, reorganization and other
similar laws affecting the rights of creditors
generally and general principles of equity (regardless
of whether such enforcement is considered in a
proceeding in equity or at law);
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(m) the Servicing Agreement is a valid and binding
agreement of the Servicer enforceable against the
Servicer in accordance with its terms except as such
enforceability may be subject to bankruptcy,
insolvency, reorganization and other similar laws
affecting the rights of creditors generally and general
principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or
at law);
(n) pursuant to the Funding Order and upon the delivery of
the fully executed Sale Agreement or Subsequent Sale
Agreement as applicable to the Note Issuer and the
payment of the purchase price of the Intangible
Transition Property by the Note Issuer to the Grantee
pursuant to the Sale Agreement or Subsequent Sale
Agreement as applicable, (i) the transfer of the
Intangible Transition Property by the Grantee to the
Note Issuer conveys the Grantee's right, title and
interest in the Intangible Transition Property to the
Note Issuer and will be treated under Illinois state
law as an absolute transfer of all of the Grantee's
right, title, and interest in the Intangible Transition
Property, other than for federal and state income and
franchise tax purposes, (ii) such transfer of the
Intangible Transition Property is perfected, (iii) such
transfer has priority over any other assignment of the
Intangible Transition Property and (iv) the Intangible
Transition Property is free and clear of all liens
created prior to its transfer to the Note Issuer
pursuant to the Sale Agreement; and
(o) such other matters as the Indenture Trustee may
reasonably require.
[(9) ACCOUNTANT'S CERTIFICATE OR OPINION. Unless otherwise
specified in a Trustee's Issuance Certificate or a Series
Supplement, if any, a certificate or opinion, addressed
to the Note Issuer and the Indenture Trustee complying
with the requirements of Section 11.01(a) hereof, of a
firm of Independent certified public accountants of
recognized national reputation to the effect that
(a) such accountants are Independent with respect to the
Note Issuer within the meaning of this Indenture, and are
independent public accountants within the meaning of the
standards of The American Institute of Certified Public
Accountants, and (b) with respect to the Note Collateral,
they have made such calculations as they deemed necessary
for the purpose and determined that, based on the
assumptions used in calculating the initial IFCs or, if
applicable, the most recent revised IFCs, as of the
Series Issuance Date for such Series (after giving effect
to the issuance of such Series and the application of the
proceeds therefrom) such IFCs are sufficient to pay
(a) Operating Expenses when incurred, plus (b)
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the Overcollateralization Amount, plus (c) interest on
each Series of Notes at their respective Note Interest
Rates when due, plus (d) principal of each Series of
Notes in accordance with the Expected Amortization
Schedule.)]
[(10) RATING AGENCY CONDITION. The Indenture Trustee shall
receive evidence reasonably satisfactory to it that the
Rating Agency Condition will be satisfied with respect to
the issuance of such new Series.]
(11) REQUIREMENTS OF TRUSTEE'S ISSUANCE CERTIFICATE OR SERIES
SUPPLEMENT. Such other funds, accounts, documents
certificates, agreements, instruments or opinions as may
be required by the terms of the Trustee's Issuance
Certificate or Series Supplement, if any, creating such
Series.
(12) OTHER REQUIREMENTS. Such other documents, certificates,
agreements, instruments or opinions as the Indenture
Trustee may reasonably require.
SECTION 2.11. BOOK-ENTRY NOTES. Unless the applicable Trustee's
Issuance Certificate or Series Supplement, if any, provides otherwise, all
of the related Series of Notes shall be issued in Book-Entry Form, and the
Note Issuer shall execute and the Indenture Trustee shall, in accordance
with this Section and the Issuer Order with respect to such Series,
authenticate and deliver one or more Global Notes, evidencing the Notes of
such Series which (i) shall be an aggregate original principal amount equal
to the aggregate original principal amount of such Notes to be issued
pursuant to the applicable Issuer Order, (ii) shall be registered in the
name of the Clearing Agency therefor or its nominee, which shall initially
be Cede & Co., as nominee for The Depository Trust Company, the initial
Clearing Agency, (iii) shall be delivered by the Indenture Trustee to such
Clearing Agency's or such nominee's instructions, and (iv) shall bear a
legend substantially to the following effect: "TRANSFERS OF THIS GLOBAL
NOTE SHALL BE LIMITED TO TRANSFERS IN THE CLEARING AGENCY OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE."
Each Clearing Agency designated pursuant to this Section 2.11
must, at the time of its designation and at all times while it serves as
Clearing Agency hereunder, be a "clearing agency" registered under the
Exchange Act and any other applicable statute or regulation.
No Holder of any such Series of Notes issued in Book-Entry Form
shall receive a Definitive Note representing such Holder's interest in any
such Notes, except as provided in Section 2.13 or in the applicable
Trustee's Issuance Certificate or Series Supplement, if any, relating to
such Notes. Unless (and until) certificated, fully registered Notes of any
Series (the "Definitive Notes") have been issued to the Holders of such
Series pursuant to Section 2.13 or pursuant to any applicable Trustee's
Issuance Certificate or Series Supplement, if any, relating thereto:
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(a) the provisions of this Section 2.11 shall be in full force
and effect;
(b) the Note Issuer, the Servicer, the Paying Agent, the Note
Registrar and the Indenture Trustee may deal with the
Clearing Agency for all purposes (including the making of
distributions on the Notes of such Series) as the authorized
representatives of the Holders of such Series;
(c) to the extent that the provisions of this Section 2.11
conflict with any other provisions of this Indenture, the
provisions of this Section 2.11 shall control; and
(d) the rights of Holders of such Series shall be exercised only
through the Clearing Agency and the Clearing Agency
Participants and shall be limited to those established by
law and agreements between such Holders and the Clearing
Agency and/or the Clearing Agency Participants. Unless and
until Definitive Note are issued pursuant to Section 2.13,
the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and
transmit distributions of principal and interest on the
Book-Entry notes to such Clearing Agency Participants.
SECTION 2.12. NOTICES TO CLEARING AGENCY. Unless and until
Definitive Notes shall have been issued to Holders of such Series pursuant
to Section 2.13 or the applicable Trustee's Issuance Certificate or Series
Supplement, if any, relating to such Notes, whenever notice, payment, or
other communication to the holders of Book-Entry Notes of any Series is
required under this Indenture, the Indenture Trustee, the Servicer and the
Paying Agent shall give all such notices and communications specified
herein to be given to Holders of such Series to the Clearing Agency.
SECTION 2.13. DEFINITIVE NOTES. If (i)(A) the Administrator
advises the Indenture Trustee in writing that the Clearing Agency is no
longer willing or able to properly discharge its responsibilities under any
Letter of Representations and (B) the Administrator is unable to locate a
qualified successor Clearing Agency, (ii) the Administrator, at its option,
advises the Indenture Trustee in writing that, with respect to any Series,
it elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of a Servicer Default, Holders holding Notes
aggregating not less than 50% of the aggregate Outstanding Amount of any
Series of Notes maintained as Book-Entry Notes advise the Indenture
Trustee, the Administrator, the Note Issuer and the Clearing Agency
(through the Clearing Agency Participants) in writing that the continuation
of a book-entry system through the Clearing Agency is no longer in the best
interests of the Holders of such Series, the Administrator shall notify the
Clearing Agency, the Indenture Trustee and all such Holders of such Series
of the occurrence of any such event and of the availability of Definitive
Notes of such Series to the Holders of such Series requesting the same.
Upon surrender to the Indenture Trustee of the Global Notes of such Series
by the Clearing Agency accompanied by registration instructions from such
Clearing Agency for registration, the
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Indenture Trustee shall authenticate and deliver Definitive Notes of such
Series. None of the Note Issuer, the Note Registrar, or the Indenture
Trustee shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Notes of any Series, all
references herein to obligations with respect to such Series imposed upon
or to be performed by the Clearing Agency shall be deemed to be imposed
upon and performed by the Indenture Trustee, to the extent applicable with
respect to such Definitive Notes and the Indenture Trustee shall recognize
the Holders of the Definitive Notes as Holders hereunder.
SECTION 2.14. CUSIP NUMBER. The Note Issuer in issuing any Note
or Series of Notes may use a "CUSIP" number and, if so used, the Indenture
Trustee shall use the CUSIP number in any notices to the Holders thereof as
a convenience to such Holders; PROVIDED, that any such notice may state
that no representation is made as to the correctness or accuracy of the
CUSIP number printed in the notice or on the Notes and that reliance may be
placed only on the other identification numbers printed on the Notes. The
Note Issuer shall promptly notify the Indenture Trustee of any change in
the CUSIP number with respect to any Note.
SECTION 2.15. LETTER OF REPRESENTATIONS. Notwithstanding
anything to the contrary in this Indenture or any Series Supplement or any
Trustee's Issuance Certificate, the parties hereto shall comply with the
terms of each Letter of Representations.
SECTION 2.16. RELEASE OF NOTE COLLATERAL. Subject to
Section 11.01, the Indenture Trustee shall release property from the lien
of this Indenture only as specified in Section 8.02(d) or upon receipt of
an Issuer Request accompanied by an Officer's Certificate, an Opinion of
Counsel and Independent Certificates in accordance with TIA Sections 314(c)
and 314(d)(l) or an Opinion of Counsel in lieu of such Independent
Certificates to the effect that the TIA does not require any such
Independent Certificates.
SECTION 2.17 SPECIAL TERMS APPLICABLE TO SUBSEQUENT TRANSFERS
OF CERTAIN NOTES.
(a) Certain Series of Notes may not be registered under the
Securities Act, or the securities laws of any other jurisdiction.
Consequently, such Unregistered Notes shall not be transferable other than
pursuant to an exemption from the registration requirements of the
Securities Act and satisfaction of certain other provisions specified
herein or in the related Trustee's Issuance Certificate or Series
Supplement, if any. Unless otherwise provided in the related Trustee's
Issuance Certificate or Series Supplement, if any, no sale, pledge or other
transfer of any Unregistered Note (or interest therein) may be made by any
Person unless either (i) such sale, pledge or other transfer is made to a
"qualified institutional buyer" (as defined under Rule 144A under the
Securities Act) or to an "institutional accredited investor" (as described
in Rule 501(a)(l), (2), (3) or (7) under the Securities Act) and, if so
requested by the Grantee or the Indenture Trustee, such proposed transferee
executes and delivers a certificate, substantially in the form attached
hereto as EXHIBIT or otherwise in form and substance satisfactory to
the
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Indenture Trustee and the Note Issuer, or (ii) such sale, pledge or other
transfer is otherwise made in a transaction exempt from the registration
requirements of the Securities Act, in which case (A) the Indenture Trustee
shall require that both the prospective transferor and the prospective
transferee to the Indenture Trustee and the Note Issuer in writing the
facts surrounding such transfer, which certification shall be in form and
substance satisfactory to the Indenture Trustee and the Note Issuer, and
(B) the Indenture Trustee shall require a written opinion of counsel (which
shall not be at the expense of the Note Issuer, the Servicer or the
Indenture Trustee) satisfactory to the Note Issuer and the Indenture
Trustee to the effect that such transfer will not violate the Securities
Act. Neither the Grantee, the Note Issuer, nor the Indenture Trustee shall
be obligated to register any Unregistered Notes under the Securities Act,
qualify any Unregistered Notes under the securities laws of any state or
provide registration rights to any purchaser or holder thereof
(b) Unless otherwise provided in the related Trustee's Issuance
Certificate or Series Supplement, the Unregistered Notes may not be
acquired by or for the account of a Benefit Plan and, by accepting and
holding an Unregistered Note, the Holder thereof shall be deemed to have
represented and warranted that it is not a Benefit Plan and, if requested
to do so by the Note Issuer or the Indenture Trustee, the Holder of an
Unregistered Note shall execute and deliver to the Indenture Trustee a
letter of undertaking in the form set forth in EXHIBIT .
(c) Unless otherwise provided in the related Trustee's Issuance
Certificate or Series Supplement, Unregistered Notes shall be issued in the
form of Definitive Notes, shall be in fully registered form and Sections
2.11 and 2.12 of this Indenture shall not apply thereto.
(d) Each Unregistered Note shall bear legends to the effect set
forth in subsections (a) and (b) (if subsection (b) is applicable) above.
SECTION 2.18. TAX TREATMENT. The Note Issuer and the Indenture
Trustee, by entering into this Indenture, and the Holders and any Persons
holding a beneficial interest in any Note, by acquiring any Note or
interest therein, (i) express their intention that the Notes qualify under
applicable tax law as indebtedness of Illinois Power secured by the Note
Collateral and (ii) agree to treat the Notes as indebtedness secured by the
Note Collateral for the purpose of federal income, state and local income
and franchise taxes, and any other taxes imposed upon, measured by or based
upon gross or net income, unless other required by appropriate taxing
authorities.
SECTION 2.19. STATE PLEDGE. At the Closing Date, under the laws
of the State of Illinois and the United States in effect on the Closing
Date, the State of Illinois has agreed with the Holders, pursuant to
Section 18-105(b) of the Funding Law, as follows:
"(b) The State pledges to and agrees with the holders
of any transitional funding instruments who may enter into
contracts with an electric utility, grantee, assignee or
issuer pursuant to this Article XVIII
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that the State will not in any way limit, alter, impair or reduce
the value of intangible transition property created by, or
instrument funding charges approved by, a transitional funding
order so as to impair the terms of any contract made by such
electric utility, grantee, assignee or issuer with such holders
or in any way impair the rights and remedies of such holders
until the pertinent grantee instruments or, if the related
transitional funding order does not provide for the issuance of
grantee instruments, the transitional funding instruments and
interest, premium and other fees, costs and charges related
thereto, as the case may be, are fully paid and discharged.
Electric utilities, grantees and issuers are authorized to
include these pledges and agreements of the State in any contract
with the holders of transitional funding instruments or with any
assignees pursuant to this Article XVIII and any assignees are
similarly authorized to include these pledges and agreements of
the State in any contract with any issuer, holder or any other
assignee. Nothing in this Article XVIII shall preclude the State
of Illinois from requiring adjustments as may otherwise be
allowed by law to the electric utility's base rates, transition
charges, delivery services charges, or other charges for tariffed
services, so long as any such adjustment does not directly affect
or impair any instrument funding charges previously authorized by
a transitional funding order issued by the [ICC]."
As a result of the foregoing pledge, the State of Illinois may not, except
as provided in the succeeding sentence, in any way limit, alter, impair or
reduce the value of the ITP or the IFCs in a manner substantially impairing
this Indenture or the rights and remedies of the Holders, until the Notes,
together with interest thereon, are fully paid and discharged.
Notwithstanding the immediately preceding sentence, the State of Illinois
would be allowed to effect a temporary impairment of the Holders' rights if
it could be shown that such impairment was necessary to advance a
significant and legitimate public purpose.
ARTICLE III
COVENANTS
SECTION 3.01. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND
INTEREST. The principal of and premium, if any, and interest on the Notes
will be duly and punctually paid in accordance with the terms of the Notes
and this Indenture. Amounts properly withheld under the Code or other tax
laws by any Person from a payment to any Holder of interest or principal or
premium, if any, shall be considered as having been paid by the Note Issuer
to such Holder for all purposes of this Indenture.
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Note Issuer
will maintain in Chicago, Illinois, an office or agency where Notes may be
surrendered for registration of transfer or exchange. The Note Issuer
hereby initially appoints the Indenture Trustee to serve
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as its agent for the foregoing purposes. The Note Issuer will give prompt
written notice to the Indenture Trustee of the location, and of any change
in the location, of any such office or agency. If at any time the Note
Issuer shall fail to maintain any such office or agency or shall fail to
furnish the Indenture Trustee with the address thereof, such surrenders may
be made at the Corporate Trust Office, and the Note Issuer hereby appoints
the Indenture Trustee as its agent to receive all such surrenders.
SECTION 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST. As
provided in Section 8.02(a), all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the
Collection Account pursuant to Section 8.02(d) shall be made on behalf of
the Note Issuer by the Indenture Trustee or by another Paying Agent, and no
amounts so withdrawn from the Collection Account for payments with respect
to any Notes shall be paid over to the Note Issuer except as provided in
this Section and Section 8.02.
The Note Issuer will cause each Paying Agent other than the
Indenture Trustee to execute and deliver to the Indenture Trustee an
instrument in which such Paying Agent shall agree with the Indenture
Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so
agrees), subject to the provisions of this Section, that such Paying Agent
will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and pay such
sums to such Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by
the Note Issuer of which it has actual knowledge (or any other
obligor upon the Notes) in the making of any payment required to
be made with respect to the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee,
forthwith pay to the Indenture Trustee all sums so held in trust
by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it determines that it has ceased
to meet the standards required to be met by a Paying Agent at the
time of such determination; and
(v) comply with all requirements of the Code and other
tax laws with respect to the withholding from any payments made
by it on any Notes of any applicable withholding taxes imposed
thereon and with respect to any applicable reporting requirements
in connection therewith.
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The Note Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Order direct any Paying Agent to pay to the Indenture Trustee all
sums held in trust by such Paying Agent, such sums to be held by the
Indenture Trustee upon the same trusts as those upon which the sums were
held by such Paying Agent; and upon such payment by any Paying Agent to the
Indenture Trustee, such Paying Agent shall be released from all further
liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any
money held by the Indenture Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Note and remaining unclaimed
for two years after such amount has become due and payable shall be
discharged from such trust and be paid to the Note Issuer on an Issuer
Request; and, subject to Section 11.18, the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Note Issuer
for payment thereof (but only to the extent of the amounts so paid to the
Note Issuer), and all liability of the Indenture Trustee or such Paying
Agent with respect to such trust money shall thereupon cease; PROVIDED,
HOWEVER, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Note Issuer,
cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general
circulation in the City of Chicago, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Note Issuer. The Indenture
Trustee may also adopt and employ, at the expense of the Note Issuer, any
other reasonable means of notification of such repayment (including, but
not limited to, mailing notice of such repayment to Holders whose Notes
have been called but have not been surrendered for redemption or whose
right to or interest in moneys due and payable but not claimed is
determinable from the records of the Indenture Trustee or of any Paying
Agent, at the last address of record for each such Holder).
SECTION 3.04. EXISTENCE. The Note Issuer will keep in full
effect its existence, rights and franchises as a business trust under the
laws of the State of Delaware (unless it becomes, or any successor Note
Issuer hereunder is or becomes, organized under the laws of any other State
or of the United States of America, in which case the Note Issuer will keep
in full effect its existence, rights and franchises under the laws of such
other jurisdiction) and will obtain and preserve its qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Note Collateral and each other instrument or agreement included
in the Note Collateral.
SECTION 3.05. PROTECTION OF NOTE COLLATERAL. The Note Issuer
will from time to time execute and deliver all such supplements and
amendments hereto and all filings with the ICC pursuant to the Funding
Order or to the Funding Law and all financing statements, continuation
statements, instruments of further assurance and other instruments, and
will take such other action necessary or advisable to:
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(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof,
(ii) perfect, publish notice of or protect the validity of
any Grant made or to be made by this Indenture;
(iii) enforce any of the Note Collateral;
(iv) preserve and defend title to the Note Collateral and
the rights of the Indenture Trustee and the Holders in such Note
Collateral against the Claims of all Persons and parties,
including the challenge by any party to the validity or
enforceability of any Funding Order, any Tariff, the Intangible
Transition Property or any proceeding relating thereto and
institute any action or proceeding necessary to compel
performance by the ICC or the State of Illinois of any of its
obligations or duties under the Funding Law, the State Pledge, or
any Funding Order; or
(v) pay any and all taxes levied or assessed upon all or
any part of the Note Collateral.
The Note Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any filings with the ICC, financing statements,
continuation statements or other instrument required by the Indenture
Trustee pursuant to this Section, it being understood that the Indenture
Trustee shall have no such obligation.
SECTION 3.06. OPINIONS AS TO NOTE COLLATERAL.
(a) On the Series Issuance Date for each Series (including the
Closing Date), the Note Issuer shall furnish to the Indenture Trustee an
Opinion of Counsel either stating that, in the opinion of such counsel,
such action has been taken with respect to the recording and filing of this
Indenture, any indentures supplemental hereto, and any other requisite
documents, and with respect to the execution and filing of any filings with
the ICC pursuant to the Funding Law and the applicable Funding Order and
any financing statements and continuation statements, as are necessary to
perfect and make effective the lien and security interest of this Indenture
and reciting the details of such action, or stating that, in the opinion of
such counsel, no such action is necessary to make such lien and security
interest effective.
(b) On or before [September 30] in each calendar year, while any
Series is outstanding, beginning on _________, 1999, the Note Issuer shall
furnish to the Indenture Trustee an Opinion of Counsel either stating that,
in the opinion of such counsel, such action has been taken with respect to
the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and with
respect to the execution and filing of any filings with the ICC pursuant to
the Funding Law and the Funding Order and any financing statements and
continuation statements as is necessary to maintain the
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lien and security interest created by this Indenture and reciting the
details of such action or stating that in the opinion of such counsel no
such action is necessary to maintain such lien and security interest. Such
Opinion of Counsel shall also describe the recording, filing, re-recording
and refiling of this Indenture, any indentures supplemental hereto and any
other requisite documents and the execution and filing of any filings with
the ICC, financing statements and continuation statements that will, in the
opinion of such counsel, be required to maintain the lien and security
interest created by this Indenture until [September 30] in the following
calendar year.
(c) Prior to the effectiveness of any Subsequent Sale Agreement
or any amendment to any Sale Agreement, the Note Issuer shall furnish to
the Indenture Trustee an Opinion of Counsel either (A) stating that, in the
opinion of such counsel, all filings, including filings with the ICC
pursuant to the Funding Law, or the Funding Order, have been executed and
filed that are necessary fully to preserve and protect the interest of the
Note Issuer and the Indenture Trustee in the Intangible Transition Property
and the proceeds thereof, and reciting the details of such filings or
referring to prior Opinions of Counsel in which such details are given, or
(B) stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest.
SECTION 3.07. PERFORMANCE OF OBLIGATIONS; SERVICING SEC FILINGS.
(a) The Note Issuer (i) will diligently pursue any and all
actions to enforce its rights under each instrument or agreement included
in the Note Collateral and (ii) will not take any action and will use its
best efforts not to permit any action to be taken by others that would
release any Person from any of such Person's covenants or obligations under
any such instrument or agreement or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except, in
each case, as expressly provided in this Indenture, any Trustee's Issuance
Certificate, any Series Supplement, the Sale Agreement, any Subsequent Sale
Agreement related to the applicable Note Collateral, the Servicing
Agreement, the Administration Agreement or such other instrument or
agreement.
(b) The Note Issuer may contract with other Persons to assist it
in performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee herein or in an
Officer's Certificate of the Note Issuer shall be deemed to be action taken
by the Note Issuer. Initially, the Note Issuer has contracted with the
Servicer and the Administrator to assist the Note Issuer in performing its
duties under this Indenture.
(c) The Note Issuer will punctually perform and observe all of
its obligations and agreements contained in this Indenture, the Basic
Documents and in the instruments and agreements included in the Note
Collateral, including, but not limited to, filing or causing to be filed
all filings with the ICC pursuant to the Funding Law or the Funding Order,
all UCC financing statements and continuation statements required to be
filed by it by the terms of this
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Indenture, any Sale Agreement and the Servicing Agreement in accordance
with and within the time periods provided for herein and therein.
(d) If the Note Issuer shall have knowledge of the occurrence of
a Servicer Default under the Servicing Agreement, the Note Issuer shall
promptly give written notice thereof to the Indenture Trustee and the
Rating Agencies, and shall specify in such notice the response or action,
if any, the Note Issuer has taken or is taking with respect of such
default. If a Servicer Default shall arise from the failure of the Servicer
to perform any of its duties or obligations under the Servicing Agreement
with respect to the Intangible Transition Property or the IFCs, the Note
Issuer shall take all reasonable steps available to it to remedy such
failure.
(e) As promptly as possible after the giving of notice of
termination to the Servicer and the Rating Agencies of the Servicer's
rights and powers pursuant to Section [7.01] of the Servicing Agreement,
the Grantee shall appoint a successor Servicer (the "Successor Servicer")
with the Note Issuer's prior written consent thereto (which consent shall
not be unreasonably withheld), and such Successor Servicer shall accept its
appointment by a written assumption in a form acceptable to the Grantee,
the Note Issuer and the Indenture Trustee. A Person shall qualify as a
Successor Servicer only if such Person satisfies the requirements of the
Servicing Agreement. If within 30 days after the delivery of the notice
referred to above, the Note Issuer shall not have obtained such a new
Servicer, the Indenture Trustee may petition the ICC or a court of
competent jurisdiction to appoint a Successor Servicer. In connection with
any such appointment, the Grantee may make such arrangements for the
compensation of such successor as it and such successor shall agree,
subject to the limitations set forth below and in the Servicing Agreement.
(f) Upon any termination of the Servicer's rights and powers
pursuant to the Servicing Agreement, the Indenture Trustee shall promptly
notify the Note Issuer, the Holders and the Rating Agencies. As soon as a
Successor Servicer is appointed, the Note Issuer shall notify the Grantee,
the Note Issuer, the Holders and the Rating Agencies of such appointment,
specifying in such notice the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the
assignment Granted to the Indenture Trustee under this Indenture or the
rights of the Indenture Trustee hereunder, the Note Issuer agrees that it
will not, without the prior written consent of the Indenture Trustee or the
Holders of at least [a majority] in Outstanding Amount of the Notes of all
Series, amend, modify, waive, supplement, terminate or surrender, or agree
to any amendment, modification, supplement, termination, waiver or
surrender of, the terms of any Note Collateral or the Basic Documents, or
waive timely performance or observance by Illinois Power, the Grantee or
the Servicer under the Grant Agreement, any Subsequent Grant Agreement, the
Sale Agreement any Subsequent Sale Agreement or the Servicing Agreement,
respectively; PROVIDED, that no such consent shall be required if (i) the
Indenture Trustee shall have received an Officer's Certificate stating that
such waiver, amendment, modification, supplement or termination shall not
adversely affect in any material respect the interests of the Holders and
(ii) the Rating Agency Condition
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shall have been satisfied with respect thereto. If any such amendment,
modification, supplement or waiver shall be so consented to by the Indenture
Trustee or such Holders, the Note Issuer agrees to execute and deliver, in its
own name and at its own expense, such agreements, instruments, consents and
other documents as shall be necessary or appropriate in the circumstances. The
Note Issuer agrees that no such amendment, modification, supplement or waiver
shall adversely affect the rights of the Holders of the Notes outstanding at the
time of any such amendment, modification, supplement or waiver.
(h) The Note Issuer shall, or shall cause the Administrator to, file
with the SEC such periodic reports, if any, as are required from time to time
under Section 13 of the Exchange Act.
(i) The Note Issuer shall make all filings required under the Funding
Law relating to the transfer of the ownership or security interest in the
Intangible Transition Property other than those required to be made by the
Grantee pursuant to the Basic Documents.
SECTION 3.08. CERTAIN NEGATIVE COVENANTS.
(a) The Note Issuer shall not issue Notes in an aggregate initial
Outstanding Amount (i) during the twelve-month period beginning on August 1,
1998 in excess of $____________; and (ii) on any date from and after July 31,
1999, in excess of $____________, less the aggregate initial Outstanding Amount
of any Notes issued on or prior to July 31, 1999.
(b) So long as any Notes are Outstanding, the Note Issuer shall not:
(i) except as expressly permitted by this Indenture,
sell, transfer, exchange or otherwise dispose of any of the properties
or assets of the Note Issuer, including those included in the Note
Collateral, unless directed to do so by the Indenture Trustee in
accordance with Article V;
(ii) claim any credit on, or make any deduction from the
principal or premium, if any, or interest payable in respect of, the
Notes (other than amounts properly withheld from such payments under
the Code or other tax laws) or assert any claim against any present or
former Holder by reason of the payment of the taxes levied or assessed
upon any part of the Note Collateral;
(iii) terminate its existence or dissolve or liquidate in
whole or in part; or
(iv) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations
with respect to the Notes under this Indenture except
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as may be expressly permitted hereby, (B) permit any lien, charge, excise,
claim, security interest, mortgage or other encumbrance (other than the
lien of this Indenture), to be created on or extend to or otherwise arise
upon or burden the Note Collateral or any part thereof or any interest
therein or the proceeds thereof (other than tax liens arising by operation
of law with respect to amounts not yet due) or (C) permit the lien of this
Indenture not to constitute a valid first priority security interest in the
Note Collateral; or
(v) elect to be classified as an association taxable as a
corporation for federal income tax purposes.
SECTION 3.09. ANNUAL STATEMENT AS TO COMPLIANCE. The Note Issuer
will deliver to the Indenture Trustee and the Rating Agencies not later than
[September 30] of each year (commencing with September 30, 1999), an Officer's
Certificate stating, as to the Responsible Officer signing such Officer's
Certificate, that
(i) a review of the activities of the Note Issuer during the
preceding twelve months ended [June 30] and of performance under this
Indenture has been made under such Responsible Officer's supervision;
and
(ii) to the best of such Responsible Officer's knowledge, based
on such review, the Note Issuer has in all material respects complied
with all conditions and covenants under this Indenture throughout such
twelve month period, or, if there has been a default in the compliance
of any such condition or covenant, specifying each such default known
to such Responsible Officer and the nature and status thereof
SECTION 3.10. NOTE ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS.
(a) The Note Issuer shall not consolidate or merge with or into any
other Person, unless
(i) the Person (if other than the Note Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any State
and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee, in form and substance
satisfactory to the Indenture Trustee, the performance or observance
of every agreement and covenant of this Indenture on the part of the
Note Issuer to be performed or observed, including all obligations of
the Note Issuer, hereunder or under the Notes, with respect to the
payment of principal of, and premium, if any, and interest on all
Notes, all as provided herein and in the applicable Trustee's Issuance
Certificates and Series Supplements, if any;
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(ii) immediately after giving effect to such merger or
consolidation, no Default or Event of Default shall have occurred and
be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such merger or consolidation;
(iv) Illinois Power shall have delivered to the Grantee, the
Note Issuer, the Delaware Trustee and the Indenture Trustee an opinion
of independent tax counsel (as selected by, and in form and substance
reasonably satisfactory to, Illinois Power, and which may be based on
a ruling from the Internal Revenue Service) to the effect that such
consolidation or merger will not result in a material adverse federal
income tax consequence to Illinois Power, the Grantee, the Note
Issuer, the Delaware Trustee, the Indenture Trustee or the then
existing Holders;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Note Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation or merger and such supplemental
indenture comply with this Section 3.10(a) and that all conditions
precedent herein provided for in this Section 3.10(a) with respect to
such transaction have been complied with (including any filing
required by the Exchange Act).
(b) Except as specifically provided herein, the Note Issuer shall
not sell, convey, exchange, transfer or otherwise dispose of any of its
properties or assets included in the Note Collateral, to any Person, unless
(i) the Person that acquires the properties and assets of the
Note Issuer, the conveyance or transfer of which is hereby restricted
shall (A) be a United States citizen or a Person organized and
existing under the laws of the United States of America or any State,
(B) expressly assumes, by an indenture supplemental hereto, executed
and delivered to the Indenture Trustee, in form and substance
satisfactory to the Indenture Trustee, the performance or observance
of every agreement and covenant of this Indenture on the part of the
Note Issuer to be performed or observed, including all obligations of
the Note Issuer, hereunder or under the Notes, with respect to the
payment of principal of, and premium, if any, and interest on all
Notes, all as provided herein and in the applicable Trustee's Issuance
Certificates or Series Supplements, if any, (C) expressly agrees by
means of such supplemental indenture that all right, title and
interest so sold, conveyed, exchanged, transferred or otherwise
disposed of shall be subject and subordinate to the rights of Holders
of the Notes, (D) unless otherwise provided in the supplemental
indenture referred to in clause (B) above, expressly agrees to
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indemnify, defend and hold harmless the Note Issuer against and from any
loss, liability or expense arising under or related to this Indenture and
the Notes and (E) expressly agrees by means of such supplemental indenture
that such Person (or if a group of Persons, then one specified Person)
shall make all filings with the SEC (and any other appropriate Person)
required by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) Illinois Power shall have delivered an opinion of
independent tax counsel (as selected by, and in form and substance
reasonably satisfactory to, Illinois Power, and which may be based on
a ruling from the Internal Revenue Service) to the effect that such
transaction will not result in a material adverse federal income tax
consequence to Illinois Power, the Grantee, the Note Issuer, the
Delaware Trustee, the Indenture Trustee or the then existing Holders;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture pursuant to the Funding
Order or the Funding Law shall have been taken; and
(vi) the Note Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such sale, conveyance, exchange, transfer or other
disposition and such supplemental indenture comply with this Section
3.10(b) and that all conditions precedent herein provided for in this
Section 3.10(b) with respect to such transaction have been complied
with (including any filing required by the Exchange Act).
SECTION 3.11. SUCCESSOR OR TRANSFEREE.
(a) Upon any consolidation or merger of the Note Issuer in
accordance with Section 3.10(a), the Person formed by or surviving such
consolidation or merger (if other than the Note Issuer) shall succeed to, and be
substituted for, and may exercise every right and power of, the Note Issuer
under this Indenture with the same effect as if such Person had been named as
the Note Issuer herein.
(b) Except as set forth in Section 6.07, upon a sale, conveyance,
exchange, transfer or other disposition of all the assets and properties of the
Note Issuer pursuant to Section 3.10(b), the Note Issuer and the Grantee will be
released from every covenant and agreement of this Indenture and the other Basic
Documents to be observed or performed on the
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part of the Note Issuer and the Grantee with respect to the Notes and the
Intangible Transition Property immediately upon the delivery of written notice
to the Indenture Trustee from the Person acquiring such assets and properties
stating that the Note Issuer and the Grantee are to be so released.
SECTION 3.12. NO OTHER BUSINESS. The Note Issuer shall not engage in
any business other than financing, purchasing, owning and managing the
Intangible Transition Property and the other Note Collateral and the issuance of
the Notes in the manner contemplated by the Funding Order and this Indenture and
the Basic Documents and activities incidental thereto.
SECTION 3.13. NO BORROWING. The Note Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
SECTION 3.14. SERVICER'S OBLIGATIONS. The Note Issuer shall enforce
the Servicer's compliance with all of the Servicer's material obligations under
the Servicing Agreement.
SECTION 3.15. GUARANTEES LOANS ADVANCES AND OTHER LIABILITIES.
Except as otherwise contemplated by the Sale Agreement, any Subsequent Sale
Agreement, the Servicing Agreement or this Indenture, the Note Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.
SECTION 3.16. CAPITAL EXPENDITURES. Other than the purchase of
Intangible Transition Property from the Grantee on each Series Issuance Date and
other than expenditures in an aggregate amount not to exceed [$25,000] in any
calendar year, the Note Issuer shall not make any expenditure (by long-term or
operating lease or otherwise) for capital assets (either realty or personalty).
SECTION 3.17. RESTRICTED PAYMENTS. The Note Issuer shall not,
directly or indirectly, (i) pay any dividend or make any distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, to any owner of a beneficial interest in the Note Issuer or
otherwise with respect to any ownership or equity interest or similar security
in or of the Note Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or similar security or (iii) set
aside or otherwise segregate any amounts for any such purpose; PROVIDED,
HOWEVER, that, if no Event of Default shall have occurred and be continuing, the
Note Issuer may make, or cause to be made, any such distributions to any owner
of a beneficial interest in the Note Issuer or otherwise with respect to
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any ownership or equity interest or similar security in or of the Note Issuer
using funds distributed to the Note Issuer pursuant to Section 8.02(d) to the
extent that such distributions would not cause the book value of the remaining
equity in the Note Issuer to decline below 0.5 percent of the original principal
amount of all Series of Notes which remain outstanding. The Note Issuer will
not, directly or indirectly, make payments to or distributions from the
Collection Account except in accordance with this Indenture and the Basic
Documents.
SECTION 3.18. NOTICE OF EVENTS OF DEFAULT. The Note Issuer agrees to
give the Indenture Trustee and the Rating Agencies prompt written notice of each
Event of Default hereunder and each default on the part of the Grantee or the
Servicer of its obligations under the Sale Agreement, any Subsequent Sale
Agreement or the Servicing Agreement, respectively.
SECTION 3.19. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee, the Note Issuer will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper to
carry out more effectively the purpose of this Indenture.
SECTION 3.20. PURCHASE OF SUBSEQUENT INTANGIBLE TRANSITION PROPERTY.
(a) The Note Issuer may from time to time purchase Subsequent
Transition Property from the Grantee pursuant to a Subsequent Sale Agreement,
subject to the conditions specified in paragraph (b) below.
(b) The Note Issuer shall be permitted to purchase from the Grantee
Subsequent Transition Property and the proceeds thereof only upon the
satisfaction of each of the following conditions on or prior to the related
Subsequent Sale Date:
(i) the Grantee shall have provided the Note Issuer, the
Indenture Trustee and the Rating Agencies with written notice, which
shall be given not later than 10 days prior to the related Subsequent
Sale Date, specifying the Subsequent Sale Date for such Subsequent
Intangible Transition Property and the aggregate amount of the IFC's
related to such Subsequent Transition Property, and shall have
provided any information reasonably requested by any of the foregoing
Persons with respect to the Subsequent Intangible Transition Property
then being conveyed to the Note Issuer;
(ii) Illinois Power, the Grantee and the Note Issuer shall
have delivered to the Indenture Trustee a duly executed Subsequent
Grant Agreement in substantially the form of the Grant Agreement and a
duly executed Subsequent Sale Agreement in substantially the form of
the Sale Agreement;
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(iii) as of such Subsequent Sale Date, the Grantee was not
insolvent and will not have been made insolvent by such transfer and
the Grantee is not aware of any pending insolvency with respect to
itself,
(iv) the Rating Agency Condition shall have been satisfied
with respect to such conveyance;
(v) Illinois Power shall have delivered to the Grantee, the
Note Issuer, the Delaware Trustee and the Indenture Trustee an opinion
of independent tax counsel and/or a ruling from the Internal Revenue
Service (as selected by, and in form and substance reasonably
satisfactory to, Illinois Power) to the effect that, for federal
income tax purposes (i) the ICC's issuance of the Subsequent Funding
Order creating and establishing the Subsequent Transition Property in
the Grantee, and the assignment pursuant to such Subsequent Sale
Agreement of such Subsequent Transition Property, will not result in
gross income to the Grantee, the Note Issuer or Illinois Power, and
the future revenues relating to the Subsequent Transition Property and
the assessment of the IFCs authorized in such Subsequent Funding Order
(except for revenue related to certain lump sum payments) will be
included in Illinois Power's gross income in the year in which the
related electrical service is provided to Customers, and (ii) the
assignment pursuant to such Subsequent Sale Agreement will not
adversely affect the characterization of the then Outstanding Notes as
obligations of Illinois Power;
(vi) as of such Subsequent Sale Date, no breach by Illinois
Power of its representations, warranties or covenants in the related
Subsequent Grant Agreement and no breach by the Grantee of its
representations, warranties or covenants in the related Subsequent
Sale Agreement and no Servicer Default shall exist;
(vii) as of such Subsequent Sale Date, the Note Issuer shall
have sufficient funds available to pay the purchase price for the
Subsequent Intangible Transition Property to be conveyed on such date
and all conditions to the issuance of one or more Series of Notes
intended to provide such funds set forth in Section 2.10 of this
Indenture shall have been satisfied;
(viii) the Note Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate confirming the satisfaction of each
condition precedent specified in this paragraph (b);
(ix) (A) the Note Issuer shall have delivered to the Rating
Agencies any Opinions of Counsel requested by the Rating Agencies and
(B) the Note Issuer shall have delivered to the Indenture Trustee the
Opinion of Counsel required by Section 3.06(c) of this Indenture; and
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(x) the Grantee and the Note Issuer shall have taken any
action required to maintain the first perfected ownership interest of
the Note Issuer in the Subsequent Intangible Transition Property and
the proceeds thereof, and the Note Issuer shall have taken any action
required to maintain the first perfected security interest of the
Indenture Trustee in the Subsequent Intangible Transition Property and
the proceeds thereof.
ARTICLE IV
SATISFACTION AND DISCHARGE; DEFEASANCE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE DEFEASANCE.
(a) This Indenture shall cease to be of further effect with respect
to the Notes of any Series and the Indenture Trustee, on reasonable demand of
and at the expense of the Note Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes of such Series, when
(A) either
(1) all Notes of such Series theretofore authenticated
and delivered (other than (i) Notes that have been destroyed, lost or
stolen and that have been replaced or paid as provided in Section 2.06
and (ii) Notes for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Note Issuer and
thereafter repaid to the Note Issuer or discharged from such trust, as
provided in Section 3.03) have been delivered to the Indenture Trustee
for cancellation; or
(2) either (x)the Scheduled Maturity Date has occurred
with respect to all Notes of such Series not theretofore delivered to
the Indenture Trustee for cancellation, (y) such Notes will be due and
payable on their respective Scheduled Maturity Dates within one year,
or (z) such Notes are to be called for redemption within one year in
accordance with the provisions of the applicable Trustee's Issuance
Certificate or Series Supplement, if any, and in any such case, the
Note Issuer has irrevocably deposited or caused to be irrevocably
deposited with the Indenture Trustee cash, in trust for such purpose,
in an amount sufficient to pay and discharge the entire indebtedness
on such Notes not theretofore delivered to the Indenture Trustee for
cancellation when due;
(B) the Note Issuer has paid or caused to be paid all other sums
payable hereunder by the Note Issuer with respect to such Series; and
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(C) the Note Issuer has delivered to the Indenture Trustee an
Officer's Certificate, an Opinion of Counsel and (if required by the TIA or the
Indenture Trustee) an Independent Certificate from a firm of certified public
accountants, each meeting the applicable requirements of Section 11.01(a) and
each stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture with respect to Notes of such
Series have been complied with.
(b) Subject to Sections 4.01(c) and 4.02, the Note Issuer at any time
may terminate (i) all its obligations under this Indenture with respect to the
Notes of any Series ("Legal Defeasance Option") or (ii) its obligations under
Sections 3.04, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.12, 3.13, 3.14, 3.15, 3.16,
3.17 and 3.18 and the operation of Section 5.01(iv) ("Covenant Defeasance
Option") with respect to any Series of Notes. The Note Issuer may exercise the
Legal Defeasance Option with respect to any Series of Notes notwithstanding its
prior exercise of the Covenant Defeasance Option with respect to such Series.
If the Note Issuer exercises the Legal Defeasance Option with respect
to any Series, the maturity of the Notes of such Series may not be accelerated
because of an Event of Default. If the Note Issuer exercises the Covenant
Defeasance Option with respect to any Series, the maturity of the Notes of such
Series may not be accelerated because of an Event of Default specified in
Section 5.01(iv).
Upon satisfaction of the conditions set forth herein to the exercise
of the Legal Defeasance Option or the Covenant Defeasance Option with respect to
any Series of Notes, the Indenture Trustee, on reasonable demand of and at the
expense of the Note Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of the obligations that are terminated pursuant to
such exercise.
(c) Notwithstanding Sections 4.01(a) and 4.01(b) above, (i) rights of
registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Holders to receive payments of
principal, premium, if any, and interest, (iv) Sections 4.03 and 4.04, (v) the
rights, obligations and immunities of the Indenture Trustee hereunder (including
the rights of the Indenture Trustee under Section 6.07 and the obligations of
the Indenture Trustee under Section 4.03) and (vi) the rights of Holders as
beneficiaries hereof with respect to the property deposited with the Indenture
Trustee payable to all or any of them, shall survive until the Notes of the
Series as to which this Indenture or certain obligations hereunder have be
satisfied and discharged pursuant to Section 4.01(a) or 4.01(b) have been paid
in full. Thereafter the obligations in Sections 6.07 and 4.04 with respect to
such Series shall survive.
SECTION 4.02. CONDITIONS TO DEFEASANCE. The Note Issuer may exercise
the Legal Defeasance Option or the Covenant Defeasance Option with respect to
any Series of Notes only if:
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(a) the Note Issuer irrevocably deposits or causes to be
deposited in trust with the Indenture Trustee cash or U.S. Government
Obligations for the payment of principal of and premium, if any, and
interest on such Notes to the Scheduled Maturity Dates or Optional
Redemption Date therefor, as applicable;
(b) the Note Issuer delivers to the Indenture Trustee a
certificate from a nationally recognized firm of Independent
accountants expressing its opinion that the payments of principal and
interest when due and without reinvestment on the deposited U.S.
Government Obligations plus any deposited cash without investment will
provide cash at such times and in such amounts (but, in the case of
the Legal Defeasance Option only, not more than such amounts) as will
be sufficient to pay in respect of the Notes of such Series
(i) subject to clause (ii), principal in accordance with the Expected
Amortization Schedule therefor, (ii) if such Series is to be redeemed,
the Optional Redemption Price therefor on the Optional Redemption Date
and (iii) interest when due;
(c) in the case of the Legal Defeasance Option, 91 days pass
after the deposit is made and during the 91-day period no Default
specified in Section 5.01(v) or (vi) occurs which is continuing at the
end of the period;
(d) no Default has occurred and is continuing on the day of such
deposit and after giving effect thereto;
(e) in the case of an exercise of the Legal Defeasance Option,
the Note Issuer shall have delivered to the Indenture Trustee an
Opinion of Counsel stating that (i) the Note Issuer has received from,
or there has been published by, the Internal Revenue Service a ruling,
or (ii) since the date of execution of this Indenture, there has been
a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that,
the Holders of the Notes of such Series will not recognize income,
gain or loss for Federal income tax purposes as a result of such legal
defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such legal defeasance had not occurred;
(f) in the case of an exercise of the Covenant Defeasance
Option, the Note Issuer shall have delivered to the Indenture Trustee
an Opinion of Counsel to the effect that the Holders of the Notes of
such Series will not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant defeasance and will be
subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant
defeasance had not occurred;
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(g) the Note Issuer delivers to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the satisfaction and discharge of the Notes of
such Series to the extent contemplated by this Article IV have been
complied with; and
(h) the Rating Agency Condition shall have been satisfied with
respect to the exercise of any Legal Defeasance Option or Covenant
Defeasance Option.
Before or after a deposit pursuant to this Section 4.02 with respect
to any Series of Notes, the Note Issuer may make arrangements satisfactory to
the Indenture Trustee for the redemption of such Notes at a future date in
accordance with Article X.
SECTION 4.03. APPLICATION OF TRUST MONEY. All moneys or U.S.
Government Obligations deposited with the Indenture Trustee pursuant to Section
4.01 or 4.02 hereof shall be held in trust and applied by it, in accordance with
the provisions of the Notes and this Indenture, to the payment, either directly
or through any Paying Agent, as the Indenture Trustee may determine, to the
Holders of the particular Notes for the payment or redemption of which such
moneys have been deposited with the Indenture Trustee, of all sums due and to
become due thereon for principal, premium, if any, and interest; but such moneys
need not be segregated from other funds except to the extent required herein or
in the Servicing Agreement or required by law.
SECTION 4.04. REPAYMENT OF MONEYS HELD BY PAYING AGENT. In
connection with the satisfaction and discharge of this Indenture or the Covenant
Defeasance Option or Legal Defeasance Option with respect to the Notes of any
Series, all moneys then held by any Paying Agent other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes shall,
upon demand of the Note Issuer, be paid to the Indenture Trustee to be held and
applied according to Section 3.03 and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
ARTICLE V
REMEDIES
SECTION 5.01. EVENTS OF DEFAULT. "Event of Default" with respect to
any Series, wherever used herein, means any one of the following events
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) default in the payment of any interest on any Note when
the same becomes due and payable, and such default shall continue for
a period of five days; or
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(ii) default in the payment of the then unpaid principal of
any Note of any Series on the Final Maturity Date for such Series; or
(iii) default in the payment of the Optional Redemption Price
for any Note on the Optional Redemption Date therefor; or
(iv) default in the observance or performance in any material
respect of any covenant or agreement of the Note Issuer made in this
Indenture (other than defaults specified in clauses (i), (ii) or (iii)
above), or any representation or warranty of the Note Issuer made in
this Indenture or in any certificate or other writing delivered
pursuant hereto or in connection herewith proving to have been
incorrect in any material respect as of the time when the same shall
have been made, and such default shall continue or not be cured, or
the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been
eliminated or otherwise cured, for a period of 30 days after there
shall have been given, by registered or certified mail, to the Note
Issuer by the Indenture Trustee or to the Note Issuer and the
Indenture Trustee by the Holders of at least 25 percent of the
Outstanding Amount of the Notes of such Series, a written notice
specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(v) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Note Issuer or
any substantial part of the Note Collateral in an involuntary case
under any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Note Issuer or for any substantial part of the Note
Collateral, or ordering the winding-up or liquidation of the Note
Issuer's affairs, and such decree or order shall remain unstayed and
in effect for a period of 60 consecutive days; or
(vi) the commencement by the Note Issuer of a voluntary case
under any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by the Note
Issuer to the entry of an order for relief in an involuntary case
under any such law, or the consent by the Note Issuer to the
appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Note
Issuer or for any substantial part of the Note Collateral, or the
making by the Note Issuer of any general assignment for the benefit of
creditors, or the failure by the Note Issuer generally to pay its
debts as such debts become due, or the taking of action by the Note
Issuer in furtherance of any of the foregoing; or
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(vii) any failure to act or act by the State of Illinois or any
of its agencies (including the ICC), officers or employees which
violates or is not in accordance with the State Pledge; or
(viii) any other event designated as such in a Trustee's
Issuance Certificate or Series Supplement, if any.
The Note Issuer shall deliver to a Responsible Officer of the
Indenture Trustee and the Rating Agencies, within five days after a Responsible
Officer of the Note Issuer has actual knowledge of the occurrence thereof,
written notice in the form of an Officer's Certificate of any event (i) which is
an Event of Default under clause (vii) or (ii) which with the giving of notice
and the lapse of time would become an Event of Default under clause (iv),
including, in each case, the status of such Event of Default and what action the
Note Issuer is taking or proposes to take with respect thereto.
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If
an Event of Default (other than an Event of Default under clause (vii) of
Section 5.01) should occur and be continuing with respect to any Series, then
and in every such case the Indenture Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes of
all Series may declare all the Notes to be immediately due and payable, by a
notice in writing to the Note Issuer (and to the Indenture Trustee if given by
Holders), and upon any such declaration the unpaid principal amount of the Notes
of all Series, together with accrued and unpaid interest thereon through the
date of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Outstanding Amount of the Notes
of all Series, by written notice to the Note Issuer and the Indenture Trustee,
may rescind and annul such declaration and its consequences if:
(i) the Note Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and premium, if any, and
interest on all Notes of all Series and all other amounts that would
then be due hereunder or upon such Notes if the Event of Default
giving rise to such acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel; and
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(ii) all Events of Default with respect to all Series, other than
the nonpayment of the principal of the Notes of all Series that has
become due solely by such acceleration, have been cured or waived as
provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE.
(a) If an Event of Default under Section 5.01(i), (ii) or (iii) has
occurred and is continuing, subject to Section 11.18, the Indenture Trustee, in
its own name and as trustee of an express trust, may institute a Proceeding for
the collection of the sums so due and unpaid, and may prosecute such Proceeding
to judgment or final decree, and, subject to the limitations on recourse set
forth herein, may enforce the same and collect in the manner provided by law out
of the Note Collateral and the proceeds thereof the moneys adjudged or decreed
to be payable Notes of such Series, the whole amount then due and payable on
such Notes for principal, premium, if any, and interest, with interest upon the
overdue principal and premium, if any, and, to the extent payment at such rate
of interest shall be legally enforceable, upon overdue installments of interest,
at the respective rate borne by the Notes of such Series or the applicable Class
of such Series and in addition thereto such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee and its agents and counsel.
(b) If an Event of Default (other than Event of Default under clause
(vii) of Section 5.01) occurs and is continuing with respect to any Series, the
Indenture Trustee may, as more particularly provided in Section 5.04, in its
discretion, proceed to protect and enforce its rights and the rights of the
Holders of such Series, by such appropriate Proceedings as the Indenture Trustee
shall deem most effective to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy or legal or equitable right vested in the Indenture Trustee by this
Indenture or by law.
(c) If an Event of Default under Section 5.01(v) or (vi) has occurred
and is continuing, the Indenture Trustee, irrespective of whether the principal
of any Notes of any Series shall then be due and payable as therein expressed or
by declaration or otherwise and irrespective of whether the Indenture Trustee
shall have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in any Proceedings related to such Event
of Default or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal, premium, if any, and interest owing and unpaid in
respect of the Notes and to file such other papers or documents as may
be necessary or advisable in
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order to have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and counsel, and
for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture
Trustee, except as a result of negligence or bad faith) and of the Holders
allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of Notes in any election of a trustee, a
standby trustee or Person performing similar functions in any such
Proceedings; and
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all
amounts received with respect to the claims of the Holders and of the
Indenture Trustee on their behalf,
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Holders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Holders, to pay to the
Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(d) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorized or consent to or vote for or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any Holder in
any such proceeding except, as aforesaid, to vote for the election of a trustee
in bankruptcy or similar Person.
(e) All rights of action and of asserting claims under this
Indenture, or under any of the Notes of any Series, may be enforced by the
Indenture Trustee without the possession of any of the Notes of such Series or
the production thereof in any trial or other Proceedings relative thereto, and
any such action or proceedings instituted by the Indenture Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment, subject to the payment of the expenses, disbursements and compensation
of the Indenture Trustee, each predecessor Indenture Trustee and their
respective agents and attorneys, shall be for the ratable benefit of the Holders
of the Notes of such Series.
(f) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture
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Trustee shall be a party), the Indenture Trustee shall be held to represent all
the Holders of the Notes, and it shall not be necessary to make any Holder a
party to any such Proceedings.
SECTION 5.04. REMEDIES; PRIORITIES.
(a) If an Event of Default (other than an Event of Default under
clause (vii) of Section 5.01) shall have occurred and be continuing with respect
to a Series, the Indenture Trustee may do one or more of the following (subject
to Section 5.05):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
Notes of such Series or under this Indenture with respect thereto,
whether by declaration of acceleration or otherwise, and, subject to
the limitations on recovery set forth herein, enforce any judgment
obtained, and collect moneys adjudged due upon such Notes;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Note
Collateral;
(iii) exercise any remedies of a secured party under the UCC
or the Funding Law and take any other appropriate action to protect
and enforce the rights and remedies of the Indenture Trustee and the
Holders of the Notes of such Series; and
(iv) sell the Note Collateral or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
PROVIDED, HOWEVER, that the Indenture Trustee may not sell or otherwise
liquidate any portion of the Note Collateral following such an Event of Default,
other than an Event of Default described in Section 5.01(i), (ii) or (iii), with
respect to any Series unless (A) the Holders of 100 percent of the Outstanding
Amount of the Notes of all Series consent thereto, (B) the proceeds of such sale
or liquidation distributable to the Holders of all Series are sufficient to
discharge in full all amounts then due and unpaid upon such Notes for principal,
premium, if any, and interest after taking into account payment of all amounts
due prior thereto pursuant to the priorities set forth in Section 8.02(d) or (C)
the Indenture Trustee determines that the Note Collateral will not continue to
provide sufficient funds for all payments on the Notes of all Series as they
would have become due if the Notes had not been declared due and payable, and
the Indenture Trustee obtains the consent of Holders of 66-2/3 percent of the
Outstanding Amount of the Notes of all Series. In determining such sufficiency
or insufficiency with respect to clause (B) and (C), the Indenture Trustee may,
but need not, obtain and conclusively rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Note
Collateral for such purpose
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(b) If an Event of Default under clause (vii) of Section 5.01 shall
have occurred and be continuing, the Indenture Trustee, for the benefit of the
Holders, shall be entitled and empowered to the extent permitted by applicable
law, to institute or participate in Proceedings reasonably necessary to compel
performance of or to enforce the State Pledge and to collect any monetary
damages incurred by the Holders or the Indenture Trustee as a result of any such
Event of Default, and may prosecute any such Proceeding to final judgment or
decree. The rights and remedies set forth in this Section 5.04(b) and the
obligations of the Servicer under Section 5.02(c) of the Servicing Agreement
shall be the sole and exclusive remedies for such an Event of Default.
(c) If the Indenture Trustee collects any money pursuant to this
Article V, it shall pay out such money in accordance with the priorities set
forth in Section 8.02(d).
SECTION 5.05. OPTIONAL PRESERVATION OF THE NOTE COLLATERAL. If the
Notes of all Series have been declared to be due and payable under Section 5.02
following an Event of Default and such declaration and its consequences have not
been rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Note Collateral. It is the desire of the parties
hereto and the Holders that there be at all times sufficient funds for the
payment of principal of and premium, if any, and interest on the Notes, and the
Indenture Trustee shall take such desire into account when determining whether
or not to maintain possession of the Note Collateral. In determining whether to
maintain possession of the Note Collateral, the Indenture Trustee may, but need
not, obtain and conclusively rely upon an opinion of an Independent investment
banking or accounting firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Note Collateral for such
purpose.
SECTION 5.06. LIMITATION OF SUITS. No Holder of any Note of any
Series shall have any right to institute any Proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless:
(i) such Holder previously has given written notice to the
Indenture Trustee of a continuing Event of Default with respect to
such Series;
(ii) the Holders of not less than 25 percent of the Outstanding
Amount of the Notes of all Series have made written request to the
Indenture Trustee to institute such Proceeding in respect of such
Event of Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee indemnity satisfactory to it against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to institute
such Proceedings; and
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(v) no direction inconsistent with such written request has
been given to the Indenture Trustee during such 60-day period by the
Holders of a majority of the Outstanding Amount of the Notes of all
Series;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes of
all Series, the Indenture Trustee in its sole discretion may determine what
action, if any, shall be taken, notwithstanding any other provisions of this
Indenture.
SECTION 5.07. UNCONDITIONAL RIGHTS OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM, IF ANY, AND INTEREST. Notwithstanding any other provisions in this
Indenture, the Holder of any Note shall have the right, which is absolute and
unconditional, (a) to receive payment of (i) the interest, if any, on such Note
on the due dates thereof expressed in such Note or in this Indenture, (ii) the
unpaid principal, if any, of such Notes on the Final Maturity Date therefor or
(iii) in the case of redemption, receive payment of the unpaid principal and
premium, if any, and interest, if any, on such Note on the Optional Redemption
Date therefor and (b) to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Holder.
SECTION 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Holder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Holder, then and in every such case the Note Issuer, the
Indenture Trustee and the Holders shall, subject to any determination in such
Proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Indenture Trustee and
the Holders shall continue as though no such Proceeding had been instituted.
SECTION 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy
herein conferred upon or reserved to the Indenture Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
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SECTION 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission
of the Indenture Trustee or any Holder to exercise any right or remedy accruing
upon any Default or Event of Default shall impair any such right or remedy or
constitute a waiver of any such Default or Event of Default or an acquiescence
therein. Every right and remedy given by this Article V or by law to the
Indenture Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Indenture Trustee or by the Holders, as
the case may be.
SECTION 5.11. CONTROL BY HOLDERS. The Holders of a majority of the
Outstanding Amount of the Notes of all Series (or, if less than all Series or
Classes are affected, the affected Series or Class or Classes) shall have the
right to direct the time, method and place of conducting any Proceeding for any
remedy available to the Indenture Trustee with respect to the Notes of such
Series or Class or Classes or exercising any trust or power conferred on the
Indenture Trustee with respect to such Series or Class or Classes; PROVIDED that
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Note
Collateral shall be by the Holders of Notes representing not less than
100 percent of the Outstanding Amount of the Notes of all Series;
(iii) if the conditions set forth in Section 5.05 have been
satisfied and the Indenture Trustee elects to retain the Note
Collateral pursuant to such Section, then any direction to the
Indenture Trustee by Holders of Notes representing less than 100
percent of the Outstanding Amount of the Notes of all Series to sell
or liquidate the Note Collateral shall be of no force and effect; and
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction;
PROVIDED, HOWEVER, that, the Indenture Trustee's duties shall be subject to
Section 6.01, and the Indenture Trustee need not take any action that it
determines might involve it in liability or might materially adversely affect
the rights of any Holders not consenting to such action.
SECTION 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of
the acceleration of the maturity of the Notes of all Series as provided in
Section 5.02, the Holders of Notes of not less than a majority of the
Outstanding Amount of the Notes of all Series may waive any past Default or
Event of Default and its consequences except a Default (a) in payment of
principal of or premium, if any, or interest on any of the Notes or (b) in
respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note of all Series or Classes
affected. In the case of any such waiver, the Note Issuer, the
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Indenture Trustee and the Holders of the Notes shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Holder, or group of Holders,
in each case holding in the aggregate more than 10 percent of the Outstanding
Amount of the Notes of a Series or (c) any suit instituted by any Holder for the
enforcement of the payment of (i) interest on any Note on or after the due dates
expressed in such Note and in this Indenture, (ii) the unpaid principal, if any,
of any Note on or after the Final Maturity Date therefor or (iii) in the case of
redemption, the unpaid principal of and premium, if any, and interest on any
Note on or after the Optional Redemption Date therefor.
SECTION 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Note Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in any manner whatsoever, claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance of
this Indenture; and the Note Issuer (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Indenture Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.15. ACTION ON NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Holders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Note Issuer or by
the levy of any execution under such judgment upon any portion of the Note
Collateral or any other assets of the Note Issuer.
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SECTION 5.16. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS.
(a) Promptly following a request from the Indenture Trustee to do
so and at the Note Issuer 5 expense, the Note Issuer agrees to take all such
lawful action as the Indenture Trustee may request to compel or secure the
performance and observance by Illinois Power, the Grantee and the Servicer, as
applicable, of each of their obligations to the Note Issuer under or in
connection with the Grant Agreement or any Subsequent Grant Agreement, the Sale
Agreement, or any Subsequent Sale Agreement and the Servicing Agreement,
respectively, in accordance with the terms thereof, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Note Issuer
under or in connection with any such agreements, respectively, to the extent and
in the manner directed by the Indenture Trustee, including the transmission of
notices of default on the part of Illinois Power, the Grantee or the Servicer
thereunder and the institution of legal or administrative actions or proceedings
to compel or secure performance by Illinois Power, the Grantee or the Servicer
of each of their respective obligations under the Grant Agreement, any
Subsequent Grant Agreement, the Sale Agreement, any Subsequent Sale Agreement
and the Servicing Agreement, respectively.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and, at the direction (which direction shall be in
writing or by telephone (confirmed in writing promptly thereafter)) of the
Holders of 66-2/3 percent of the Outstanding Amount of the Notes of all Series
shall, subject to Article VI, exercise all rights, remedies, powers, privileges
and claims of the Note Issuer against the Grantee or the Servicer under or in
connection with the Sale Agreement, any Subsequent Sale Agreement and the
Servicing Agreement, respectively, including the right or power to take any
action to compel or secure performance or observance by the Grantee or the
Servicer of each of their obligations to the Note Issuer thereunder and to give
any consent, request, notice, direction, approval, extension or waiver under the
Sale Agreement, any Subsequent Sale Agreement or the Servicing Agreement,
respectively, and any right of the Note Issuer to take such action shall be
suspended.
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.01. DUTIES OF INDENTURE TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
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(i) the Indenture Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into this
Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(i) this paragraph (c) does not limit the effect of paragraph
(b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with
a direction received by it pursuant to Section 5.11.
(d) Every provision of this Indenture that in any way relates to
the Indenture Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Note Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture, the Sale Agreement, any Subsequent Sale Agreement and the
Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayments of such funds or indemnity satisfactory to it against such risk or
liability is not reasonably assured to it.
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(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
(i) In the event that the Trustee is also acting as Paying Agent or
Note Registrar hereunder, the rights and protections of this Article VI shall
also be afforded to such Paying Agent or Note Registrar.
SECTION 6.02. RIGHTS OF INDENTURE TRUSTEE.
(a) The Indenture Trustee may conclusively rely and shall be fully
protected in relying on any document believed by it to be genuine and to have
been signed or presented by the proper person. The Indenture Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it
may require an Officer's Certificate or an Opinion of Counsel that such action
is required or permitted hereunder. The Indenture Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; PROVIDED, HOWEVER, that the Indenture Trustee's
conduct does not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
SECTION 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Note Issuer or its affiliates with the
same rights it would have if it were not Indenture Trustee. Any Paying Agent,
Note Registrar, co-registrar or co-paying agent may do the same with like
rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
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SECTION 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Note Issuer's use of the proceeds from the Notes, and it shall not be
responsible for any statement of the Note Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Indenture Trustee's certificate of authentication.
SECTION 6.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing with respect to any Series and if it is actually known to a
Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail
to each Holder of Notes of all Series notice of the Default within 90 days after
it occurs. Except in the case of a Default in payment of principal of and
premium, if any, or interest on any Note, the Indenture Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Holders.
SECTION 6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS.
(a) So long as Notes are Outstanding and the Indenture Trustee is
the Note Registrar and Paying Agent, within the prescribed period of time for
tax reporting purposes after the end of each calendar year it shall deliver to
each relevant current or former Holder such information in its possession as may
be required to enable such Holder to prepare its Federal and state income tax
returns.
(b) With respect to each Series of Notes, on or prior to each
Payment Date therefor, the Indenture Trustee will deliver to each Holder of
Notes on such Payment Date a statement as provided and prepared by the Servicer
which will include (to the extent applicable) the following information (and any
other information so specified in the applicable Trustee's Issuance Certificate
or Series Supplement, if any,) as to the Notes of such Series with respect to
such Payment Date or the period since the previous Payment Date, as applicable:
(i) the amount of the payment to Holders allocable to
principal, if any;
(ii) the amount of the payment to Holders allocable to
interest;
(iii) the aggregate Outstanding Amount of such Notes, after
giving effect to any payments allocated to principal reported under
(i) above; and
(iv) the difference, if any, between the amount specified in
subsection (iii) above and the Outstanding Amount specified in the
related Expected Amortization Schedule.
(c) The Note Issuer shall send a copy of each of the Certificate of
Compliance delivered to it pursuant to Section [3.03] of the Servicing Agreement
and the Annual Accountant's
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Report delivered to it pursuant to Section [3.04] of the Servicing Agreement to
the Rating Agencies. A copy of such certificate and report may be obtained by
any Holder by a request in writing to the Indenture Trustee.
SECTION 6.07. COMPENSATION AND INDEMNITY. The Note Issuer shall pay
to the Indenture Trustee from time to time reasonable compensation for its
services. The Indenture Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Note Issuer shall
reimburse the Indenture Trustee for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Indenture Trustee's
agents, counsel, accountants and experts. The Note Issuer shall indemnify the
Indenture Trustee and its officers, directors, employees and agents against any
and all loss, liability or expense (including attorneys' fees and expenses)
incurred by it in connection with the administration of this trust and the
performance of its duties hereunder. The Indenture Trustee shall notify the Note
Issuer as soon as is reasonably practicable of any claim for which it may seek
indemnity. Failure by the Indenture Trustee to so notify the Note Issuer shall
not relieve the Note Issuer of its obligations hereunder. The Note Issuer shall
defend the claim and the Indenture Trustee may have separate counsel and the
Note Issuer shall pay the fees and expenses of such counsel. The Note Issuer
need not reimburse any expense or indemnify against any loss, liability or
expense incurred by the Indenture Trustee through the Indenture Trustee's own
wilful misconduct, negligence or bad faith.
The payment obligations to the Indenture Trustee pursuant to this
Section shall survive the discharge of this Indenture or the earlier resignation
or removal of the Indenture Trustee. When the Indenture Trustee incurs expenses
after the occurrence of a Default specified in Section 5.01(v) or (vi) with
respect to the Note Issuer, the expenses are intended to constitute expenses of
administration under Title 11 of the United States Code or any other applicable
Federal or state bankruptcy, insolvency or similar law.
SECTION 6.08. REPLACEMENT OF INDENTURE TRUSTEE. The Indenture
Trustee may resign at any time by so notifying the Note Issuer, provided that no
such resignation shall be effective until either (a) the Note Collateral has
been completely liquidated and the proceeds of the liquidation distributed to
the Holders or (b) a successor trustee having the qualifications set forth in
Section 6.11 has been designated and has accepted such trusteeship. The Holders
of a majority in Outstanding Amount of the Notes of all Series may remove the
Indenture Trustee by so notifying the Indenture Trustee and may appoint a
successor Indenture Trustee. The Note Issuer shall remove the Indenture Trustee
if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
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(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of
acting.
If the Indenture Trustee gives notice of resignation or is removed or
if a vacancy exists in the office of Indenture Trustee for any reason (the
Indenture Trustee in such event being referred to herein as the retiring
Indenture Trustee), the Note Issuer shall promptly appoint a successor Indenture
Trustee.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Note Issuer.
Thereupon the resignation or removal of the retiring Indenture Trustee shall
become effective, and the successor Indenture Trustee shall have all the rights,
powers and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Holders. The retiring
Indenture Trustee shall promptly transfer all property held by it as Indenture
Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Note Issuer or the Holders of a majority in Outstanding
Amount of the Notes of all Series may petition any court of competent
jurisdiction for the appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any Holder
may petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Note Issuer's obligations under Section 6.07 shall continue
for the benefit of the retiring Indenture Trustee.
SECTION 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
PROVIDED, however, that if such successor Indenture Trustee is not eligible
under Section 6.11, then the successor Indenture Trustee shall be replaced in
accordance with Section 6.08.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated,
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any successor to the Indenture Trustee may authenticate such Notes either in the
name of any predecessor hereunder or in the name of the successor to the
Indenture Trustee; and in all such cases such certificates shall have the full
force which it is anywhere in the Notes or in this Indenture provided that the
certificate of the Indenture Trustee shall have.
SECTION 6.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the trust created by this Indenture or the Note Collateral may
at the time be located, the Indenture Trustee shall have the power and may
execute and deliver all instruments to appoint one or more Persons to act as a
co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the trust created by this Indenture or the Note Collateral, and to
vest in such Person or Persons, in such capacity and for the benefit of the
Holders, such title to the Note Collateral, or any part hereof, and, subject to
the other provisions of this Section, such powers, duties, obligations, rights
and trusts as the Indenture Trustee may consider necessary or desirable. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 6.11 and no notice to Holders
of the appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon
and exercised or performed by the Indenture Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Indenture Trustee joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or acts
are to be performed the Indenture Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the
Note Collateral or any portion thereof in any such jurisdiction) shall
be exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as
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if given to each of them. Every instrument appointing any separate trustee or
co-trustee shall refer to this Indenture and the conditions of this Article VI.
Each separate trustee and co-trustee, upon its acceptance of the trusts
conferred, shall be vested with the estates or property specified in its
instrument of appointment, either jointly with the Indenture Trustee or
separately, as may be provided therein, subject to all the provisions of this
Indenture, specifically including every provision of this Indenture relating to
the conduct of, affecting the liability of, or affording protection to, the
Indenture Trustee. Every such instrument shall be filed with the Indenture
Trustee.
(d) Any separate trustee or co-trustee may at any time constitute
the Indenture Trustee, its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Indenture on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times satisfy the requirements of TIA Section 310(a) and Section
26(a)(i) of the Investment Company Act of 1940. The Indenture Trustee shall have
a combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition and it shall have a long term debt
rating of A (or the equivalent thereof) or better by all of the Rating Agencies
from which a rating is available. The Indenture Trustee shall comply with TIA
Section 310(b), including the optional provision permitted by the second
sentence of TIA Section 31 0(b)(9); PROVIDED, HOWEVER, that there shall be
excluded from the operation of TIA Section 31 0(b)( 1) any indenture or
indentures under which other securities of the Note Issuer are outstanding if
the requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST NOTE ISSUER.
The Indenture Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). An Indenture Trustee who
has resigned or been removed shall be subject to TIA Section 311(a) to the
extent indicated.
SECTION 6.13. REPRESENTATIONS AND WARRANTIES OF INDENTURE TRUSTEE.
The Indenture Trustee hereby represents and warrants that:
(a) the Indenture Trustee is a bank validly existing and in good
standing under the laws of the State of Illinois; and
(b) the Indenture Trustee has full power, authority and legal right
to execute, deliver and perform this Indenture and the Basic Documents to which
the Indenture Trustee is a party and has taken all necessary action to authorize
the execution, delivery, and performance by it of this Indenture and such Basic
Documents.
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ARTICLE VII
HOLDERS' LISTS AND REPORTS
SECTION 7.01. NOTE ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND
ADDRESSES OF HOLDERS. The Note Issuer will furnish or cause to be furnished to
the Indenture Trustee (a) not more than five days after the earlier of (i) each
Record Date with respect to each Series and (ii) three months after the last
Record Date with respect to each Series, a list, in such form as the Indenture
Trustee may reasonably require, of the names and addresses of the Holders of
Notes of such Series as of such Record Date, (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Note Issuer of any such request, a list of similar form and content as of a date
not more than 10 days prior to the time such list is furnished; PROVIDED,
HOWEVER, that so long as the Indenture Trustee is the Note Registrar, no such
list shall be required to be furnished.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or under the
Notes.
(c) The Note Issuer, the Indenture Trustee and the Note Registrar
shall have the protection of TIA Section 312(c).
SECTION 7.03. REPORTS BY NOTE ISSUER.
(a) The Note Issuer shall:
(i) so long as the Note Issuer is required to file
such documents with the SEC, provide to the Indenture Trustee, within
15 days after the Note Issuer is required to file the same with the
SEC, copies of the annual reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing
as the SEC may from time to time by rules and regulations prescribe)
which the Note Issuer may be required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act;
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(ii) provide to the Indenture Trustee and file with the
SEC in accordance with rules and regulations prescribed from time to
time by the SEC such additional information, documents and reports
with respect to compliance by the Note Issuer with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Holders described in TIA Section
313(c)) such summaries of any information, documents and reports
required to be filed by the Note Issuer pursuant to clauses (I) and
(ii) of this Section 7.03 (a) as may be required by rules and
regulations prescribed from time to time by the SEC.
(b) Unless the Note Issuer otherwise determines, the fiscal year of
the Note Issuer shall end on December 31 of each year.
SECTION 7.04. REPORTS BY INDENTURE TRUSTEE. If required by TIA
Section 313(a), within 60 days after [September 30) of each year, commencing
with the year after the issuance of the Notes of any Series, the Indenture
Trustee shall mail to each Holder of Notes of such Series as required by TIA
Section 313(c) a brief report dated as of such date that complies with TIA
Section 313(a). The Indenture Trustee also shall comply with TIA Section
313(b); PROVIDED, HOWEVER, that the initial report so issued shall be delivered
not more than 12 months after the initial issuance of each Series.
A copy of each report at the time of its mailing to Holders shall be
filed by the Indenture Trustee with the SEC and each stock exchange, if any, on
which the Notes are listed. The Note Issuer shall notify the Indenture Trustee
if and when the Notes are listed on any stock exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Note Collateral, the Indenture Trustee may take such action
as may be appropriate to enforce such payment or performance, subject to Article
VI, including the institution and prosecution of appropriate Proceedings. Any
such action shall be without prejudice to any right to claim a
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Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article V.
SECTION 8.02. COLLECTION ACCOUNT.
(a) Prior to the Series Issuance Date for the first Series of Notes
issued hereunder, the Note Issuer shall open, at the Indenture Trustee's
Corporate Trust Office, or at another Eligible Institution, one or more
segregated trust accounts in the Indenture Trustee's name for the deposit of
Estimated IFC Collections (collectively, the "Collection Account"). The
Collection Account will consist of four subaccounts: a general subaccount (the
"General Subaccount"), a reserve subaccount (the "Reserve Subaccount"), a
subaccount for the Overcollateralization Amount (the "Overcollateralization
Subaccount") and a capital subaccount (the "Capital Subaccount"). All amounts in
the Collection Account not allocated to any other subaccount shall be allocated
to the General Subaccount. Prior to the initial Payment Date, all amounts in the
Collection Account (other than funds deposited into the Capital Subaccount, up
to the Required Capital Level for any Series of Notes) shall be allocated to the
General Subaccount. All references to the Collection Account shall be deemed to
include reference to all subaccounts contained therein. Withdrawals from and
deposits to each of the foregoing subaccounts of the Collection Account shall be
made as set forth in Section 8.02(d) and (e). The Collection Account shall at
all times be maintained in an Eligible Deposit Account and only the Indenture
Trustee shall have access to the Collection Account for the purpose of making
deposits in and withdrawals from the Collection Account in accordance with this
Indenture. Funds in the Collection Account shall not be commingled with any
other moneys. All moneys deposited from time to time in the Collection Account,
all deposits therein pursuant to this Indenture, and all investments made in
Eligible Investments with such moneys, including all income or other gain from
such investments, shall be held by the Indenture Trustee in the Collection
Account as part of the Note Collateral as herein provided.
(b) The Indenture Trustee shall have sole dominion and exclusive
control over all moneys in the Collection Account and shall apply such amounts
therein as provided in this Section 8.02. The Indenture Trustee shall also pay
from the Collection Account any amounts requested to be paid by the Servicer
pursuant to Section [6.1 1(d)(ii)] of the Servicing Agreement.
(c) IFC Collections shall be deposited in the General Subaccount as
provided in Section [6.11] of the Servicing Agreement. All deposits to and
withdrawals from the Collection Account and all allocations to the subaccounts
of the Collection Account shall be made by the Indenture Trustee in accordance
with the written instructions provided by the Servicer in the Monthly Servicer's
Certificate and the Quarterly Servicer's Certificate, as applicable.
(d) On each Payment Date for any Series of Notes, the Indenture
Trustee shall apply all amounts on deposit in the Collection Account, including
all net earnings thereon, to pay the following amounts, in accordance with the
Quarterly Servicer's Certificate, in the following priority:
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(i) all amounts owed by the Note Issuer to the Indenture
Trustee (including legal fees and expenses) shall be paid to the
Indenture Trustee (subject to Section 6.07) and all amounts owed to
the Delaware Trustee under the Trust Agreement shall be paid to the
Delaware Trustee, as appropriate;
(ii) the Servicing Fee for such Payment Date and all unpaid
Servicing Fees for prior Payment Dates shall be paid to the Servicer;
(iii) the Administration Fee and all unpaid Administration
Fees, if any, from prior Payment Dates shall be paid to the
Administrator;
(iv) so long as no Default or Event of Default shall have
occurred and be continuing or would result from such payment, all
other accrued and unpaid Operating Expenses shall be paid to the
Persons entitled thereto or, if such have been previously paid by the
Note Issuer, to the Note Issuer in reimbursement thereof; PROVIDED
that the amount paid on each Payment Date pursuant to this clause (iv)
shall not exceed [$100,000];
(v) any overdue Quarterly Interest (together with, to the
extent lawful, interest on such overdue Quarterly Interest at the
applicable Note Interest Rate) and then Quarterly Interest for such
Payment Date with respect to each Series of Notes shall be paid to the
Holders of such Series of Notes;
(vi) principal due and payable on the Notes of any Series as a
result of an Event of Default or on the Final Maturity Date of the
Notes of such Series, shall be paid to the Holders of such Series of
Notes;
(vii) Quarterly Principal for such Payment Date with respect to
each Series of Notes shall be paid to the Holders of such Series of
Notes;
(viii) unpaid Operating Expenses shall be paid to the Persons
entitled thereto or, if such have been previously paid by the Note
Issuer, to the Note Issuer or as it directs in reimbursement thereof;
(ix) the amount, if any, by which the Required Capital Level
with respect to all Outstanding Series of Notes exceeds the amount in
the Capital Subaccount as of such Payment Date shall be allocated to
the Capital Subaccount;
(x) the amount, if any, by which the Required
Overcollateralization Level with respect to all Outstanding Series of
Notes exceeds the amount in the Overcollateralization Subaccount as of
such Payment Date shall be allocated to the Overcollateralization
Subaccount;
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(xi) funds up to the amount of net earnings on amounts in the
Collection Account for the prior quarter without cumulation shall be
paid to the Note Issuer, free from the lien of this Indenture;
(xii) if any Series of Notes has been paid in full as of such
Payment Date, the excess of the amount in the Overcollateralization
Subaccount over the aggregate Required Overcollateralization Level
with respect to all Series of Notes remaining Outstanding shall be
paid to the Grantee or as it directs, free from the lien of this
Indenture;
(xiii) if any Series of Notes has been paid in full as of such
Payment Date, the excess of the amount by which the amount in the
Capital Subaccount over the aggregate Required Capital Level with
respect to all Series of Notes remaining Outstanding shall be paid to
the Grantee or as it directs, free from the lien of this Indenture;
(xiv) the balance, if any, shall be allocated to the Reserve
Subaccount for distribution on subsequent Payment Dates; and
(xv) after principal of and premium, if any, and interest on
all Notes of all Series, and all of the other foregoing amounts, have
been paid in full, the balance, if any, shall be paid to the Note
Issuer, free from the lien of this Indenture.
All payments to the Holders of a Series pursuant to clauses (v), (vi) and (vii)
above or, in the case of clause (vi), if there is more than one Series of Notes
outstanding all payments to the Holders of all Series, shall be made to such
Holders pro rata based on the respective principal amounts of Notes of such
Series held by such Holders, unless, in the case of a Series comprised of two or
more Classes, the Trustee's Issuance Certificate or Series Supplement, if any,
for such Series provides otherwise. Payments in respect of principal of and
premium, if any, and interest on any Class of Notes will be made on a pro rata
basis among all the Holders of such Class,
(e) If on any Payment Date funds on deposit in the General Subaccount
are insufficient to make the payments contemplated by clauses (i) through (vii)
of Section 8.02(d) above, the Indenture Trustee shall (i) FIRST, draw from
amounts on deposit in the Reserve Subaccount, (ii) SECOND, draw from amounts on
deposit in the Overcollateralization Subaccount and (iii) THIRD, draw from
amounts on deposit in the Capital Subaccount, in each case, up to the amount of
such shortfall in order to make the payments contemplated by clauses (i) through
(vii) of Section 8.02(d). In addition, if on any Payment Date funds on deposit
in the General Subaccount are insufficient to make the allocations contemplated
by clauses (ix) and (x) above, the Indenture Trustee shall draw from amounts on
deposit in the Reserve Subaccount to make such allocations notwithstanding the
fact that on such Payment Date the allocation contemplated by clause (viii)
above may not have been fully satisfied.
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SECTION 8.03. GENERAL PROVISIONS REGARDING THE COLLECTION ACCOUNT.
(a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Collection Account shall be
invested in Eligible Investments and reinvested by the Indenture Trustee upon
Issuer Order; PROVIDED, HOWEVER, that (i) such Eligible Investments shall not
mature later than the Business Day prior to the next Payment Date for the
related Series of Notes and (ii) such Eligible Investments shall not be sold,
liquidated or otherwise disposed of at a loss prior to the maturity thereof. All
income or other gain from investments of moneys deposited in the Collection
Account shall be deposited by the Indenture Trustee in the Collection Account,
and any loss resulting from such investments shall be charged to the Collection
Account. The Note Issuer will not direct the Indenture Trustee to make any
investment of any funds or to sell any investment held in the Collection Account
unless the security interest Granted and perfected in such account will continue
to be perfected in such investment or the proceeds of such sale, in either case
without any further action by any Person, and, in connection with any direction
to the Indenture Trustee to make any such investment or sale, if requested by
the Indenture Trustee, the Note Issuer shall deliver to the Indenture Trustee an
Opinion of Counsel, acceptable to the Indenture Trustee, to such effect. In no
event shall the Indenture Trustee be liable for the selection of Eligible
Investments or for investment losses incurred thereon. The Indenture Trustee
shall have no liability in respect of losses incurred as a result of the
liquidation of any Eligible Investment prior to its stated maturity or the
failure of the Note Issuer to provide timely written investment direction. The
Indenture Trustee shall have no obligation to invest or reinvest any amounts
held hereunder in the absence of written investment direction pursuant to an
Issuer Order.
(b) Subject to Section 6.01(c), the Indenture Trustee shall not in
any way be held liable by reason of any insufficiency in the Collection Account
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture Trustee, in its commercial capacity
as principal obligor and not as trustee, in accordance with their terms.
(c) If (i) the Note Issuer shall have failed to give written
investment directions for any funds on deposit in the Collection Account to the
Indenture Trustee by 11:00 a.m. Eastern Time (or such other time as may be
agreed by the Note Issuer and Indenture Trustee) on any Business Day; or (ii) a
Default or Event of Default shall have occurred and be continuing with respect
to the Notes of any Series but the Notes of such Series shall not have been
declared due and payable pursuant to Section 5.02; then the Indenture Trustee
shall, to the fullest extent practicable, invest and reinvest funds in the
Collection Account in one or more investments which qualify as investments in
money market funds described under paragraph (d) of the definition of Eligible
Investments.
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SECTION 8.04. RELEASE OF NOTE COLLATERAL.
(a) The Indenture Trustee may, and when required by the provisions of
this Indenture shall, execute instruments to release property from the lien of
this Indenture, or convey the Indenture Trustee's interest in the same, in a
manner and under circumstances that are not inconsistent with the provisions of
this Indenture. No party relying upon an instrument executed by the Indenture
Trustee as provided in this Article VIII shall be bound to ascertain the
Indenture Trustee's authority, inquire into the satisfaction of any conditions
precedent or see to the application of any moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding, release any remaining portion of the Note Collateral that secured
the Notes from the lien of this Indenture and release to the Note Issuer or any
other Person entitled thereto any funds then on deposit in the Collection
Account. The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.04(b) only upon receipt of an Issuer
Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA) Independent Certificates in accordance with TIA Sections
314(c) and 3 14(d)(1) meeting the applicable requirements of Section 11.01.
SECTION 8.05. OPINION OF COUNSEL. The Indenture Trustee shall
receive at least seven days' notice when requested by the Note Issuer to take
any action pursuant to Section 8.04(a), accompanied by copies of any instruments
involved, and the Indenture Trustee shall also require, as a condition to such
action, an Opinion of Counsel, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with and such action
will not materially and adversely impair the security for the Notes or the
rights of the Holders in contravention of the provisions of this Indenture;
PROVIDED, HOWEVER, that such Opinion of Counsel shall not be required to express
an opinion as to the fair value of the Note Collateral. Counsel rendering any
such opinion may rely, without independent investigation, on the accuracy and
validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
SECTION 8.06. REPORTS BY INDEPENDENT ACCOUNTANTS. As of the Closing
Date, the Note Issuer shall appoint a firm of Independent certified public
accountants of recognized national reputation for purposes of preparing and
delivering the reports or certificates of such accountants required by this
Indenture and the related Trustee's Issuance Certificates or Series Supplements,
if any. In the event such firm requires the Indenture Trustee to agree to the
procedures performed by such firm, the Note Issuer shall direct the Indenture
Trustee in writing to so agree; it being understood and agreed that the
Indenture Trustee will deliver such letter of agreement in conclusive reliance
upon the direction of the Note Issuer, and the Indenture Trustee makes no
independent inquiry or investigation to, and shall have no obligation or
liability in respect of the sufficiency, validity or correctness of such
procedures. Upon any resignation by such firm the Note Issuer shall provide
written notice thereof to the Indenture Trustee and shall
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promptly appoint a successor thereto that shall also be a firm of Independent
certified public accountants of recognized national reputation. If the Note
Issuer shall fail to appoint a successor to a firm of Independent certified
public accountants that has resigned within 15 days after such resignation, the
Indenture Trustee shall promptly notify the Note Issuer of such failure in
writing. If the Note Issuer shall not have appointed a successor within 10 days
thereafter the Indenture Trustee shall promptly appoint a successor firm of
Independent certified public accountants of recognized national reputation;
PROVIDED that the Indenture Trustee shall have no liability with respect to such
appointment if the Indenture Trustee acted with due care with respect thereto.
The fees of such Independent certified public accountants and its successor
shall be payable by the Note Issuer.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
(a) Without the consent of the Holders of any Notes but with prior
notice to the Rating Agencies, the Note Issuer and the Indenture Trustee, when
authorized by an Issuer Order, at any time and from time to time, may enter into
one or more indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as in force at the date of the execution
thereof), in form satisfactory to the Indenture Trustee, for any of the
following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Indenture Trustee any property subject or
required to be subjected to the lien of this Indenture, or to subject
to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Note Issuer,
and the assumption by any such successor of the covenants of the Note
Issuer herein and in the Notes contained;
(iii) to add to the covenants of the Note Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or
power herein conferred upon the Note Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other
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provision herein or in any supplemental indenture or to make any other
provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; PROVIDED that such action shall
not, as evidenced by an Opinion of Counsel, adversely affect the interests
of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI;
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
Federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA; or
(viii) to set forth the terms of any Series that has not
theretofore been authorized by a Trustee's Issuance Certificate or
Series Supplement, if any, or to provide for the execution and
delivery of any Swap Agreement.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Note Issuer and the Indenture Trustee, when authorized by an
Issuer Order, may, also without the consent of any of the Holders of the Notes,
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to, or changing in any manner or eliminating any of the
provisions of; this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; PROVIDED, HOWEVER, that (i) such
action shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of the Holders and (ii) the Rating Agency
Condition shall have been satisfied with respect thereto.
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. The
Note Issuer and the Indenture Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies and with the consent of the
Holders of not less than a majority of the Outstanding Amount of the Notes of
each Series or Class to be affected, by Act of such Holders delivered to the
Note Issuer and the Indenture Trustee, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of; this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall, without
the consent of the Holder of each Outstanding Note of each Series or Class
affected thereby:
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(i) change the date of payment of any installment of
principal of or premium, if any, or interest on any Note, or reduce
the principal amount thereof; the interest rate thereon or premium, if
any, with respect thereto, change any Optional Redemption Price,
change the provisions of this Indenture and the related applicable
Trustee's Issuance Certificate or Series Supplement, if any, relating
to the application of collections on, or the proceeds of the sale of;
the Note Collateral to payment of principal of or premium, if any, or
interest on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is
payable, or impair the right to institute suit for the enforcement of
the provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof (or, in the case of optional redemption, on or after the
Optional Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the
Notes or of a Series or Class thereof; the consent of the Holders of
which is required for any such supplemental indenture, or the consent
of the Holders of which is required for any waiver of compliance with
certain provisions of this Indenture or certain defaults hereunder and
their consequences provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Indenture Trustee to direct the Note
Issuer to sell or liquidate the Note Collateral pursuant to Section
5.04;
(v) modify any provision of this Section to decrease any
minimum percentage specified herein necessary to approve any
amendments to any provisions of this Indenture;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest, principal or premium, if any, due on any Note on any Payment
Date (including the calculation of any of the individual components of
such calculation) or to affect the rights of the Holders of Notes to
the benefit of any provisions for the mandatory redemption of the
Notes contained herein;
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Note Collateral or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture; or
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(viii) cause any material adverse federal income tax
consequences to Illinois Power, the Grantee, the Note Issuer, the
Delaware Trustee, the Indenture Trustee or the then existing Holders.
The Indenture Trustee may in its discretion determine whether or not
any Notes of a Series or Class would be affected by any supplemental indenture
and any such determination shall be conclusive upon the Holders of all Notes of
such Series or Class, whether theretofore or thereafter authenticated and
delivered hereunder. The Indenture Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof
Promptly after the execution by the Note Issuer and the Indenture
Trustee of any supplemental indenture pursuant to this Section, the Note Issuer
shall mail to the Rating Agencies and the Holders of the Notes to which such
supplemental indenture relates a notice setting forth in general terms the
substance of such supplemental indenture. Any failure of the Indenture Trustee
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution
of any supplemental indenture pursuant to the provisions hereof; this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to each Series or Class of Notes affected thereby, and the respective
rights, limitations of rights, obligations, duties, liabilities and immunities
under this Indenture of the Indenture Trustee, the Note Issuer and the Holders
of the Notes shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment
of this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform
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to the requirements of the Trust Indenture Act as then in effect so long as this
Indenture shall then be qualified under the Trust Indenture Act.
SECTION 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Note Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Note Issuer, to any such supplemental indenture
may be prepared and executed by the Note Issuer and authenticated and delivered
by the Indenture Trustee in exchange for Outstanding Notes.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. OPTIONAL REDEMPTION BY NOTE ISSUER. The Note Issuer
may, at its option, redeem all, but not less than all, of the Notes of a Series
(a) on any Payment Date if; after giving effect to payments that would otherwise
be made on such Payment Date, the Outstanding Amount of any such Series of Notes
has been reduced to less than five percent of the initial principal balance
thereof; or (b) if and to the extent specified in the related Trustee's Issuance
Certificate or Series Supplement, if any, on any Payment Date on or prior to
December 31, 2004, from the proceeds of the issuance and sale of the Notes of
any other Series. In addition, a Series of Notes shall be subject to redemption
if and to the extent provided in the related Trustee's Issuance Certificate or
Series Supplement, if any. The purchase price in any such case shall be equal to
the outstanding principal amount of the Notes to be redeemed plus accrued and
unpaid interest thereon at the Note Interest Rate to the Optional Redemption
Date (such price being called the "Optional Redemption Price"). If the Note
Issuer shall elect to redeem the Notes of a Series pursuant to this Section
10.01, it shall furnish written notice (which notice shall state all items
listed in Section 10.02) of such election to the Indenture Trustee and the
Rating Agencies not more than 50 and not later than 25 days prior to the
Optional Redemption Date and shall deposit with the Indenture Trustee not later
than one Business Day prior to the Optional Redemption Date the Optional
Redemption Price of the Notes to be redeemed whereupon all such Notes shall be
due and payable on the Optional Redemption Date upon the furnishing of a notice
complying with Section 10.02 hereof to each Holder of the Notes of such Series
pursuant to this Section 10.01.
SECTION 10.02. FORM OF OPTIONAL REDEMPTION NOTICE. Unless otherwise
specified in the Trustee's Issuance Certificate or Series Supplement, if any,
relating to a Series of Notes, notice of redemption under Section 10.01 hereof
shall be given by the Indenture Trustee by first-class mail, postage prepaid,
mailed not less than five days nor more than 25 days prior to the applicable
Optional Redemption Date to each Holder of Notes to be redeemed, as of the
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close of business on the Record Date preceding the applicable Optional
Redemption Date at such Holder's address appearing in the Note Register.
All notices of redemption shall state:
(1) the Optional Redemption Date;
(2) the Optional Redemption Price;
(3) the place where such Notes are to be surrendered for payment of
the Optional Redemption Price (which shall be the office or
agency of the Note Issuer to be maintained as provided in Section
3.02 hereof);
(4) the CUSP number, if applicable; and
(5) the principal amount of Notes to be redeemed.
Notice of redemption of the Notes to be redeemed shall be given by the
Indenture Trustee in the name and at the expense of the Note Issuer. Failure to
give notice of redemption, or any defect therein, to any Holder of any Note
selected for redemption shall not impair or affect the validity of the
redemption of any other Note.
SECTION 10.03. NOTES PAYABLE ON OPTIONAL REDEMPTION DATE. Notice of
redemption having been given as provided in Section 10.02 hereof; the Notes to
be redeemed shall on the Optional Redemption Date become due and payable at the
Optional Redemption Price and (unless the Note Issuer shall default in the
payment of the Optional Redemption Price) no interest shall accrue on the
Optional Redemption Price for any period after the date to which accrued
interest is calculated for purposes of calculating the Optional Redemption
Price.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC.
(a) Upon any application or request by the Note Issuer to the
Indenture Trustee to take any action under any provision of this Indenture, the
Note Issuer shall furnish to the Indenture Trustee (i) an Officer's Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with, (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with and (iii) (if required by the TIA) an
Independent Certificate from a firm of certified public accountants meeting the
applicable requirements of this Section, except that, in the case of
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any such application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as
to whether or not such covenant or condition has been complied with;
and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Note Collateral or other
property or securities with the Indenture Trustee that is to be made the basis
for the release of any property or securities subject to the lien of this
Indenture, the Note Issuer shall, in addition to any obligation imposed in
Section 11.01(a) or elsewhere in this Indenture, furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of each
person signing such certificate as to the fair value (within 90 days of such
deposit) to the Note Issuer of the Note Collateral or other property or
securities to be so deposited.
(ii) Whenever the Note Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (i) above, the Note
Issuer shall also deliver to the Indenture Trustee an Independent Certificate as
to the same matters, if the fair value to the Note Issuer of the securities to
be so deposited and of all other such securities made the basis of any such
withdrawal or release since the commencement of the then-current fiscal year of
the Note Issuer, as set forth in the certificates delivered pursuant to clause
(i) above and this clause (ii), is ten percent or more of the Outstanding Amount
of the Notes of all Series, but such a certificate need not be furnished with
respect to any securities so deposited, if the fair value thereof to the Note
Issuer as set forth in the related Officer's Certificate is less than the lesser
of (A) $25,000 or (B) one percent of the Outstanding Amount of the Notes of all
Series.
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(iii) Whenever any property or securities are to be released
from the lien of this Indenture other than pursuant to Section 8.02(d), the Note
Issuer shall also furnish to the Indenture Trustee an Officer's Certificate
certifying or stating the opinion of each person signing such certificate as to
the fair value (within 90 days of such release) of the property or securities
proposed to be released and stating that in the opinion of such person the
proposed release will not impair the security under this Indenture in
contravention of the provisions hereof
(iv) Whenever the Note Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signatory thereof as to the matters described in clause (iii) above, the
Note Issuer shall also furnish to the Indenture Trustee an Independent
Certificate as to the same matters if the fair value of the property or
securities and of all other property with respect to such Series, or securities
released from the lien of this Indenture (other than pursuant to Section 8.02(d)
hereof) since the commencement of the then-current calendar year, as set forth
in the certificates required by clause (iii) above and this clause (iv), equals
10 percent or more of the Outstanding Amount of the Notes of all Series, but
such certificate need not be furnished in the case of any release of property or
securities if the fair value thereof as set forth in the related Officer's
Certificate is less than the lesser of (A) $25,000 or (B) one percent of the
then Outstanding Amount of the Notes of all Series.
(v) Notwithstanding Section 2.16 or any other provision of
this Section 11.01, the Indenture Trustee may (A) collect, liquidate, sell or
otherwise dispose of the Intangible Transition Property and the other Note
Collateral as and to the extent permitted or required by the Basic Documents and
(B) make cash payments out of the Collection Account as and to the extent
permitted or required by the Basic Documents.
SECTION 11.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In
any case where several matters are required to be certified by, or covered by an
opinion of; any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of; only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of a Responsible Officer of the Note Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of; or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate of a Responsible Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of; or representations by, an officer or officers of
the Servicer, the Grantee, the Note Issuer or the Administrator, stating that
the information with respect to such factual matters is in the possession of the
Servicer, the Grantee, the Note Issuer or the Administrator, unless such
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counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Note
Issuer shall deliver any document as a condition of the granting of such
application, or as evidence of the Note Issuer 5 compliance with any term
hereof; it is intended that the truth and accuracy, at the time of the granting
of such application or at the effective date of such certificate or report (as
the case may be), of the facts and opinions stated in such document shall in
such case be conditions precedent to the right of the Note Issuer to have such
application granted or to the sufficiency of such certificate or report. The
foregoing shall not, however, be construed to affect the Indenture Trustee's
right to rely upon the truth and accuracy of any statement or opinion contained
in any such document as provided in Article VI.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 11.03. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and except as herein otherwise expressly provided such
action shall become effective when such instrument or instruments are delivered
to the Indenture Trustee, and, where it is hereby expressly required, to the
Note Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.01) conclusive in favor of
the Indenture Trustee and the Note Issuer, if made in the manner provided in
this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof; in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Note Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.
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SECTION 11.04. NOTICES, ETC. TO INDENTURE TRUSTEE, NOTE ISSUER AND
RATING AGENCIES.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Holder or by the Note
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing by facsimile transmission, first-class
mail or overnight delivery service to or with the Indenture Trustee at
its Corporate Trust Office, or
(ii) the Note Issuer by the Indenture Trustee or by any
Holder shall be sufficient for every purpose hereunder if in writing
and mailed, first-class, postage prepaid, to the Note Issuer addressed
to: Illinois Power Special Purpose Trust, Attention: [_______________]
or at any other address previously furnished in writing to the
Indenture Trustee by the Note Issuer. The Note Issuer shall promptly
transmit any notice received by it from the Holders to the Indenture
Trustee.
(b) Notices required to be given to the Rating Agencies by the Note
Issuer or the Indenture Trustee shall be in writing, personally delivered or
mailed by certified mail, return receipt requested to (i) in the case of
Moody's, to: Moody's Investors Service, Inc., ABS Monitoring Department, 99
Church Street, New York, New York 10007, (ii) in the case of Standard & Poor's,
to: Standard & Poor's Corporation, 26 Broadway (10th Floor), New York, New York
10004, Attention of Asset Backed Surveillance Department, (iii) in the case of
Fitch, to Fitch Investors Service, L.P., One State Street Plaza, New York, New
York 10004, Attention of Commercial Asset-Backed Securities, and (iv) in the
case of Duff & Phelps, to Duff & Phelps Credit Rating Co., 17 State Street, 12th
Floor, New York, New York 10004, Attention: Asset- Backed Monitoring Group.
SECTION 11.05. NOTICES TO HOLDERS WAIVER. Where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed,
first-class, postage prepaid to each Holder affected by such event, at such
Holder's address as it appears on the Note Register, not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice nor any defect in any notice so mailed to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders, and any notice that is mailed in the manner herein provided shall
conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such
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waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Indenture Trustee but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such a
waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event of Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.06. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof
SECTION 11.08. SUCCESSORS AND ASSIGNS. All covenants and agreements
in this Indenture and the Notes by the Note Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors.
SECTION 11.09. SEPARABILITY. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 11.10. BENEFITS OF INDENTURE. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Holders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Note Collateral, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
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SECTION 11.11. LEGAL HOLIDAYS. In any case where the date on which
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.12. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.14. RECORDING OF INDENTURE. If this Indenture is subject
to recording in any appropriate public recording offices, such recording is to
be effected by the Note Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee) to the effect that such
recording is necessary either for the protection of the Holders or any other
Person secured hereunder or for the enforcement of any right or remedy granted
to the Indenture Trustee under this Indenture.
SECTION 11.15. TRUST OBLIGATION. No recourse may be taken, directly
or indirectly, with respect to the obligations of the Note Issuer or the
Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Delaware Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Note Issuer (including the Grantee and
Illinois Power) or (iii) any partner, owner, beneficiary, agent, officer, or
employee of the Indenture Trustee or the Delaware Trustee in its individual
capacity, any holder of a beneficial interest in the Note Issuer or the
Indenture Trustee or of any successor or assign of any of them in their
respective individual or corporate capacities, except as any such Person may
have expressly agreed (it being understood that none of the Indenture Trustee,
the Delaware Trustee, the Grantee and ComEd have any such obligations in their
respective individual or corporate capacities).
SECTION 11.16. NO RECOURSE TO NOTE ISSUER. Notwithstanding any
provision of this Indenture or any Trustee's Issuance Certificate or any Series
Supplement to the contrary, Holders shall have no recourse against the Note
Issuer, but shall look only to the Note Collateral with respect to any amounts
due to the Holders hereunder and under the Notes.
SECTION 11.17. INSPECTION. The Note Issuer agrees that, on
reasonable prior notice, it will permit any representative of the Indenture
Trustee, during the Note Issuer's normal
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business hours, to examine all the books of account, records, reports, and other
papers of the Note Issuer, to make copies and extracts therefrom, to cause such
books to be audited by Independent certified public accountants, and to discuss
the Note Issuer's affairs, finances and accounts with the Note Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder. Notwithstanding
anything herein to the contrary, the foregoing shall not be construed to
prohibit (i) disclosure of any and all information that is or becomes publicly
known, or information obtained by the Indenture Trustee from sources other than
the Note Issuer, provided such parties are rightfully in possession of such
information, (ii) disclosure of any and all information (A) if required to do so
by any applicable statute, law, rule or regulation, (B) pursuant to any
subpoena, civil investigative demand or similar demand or request of any court
or regulatory authority exercising its proper jurisdiction, (C) in any
preliminary or final offering circular, registration statement or contract or
other document pertaining to the transactions contemplated by this Indenture or
the Basic Documents approved in advance by the Note Issuer or (D) to any
affiliate, independent or internal auditor, agent, employee or attorney of the
Indenture Trustee having a need to know the same, provided that such parties
agree to be bound by the confidentiality provisions contained in this Section
11.17, or (iii) any other disclosure authorized by the Note Issuer.
SECTION 11.18. NO PETITION. The Indenture Trustee, by entering into
this Indenture, and each Holder, by accepting a Note (or interest therein)
issued hereunder, hereby covenant and agree that they shall not, prior to the
date which is one year and one day after the termination of the Trust Agreement,
acquiesce, petition or otherwise invoke or cause the Grantee or the Note Issuer
to invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Grantee or the Note Issuer under any
insolvency law or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Grantee or the Note
Issuer or any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Grantee or the Note Issuer.
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IN WITNESS WHEREOF, the Note Issuer and the Indenture Trustee have
caused this Indenture to be duly executed by their respective officers,
thereunto duly authorized and duly attested, all as of the day and year first
above written.
ILLINOIS POWER SPECIAL PURPOSE TRUST
By: FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Delaware Trustee
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely as Indenture
Trustee
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
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STATE OF ILLINOIS, )
) SS:
COUNTY OF COOK )
On the __ day of [ ], 1998, before me, [ ],a Notary Public in and
for said county and state, personally appeared [ ], personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person and officer
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument Harris Trust and Savings Bank, a bank and the entity upon whose
behalf the person acted, executed this instrument.
WITNESS my hand and official seal.
---------------------------------
Notary Public
My commission expires:
<PAGE>
STATE OF ILLINOIS, )
) SS:
COUNTY OF COOK )
On the ____ day of [ ], 1998, before me, [ ],a Notary Public in and
for said county and state, personally appeared [ ], personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person and officer
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument Illinois Power Special Purpose Trust, a Delaware business trust and
the entity upon whose behalf the person acted, executed this instrument.
WITNESS my hand and official seal.
--------------------------------
Notary Public
My commission expires:
<PAGE>
EXHIBIT B
REGISTERED $
NO. --------
---------
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
-------
THE PRINCIPAL OF THIS CLASS A - [ ] NOTE WILL BE PAID IN INSTALLMENTS
AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS
CLASS A - [ ] NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE
HEREOF. THE HOLDER OF THIS NOTE HAS NO RECOURSE TO THE ISSUER HEREOF AND AGREES
TO LOOK ONLY TO THE NOTE COLLATERAL, AS DESCRIBED IN THE INDENTURE AND ANY
RELATED TRUSTEE'S ISSUANCE CERTIFICATE OR SERIES SUPPLEMENT REFERRED TO ON THE
REVERSE HEREOF, FOR PAYMENT OF ANY AMOUNTS DUE HEREUNDER. ALL OBLIGATIONS OF THE
ISSUER OF THIS NOTE UNDER THE TERMS OF THE INDENTURE WILL BE RELEASED AND
DISCHARGED UPON PAYMENT HEREOF OR AS OTHERWISE PROVIDED IN SECTION 3.10(B) OR
ARTICLE IV OF THE INDENTURE. THE HOLDER OF THIS NOTE HEREBY COVENANTS AND AGREES
THAT PRIOR TO THE DATE WHICH IS ONE (1) YEAR AND ONE (1) DAY AFTER THE PAYMENT
IN FULL OF THE [CLASS A] NOTES, IT WILL NOT INSTITUTE AGAINST, OR JOIN ANY OTHER
PERSON IN INSTITUTING AGAINST, THE ISSUER ANY BANKRUPTCY, REORGANIZATION,
ARRANGEMENT, INSOLVENCY OR LIQUIDATION PROCEEDINGS OR OTHER SIMILAR PROCEEDING
UNDER THE LAWS OF THE UNITED STATES OR ANY STATE OF THE UNITED STATES. NOTHING
IN THIS PARAGRAPH SHALL PRECLUDE, OR BE DEEMED TO ESTOP, SUCH HOLDER (A) FROM
TAKING OR OMITTING TO TAKE ANY ACTION PRIOR TO SUCH DATE IN (I) ANY CASE OR
PROCEEDING VOLUNTARILY FILED OR COMMENCED BY OR ON BEHALF OF THE ISSUER UNDER OR
PURSUANT TO ANY SUCH LAW OR (II) ANY INVOLUNTARY CASE OR PROCEEDING PERTAINING
TO THE ISSUER WHICH IS FILED OR COMMENCED BY OR ON BEHALF OF A PERSON OTHER THAN
SUCH HOLDER AND IS NOT JOINED IN BY SUCH HOLDER (OR ANY PERSON TO WHICH SUCH
HOLDER SHALL HAVE ASSIGNED, TRANSFERRED OR OTHERWISE CONVEYED ANY PART OF THE
OBLIGATIONS OF THE ISSUER HEREUNDER) UNDER OR PURSUANT TO ANY SUCH LAW, OR (B)
FROM COMMENCING OR PROSECUTING ANY LEGAL ACTION WHICH IS NOT AN INVOLUNTARY CASE
OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST THE ISSUER OR ANY OF ITS
PROPERTIES.
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ILLINOIS POWER SPECIAL PURPOSE TRUST
NOTES, SERIES 199[ ]- [ ],CLASS A- [ ].
INTEREST ORIGINAL PRINCIPAL FINAL MATURITY
RATE AMOUNT DATE
--------- ------------------ --------------
Illinois Power Special Purchase Trust, a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Note Issuer"), for value received, hereby promises to pay to Cede & Co., or
registered assigns, the Original Principal Amount shown above [in quarterly
installments] on the Payment Dates and in the amounts specified on the reverse
hereof or, if less, the amounts determined pursuant to Section 8.02 of the
Indenture, in each year, commencing on the date determined as provided on the
reverse hereof and ending on or before the Final Maturity Date shown above and
to pay interest, at the Interest Rate shown above, on each [March 15, June 15,
September 15 and December 15] or if any such day is not a Business Day, the next
succeeding Business Day, commencing on [ ]and continuing until the earlier of
the payment of the principal hereof and the Final Maturity Date (each a "Payment
Date"), on the principal amount of this Class A - [ ] Note. Interest on this
Class A - [ ] Note will accrue for each Payment Date from the most recent
Payment Date on which interest has been paid to but excluding such Payment Date
or, if no interest has yet been paid, from [ ]. Interest will be computed on
the basis of a [specify method of computation]. Such principal of and interest
on this Class A - [ ] Note shall be paid in the manner specified on the reverse
hereof
The principal of and interest on this Class A - [ ] Note are payable
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts. All payments
made by the Note Issuer with respect to this Class A - [ ] Note shall be
applied first to interest due and payable on this Class A - [ ] Note as provided
above and then to the unpaid principal of and premium, if any, on this Class A -
[ ] Note, all in the manner set forth in Section 8.02 of the Indenture.
Reference is made to the further provisions of this Class A - [ ] Note
set forth on the reverse hereof; which shall have the same effect as though
fully set forth on the face of this Class A- [ ] Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Class A
- - [ ] Note shall not be
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entitled to any benefit under the Indenture referred to on the reverse hereof;
or be valid or obligatory for any purpose.
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<PAGE>
IN WITNESS WHEREOF, the Note Issuer has caused this instrument to be
signed, manually or in facsimile, by its Responsible Officer.
Date: ILLINOIS POWER SPECIAL PURPOSE TRUST
By: FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, not in its
individual capacity but solely as
Delaware Trustee
By:
--------------------------------
Name:
-----------------------------
Title:
-----------------------------
4
<PAGE>
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: , 199
-------- ---
This is one of the Class A - [ ] Notes of the Series 199 [-] - [-]
Notes, designated above and referred to in the within-mentioned Indenture.
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely as
Indenture Trustee
By:
--------------------------------
Name:
-----------------------------
Title:
-----------------------------
5
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[REVERSE OF NOTE](1)
This Series 199[ ]- [ ], Class A - [ ] Note is one of a duly
authorized issue of Notes of the Note Issuer, designated as its Notes (herein
called the "Notes"), issued and to be issued in one or more Series, which Series
are issuable in one or more Classes, and this Series 199 [ ] - [ ] Note, in
which this Class A - [ ] Note represents an interest, consists of [ ] Classes,
including this Class A - [ ] Note (herein called the "Class A - [ ] Notes"), all
issued and to be issued under an Indenture dated as of [ ], 1998, (the
"Indenture"), each between the Note Issuer and [ ], as Indenture Trustee (the
"Indenture Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights and obligations
thereunder of the Note Issuer, the Indenture Trustee and the Holders of the
Notes. All terms used in this Class A - [ ] Note that are defined in the
Indenture, as supplemented or amended, shall have the meanings assigned to them
in the Indenture.
The Class A - [ ] Notes, the other Classes of Series 1 99[ ] - [ ]
Notes and any other Series of Notes issued by the Note Issuer are and will be
equally and ratably secured by the collateral pledged as security therefor as
provided in the Indenture.
The principal of this Class A - [ ] Note shall be payable on each
Payment Date only to the extent that amounts in the Collection Account are
available therefor, and only until the outstanding principal balance thereof on
the preceding Payment Date (after giving effect to all payments of principal, if
any, made on the preceding Payment Date) has been reduced to the principal
balance specified in the Expected Amortization Schedule which is attached to the
related Trustee's Issuance Certificate or Series Supplement, if any, as Schedule
__, unless payable earlier either because (x) an Event of Default shall have
occurred and be continuing and the Indenture Trustee or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes of
all Series have declared the Notes of all Series to be immediately due and
payable in accordance with Section 5.02 of the Indenture or (y) the Note Issuer,
at its option, shall have called for the redemption of the Series 199 [ ] - [ ]
Notes pursuant to Section 10.01 of the Indenture. However, actual principal
payments may be made in lesser than expected amounts and at later than expected
times as determined pursuant to Section 8.02 of the Indenture. The entire
unpaid principal amount of this Class A - [ ] Note shall be due and payable on
the earlier of the Final Maturity Date hereof and the Optional Redemption Date,
if any. Notwithstanding the foregoing, the entire unpaid principal amount of
the Notes shall be due and payable, if not then previously paid, on the date on
which an Event of Default shall have occurred and be continuing and the
Indenture Trustee or the Holders of the Notes representing not less than a
majority of the Outstanding Amount of the Notes of all Series have declared the
Notes of all Series to be immediately due and payable in the manner provided in
Section 5.02 of the Indenture. All
- ----------------------
(1)The form of the reverse of a Note is substantially as follows, unless
otherwise specified in the related Trustee's Issuance Certificate or Series
Supplement.
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principal payments on the Class A - [ ] Notes shall be made pro rata to the
Class A - [ ] Holders entitled thereto based on the respective principal amounts
of the Class A - [ ] Notes held by them.
Payments of interest on this Class A - [ ] Note due and payable on
each Payment Date, together with the installment of principal or premium, if
any, shall be made by check mailed first-class, postage prepaid, to the Person
whose name appears as the Registered Holder of this Class A - [ ] Note (or one
or more Predecessor Notes) on the Note Register as of the close of business on
the Record Date or in such other manner as may be provided in the related
Trustee's Issuance Certificate or Series Supplement, except for the final
installment of principal and premium, if any, payable with respect to this Class
A - [ ] Note on a Payment Date which shall be payable as provided below. Such
checks shall be mailed to the Person entitled thereto at the address of such
Person as it appears on the Note Register as of the applicable Record Date
without requiring that this Class A - [ ] Note be submitted for notation of
payment. Any reduction in the principal amount of this Class A - [ ] Note (or
any one or more Predecessor Notes) effected by any payments made on any Payment
Date shall be binding upon all future Holders of this Class A - [ ] Note and of
any Note issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof; whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Class A - [ ] Note on a Payment Date,
then the Indenture Trustee, in the name of and on behalf of the Note Issuer,
will notify the Person who was the Registered Holder hereof as of the Record
Date preceding such Payment Date by notice mailed no later than five days prior
to such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of this Class A - [ ] Note and
shall specify the place where this Class A - [ ] Note may be presented and
surrendered for payment of such installment.
The Note Issuer shall pay interest on overdue installments of interest
at the Note Interest Rate to the extent lawful.
As provided in the Indenture, the Class A - [ ] Notes may be redeemed,
in whole but not in part, at the option of the Note Issuer on any Payment Date
at the Optional Redemption Price if; after giving effect to payments that would
otherwise be made on such Payment Date, the Outstanding Amount of the Class
A-[ ] Notes has been reduced to less than five percent of the initial principal
balance thereof.
This Note is a transitional funding instrument as such term is defined
in the Funding Law. Principal and interest due and payable on this Note are
payable from and secured primarily by intangible transition property created and
established by a transitional funding order obtained from the Illinois Commerce
Commission pursuant to the Funding Law. Intangible transition property consists
of the right to impose and collect certain charges (defined in the Funding Law
as "instrument funding charges") to be included in regular electric utility
bills of existing and future electric service customers of Commonwealth Edison
Company, an Illinois electric utility.
7
<PAGE>
The Funding Law provides that: "The State [of Illinois] pledges to and
agrees with the holders of any transitional funding instruments who may enter
into contracts with an electric utility, grantee, assignee or issuer pursuant to
this Article XVIII [of the Public Utility Act] that the State [of Illinois] will
not in any way limit, alter, impair or reduce the value of intangible transition
property created by, or instrument funding charges approved by, a transitional
funding order so as to impair the terms of any contract made by such electric
utility, grantee, assignee or issuer with such holders or in any way impair the
rights and remedies of such holders until the pertinent grantee instruments or,
if the related transitional funding order does not provide for the issuance of
grantee instruments, the pertinent transitional funding instruments and
interest, premium and other fees, costs and charges related thereto, as the case
may be, are fully paid and discharged. Electric utilities, grantees and issuers
are authorized to include these pledges and agreements of the State [of
Illinois] in any contract with the holders of transitional funding instruments
or with any assignees pursuant to this Article XVIII [of the Public Utility Act]
and any assignees are similarly authorized to include these pledges and
agreements of the State [of Illinois] in any contract with any issuer, holder or
any other assignee. Nothing in this Article XVIII [of the Public Utility Act]
shall preclude the State of Illinois from requiring adjustments as may otherwise
be allowed by law to the electric utility's base rates, transition charges,
delivery services charges, or other charges for tariffed services, so long as
any such adjustment does not directly affect or impair any instrument funding
charges previously authorized by a transitional funding order issued by the
[Illinois Commerce Commission]."
As a result of the foregoing pledge, the State of Illinois may not,
except as provided in the succeeding sentence, in any way limit, alter, impair
or reduce the value of such intangible transition property or such instrument
funding changes in a manner substantially impairing the Note Indenture or the
rights and remedies of the Holders, until the Notes, together with interest
thereon, are fully paid and discharged. Notwithstanding the immediately
preceding sentence, the State of Illinois would be allowed to effect a temporary
impairment of the Holders' rights if it could be shown that such impairment was
necessary to advance a significant and legitimate public purpose.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Class A - [ ] Note may be registered on the
Note Register upon surrender of this Class A - [ ] Note for registration of
transfer at the office or agency designated by the Note Issuer pursuant to the
Indenture, duly endorsed by, or accompanied by (a) a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by the
Holder hereof or his attorney duly authorized in writing, with such signature
guaranteed by an institution which is a member of one of the following
recognized Signature Guaranty Programs: (i) The Securities Transfer Agent
Medallion Program (STAMP); (ii)The New York Stock Exchange Medallion Program
(MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) in such other
guarantee program acceptable to the Indenture Trustee, and (b) such other
documents as the Indenture Trustee may require, and thereupon one or more new
Class A - [ ] Notes of Minimum Denominations and in the same aggregate principal
amount will be issued to the designated transferee or transferees. No service
charge will be charged for any registration of transfer or
8
<PAGE>
exchange of this Class A - [ ] Note, but the transferor may be required to pay a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any such registration of transfer or exchange, other than
exchanges pursuant to Section 2.04 or 9.06 of the Indenture not involving any
transfer.
Each Note holder, by acceptance of a Note, covenants and agrees that
no recourse may be taken, directly or indirectly, with respect to the
obligations of the Note Issuer or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Delaware Trustee in their
individual capacity, (ii) any owner of a beneficial interest in the Note Issuer
or (iii) any partner, owner, beneficiary, agent, officer, director or employee
of the Indenture Trustee or the Delaware Trustee in their individual capacity,
any holder of a beneficial interest in the Note Issuer, the Delaware Trustee or
the Indenture Trustee or of any successor or assign of the Indenture Trustee or
the Delaware Trustee in their individual capacity, except as any such Person may
have expressly agreed (it being understood that the Indenture Trustee and the
Delaware Trustee have no such obligations in their respective individual
capacities).
Prior to the due presentment for registration of transfer of this
Class A - [ ] Note, the Note Issuer, the Indenture Trustee and any agent of the
Note Issuer or the Indenture Trustee may treat the Person in whose name this
Class A - [ ] Note is registered (as of the day of determination) as the owner
hereof for the purpose of receiving payments of principal of and premium, if
any, and interest on this Class A - [ ] Note and for all other purposes
whatsoever, whether or not this Class A - [ ] Note be overdue, and neither the
Note Issuer, the Indenture Trustee nor any such agent shall be affected by
notice to the contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Note Issuer and the rights of the Holders of the Notes under the Indenture at
any time by the Note Issuer with the consent of the Holders of Notes
representing a majority of the Outstanding Amount of all Notes at the time
outstanding of each Series or Class to be affected. The Indenture also contains
provisions permitting the Holders of Notes representing specified percentages of
the outstanding Amount of the Notes of all Series, on behalf of the Holders of
all the Notes, to waive compliance by the Note Issuer with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Class A - [ ]
Note (or any one of more Predecessor Notes) shall be conclusive and binding upon
such Holder and upon all future Holders of this Class A - [ ] Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Class A - [ ] Note. The Indenture also permits the Indenture Trustee to amend
or waive certain terms and conditions set forth in the Indenture without the
consent of Holders of the Notes issued thereunder.
The term "Note Issuer" as used in this Class A - [ ] Note includes any
successor to the Note Issuer under the Indenture.
9
<PAGE>
The Note Issuer is permitted by the Indenture, under certain
circumstances, to merge or consolidate, subject to the rights of the Indenture
Trustee and the Holders of Notes under the Indenture.
The Class A - [ ] Notes are issuable only in registered form in
denominations as provided in the Indenture and the related Trustee's Issuance
Certificate or Series Supplement, if any, subject to certain limitations therein
set forth.
This Class A - [ ] Note, the Indenture and the related Trustee's
Issuance Certificate or Series Supplement, if any, shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Indenture and no provision of this Class A
- - [ ] Note or of the Indenture shall alter or impair the obligation of the Note
Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Class A - [ ] Note at the times, place, and rate, and in the
coin or currency-herein prescribed.
The Holder of this Class A - [ ] Note by the acceptance hereof agrees
that, notwithstanding any provision of the Indenture or the related Trustee's
Issuance Certificate or Series Supplement, if any, to the contrary, the Holder
shall have no recourse against the Note Issuer, but shall look only to the Note
Collateral, with respect to any amounts due to the Holder under this Class A -
[ ] Note.
The Note Issuer and the Indenture Trustee, by entering into this
Indenture, and the Holders and any Persons holding a beneficial interest in any
Class-A [ ] Note, by acquiring any Class-A [ ] Note or interest therein, (i)
express their intention that the Class-A [ ] Notes qualify under applicable tax
law as indebtedness of Illinois Power secured by the Note Collateral and (ii)
unless otherwise required by appropriate taxing authorities, agree to treat the
Class-A [ ] Notes as indebtedness of Illinois Power secured by the Note
Collateral for the purpose of federal income, state and local income and
franchise taxes, and any other taxes imposed upon, measured by or based upon
gross or net income.
10
<PAGE>
ASSIGNMENT(2)
Social Security or taxpayer I.D. or other identifying number of
assignee ___________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
_______________________________________________________________________
(name and address of assignee)
the within Class A - [ ] Note and all rights thereunder, and hereby irrevocably
constitutes and appoints ________________, attorney, to transfer said Class A -
[ ] Note on the books kept for registration thereof; with full power of
substitution in the premises.
Dated:
----------------------------- -------------------------------
Signature Guaranteed:
----------------------------- -------------------------------
- ---------------
(2)NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF
THE REGISTERED OWNERS AS IT APPEARS ON THE FACE OF THE WITHING CLASS A -/ / NOTE
IN EVERY PARTICULAR, WITHOUT ALTERATION, ENLARGEMENT OR ANY CHANGE WHATSOEVER.
11
<PAGE>
EXHIBIT D
SERIES SUPPLEMENT dated as of___, 199 ____ (this "Supplement"), by and
between Illinois Power Special Purpose Trust, a business trust created
under the laws as the State of Delaware (the "Note Issuer"), and,
Harris Trust and Savings Bank, a bank organized under the laws of the
United States of America (the "Indenture Trustee"), as Indenture
Trustee under the Indenture dated as of [_______________], 1998,
between the Note Issuer and the Indenture Trustee (the "Indenture").
PRELIMINARY STATEMENT
Section 9.01 of the Indenture provides, among other things, that the
Note Issuer and the Indenture Trustee may at any time and from time to time
enter into one or more indentures supplemental to the Indenture for the purposes
of authorizing the issuance by the Note Issuer of a Series of Notes and
specifying the terms thereof. The Note Issuer has duly authorized the creation
of a Series of Notes with an initial aggregate principal amount of $
[___________] to be known as the Note Issuer's Notes, Series 199 [ ]- [ ] (the
"Series 199 [ ] - [ ] Notes"), and the Note Issuer and the Indenture Trustee are
executing and delivering this Supplement in order to provide for the Series 199
[ ] - [ ] Notes.
All terms used in this Supplement that are defined in the Indenture,
either directly or by reference therein, have the meanings assigned to them
therein, except to the extent such terms are defined or modified in this
Supplement or the context clearly requires otherwise. In the event that any term
or provision contained herein shall conflict with or be inconsistent with any
term or provision contained in the Indenture, the terms and provisions of this
Supplement shall govern.
SECTION 1. DESIGNATION. The Series 199 [ ] - [ ] Notes shall be
designated generally as the Note Issuer's Notes, Series 199 [ ] and further
denominated as Classes [ ] through [ ].
SECTION 2. INITIAL PRINCIPAL AMOUNT; NOTE INTEREST RATE: SCHEDULED
MATURITY DATE; FINAL MATURITY DATE. The Notes of each Class of the Series 199 [
] - [ ] shall have the initial principal amount, bear interest at the rates per
annum and shall have Scheduled Maturity Dates and Final Maturity Dates as set
forth below:
<TABLE>
<CAPTION>
INITIAL
PRINCIPAL INTEREST SCHEDULED FINAL
CLASS AMOUNT RATE MATURITY DATE DATE MATURITY
--------- --------- -------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
The Note Interest Rate shall be computed on the basis of a 360-day year of
twelve 30-day months.
SECTION 3. AUTHENTICATION DATE; PAYMENT DATES; EXPECTED
AMORTIZATION SCHEDULE FOR PRINCIPAL: QUARTERLY INTEREST; REQUIRED
OVERCOLLATERALIZATION LEVEL; NO PREMIUM.
(a) AUTHENTICATION DATE. The Series 199 [ ]- [ ] Notes that are
authenticated and delivered by the Indenture Trustee to or upon the order of the
Note Issuer on [ ], 199 [ ] (the "Series Issuance Date") shall have as their
date of authentication [____________], 199 [ ].
(b) PAYMENT DATES. The Payment Dates for the Series 199 [] - [
]Notes are [March 15, June 15, September 15 and December 15] of each year or, if
any such date is not a Business Day, the next succeeding Business Day,
commencing on [ ]and continuing until the earlier of repayment of the Series 199
[ ] - [ ]Notes in full and the Final Maturity Date for the Series 199[ ]-[ ]
Notes.
(c) EXPECTED AMORTIZATION SCHEDULE FOR PRINCIPAL. Unless an Event of
Default shall have occurred and be continuing on each Payment Date, the
Indenture Trustee shall distribute to the Holders of record as of the related
Record Date amounts payable pursuant to Section 8.02(d)(vii) of the Indenture as
principal, in the following order and priority: [(1) to the holders of the Class
A-1 Notes, until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; (2) to the holders of the Class A-2 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero; (3)
to the holders of the Class A-3 Notes, until the Outstanding Amount of such
Class of Notes thereof has been reduced to zero; (4) to the holders of the Class
A-4 Notes, until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; (5) to the holders of the Class A-S Notes until the Outstanding
Amount of such Class of Notes thereof has been reduced to zero; (6) to the
holders of the Class A-6 Notes, until the Outstanding Amount of such Class of
Notes thereof has been reduced to zero; (7) to the holders of the Class A-7
Notes until the Outstanding Amount of such Class of Notes thereof has been
reduced to zero; and (8) to the holders of the Class A-8 Notes, until the
Outstanding Amount of such Class of Notes thereof has been reduced to zero;]
PROVIDED, HOWEVER, that in no event shall a principal payment pursuant to this
Section 3(c) on any Class on a Payment Date be greater than the amount necessary
to reduce the Outstanding Amount of such Class of Notes below the amount
specified in the Expected Amortization Schedule which is attached as Schedule A
hereto for such Class and Payment Date.
(d) QUARTERLY INTEREST. [Quarterly] Interest will be payable on each
Class of the Series 199 [ ]- [ ]Notes on each Payment Date in an equal amount to
[one-fourth] of the product of (i) the applicable Note Interest Rate and (ii)
the Outstanding Amount of the related Class of Notes as of the close of business
on the preceding Payment Date after giving effect to all payments of principal
made to the holders of the related Class of Series 199 [ ] - [ ]Notes on such
preceding
2
<PAGE>
Payment Date; PROVIDED, HOWEVER, that with respect to the initial Payment Date,
or, if no payment has yet been made, interest on the outstanding principal
balance will accrue from and including the Series Issuance Date to, but
excluding, the following Payment Date.
(e) REQUIRED OVERCOLLATERALIZATION LEVEL. The Required
Overcollateralization Level for any Payment Date shall be as set forth in
Schedule B hereto.
(f) NO PREMIUM, No premium will be payable in connection with any
optional redemption of the Series 199 [ ] - [ ]Notes.
SECTION 4. MINIMUM DENOMINATIONS. The Series 199 [ ] - [ ] Notes
shall be issuable in the Minimum Denomination and integral multiples thereof.
SECTION 5. CERTAIN DEFINED TERMS. Article One of the Indenture
provides that the meanings of certain defined terms used in the Indenture shall,
when applied to the Notes of a particular Series, be as defined in Article One
but with such additional provisions as are specified in the related Supplement.
Additionally, Article Two of the Indenture provides that with respect to a
particular Series of Notes, certain terms will have the meanings specified in
the related Supplement. With respect to the Series 199 [ ]- [ ] Notes, the
following definitions shall apply:
"MINIMUM DENOMINATION" shall mean $1,000.
"NOTE INTEREST RATE" has the meaning set forth in Section 2 of this
Supplement.
"PAYMENT DATE" has the meaning set forth in Section 3(b) of this
Supplement.
"QUARTERLY INTEREST" has the meaning set forth in Section 3(d) of this
Supplement.
"SERIES ISSUANCE DATE" has the meaning set forth in Section 3(a) of
this Supplement.
SECTION 6. DELIVERY AND PAYMENT FOR THE SERIES 199[ ] - [ ] NOTES;
FORM OF THE SERIES 199[] - [ ] NOTES. The Indenture Trustee shall deliver the
Series 199[ ] - [ ] Notes to or upon order of the Note Issuer when authenticated
in accordance with Section 2.03 of the Indenture. The Series 199[ ] - [ ] Notes
of each Class shall be in the form of Exhibits [A-1 through A-8] hereto.
SECTION 7. RATIFICATION OF AGREEMENT. As supplemented by this
Supplement, the Indenture is in all respects ratified and confirmed and the
Indenture, as so supplemented by this Supplement, shall be read, taken, and
construed as one and the same instrument.
3
<PAGE>
SECTION 8. COUNTERPARTS. This Supplement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
SECTION 9. GOVERNING LAW. This Supplement shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 10. TRUST OBLIGATION. No recourse may be taken directly or
indirectly, with respect to the obligations of the Note Issuer or the Indenture
Trustee on the Notes or under this Supplement or any certificate or other
writing delivered in connection herewith or therewith, against (i) the Indenture
Trustee or the Delaware Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Note Issuer (including the Grantee or Illinois Power)
or (iii) any partner, owner, beneficiary, agent, officer, director, employee or
agent of the Indenture Trustee or the Delaware Trustee in its individual
capacity, any holder of a beneficial interest in the Note Issuer or the
Indenture Trustee or of any successor or assign of any of them in their
respective individual or corporate capacities, except as any such Person may
have expressly agreed (it being understood that the Indenture Trustee, the
Delaware Trustee, the Grantee and Illinois Power have any such obligations in
their respective individual or corporate capacities).
IN WITNESS WHEREOF, the Note Issuer and the Indenture Trustee have
caused this Supplement to be duly executed by their respective officers
thereunto duly authorized as of the first day of the month and year first above
written.
ILLINOIS POWER SPECIAL PURPOSE
TRUST, as Note Issuer,
By: FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, not in its
individual capacity but solely as Delaware
Trustee
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
4
<PAGE>
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely as
Indenture Trustee
By:
----------------------------------
Name:
--------------------------------
Title:
------------------------------
5
<PAGE>
SCHEDULE A
EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING PRINCIPAL BALANCE
<TABLE>
<CAPTION>
DATE CLASS CLASS CLASS CLASS CLASS
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Series Issuance $ $ $ $ $
DATE
, 199
, 199
, 199
, 199
[Etc.]
</TABLE>
<PAGE>
SCHEDULE B
REQUIRED OVERCOLLATERALIZATION LEVEL SCHEDULE
<TABLE>
<CAPTION>
REQUIRED
PAYMENT DATE OVERCOLLATERALIZATION LEVEL
<S> <C>
, 199 $
-------------
, 199 $
-------------
, 199 $
-------------
[Etc.] $
</TABLE>
<PAGE>
APPENDIX A
DEFINITIONS
This is APPENDIX A to the Indenture.
A. DEFINED TERMS. As used in the Grant Agreement, the Sale
Agreement, the Indenture, the Trust Agreement, the Servicing Agreement,
Trustee's Issuance Certificate, Series Supplement or any other Basic Document as
hereinafter defined, as the case may be (unless the context requires a different
meaning), the following terms have the following meanings:
"1998 FUNDING ORDER" means the Final Transitional Funding Order dated
__________, 1998 issued by the ICC pursuant to the Funding Law, Docket No.
98-0488.
"1998 INITIAL TARIFF" means the initial Tariff filed with the ICC to
evidence the IFCs pursuant to the 1998 Funding Order.
"1998 TRANSITION PROPERTY" means all ITP created in favor of the
Grantee pursuant to the 1998 Funding Order.
"ACT" is defined in Section 11.03 of the Indenture.
"ACTUAL IFC COLLECTIONS" means, with respect to any Collection Period,
IFC Collections actually received by the Servicer with respect to such
Collection Period.
"ADJUSTMENT" means each adjustment to the IFCs made pursuant to the
terms of any Funding Order in accordance with Section 4.01(b)(i) of the
Servicing Agreement.
"ADJUSTMENT DATE" shall mean February 1 [and August 1] of each year,
commencing on February 1, 2000 [August 1, 1999].
"ADMINISTRATION AGREEMENT" means the Administration Agreement dated as
of [ ], 1998, among Illinois Power, the Grantee and the Note
Issuer, as the same may be amended, supplemented or otherwise modified from time
to time.
"ADMINISTRATION FEE" means those amounts invoiced by Illinois Power to
Grantee for services and facilities provided by Illinois Power, as
Administrator, to Grantee, in accordance with the Administration Agreement.
"ADMINISTRATOR" means Illinois Power and any successor in interest to
the extent permitted under the Administration Agreement.
<PAGE>
"AFFILIATE" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such
specified Person. For the purposes of this definition, "control" when used
with respect to any specified Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"AGENCY OFFICE" means the office of the Note Issuer maintained
pursuant to Section 3.02 of the Indenture.
"AGGREGATE REMITTANCE AMOUNT" has the meaning set forth in ANNEX I to
the Servicing Agreement.
"ALLOCABLE IFC REVENUE AMOUNTS" means, (i) with respect to any
lump-sum payments of transition charges under Section 16-108(h) of the Public
Utilities Act or (ii) with respect to any revenues derived from condemnation
proceedings, or FERC stranded cost recoveries or any other amounts which reflect
compensation for lost revenues which would otherwise have been attributable to
Applicable Rates, the allocable amounts of such transition charges or other
revenues which are deemed to be proceeds of the IFCs in accordance with the
terms of the Funding Order and which are to be set aside for the benefit of the
Note Issuer, in each case as calculated pursuant to Section 6(f) of Annex I to
the Servicing Agreement.
"AMENDATORY ACT" means Illinois Public Act 90-561, effective December
16, 1997, including without limitation, 220 ILCS 5/16-101 ET SEQ., 220 ILCS
5/17-101 ET SEQ. and 220 ILCS 5/18-101 ET SEQ., as amended from time to time.
"AMENDATORY TARIFF" means a tariff, tariff revision or notice filing
filed with the ICC in respect of an Adjustment[, substantially in the form of
EXHIBIT C to the Servicing Agreement].
"ANNUAL ACCOUNTANT'S REPORT" is defined in Section 3.04 of the
Servicing Agreement.
"APPLICABLE ARES" means, with respect to each Customer taking service
from an ARES, the ARES, if any, providing consolidated billing to that Customer
which includes billing of IFCs.
"APPLICABLE PERIOD" means the period commencing on an Adjustment Date
and ending on the day immediately preceding the next Adjustment Date.
"APPLICABLE RATES" means any tariffed charges owed to Illinois Power
including, without limitation, charges for base rates and delivery services or
transition charges (including lump-sum payments for such charges) or other rates
for tariffed services; PROVIDED, HOWEVER, that Applicable Rates shall not
include late charges or charges set forth in those tariffs which are filed
specifically and primarily to collect amounts related to decommissioning
expense, taxes, municipal infrastructure maintenance fees, franchise fees or
other franchise cost additions, costs imposed by
2
<PAGE>
local governmental units which are allocated and charged to customers within
the boundaries of such governmental units' jurisdiction, renewable energy
resources and coal technology development assistance charges, energy
assistance charges for the Supplemental Low-Income Energy Assistance Fund,
reimbursement for the costs of optional or non-standard facilities and
reimbursement for the costs of optional or non-standard meters, or monies
that will be paid to third parties (after deduction of allowable
administrative, servicing or similar fees) and PROVIDED FURTHER that to the
extent any rate reflects compensation for power or energy supplied to
customers by a person or entity other than the Servicer, the IFC will be
deducted and stated separately from such rate without giving effect to such
compensation.
"APPLICATION" means the Application for Transitional Funding Order and
Petition filed by Illinois Power with the ICC dated June 24, 1998 pursuant to
Section 18-103 of the Funding Law.
"ARES" means an alternative retail electric supplier as defined in
Section 16-102 of the Public Utilities Act.
"ARES SERVICE AGREEMENT" means an agreement between an ARES and
Illinois Power for the provision of consolidated billing by such ARES to
customers in accordance with ICC Regulations, the terms of any Tariffs and the
terms of any tariffs filed by Illinois Power under Section 16-118(b) of the
Public Utilities Act.
"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
Section 101 ET SEQ.), as amended from time to time.
"BASIC DOCUMENTS" means each Grant Agreement, each Sale Agreement, the
Indenture, the Trust Agreement, the Servicing Agreement, the Administration
Agreement, each Letter of Representations, the Note Depository Agreement, each
Underwriting Agreement and all other documents and certificates delivered in
connection therewith.
"BENEFIT PLAN" means, with respect to any Person, any defined benefit
plan (as defined in Section 3(35) of ERISA) that (a) is or was at any time
during the past six years maintained by such Person or any ERISA Affiliate of
such person, or to which contributions by any such Person are or were at any
time during the past six years required to be made or under which such Person
has or could have any liability or (b) is subject to the provisions of Title IV
of ERISA.
"BILLING PERIOD" means the period created by dividing the calendar
year into twelve consecutive periods of approximately twenty-one (21) Servicer
Business Days each, and represents the period during which the Servicer
typically renders a bill for electric service to each of its customers.
"BILLS" means each of the regular monthly bills, opening bills and
closing bills issued to Customers or ARES by Illinois Power on its own behalf
and in its capacity as Servicer.
3
<PAGE>
"BOOK-ENTRY FORM" means, with respect to any Note or Series of
Notes, that such Note or Series is not certificated and the ownership and
transfers thereof shall be made through the book entries by a Clearing Agency
as described in Section 2.11 of the Indenture and the applicable Trustee's
Issuance Certificate or Series Supplement, if any, pursuant to which such
Note or Series was issued.
"BOOK-ENTRY NOTES" means any Notes issued in Book-Entry Form;
PROVIDED, HOWEVER, that after the occurrence of a condition whereupon book-entry
registration and transfer are no longer permitted and Definitive Notes are to be
issued to the holder of such Notes, such Notes shall no longer be "Book-Entry
Notes".
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which banking institutions or trust companies in Wilmington, Delaware,
Chicago, Illinois, New York, New York or Charlotte, North Carolina or the
Depository Trust Company are authorized or required by law, regulation or
executive order to remain closed.
"BUSINESS TRUST ACT" means the Delaware Business Trust Act, 12 Del.
Code Section 3801 ET SEQ.
"CAPITAL CONTRIBUTION" means the amount of cash retained by the Note
Issuer from proceeds of issuance of the Notes, as specified in the Trust
Agreement.
"CAPITAL SUBACCOUNT" is defined in Section 8.02(a) of the Indenture.
"CERTIFICATE OF COMPLIANCE" means the certificate referred to in
Section 3.03 of the Servicing Agreement and substantially in the form of EXHIBIT
B attached to the Servicing Agreement.
"CERTIFICATE OF FORMATION" means the Certificate of Formation of the
Grantee filed as of August __, 1998 pursuant to, and in accordance with, the
Delaware Limited Liability Company Act, 6 Del. Code Section 18-101 ET SEQ.
"CERTIFICATE OF TRUST" means the Certificate of Trust filed with the
Secretary of State pursuant to which the Trust was established, substantially in
the form of EXHIBIT A to the Trust Agreement.
"CLAIM" means a "claim" as defined in Section 101(5) of the Bankruptcy
Code.
"CLASS" means, with respect to any Series of Notes, any one of the
classes of Notes of that Series.
"CLEARING AGENCY" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act, as amended.
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"CLEARING AGENCY PARTICIPANT" means a securities broker, dealer, bank,
trust company, clearing corporation or other financial institution or other
Person for whom from time to time a Clearing Agency effects book entry transfers
and pledges of securities deposited with the Clearing Agency.
"CLOSING DATE" means [ ], 1998.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and Treasury Regulations promulgated thereunder.
"COLLECTION ACCOUNT" means the account established and maintained by
the Note Trustee in accordance with Section 8.02(a) of the Indenture and any
subaccounts contained therein.
"COLLECTION PERIOD" means any period commencing on the first Servicer
Business Day of any calendar month [Billing Period] and ending on the last
Servicer Business Day of such month [Billing Period].
"CONSOLIDATED ARES BILLING" has the meaning set forth in ANNEX I to
the Servicing Agreement.
"CORPORATE TRUST OFFICE" means with respect to the Indenture Trustee
or the Delaware Trustee, the principal office at which at any particular time
the corporate trust business of the Indenture Trustee or the Delaware Trustee,
respectively, shall be administered, which offices at the Closing Date are
located, in the case of the Indenture Trustee, at 311 West Monroe Street, 12th
Floor, Chicago, Illinois 60606, and in the case of the Delaware Trustee, at One
Rodney Square, 920 King Street, 1st Floor, Wilmington, Delaware 19801,
Attention: Corporate Trust Administrator or at such other address as the
Indenture Trustee or Delaware Trustee may designate from time to time by notice
to the Holders and the Note Issuer, or the principal corporate trust office of
any successor Indenture Trustee or Delaware Trustee (the addresses of which the
successor Indenture Trustee or Delaware Trustee will notify the Holders and the
Note Issuer).
"COVENANT DEFEASANCE OPTION" is defined in Section 4.01(b) of the
Indenture.
"CUSTOMERS" means all existing and future retail customers or classes
of retail customers of Illinois Power or other Persons or group of Persons
obligated from time to time to pay Illinois Power or any successor "Applicable
Rates," and all other Persons obligated to pay IFCs pursuant to the 1998 Funding
Order or any Subsequent Funding Order, as applicable, and, including, without
limitation, any Person obligated (or who would but for the contract described
herein, be obligated) to pay Applicable Rates who enters into a contract with
Illinois Power which provides that such Person will pay an amount each billing
period to the Grantee or its assigns, or to Illinois Power as Servicer, as
applicable, equal to the amount of IFCs that would have been billed if the
Servicer provided under such contract were subject to Applicable Rates.
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"DEBT SERVICE BILLING REQUIREMENT" means, for any Applicable Period,
the aggregate amount of IFCs calculated by the Servicer as necessary to be
billed during such period in order to collect the Required Debt Service on or
before the end of the Applicable Period.
"DEFAULT" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default as defined in Section 5.01 of the
Indenture.
"DEFINITIVE NOTES" means Notes issued in definitive form in accordance
with Section 2.13 of the Indenture.
"DELAWARE TRUSTEE" means the Person acting as Delaware Trustee under
the Trust Agreement.
"DTC" means the Depository Trust Company or any successor thereto.
"DUFF & PHELPS" means Duff & Phelps Credit Rating Co. or any successor
thereto.
"ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated account with
an Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any
of the securities of such depository institution shall have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade.
"ELIGIBLE INSTITUTION" means (a) the corporate trust department of the
Indenture Trustee; PROVIDED that an account with the Indenture Trustee will only
be an Eligible Deposit Account if it is a segregated trust account or (b) a
depository institution organized under the laws of the United States of America
or any State (or any domestic branch of a foreign bank), which (i) has either
(A) a long-term unsecured debt rating of AAA by Standard & Poor's and A-2 by
Moody's or (B) a certificate of deposit rating of A-1+ by Standard & Poor's and
P-1 by Moody's, or any other long-term, short-term or certificate of deposit
rating acceptable to the Rating Agencies and (ii) whose deposits are insured by
the FDIC. If so qualified under clause (b) above, the Indenture Trustee may be
considered an Eligible Institution for the purposes of clause (a) of this
definition.
"ELIGIBLE INVESTMENTS" mean instruments or investment property which
evidence:
(a) direct obligations of; and obligations fully and
unconditionally guaranteed as to timely payment by, the United States
of America;
(b) demand deposits, time deposits, certificates of deposit or
bankers' acceptances of depository institutions meeting the
requirements of clause (b) of the definition of Eligible Institution;
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(c) commercial paper (other than commercial paper of Illinois
Power) having, at the time of the investment or contractual commitment
to invest therein, a rating from each of the Rating Agencies from
which a rating is available in the highest investment category granted
thereby;
(d) investments in money market funds having a rating from each
of the Rating Agencies from which a rating is available in the highest
investment category granted thereby (including funds for which the
Indenture Trustee or any of its Affiliates is investment manager or
advisor);
(e) repurchase obligations with respect to any security that is
a direct obligation of; or fully guaranteed by, the United States of
America or any agency or instrumentality thereof the obligations of
which are backed by the full faith and credit of the United States of
America, in either case entered into with depository institutions
meeting the requirements of clause (b) of the definition of Eligible
Institutions; and
(f) any other investment permitted by each of the Rating
Agencies;
in each case, other than as permitted by the Rating Agencies, maturing not later
than the Business Day immediately preceding the next Payment Date.
Notwithstanding the foregoing, (x) Eligible Investments in the Collection
Account may mature not later than the Business Day immediately preceding the
next Payment Date, and (y) subject to the conditions and limitations set forth
in Section 8.03 of the Indenture, funds in the Collection Account may be
invested in securities that will not mature prior to each Payment Date;
PROVIDED, HOWEVER, that any securities or investments which mature in 32 days or
more shall not be an "Eligible Investment" unless the issuer thereof has a
long-term unsecured debt rating of at least Al from Moody's or A+ from S&P.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EVENT OF DEFAULT" is defined in Section 5.01 of the Indenture.
"EXPECTED AMORTIZATION SCHEDULE" means SCHEDULE 4.01(a) to the
Servicing Agreement, as the same may be amended from time to time.
"EXPECTED MATURITY DATE" means, with respect to any Series or Class of
Notes, the Expected Maturity Date therefor, as specified in the related
Trustee's Issuance Certificate or Series Supplement, if any.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereto.
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"FERC" means the Federal Energy Regulatory Commission or any successor
thereto.
"FINAL" means, with respect to any Funding Order, that such Funding
Order has become final and that the time for filing an appeal therefrom has
expired.
"FINAL MATURITY DATE" means, with respect to any Series or Class of
Notes, the Final Maturity Date therefor, as specified in the related Trustee's
Issuance Certificate or Series Supplement, if any.
"FINAL PAYMENT DATE" means, with respect to any Series or Class of
Notes, the Expected Maturity Date thereof.
"FITCH" means Fitch Investors Service, L.P. or any successor thereto.
"FLOATING RATE NOTES" means any Series or Class of Notes that accrue
interest at a variable rate based on the index described in the related
Trustee's Issuance Certificate or Series Supplement, if any.
"FUNDING LAW" means the Electric Utility Transitional Funding Law of
1997, 220 ILCS 5/18-101 ET SEQ.
"FUNDING ORDER" means, as the context may require, (i) the 1998
Funding Order and/or (ii) any Subsequent Funding Order.
"GENERAL SUBACCOUNT" is defined in Section 8.02(a) of the Indenture.
"GLOBAL NOTE" means a Note evidencing all or any part of a Series of
Notes to be issued to the Holders thereof in Book-Entry Form, which Global Note
shall be issued to the Clearing Agency, or its nominee, for such Series, in
accordance with Section 2.11 of the Indenture and the applicable Trustee's
Issuance Certificate or Series Supplement, if any, pursuant to which the Note is
issued.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative function of
government.
"GRANT" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, grant, transfer, create, and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to the Indenture. A Grant of the Note Collateral or of any other
agreement or instrument included therein shall include all rights, powers and
options (but none of the obligations) of the Granting party thereunder,
including the immediate and continuing right to claim for, collect, receive and
give receipt for payments in respect of the Note Collateral and all other moneys
payable thereunder, to give and receive notices and other communications, to
make waivers or other agreements, to exercise all rights and options, to bring
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Proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"GRANT AGREEMENT" means that certain Agreement Relating to Grant of
Intangible Transition Property dated as of [ ],
1998 between Illinois Power and the Grantee, as the same may be amended,
supplemented or otherwise modified from time to time.
"GRANTEE" means Illinois Power Securitization Limited Liability
Company, a Delaware limited liability company, and any successor in interest to
the extent permitted under the Sale Agreement and the other Basic Documents.
"HOLDER" means the Person in whose name a Note is registered on the
Note Register.
"ICC" means the Illinois Commerce Commission, or any successor
thereto.
"ICC REGULATIONS" means the regulations, including proposed, emergency
or temporary regulations, promulgated under the Public Utilities Act.
"IFC" means the instrument funding charge as defined in Section 18-102
of the Funding Law (expressed in cents per kilowatt-hour) and as authorized by a
Funding Order, including, without limitation, each "IFC" or equivalent amount
which Customers have agreed to pay pursuant to a contract under which Illinois
Power agrees to provide non-tariffed electrical service and which are deemed to
be proceeds of the Intangible Transition Property in accordance with the terms
of the applicable Funding Order.
"IFC COLLECTIONS" means IFCs received by the Servicer which are
remitted to the Collection Account.
"IFC PAYMENTS" means the payments made by Customers based on the IFCs.
"ILLINOIS POWER" means Illinois Power Company, an Illinois
corporation, and any successor in interest to the extent permitted under the
Grant Agreement.
"INDENTURE" means the Indenture dated as of [
], 1998 between the Note Issuer and the Indenture Trustee as originally
executed and, as from time to time supplemented or amended by one or more
Trustee's Issuance Certificate or indentures supplemental thereto entered into
pursuant to the applicable provisions of the Indenture, as so supplemented or
amended, or both, and shall include the forms and terms of the Notes established
thereunder.
"INDENTURE TRUSTEE" means Harris Trust and Savings Bank, an Illinois
banking corporation, as Indenture Trustee under the Indenture, or any successor
Indenture Trustee under the Indenture.
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"INDEPENDENT" means, when used with respect to any specified
Person, that the Person (a) is in fact independent of the Note Issuer, any
other obligor on the Notes, the Grantee, the Servicer and any Affiliate of
any of the foregoing Persons, (b) does not have any direct financial interest
or any material indirect financial interest in the Note Issuer, any such
other obligor, the Grantee, the Servicer or any Affiliate of any of the
foregoing Persons and (c) is not connected with the Note Issuer, any such
other obligor, the Grantee, the Servicer or any Affiliate of any of the
foregoing Persons as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
"INDEPENDENT CERTIFICATE" means a certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.01 of the
Indenture, made by an Independent appraiser or other expert appointed by an
Issuer Order and consented to by the Indenture Trustee, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in the Indenture and that the signer is Independent within the meaning thereof.
"INDIRECT PARTICIPANT" means a securities broker, dealer, bank, trust
company or other Person that clears through or maintains a custodial
relationship with a Clearing Agency Participant, either directly or indirectly.
"INSOLVENCY EVENT" means, with respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or (b)
the commencement by such Person of a voluntary case under any applicable Federal
or state bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by such Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person of any general
assignment for the benefit of creditors, or the failure by such Person generally
to pay its debts as such debts become due, or the taking of action by such
Person in furtherance of any of the foregoing.
"INSOLVENCY LAW" means any applicable Federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect.
"INTANGIBLE TRANSITION PROPERTY" or "ITP" means all intangible
transition property as defined in Section 18-102 of the Funding Law which has
been created in favor of the Grantee pursuant to a Funding Order and assigned to
the Note Issuer pursuant to a Sale Agreement, including the 1998 Transition
Property and any Subsequent Transition Property, and, including, without
limitation, all Allocable IFC Revenue Amounts.
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"INVESTMENT EARNINGS" means investment earnings on funds deposited in
the Collection Account net of losses and investment expenses.
"ISSUER ORDER" and "ISSUER REQUEST" mean a written order or request
signed in the name of the Note Issuer by any one of its Responsible Officers and
delivered to the Indenture Trustee.
"LEGAL DEFEASANCE OPTION" is defined in Section 4.01(b) of the
Indenture.
"LETTER OF REPRESENTATIONS" means any applicable agreement among the
Note Issuer, the Indenture Trustee, the Administrator and the applicable
Clearing Agency, with respect to such Clearing Agency's rights and obligations
(in its capacity as a Clearing Agency) with respect to any Book-Entry Notes, as
the same may be amended, supplemented, restated or otherwise modified from time
to time.
"LIEN" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind other than tax liens, mechanics' liens and any liens
that attach by operation of law.
"MINIMUM DENOMINATION" means, with respect to any Note, the minimum
denomination therefor specified in the applicable Trustee's Issuance Certificate
or Series Supplement, if any, which minimum denomination shall be not less than
[$1,000] and, except as otherwise provided in such Trustee's Issuance
Certificate or Series Supplement, if any, integral multiples thereof.
"MONTHLY SERVICER'S CERTIFICATE" means a certificate, substantially in
the form of EXHIBIT A to the Servicing Agreement, completed and executed by a
Responsible Officer of the Servicer pursuant to Section 3 .01(b)(i) of the
Servicing Agreement.
"MOODY'S" means Moody's Investors Service Inc. or any successor
thereto.
"NOTE COLLATERAL" has the meaning specified in the Granting Clause of
the Indenture.
"NOTE DEPOSITORY" means the depositary from time to time selected by
the Indenture Trustee on behalf of the Note Issuer in whose name the Notes are
registered prior to the issuance of Definitive Notes. The initial Note
Depository shall be Cede & Co., the nominee of the initial Clearing Agency.
"NOTE DEPOSITORY AGREEMENT" means the agreement, dated as of the
Closing Date, among the Note Issuer, the Indenture Trustee and the DTC, as the
initial Clearing Agency relating to the Notes, as the same may be amended
supplemented or otherwise modified from time to time.
"NOTE INTEREST RATE" means, with respect to any Series or Class of
Notes, the rate at which interest accrues on the Notes of such Series or Class,
as specified in the related Trustee's Issuance Certificate or Series Supplement,
if any.
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"NOTE ISSUER" means Illinois Power Special Purpose Trust, a
Delaware business trust named as such in the Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
"NOTE OWNER" means with respect to a Book-Entry Note, the Person who
is the beneficial owner of such Book-Entry Note, as reflected on the books of
the Clearing Agency, or on the books of a Person maintaining an account with
such Clearing Agency (directly as a Clearing Agency Participant or as an
Indirect Participant, in each case in accordance with the rules of such Clearing
Agency).
"NOTE REGISTER" means the register maintained pursuant to Section 2.05
of the Indenture, providing for the registration of the Notes and transfers and
exchanges thereof.
"NOTE REGISTRAR" means the registrar at any time of the Note Register,
appointed pursuant to Section 2.05 of the Indenture.
"NOTES" means one or more Series of Notes authorized by the 1998
Funding Order and any Subsequent Funding Order and issued under the Indenture.
"OFFICER'S CERTIFICATE" means a certificate signed by a Responsible
Officer of the Note Issuer under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01 of the Indenture,
and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in the Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Responsible Officer of the party delivering such certificate.
"OPERATING AGREEMENT" means the Limited Liability Company Agreement of
the Grantee dated as of [ ], 1998 between the
Grantee and Illinois Power.
"OPERATING EXPENSES" means all fees, costs and expenses of the Note
Issuer, including the Servicing Fee, the Administration Fee, any fees, costs and
expenses payable or reimbursable by the Note Issuer to the Administrator and
legal and accounting fees, costs and expenses of the Note Issuer and the
Grantee.
"OPINION OF COUNSEL" means one or more written opinions of counsel who
may, except as otherwise expressly provided in the Basic Documents, be employees
of or counsel to the party providing such opinion of counsel, which counsel
shall be acceptable to the party receiving such opinion of counsel, and shall be
in form and substance acceptable to such party.
"OPTIONAL REDEMPTION DATE" means, with respect to any Series of Notes,
the Payment Date specified for the redemption of the Notes of such Series
pursuant to Section 10.01 of the Indenture.
"OPTIONAL REDEMPTION PRICE" is defined in Section 10.01 of the
Indenture.
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"OUTSTANDING" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture except:
(a) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(b) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Indenture
Trustee or any Paying Agent in trust for the Holders of such Notes
(PROVIDED, HOWEVER, that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or
provision therefor, satisfactory to the Indenture Trustee, made); and
(c) Notes in exchange for or in lieu of other Notes which have
been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Indenture Trustee is presented that any such
Notes are held by a bona fide purchaser;
PROVIDED that in determining whether the Holders of the requisite Outstanding
Amount of the Notes or any Series or Class thereof have given any request,
demand, authorization, direction, notice, consent or waiver hereunder or under
any Basic Document, Notes owned by the Note Issuer, any other obligor upon the
Notes, the Grantee or any Affiliate of any of the foregoing Persons shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Indenture Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only Notes
that the Indenture Trustee actually knows to be so owned shall be so
disregarded. Notes so owned that have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Indenture Trustee the pledgee's right so to act with respect to such Notes and
that the pledgee is not the Note Issuer, any other obligor upon the Notes, the
Grantee or any Affiliate of any of the foregoing Persons.
"OUTSTANDING AMOUNT" means the aggregate principal amount of all Notes
or, if the context requires, all Notes of a Series or Class Outstanding at the
date of determination.
"OVERCOLLATERALIZATION SUBACCOUNT" is defined in Section 8.02(a) of
the Indenture.
"PAYING AGENT" means with respect to the Indenture, the Indenture
Trustee or any other Person that meets the eligibility standards for the
Indenture Trustee specified in Section 6.11 of the Indenture and is authorized
by the Note Issuer to direct the Servicer to make the payments to and
distributions from the Collection Account, including payment of principal of or
interest on the Notes on behalf of the Note Issuer.
"PAYMENT DATE" means, with respect to any Series or Class of Notes,
[March 31, June 30, September 30 and December 31] of each year, PROVIDED that if
any such date is not a Business Day, the Payment Date shall be the Business Day
immediately succeeding such date, commencing [June 30, 1999].
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"PERSON" means any individual, corporation, limited liability company,
estate, partnership, joint venture, association, joint stock company, trust
(including any beneficiary thereof), unincorporated organization or government
or any agency or political subdivision thereof.
"PREDECESSOR NOTE" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note, and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.06 of the Indenture in lieu of a
mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Note.
"PRINCIPAL BALANCE" means, as of any Payment Date, the sum of the
outstanding principal amount of each Series of Notes.
"PROCEEDING" means any suit in equity, action at law or other judicial
or administrative proceeding.
"PROJECTED PRINCIPAL BALANCE" means, as of any Payment Date, the sum
of the projected outstanding principal amount of each Series of Notes for such
Payment Date set forth in the Expected Amortization Schedule.
"PUBLIC UTILITIES ACT" means the Illinois Public Utilities Act, 220
ILCS 5/1-101 ET SEQ., as the same may be amended from time to time.
"QUARTERLY INTEREST" means, with respect to any Payment Date and any
Series of Notes, the quarterly interest for such Payment Date and Series as
specified in the related Trustee's Issuance Certificate or Series Supplement, if
any.
"QUARTERLY PRINCIPAL" means, with respect to any Payment Date and any
Series of Notes, the excess, if any, of the Outstanding Amount of such Series of
Notes over the outstanding principal balance specified for such Payment Date on
the applicable Expected Amortization Schedule.
"QUARTERLY SERVICER'S CERTIFICATE" means a certificate, substantially
in the form of EXHIBIT D to the Servicing Agreement, completed and executed by a
Responsible Officer of the Servicer pursuant to Section 4.01(c)(ii) of the
Servicing Agreement.
"RATING AGENCY" means Moody's, Standard & Poor's, Duff & Phelps and
Fitch. If no such organization or successor is any longer in existence, "Rating
Agency" shall be a nationally recognized statistical rating organization or
other comparable Person designated by the Note Issuer, notice of which
designation shall be given to the Indenture Trustee and the Servicer.
"RATING AGENCY CONDITION" means, with respect to any action, that each
Rating Agency shall have been given ten days prior notice thereof and that each
of the Rating Agencies shall have notified the Servicer, the Note Issuer and the
Indenture Trustee in writing that such action
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will not result in a reduction or withdrawal of the then current rating by such
Rating Agency of either any Series or Class of Notes.
"RECONCILIATION PERIOD" means (i) the period commencing on the Closing
Date and ending on December 31, 1999 [June 30, 1999], and (ii) thereafter, as
applicable, either (A) the period commencing on July 1 and ending on December 31
or (B) the period commencing on January 1 and ending on June 30.
"RECORD DATE" means, with respect to a Payment Date or Redemption
Date, in the case of Definitive Notes, the close of business on the last day of
the calendar month preceding the calendar month in which such Payment Date or
Redemption Date occurs, and in the case of Book Entry Notes, one Business Day
prior to the applicable Payment Date or Redemption Date.
"REDEMPTION DATE" means, with respect to any Series or Class of Notes,
the Payment Date specified by the Note Issuer for the redemption of the Notes of
such Series or Class pursuant to Section 10.01 of the Indenture.
"REDEMPTION PAYMENT" means with respect to any Series or Class of
Notes, any payment of principal of and interest on the Notes of such Series or
Class due from the Note Issuer upon the early redemption of such Series or Class
of Notes, other than any such payment due by reason of the occurrence of an
Event of Default with respect to such Series or Class of Notes.
"REDEMPTION PRICE" means with respect to any Series or Class of Notes,
the unpaid principal amount of the Notes of such Series or Class redeemed, plus
accrued and unpaid interest thereon at the interest rate applicable to such
Series or Class to but excluding the Redemption Date.
"REGISTERED HOLDER" means the Person in whose name a Note is
registered on the Note Register on the applicable Record Date.
"REGISTRATION STATEMENT" means the registration statement, Form S-3
file number [ ], filed with the SEC for
registration under the Securities Act relating to the offering and sale of the
Notes, and including all supplements thereto.
"RELATED ASSETS" means all of Grantee's and/or the Note Issuer's
right, title and interest in and to the Grant Agreement, the Sale Agreement, the
Servicing Agreement and all present and future claims, demands, causes and
choses in action in respect of all of the foregoing and all payments on or under
and all proceeds of every kind and nature whatsoever in respect of any or all of
the foregoing, including all proceeds of the conversion, voluntary or
involuntary, into cash or other liquid property, all cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of any and
every kind, and other forms of obligations and receivables, instruments and
other property which in any time constitute all or part of or are included in
the proceeds of any of the foregoing.
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"REMITTANCE DATE" means the tenth day of each calendar month or, if
such day is not a Business Day, the next succeeding Business Day.
"REQUIRED CAPITAL LEVEL" means, with respect to each Series of Notes,
an amount equal to 0.50% of the initial principal amount of such Series,
deposited into the Capital Subaccount by the Trust upon the issuance of such
Series, less $100,000 in the aggregate for all Series of Notes.
"REQUIRED DEBT SERVICE" for any Applicable Period means the total
dollar amount of IFC Collections reasonably calculated by the Servicer in
accordance with SECTION 4.01 of the Servicing Agreement as necessary to be
received during such period (after giving effect to the allocation and
distribution of amounts on deposit in the Reserve Subaccount at the time of
calculation and which are available for payments on the Notes and including any
shortfalls in Required Debt Service for any prior Applicable Period) in order to
ensure that, as of the Payment Date immediately following the end of such
period, (1) all accrued and unpaid interest on the Notes then due shall have
been paid in full, (2) the Principal Balance of the Notes is equal to the
Projected Principal Balance, (3) the balance on deposit in the
Overcollateralization Subaccount equals the aggregate Required
Overcollateralization Level, (4) the balance on deposit in the Capital
Subaccount equals the aggregate Required Capital Level and (5) all other fees
and expenses due and owing and required or allowed to be paid under SECTION 8.02
of the Note Indenture as of such date shall have been paid in full; PROVIDED,
that, with respect to any Adjustment occurring after the last Expected Maturity
Date for any Notes, the Required Debt Service shall be calculated to ensure that
sufficient IFCs will be collected to retire such Notes in full as of the earlier
of (x) the Payment Date preceding the next Adjustment Date and (y) the Final
Maturity Date for such Notes.
"REQUIRED DEPOSIT RATING" means a rating on short-term unsecured debt
obligations of P-1 by Moody's, A-1+ by S&P and, if rated by Fitch, F-1 by Fitch
and if rated by Duff & Phelps, Duff-1+ by Duff & Phelps. Any requirement that
short-term unsecured debt obligations have the "Required Deposit Rating" shall
mean that such short-term unsecured debt obligations have the foregoing required
ratings from each of such rating agencies.
"REQUIRED OVERCOLLATERALIZATION LEVEL" means, as of any Payment Date
with respect to any Series, the amount required to be on deposit in the
Overcollateralization Subaccount as specified in the applicable Trustee's
Issuance Certificate or Series Supplement, if any, but not less than, as of the
Scheduled Maturity Date for such Series, 0.5% of the initial Outstanding amount
thereof.
"REQUIREMENT OF LAW" means any foreign, federal, state or local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Authority or common law.
"RESERVE SUBACCOUNT" is defined in Section 8.02(a) of the Indenture.
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"RESPONSIBLE OFFICER" means with respect to (a) the Note Issuer,
any officer within the Corporate Trust Office of the Delaware Trustee; (b)
with respect to the Indenture Trustee, the Delaware Trustee or other trustee,
any officer within the Corporate Trust Office of such trustee (including, in
the case of (a) and (b) above, the President, any Vice President, Assistant
Vice President, Secretary or Assistant Treasurer or any other officer or
assistant officer of such Person customarily performing functions similar to
those performed by any of the chosen designated officers and also, with
respect to a particular matter, any other officer to whom such matter is
referred to because of such officer's knowledge and familiarity with the
particular subject); (c) any corporation, the Chief Executive Officer, the
President, any Senior Vice President or Vice President, the Chief Financial
Officer, Treasurer or any other duly authorized officer of such Person who
has been authorized to act in the circumstances;(d) the Grantee, any Manager
or duly authorized officer who has been authorized to act in the
circumstances; (e) partnership, any general partner thereof; and (f) any
other Person (other than an individual), any duly authorized officer or
member of such Person, as the context may require, who is authorized to act
in matters relating to such Person.
"SALE AGREEMENT" means as the context may require, either (i) the
Intangible Transition Property Sale Agreement dated as of [ ],
1998 between the Grantee and the Note Issuer, as the same may be amended,
supplemented or otherwise modified from time to time or (ii) any Subsequent Sale
Agreement.
"SCHEDULED PAYMENT DATE" is defined in the applicable Trustee's
Issuance Certificate or Series Supplement, if any, with respect to each Series
or Class of Notes.
"SEC" means the Securities and Exchange Commission.
"SECRETARY OF STATE" means the Secretary of State of the State of
Delaware or the Secretary of State of the State of Illinois, as the case may be,
or any Governmental Authority succeeding to the duties of such offices.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES" means each series of Notes issued and authenticated pursuant
to the Indenture and a related Trustee's Issuance Certificate or Series
Supplement, if any.
"SERIES ISSUANCE DATE" means, with respect to any Series, the date on
which the Notes of such Series are to be originally issued in accordance with
Section 2.10 of the Indenture and the related Trustee's Issuance Certificate or
Series Supplement, if any.
"SERIES SUPPLEMENT" means an indenture supplemental to the Indenture
that authorizes the issuance of a particular Series of Notes.
"SERVICER" means Illinois Power, as Servicer under the Servicing
Agreement, or any successor Servicer to the extent permitted under the Servicing
Agreement.
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"SERVICER BUSINESS DAY" means any day other than a Saturday, Sunday or
holiday on which the Servicer maintains normal office hours and conducts
business.
"SERVICER DEFAULT" is defined in Section 7.01 of the Servicing
Agreement.
"SERVICER'S CERTIFICATE" means an Officer's Certificate of the
Servicer.
"SERVICING AGREEMENT" means the Intangible Transition Property
Servicing Agreement dated as of [ ], 1998, between
the Grantee and Illinois Power assigned to the Note Issuer, as the same may be
amended, supplemented or otherwise modified from time to time.
"SERVICING FEE" means the fee payable to the Servicer on each Payment
Date for services rendered during the period from, but not including, the
preceding Payment Date to and including the current Payment Date, determined
pursuant to Section 6.06 of the Servicing Agreement.
"SOLE MEMBER" means Illinois Power as sole member of the Grantee
defined in the Operating Agreement.
"SPECIAL PAYMENT" means with respect to any Series or Class of Notes,
any payment of principal of or interest on (including any interest accruing upon
default), or any other amount in respect of the Notes of such Series or Class
(including, with respect to Floating Rate Notes only, a payment under any Swap)
that is not actually paid within five days of the Payment Date applicable
thereto.
"SPECIAL PAYMENT DATE" means the date on which a Special Payment is to
be made by the Indenture Trustee to the Holders.
"SPECIAL RECORD DATE" means with respect to any Special Payment Date,
the close of business on the 15th day (whether or not a Business Day) preceding
such Special Payment Date.
"STANDARD & POOR'S" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. or any successor thereto.
"STATE" means any one of the 50 states of the United States of America
or the District of Columbia.
"STATE PLEDGE" means the pledge of the State of Illinois as set forth
in Section 18- 105(b) of the Funding Law.
"SUBSEQUENT CLOSING DATE" means any date (other than the Closing Date)
specified in a Trustee's Issuance Certificate or Series Supplement, if any,
under which Notes of any Series or Class are issued.
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"SUBSEQUENT CREATION DATE" means any date on which Subsequent
Intangible Transition Property is created in favor of the Grantee pursuant to a
Subsequent Funding Order.
"SUBSEQUENT FUNDING ORDER" means a transitional funding order (other
than the 1998 Funding Order) issued hereafter by the ICC in favor of the Grantee
at the request of Illinois Power.
"SUBSEQUENT GRANT AGREEMENT" means an agreement substantially similar
to the Grant Agreement, relating to Subsequent Transition Property, as the same
may be amended, supplemented or otherwise modified from time to time.
"SUBSEQUENT RELATED ASSETS" means all of the Grantee's and/or the Note
Issuer's right, title and interest in and to any Subsequent Grant Agreement and
all present and future claims, demands, causes and choses in action in respect
of any or all of the foregoing and all payments on or under and all proceeds of
every kind and nature whatsoever in respect of any or all of the foregoing,
including all proceeds of the conversion, voluntary or involuntary, into cash or
other liquid property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind, and
other forms of obligations and receivables, instruments and other property which
in any time constitute all or part of or are included in the proceeds of any of
the foregoing.
"SUBSEQUENT SALE AGREEMENT" means an agreement substantially similar
to the initial Sale Agreement, relating to Subsequent Intangible Transition
Property, as the same may be amended, supplemented or otherwise modified from
time to time.
"SUBSEQUENT SALE DATE" means any date on which Subsequent Intangible
Transition Property is to be sold to the Note Issuer pursuant to a Subsequent
Sale Agreement.
"SUBSEQUENT TARIFF" means a tariff filed with the ICC in connection
with a Subsequent Funding Order.
"SUBSEQUENT TRANSITION PROPERTY" or "SUBSEQUENT ITP" means the
intangible transition property contemplated by, and specifically described in, a
Subsequent Funding Order.
"SUCCESSOR SERVICER" is defined in Section 3.07(e) of the Indenture.
"SWAP" means an interest rate swap, cap, floor, collar or other
hedging transaction that may be entered into by the Note Issuer for the purpose
of managing interest rate risk with respect to a specified Series or Class of
Floating Rate Notes that are being issued concurrently with the execution of the
Swap.
"SWAP AGREEMENT" means an Interest Rate and Currency Exchange
Agreement (including the Schedule and Confirmation thereto) entered into between
the Note Issuer and a swap provider.
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"SWAP COUNTERPARTY" means the entity that is a party to a Swap with
the Note Issuer.
"SWAP PAYMENT" means the payments made by the Note Issuer to the Swap
Counterparty pursuant to any Swap, subject to any netting of payments provided
in the applicable Swap.
"SWAP REVENUES" means the payments paid by a Swap Counterparty to the
Note Issuer pursuant to any Swap, subject to any netting of payments provided in
the applicable Swap.
"TARIFF" means any rate tariff filed with the ICC pursuant to the
Funding Law to evidence any IFCs.
"TEMPORARY NOTES" means Notes executed, and upon the receipt of an
Issuer Order, authenticated and delivered by the Indenture Trustee pending the
preparation of Definitive Notes pursuant to Section 2.04 of the Indenture.
"TREASURY REGULATIONS" means the regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to
specific provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"TRUST AGREEMENT" means the Declaration of Trust by First Union Trust
Company, National Association as "Delaware Trustee", and _________ and ________
as "Beneficiary Trustees", dated as of ________, 1998 acknowledged and agreed to
by the Grantee, as the same may be amended, supplemented or otherwise modified
from time to time.
"TRUST ESTATE" means all right, title and interest of the Note Issuer
in, to and under the property and rights assigned to the Note Issuer pursuant to
the Sale Agreement, all funds on deposit from time to time in the Collection
Account and all other property of or interests of the Note Issuer from time to
time, including all rights, interests and claims of the Delaware Trustee and the
Note Issuer under or in connection with any Basic Documents.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, as in force on the Closing
Date, unless otherwise specifically provided.
"TRUST'S ISSUANCE CERTIFICATE" means a certificate executed by a
Authorized Officer of the Delaware Trustee in accordance with the terms of the
Sale Agreement or any Subsequent Sale Agreement and delivered to the Indenture
Trustee under Section 2.01 of the Indenture substantially in the form attached
as EXHIBIT C to the Indenture.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
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"UNDERWRITERS" means the underwriters who purchase Notes of any Series
or Class from the Note Issuer and sell such Notes in a public offering.
"UNDERWRITING AGREEMENT" means the Underwriting Agreement, dated as of
[ ], 1998 between [ ],
on its own behalf and as representative of the several underwriters named
therein, and the Note Issuer.
"UNREGISTERED NOTES" means any Notes not registered under the
Securities Act or the securities laws of any other jurisdiction.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the Note Issuer's option.
B. OTHER TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with United States generally accepted
accounting principles. To the extent that the definitions of accounting terms
in any Basic Document are inconsistent with the meanings of such terms under
generally accepted accounting principles or regulatory accounting principles,
the definitions contained in such Basic Document shall control. All terms used
in Article 9 of the UCC in the State of Illinois and not specifically defined
herein, are used herein as defined in such Article 9. As used in the Basic
Documents, the term "INCLUDING" means "including without limitation," and other
forms of the verb "to include" have correlative meanings. All references to any
Person shall include such Person's permitted successors.
C. COMPUTATION OF TIME PERIODS. Unless otherwise stated in any of
the Basic Documents, as the case may be, in the computation of a period of time
from a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding".
D. REFERENCE; CAPTIONS. The words "hereof", "herein" and
"hereunder" and words of similar import when used in any Transaction Document
shall refer to such Transaction Document as a whole and not to any particular
provision of such Transaction Document; and references to "SECTION",
"SUBSECTION", "SCHEDULE" and "EXHIBIT" in any Basic Document are references to
Sections, subsections, Schedules and Exhibits in or to such Transaction Document
unless otherwise specified in such Basic Document. The various captions
(including the tables of contents) in each Basic Document are provided solely
for convenience of reference and shall not affect the meaning or interpretation
of any Basic Document.
E. The definitions contained in this Appendix A are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter forms of such terms.
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EXHIBIT 10.1
Form of Sale Agreement
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INTANGIBLE TRANSITION PROPERTY SALE AGREEMENT
between
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
Grantee
and
ILLINOIS POWER SPECIAL PURPOSE TRUST
Note Issuer
Dated as of [_____________], 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.02. Other Definitional Provisions. . . . . . . . . . . . . . . . . .1
ARTICLE II
Conveyance of 1998 Transition Property and Related Assets. . . . . . . . . . . . .2
SECTION 2.01. Conveyance of 1998 Transition Property and Related Assets. . . .2
ARTICLE III
Representations and Warranties of Grantee. . . . . . . . . . . . . . . . . . . . .4
SECTION 3.01. Organization and Good Standing . . . . . . . . . . . . . . . . .4
SECTION 3.02. Due Qualification. . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.03. Power and Authority. . . . . . . . . . . . . . . . . . . . . . .4
SECTION 3.04. Binding Obligation . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.05. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.06. No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.07. Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 3.08. The 1998 Transition Property and Related Assets. . . . . . . . .6
ARTICLE IV
Covenants of the Grantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.01. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.02. No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.03. Delivery of Collections. . . . . . . . . . . . . . . . . . . . 12
SECTION 4.04. Notice of Liens. . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.05. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.06. Covenants Related to the 1998 Transition Property, Related
Assets and the Notes. . . . . . . . . . . . . . . . . . . . 13
SECTION 4.07. Protection of Title. . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.08. Nonpetition Covenants. . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.09. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.10. Performance of Obligations; Servicing. . . . . . . . . . . . . 16
SECTION 4.11. Additional Negative Covenants. . . . . . . . . . . . . . . . . 17
SECTION 4.12. No Other Business. . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.13. No Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.14. Guarantees Loans, Advances and Other Liabilities . . . . . . . 18
SECTION 4.15. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.16. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.17. Separate Existence . . . . . . . . . . . . . . . . . . . . . . 18
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SECTION 4.18. Further Instruments and Acts . . . . . . . . . . . . . . . . . 20
SECTION 4.19. Subsequent Transition Property . . . . . . . . . . . . . . . . 21
ARTICLE V
The Grantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.01. Liability of Grantee; Indemnities. . . . . . . . . . . . . . . 23
SECTION 5.02. Merger or Consolidation of, or Assumption of the Obligations
of, Grantee. . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 5.03. Limitation on Liability of Grantee and Others. . . . . . . . . 26
ARTICLE VI
Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.01. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.02. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.03. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.04. Limitations on Rights of Others. . . . . . . . . . . . . . . . 28
SECTION 6.05. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.06. Separate Counterparts. . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.07. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.08. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.09. Assignment to Indenture Trustee. . . . . . . . . . . . . . . . 29
SECTION 6.10. Limitation of Liability. . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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INTANGIBLE TRANSITION PROPERTY SALE AGREEMENT dated as of [
], 1998 between ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY, a
Delaware limited liability company (the "Grantee"), and ILLINOIS POWER SPECIAL
PURPOSE TRUST, a Delaware business trust (the "Note Issuer").
WHEREAS the Note Issuer desires to purchase the 1998 Transition Property
created pursuant to the Public Utilities Act and the 1998 Funding Order,
together with the Related Assets; and
WHEREAS the Grantee is willing to sell such 1998 Transition Property and
Related Assets to the Note Issuer.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein have the meanings assigned to them in that certain
Indenture (including Appendix A thereto) dated as of the date hereof between the
Note Issuer and Harris Trust and Savings Bank, as the Indenture Trustee, as the
same may be amended, supplemented or otherwise modified from time to time.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) "AGREEMENT" means this Intangible Transition Property Sale Agreement,
as the same may be amended, supplemented or otherwise modified from time to
time.
<PAGE>
(b) Non-capitalized terms used herein which are defined in the Public
Utilities Act shall, as the context requires, have the meanings assigned to such
terms in the Public Utilities Act, but without giving effect to amendments to
the Public Utilities Act after the date hereof which have a material adverse
effect on the Note Issuer or the Holders.
(c) All terms defined in this Agreement shall have the defined meaning
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(d) The words "hereof," "herein," "hereunder" and words of similar import,
when used in this Agreement, shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Section, Schedule and Exhibit
references contained in this Agreement are references to Sections, Schedules and
Exhibits in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter forms of such terms.
ARTICLE II
CONVEYANCE OF 1998 TRANSITION PROPERTY AND RELATED ASSETS
SECTION 2.01. CONVEYANCE OF 1998 TRANSITION PROPERTY AND RELATED ASSETS.
In consideration of the Note Issuer's delivery of $[_____________] to or upon
the order of the Grantee, the Grantee irrevocably sells, transfers, assigns,
sets over and otherwise conveys to the Note Issuer, without recourse (subject to
the obligations herein), all of its right, title and interest in and to:
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(a) the 1998 Transition Property (such sale, transfer, assignment, set
over and conveyance of the 1998 Transition Property includes, to the fullest
extent permitted by the Funding Law, the assignment of all revenues,
collections, claims, rights, payments, money or proceeds of or arising from the
IFCs pursuant to the 1998 Funding Order and the 1998 Initial Tariff), including,
without limitation, any Allocable IFC Revenue Amounts; and
(c) the Related Assets. Such sale, transfer, assignment, set over and
conveyance is expressly stated to be a sale and absolute transfer, and pursuant
to Section 18-108 of the Funding Law, shall be treated as an absolute transfer
(as in a true sale), and not as a pledge or other financing, of the 1998
Transition Property. The previous sentence is the express statement referred to
in Section 18-108 of the Funding Law. To the extent that, notwithstanding the
Funding Law, the Application and the 1998 Funding Order, the foregoing sale,
transfer, assignment, set over and conveyance is held not to be an absolute
transfer (as in a true sale) as contemplated under Section 18-108 of the Funding
Law, then such sale, transfer, assignment, set over and conveyance shall be
treated as a pledge of the 1998 Transition Property and the Grantee shall be
deemed to have granted a security interest to the Note Issuer in the 1998
Transition Property. The Grantee takes the position that it has no rights in
the 1998 Transition Property to which such a security interest could attach
because it has sold, transferred, assigned, set over or otherwise conveyed all
rights in, to and under the 1998 Transition Property to the Note Issuer pursuant
to Section 18-108 of the Funding Law.
3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GRANTEE
The Grantee makes the following representations and warranties, as of the
Closing Date, on which the Note Issuer has relied in acquiring the 1998
Transition Property and Related Assets. These representations and warranties
shall survive the sale, transfer, assignment, set over and conveyance of the
1998 Transition Property and Related Assets to the Note Issuer and the pledge
thereof to the Indenture Trustee pursuant to the Indenture.
SECTION 3.01. ORGANIZATION AND GOOD STANDING. The Grantee is duly
organized and validly existing as a limited liability company in good standing
under the laws of the State of Delaware, with the power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted, and had at all relevant times, and
has, the requisite power, authority and legal right to own the 1998 Transition
Property and Related Assets.
SECTION 3.02. DUE QUALIFICATION. The Grantee is duly qualified to do
business as a foreign limited liability company in good standing, and has
obtained all necessary licenses and approvals, in all jurisdictions, including
Illinois, in which the ownership or lease of property or the conduct of its
business shall require such qualifications, licenses or approvals (except where
the failure to so qualify would not be reasonably likely to have a material
adverse effect on the Grantee's business, operations, assets, revenues or
properties).
SECTION 3.03. POWER AND AUTHORITY. The Grantee has the requisite power
and authority to execute and deliver this Agreement and to carry out its terms;
the Grantee has full power and authority to sell and assign the 1998 Transition
Property and Related Assets to be sold and
4
<PAGE>
assigned to the Note Issuer and the Grantee has duly authorized such sale and
assignment to the Note Issuer by all necessary company action; and the
execution, delivery and performance of this Agreement have been duly authorized
by the Grantee by all necessary company action.
SECTION 3.04. BINDING OBLIGATION. This Agreement constitutes a legal,
valid and binding obligation of the Grantee enforceable against the Grantee in
accordance with its terms, subject to applicable insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws relating to or affecting
creditors' rights generally from time to time in effect and to general
principles of equity (including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing), regardless of whether considered
in a proceeding in equity or at law.
SECTION 3.05. NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
(i) conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a default under, the
Operating Agreement or Certificate of Formation of the Grantee, or any
indenture, agreement or other instrument to which the Grantee is a party or by
which it shall be bound; (ii) result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument; or (iii) violate any law or any order, rule or
regulation applicable to the Grantee of any court or of any Federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Grantee or its properties.
SECTION 3.06. NO PROCEEDINGS. Except as set forth on Schedule 3.06,
there are no proceedings or investigations pending or, to the Grantee's
knowledge, threatened, before any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality having
5
<PAGE>
jurisdiction over the Grantee or its properties involving or relating to the
Grantee or the Note Issuer or, to the Grantee's knowledge, any other Person: (i)
asserting the invalidity of the Funding Law, this Agreement, any of the other
Basic Documents or the Notes, (ii) seeking to prevent the issuance of the Notes
or the consummation of any of the transactions contemplated by this Agreement or
any of the other Basic Documents, (iii) seeking any determination or ruling that
could reasonably be expected to materially and adversely affect the Grantee's
performance of its obligations under, or the validity or enforceability of this
Agreement, any of the other Basic Documents or the Notes, or (iv) which could
reasonably be expected to adversely affect the Federal or state income tax
attributes of the Notes.
SECTION 3.07. APPROVALS. No approval, authorization, consent, order or
other action of or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the Grantee's execution and delivery of this Agreement, the
Grantee's performance of the transactions contemplated hereby or the Grantee's
fulfillment of the terms hereof except (i) those that have been obtained or made
and (ii) filings to be made by Illinois Power with the ICC pursuant to the 1998
Funding Order and the Funding Law relating to Illinois Power's use of proceeds
from the transactions contemplated hereby and the final terms of each Series of
Notes issued pursuant to the Indenture.
SECTION 3.08. THE 1998 TRANSITION PROPERTY AND RELATED ASSETS.
(a) INFORMATION. At the Closing Date, all information provided by the
Grantee to the Note Issuer with respect to the 1998 Transition Property
(including the 1998 Funding Order and the 1998 Initial Tariff) and the Related
Assets is correct in all material respects.
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(b) TITLE. It is the intention of the parties hereto that the transfer
and assignment herein contemplated constitute a sale and absolute transfer of
the 1998 Transition Property and Related Assets from the Grantee to the Note
Issuer and that no beneficial interest in or title to the 1998 Transition
Property and Related Assets shall be part of the Grantee's estate in the event
of the filing of a bankruptcy petition by or against the Grantee under any
bankruptcy law. No portion of the 1998 Transition Property and Related Assets
has been sold, transferred, assigned, pledged or otherwise conveyed by the
Grantee to any Person other than the Note Issuer. At the Closing Date,
immediately prior to the sale hereunder, the Grantee owns the 1998 Transition
Property and Related Assets, free and clear of all Liens and rights of any other
Person, and no offsets, defenses or counterclaims exist or have been asserted
with respect thereto.
(c) TRANSFER FILINGS. At the Closing Date, the 1998 Transition Property
and Related Assets have been validly transferred and sold to the Note Issuer,
the Note Issuer owns all the 1998 Transition Property and Related Assets, free
and clear of all Liens and rights of any other Person (other than Liens created
pursuant to the Indenture), and all filings to be made by the Grantee (including
filings with the ICC under the Funding Law) necessary in any jurisdiction to
give the Note Issuer a first priority perfected ownership interest in the 1998
Transition Property and Related Assets have been made. No further action is
required under Illinois law to maintain such first priority perfected ownership
interest in the 1998 Transition Property. No further action, other than any
filings or other steps required to be taken with respect to proceeds or on
account of events occurring after the date hereof by Sections 9-103, 9-304,
9-306, 9-402(7) or 9-403(2)- (3) of the UCC, is required to maintain such first
priority perfected ownership interest in the Related Assets.
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(d) STATE PLEDGE. At the Closing Date, under the laws of the State of
Illinois and the United States in effect on the Closing Date, the State of
Illinois has agreed with the Holders, pursuant to Section 18-105(b) of the
Funding Law, as follows:
"(b) The State pledges to and agrees with the holders of any
transitional funding instruments who may enter into contracts with an
electric utility, grantee, assignee or issuer pursuant to this Article
XVIII that the State will not in any way limit, alter, impair or reduce the
value of intangible transition property created by, or instrument funding
charges approved by, a transitional funding order so as to impair the terms
of any contract made by such electric utility, grantee, assignee or issuer
with such holders or in any way impair the rights and remedies of such
holders until the pertinent grantee instruments or, if the related
transitional funding order does not provide for the issuance of grantee
instruments, the pertinent transitional funding instruments and interest,
premium and other 5, costs and charges related thereto, as the case may be,
are fully paid and discharged. Electric utilities, grantees and issuers are
authorized to include these pledges and agreements of the State in any
contract with the holders of transitional funding instruments or with any
assignees pursuant to this Article XVIII and any assignees are similarly
authorized to include these pledges and agreements of the State in any
contract with any issuer, holder or any other assignee. Nothing in this
Article XVIII shall preclude the State of Illinois from requiring
adjustments as may otherwise be allowed by law to the electric utility's
base rates, transition charges, delivery services charges, or other charges
for tariffed services, so long as any such adjustment does not directly
affect or impair any instrument funding charges previously authorized by a
transitional funding order issued by the [ICC]."
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As a result of the foregoing pledge, the State of Illinois may not, except as
provided in the succeeding sentence, in any way limit, alter, impair or reduce
the value of the 1998 Transition Property or the IFCs in a manner substantially
impairing the Indenture or the rights and remedies of the Holders, until the
Notes, together with interest thereon, are fully paid and discharged.
Notwithstanding the immediately preceding sentence, the State would be allowed
to effect a temporary impairment of the Holders' rights if it could be shown
that such impairment was necessary to advance a significant and legitimate
public purpose.
(e) 1998 FUNDING ORDER AND TARIFFS; OTHER APPROVALS. At the Closing Date,
under the laws of the State of Illinois and the United States in effect on the
Closing Date, (i) the 1998 Funding Order pursuant to which the 1998 Transition
Property has been created has been duly entered by the ICC and is in full force
and effect; (ii) the 1998 Initial Tariff is in full force and effect and is not
subject to modification by the ICC except as provided under the Funding Law;
(iii) as of the issuance of the Notes, the Notes are entitled to the protections
provided in Section 18-104(c) of the Funding Law and, accordingly, the 1998
Funding Order is not revocable by the ICC; (iv) the State of Illinois may not
limit, alter, impair or reduce the 1998 Transition Property so as to
substantially impair the terms of any contract made by Illinois Power, the
Grantee or the Trust with the Holders or impair the rights and remedies of such
Holders unless the State could demonstrate that such impairment was necessary to
advance a significant and legitimate State purpose, and neither the 1998 Funding
Order nor the 1998 Transition Property or the related IFCs are subject to
reduction, postponement, impairment or termination by subsequent action of the
ICC; (v) the process by which the 1998 Funding Order was adopted and approved
and the 1998 Initial Tariff was filed, and the 1998 Funding Order and the 1998
Initial Tariff themselves, comply with all applicable laws, rules and
regulations;
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and (vi) no other approval, authorization, consent, order or other action of, or
filing with, any court, Federal or state regulatory body, administrative agency
or other governmental instrumentality is required in connection with the grant
of the 1998 Transition Property, except those that have been obtained or made
and those filings described in Section 3.07.
(f) ASSUMPTIONS. At the Closing Date, the assumptions used in calculating
the IFCs are reasonable and made in good faith.
(g) CREATION OF 1998 TRANSITION PROPERTY. Upon the effectiveness of the
1998 Initial Tariff: (i) all of the 1998 Transition Property constitutes a
current property right vested in the Grantee; (ii) the 1998 Transition Property
includes, without limitation, (A) the right, title and interest in and to the
IFCs authorized under the 1998 Funding Order, as adjusted from time to time, (B)
the right, title and interest in and to all revenues, collections, claims,
payments, money or proceeds of or arising from the IFCs set forth in the 1998
Initial Tariff, and (C) all rights to compel Illinois Power, as Servicer (or any
successor), to file for and obtain adjustments to the IFCs pursuant to the 1998
Funding Order; and (iii) the Grantee is entitled to impose and collect the IFCs
described in the 1998 Funding Order and the 1998 Initial Tariff in an aggregate
amount equal to the principal amount of the Notes, all interest thereon, all
amounts required to be deposited in the Overcollateralization Subaccount and the
Capital Subaccount, and all related fees, costs and expenses in respect of the
Notes until they have been paid in full, subject only to the $1.634 billion
limitation set forth in the 1998 Funding Order as the maximum dollar amount of
1998 Transition Property created thereunder.
(h) PROPERTY OF GRANTEE. To the fullest extent permitted by the Funding
Law and all other applicable law, the 1998 Transition Property and the right to
impose and collect IFCs contemplated thereunder constitute property rights of
the Grantee and its assigns, including the Note Issuer and
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its assigns (including the Indenture Trustee on behalf of the Holders), which
property has been placed beyond the reach of Illinois Power and its creditors,
as in a true sale, and which property rights may not be limited, altered,
impaired, reduced or otherwise terminated by any subsequent actions of Illinois
Power or any third party and which shall, to the full extent permitted by law,
be enforceable against Illinois Power, its successors and assigns, and all other
third parties (including judicial lien creditors) claiming an interest therein
by or through Illinois Power or its successors and assigns.
ARTICLE IV
COVENANTS OF THE GRANTEE
SECTION 4.01. CORPORATE EXISTENCE. So long as any of the Notes are
outstanding, the Grantee (a) will keep in full force and effect its existence,
rights and franchises as a limited liability company under the laws of the State
of Delaware (unless it becomes, or any successor Grantee hereunder is or
becomes, organized under the laws of any other State or of the United States of
America, in which case the Grantee will keep in full effect its existence,
rights and franchises under the laws of such other jurisdiction), (b) will
obtain and preserve its qualification to do business, in each case to the extent
that in each such jurisdiction such existence or qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, the
Basic Documents to which the Grantee is a party and each other instrument or
agreement necessary or appropriate to the proper administration of this
Agreement and the transactions contemplated hereby and (c) at all times
hereafter, the Grantee will not elect nor cause nor permit the Note Issuer to
elect to be classified as an association taxable as a corporation for federal
income tax purposes.
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SECTION 4.02. NO LIENS. Except for the conveyances hereunder, the Grantee
will not sell, pledge, assign or transfer to any other Person, or grant, create,
incur, assume or suffer to exist any Lien on, any of the 1998 Transition
Property or Related Assets, or any interest therein, and the Grantee shall
defend the right, title and interest of the Note Issuer and the Indenture
Trustee in, to and under the 1998 Transition Property and Related Assets,
against all claims of third parties claiming through or under the Grantee.
SECTION 4.03. DELIVERY OF COLLECTIONS. If the Grantee receives
collections in respect of the IFCs or the proceeds thereof, or in replacement
therefor, including, without limitation, any Allocable IFC Revenue Amounts, the
Grantee agrees to hold such payments in trust for the Servicer and to pay the
Servicer all payments received by the Grantee in respect thereof as soon as
practicable after receipt thereof by the Grantee, but in no event later than
[ ] Business Days after such receipt.
SECTION 4.04. NOTICE OF LIENS. The Grantee shall notify the Note Issuer
and the Indenture Trustee promptly after becoming aware of any Lien on any of
the 1998 Transition Property or Related Assets other than the conveyances
hereunder and under the Indenture.
SECTION 4.05. COMPLIANCE WITH LAW. The Grantee shall comply with its
organizational or governing documents and all laws, treaties, rules, regulations
and determinations of any governmental instrumentality applicable to it, except
to the extent that failure to so comply would not materially adversely affect
the Note Issuer's or the Indenture Trustee's interests in the 1998 Transition
Property or Related Assets or under any of the Basic Documents or the Grantee's
performance of its obligations hereunder or under any of the other Basic
Documents to which it is party.
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SECTION 4.06. COVENANTS RELATED TO THE 1998 TRANSITION PROPERTY, RELATED
ASSETS AND THE NOTES.
(a) So long as any of the Notes are outstanding, the Grantee shall
indicate in its financial statements that the Note Issuer and not the Grantee
owns the 1998 Transition Property and the Related Assets.
(b) So long as any of the Notes are outstanding, the Grantee shall not own
or purchase any Notes.
(c) The Grantee agrees that upon its sale of the 1998 Transition Property
and Related Assets to the Note Issuer pursuant to this Agreement, (i) to the
fullest extent permitted by law, including applicable ICC Regulations, the Note
Issuer shall have all of the rights of the owner of the 1998 Transition Property
(including all of the rights originally held by the Grantee with respect to the
1998 Transition Property and Related Assets), including the right (subject to
the terms of the Servicing Agreement) to exercise any and all rights and
remedies to collect any amounts payable by any Customer or third party
collection agent, including any ARES, in respect of the 1998 Transition
Property, notwithstanding any objection or direction to the contrary by the
Grantee and (ii) any payment by any Customer or third party collection agent,
including any ARES, to the Note Issuer (or to the Servicer for the benefit of
the Note Issuer) shall discharge such Customer's or third party's obligations in
respect of the 1998 Transition Property to the extent of such payment,
notwithstanding any objection or direction to the contrary by the Grantee.
(d) So long as any of the Notes are outstanding, (i) except with respect
to federal and other appropriate taxes, the Grantee shall not make any statement
or reference in respect of the 1998 Transition Property or the Related Assets
that is inconsistent with the ownership interest of the Note
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Issuer therein, and (ii) the Grantee shall not take any action in respect of the
1998 Transition Property or the Related Assets except as otherwise contemplated
by the Basic Documents.
SECTION 4.07. PROTECTION OF TITLE. The Grantee shall execute and file
such filings, including filings with the ICC pursuant to the Funding Law, and
cause to be executed and filed such filings, all in such manner and in such
places as may be required by law fully to preserve, maintain, and protect the
interests of the Note Issuer in the 1998 Transition Property and Related Assets,
including all filings required under the Funding Law relating to the transfer of
the ownership or security interest in the 1998 Transition Property by the
Grantee to the Note Issuer. The Grantee shall deliver (or cause to be
delivered) to the Note Issuer file-stamped copies of; or filing receipts for,
any document filed as provided above, promptly following such filing. The
Grantee shall institute any action or proceeding necessary to compel performance
by the ICC or the State of Illinois of any of their obligations or duties under
the Funding Law, the 1998 Funding Order, the 1998 Initial Tariff or any
amendatory tariff filed pursuant to Section 18-104(k) of the Funding Law, and
the Grantee agrees to take such legal or administrative actions, including
defending against or instituting and pursuing legal actions and appearing or
testifying at hearings or similar proceedings, as may be reasonably necessary to
protect the Note Issuer and the Holders from claims, state actions or other
actions or proceedings of third parties which, if successfully pursued, would
result in a breach of any representation set forth in Article III. The costs of
any such actions or proceedings will be payable by the Grantee. The Grantee
designates the Note Issuer as its agent and attorney-in-fact to execute any
filings with the ICC, financing statements, continuation statements or other
instruments required by the Note Issuer pursuant to this Section, it being
understood that the Note Issuer shall have no obligation to execute any such
instruments.
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SECTION 4.08. NONPETITION COVENANTS. Notwithstanding any prior
termination of this Agreement or the Indenture, but subject to the ICC's right
to order the sequestration and payment of revenues arising with respect to the
1998 Transition Property notwithstanding any bankruptcy, reorganization or other
insolvency proceedings with respect to Illinois Power, the Grantee, the Note
Issuer or any other grantee or assignee of the 1998 Transition Property pursuant
to Section 18-107(c)(4) of the Funding Law, the Grantee shall not, prior to the
date which is one year and one day after the termination of the Indenture,
acquiesce, petition or otherwise invoke or cause or join with any other Person
to invoke the process of any court or governmental authority for the purpose of
commencing or sustaining a case against the Note Issuer under any Federal or
state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of or for the Note Issuer or any substantial part of the property of the Note
Issuer, or ordering the winding up or liquidation of the affairs of the Note
Issuer.
SECTION 4.09. TAXES. So long as any of the Notes are outstanding, the
Grantee shall, and shall cause each of its subsidiaries to, pay all material
taxes, assessments and governmental charges imposed upon it or any of its
properties or assets or with respect to any of its franchises, business, income
or property before any penalty accrues thereon if the failure to pay any such
taxes, assessments and governmental charges would, after any applicable grace
periods, notices or other similar requirements, result in a lien on the 1998
Transition Property or Related Assets; provided that no such tax need be paid if
the Grantee or one of its subsidiaries is contesting the same in good faith by
appropriate proceedings promptly instituted and diligently conducted and if the
Grantee or such subsidiary has established appropriate reserves as shall be
required in conformity with generally accepted accounting principles.
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SECTION 4.10. PERFORMANCE OF OBLIGATIONS; SERVICING.
(a) The Grantee may contract with other Persons to assist it in performing
its duties under this Agreement, and any performance of such duties by a Person
identified to the Note Issuer in an Officer's Certificate of the Grantee shall
be deemed to be action taken by the Grantee.
(b) Except as otherwise expressly permitted therein, the Grantee shall not
waive, amend, modify, supplement or terminate any Basic Document or any
provision thereof without the written consent of the Note Issuer (which consent
shall not be withheld if the Indenture Trustee shall have consented thereto).
(c) Upon any termination of the Servicer's rights and powers pursuant to
the Servicing Agreement, the Note Issuer shall promptly notify the Grantee. As
soon as a Successor Servicer is appointed, the Note Issuer shall notify the
Grantee of such appointment, specifying in such notice the name and address of
such Successor Servicer.
(d) Without derogating from the absolute nature of the assignment granted
to the Note Issuer under this Agreement or the rights of the Note Issuer
hereunder, the Grantee will not, without the prior written consent of the Note
Issuer, amend, modify, waive, supplement, terminate or surrender, or agree to
any amendment, modification, supplement, termination, waiver or surrender of;
the terms of any Note Collateral or the Basic Documents, or waive timely
performance or observance by Illinois Power or the Servicer under the Grant
Agreement or the Servicing Agreement, respectively. If any such amendment,
modification, supplement or waiver shall be so consented to by the Note Issuer
and the Note Issuer shall so request, the Grantee shall execute and deliver, in
its own name and at its own expense, such agreements, instruments, consents and
other documents as shall be necessary or appropriate in the circumstances.
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(e) The Grantee shall make all filings required under the Funding Law
relating to the transfer of the ownership or security interest in the 1998
Transition Property other than those required to be made by Illinois Power
pursuant to the Basic Documents.
SECTION 4.11. ADDITIONAL NEGATIVE COVENANTS. So long as any Notes are
Outstanding, the Grantee shall not:
(a) except as permitted by Section 5.02, sell, transfer, exchange or
otherwise dispose of any of its properties or assets;
(b) assert any claim against the Note Issuer by reason of the payment of
the taxes levied or assessed upon any part of the 1998 Transition Property or
the Related Assets;
(c) except as permitted by Section 5.02, terminate its existence or
dissolve or liquidate in whole or in part; or
(d) take any action that would be inconsistent with the Note Issuer's
absolute and first priority ownership interest in the 1998 Transition Property
and the Related Assets.
SECTION 4.12. NO OTHER BUSINESS. The Grantee shall not engage in any
business other than acquiring, owning, financing, transferring, assigning and
otherwise managing the 1998 Transition Property and Related Assets, and any
Subsequent Intangible Transition Property and Subsequent Related Assets, in the
manner contemplated by this Agreement and the Basic Documents (or in a similar
manner, in the case of Subsequent Transition Property and Subsequent Related
Assets) and activities incidental thereto.
SECTION 4.13. NO BORROWING. The Grantee shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness.
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SECTION 4.14. GUARANTEES LOANS, ADVANCES AND OTHER LIABILITIES. Except as
otherwise contemplated by the Grant Agreement, the Administration Agreement, the
Servicing Agreement or this Agreement, the Grantee shall not make any loan or
advance or credit to, or guarantee (directly or indirectly or by an instrument
having the effect of assuring another's payment or performance on any obligation
or capability of so doing or otherwise), endorse or otherwise become
contingently liable, directly or indirectly, in connection with the obligations,
stocks or dividends of, or own, purchase, repurchase or acquire (or agree
contingently to do so) any stock, obligations, assets or securities of; or any
other interest in, or make any capital contribution to, any other Person.
SECTION 4.15. CAPITAL EXPENDITURES. Other than expenditures in an
aggregate amount not to exceed $25,000 in any calendar year, the Grantee shall
not make any expenditure (by long-term or operating lease or otherwise) for
capital assets (either realty or personalty).
SECTION 4.16. NOTICE OF DEFAULTS. The Grantee shall promptly notify the
Note Issuer, in writing, of each default hereunder and each default on the part
of Illinois Power or the Servicer of their respective obligations under the
Grant Agreement or the Servicing Agreement.
SECTION 4.17. SEPARATE EXISTENCE. The Grantee shall:
(a) Maintain with commercial banking institutions its own deposit account
or accounts separate from those of any Affiliate of the Grantee. The Grantee's
funds will not be diverted to any other Person or for other than the Grantee's
use, and, except as may be expressly permitted by this Agreement or the
Servicing Agreement, the funds of the Grantee shall not be commingled with those
of any Affiliate of the Grantee.
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(b) Ensure that, to the extent that it shares the same officers or other
employees as any of its members or Affiliates, the salaries of and the expenses
related to providing benefits to such officers and other employees shall be
fairly allocated among such entities, and each such entity shall bear its fair
share of the salary and benefit costs associated with all such common officers
and employees.
(c) Ensure that, to the extent that it jointly contracts with any of its
members or Affiliates to do business with vendors or service providers or to
share overhead expenses, the costs incurred in so doing shall be allocated
fairly among such entities, and each such entity shall bear its fair share of
such costs. To the extent that the Grantee contracts or does business with
vendors or service providers where the goods and services provided are partially
for the benefit of any other Person, the costs incurred in so doing shall be
fairly allocated to or among such entities for whose benefit the goods and
services are provided, and each such entity shall bear its fair share of such
costs. All material transactions between the Grantee and any of its Affiliates
shall be only on an arm's-length basis.
(d) Maintain a principal executive and administrative office through which
its business is conducted separate from those of its members and Affiliates. To
the extent that the Grantee and any of its members or Affiliates have offices in
contiguous space, there shall be fair and appropriate allocation of overhead
costs among them, and each such entity shall bear its fair share of such
expenses.
(e) Conduct its affairs strictly in accordance with its Operating
Agreement and Certificate of Formation and observe all necessary, appropriate
and customary formalities, including, but not limited to, holding all regular
and special members' meetings, and meetings of the Grantee's
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management committee, appropriate to authorize all action on behalf of the
Grantee, keeping all resolutions or consents necessary to authorize actions
taken or to be taken, and maintaining accurate and separate books, records and
accounts, including, but not limited to, payroll and intercompany transaction
accounts. The Grantee shall hold members' and management committee meetings at
least annually.
(f) Ensure that its management committee (a) shall not include any Person
who is also a member of the Board of Directors of any of the Grantee's
Affiliates and (b) shall at all times include at least one Independent Manager
(as such term is defined in the Grantee's Certificate of Formation).
(g) Act solely in its own name and through its own authorized managers and
agents, and no Affiliate of the Grantee shall be appointed to act as agent of
the Grantee, except as expressly contemplated by this Agreement or the Servicing
Agreement.
(h) Ensure that no Affiliate of the Grantee shall advance funds to the
Grantee, or otherwise guaranty debts of; the Grantee, except as provided in the
Grantee's Operating Agreement or Certificate of Formation; PROVIDED, HOWEVER,
that an Affiliate of the Grantee may provide funds to the Grantee in connection
with capitalization of the Grantee.
(i) Not enter into any guaranty, or otherwise become liable, with respect
to any obligation of any Affiliate of the Grantee.
SECTION 4.18. FURTHER INSTRUMENTS AND ACTS. Upon request of the Note
Issuer, the Grantee will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Agreement.
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SECTION 4.19. SUBSEQUENT TRANSITION PROPERTY.
(a) Notwithstanding any provision hereof to the contrary, the Grantee may
from time to time accept newly-created Subsequent Transition Property pursuant
to a related Subsequent Funding Order and a Subsequent Tariff, subject to the
conditions specified in paragraph (b) below.
(b) The Grantee shall be permitted to accept Subsequent Transition
Property only upon the satisfaction of each of the following conditions on or
prior to the related Subsequent Creation Date:
(i) Illinois Power shall have provided the Grantee, the
Subsequent Note Issuer, the Indenture Trustee and the Rating Agencies with
written notice, which shall be given not later than 10 days prior to the
related Subsequent Creation Date, specifying the Subsequent Creation Date
for such Subsequent Transition Property and the aggregate amount of the
IFCs related to such Subsequent Transition Property, and shall have
provided any information reasonably requested by any of the foregoing
Persons with respect to the Subsequent Transition Property to be created in
favor of the Grantee.
(ii) Illinois Power and the Grantee shall have delivered to the
Note Issuer a duly executed Subsequent Grant Agreement, and the Grantee
shall have delivered to the Note Issuer a duly executed Subsequent Sale
Agreement;
(iii) as of such Subsequent Creation Date, Illinois Power will not
be insolvent and will not have been made insolvent by such transfer and
Illinois Power will not be aware of any pending insolvency with respect to
itself;
(iv) the Rating Agency Condition shall have been satisfied with
respect to such creation;
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(v) Illinois Power shall have delivered to the Grantee, the Note
Issuer, the Indenture Trustee and the Delaware Trustee an opinion of
independent tax counsel and/or a ruling from the IRS (as selected by, and
in form and substance reasonably satisfactory to Illinois Power) to the
effect that for federal income tax purposes (i) the issuance of the
Transitional Funding Order authorizing the collection of the Instrument
Funding Charges does not result in gross income to Illinois Power, the
Grantee or the Note Issuer, (ii) the assignment of the Intangible
Transition Property to the Note Issuer and the issuance of the Notes does
not result in gross income to Illinois Power, the Grantee or the Note
Issuer, and (iii) the Notes will be obligations of Illinois Power for
federal income tax purposes;
(vi) as of such Subsequent Creation Date, no breach by Illinois
Power of its representations, warranties or covenants in the Grant
Agreement and no Servicer Default shall exist;
(vii) as of such Subsequent Creation Date, the Grantee shall have
sufficient funds available to pay Illinois Power the consideration set
forth in the Subsequent Grant Agreement, and all conditions shall have been
satisfied for the issuance of one or more instruments under the Indenture
in order to provide such funds;
(viii) the Grantee shall have delivered to the Rating Agencies any
Opinions of Counsel requested by the Rating Agencies;
(ix) the Grantee and the Note Issuer shall have taken all actions
required to perfect the ownership interest or security interest (as the
case may be) of the Note Issuer in the Subsequent Transition Property and
Subsequent Related Assets and the proceeds thereof; free and clear of any
Liens; and
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(x) the Grantee shall have delivered to the Note Issuer an
Officer's Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (b).
ARTICLE V
THE GRANTEE
SECTION 5.01. LIABILITY OF GRANTEE; INDEMNITIES.
(a) The Grantee shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken by the Grantee under this Agreement.
(b) The Grantee shall indemnify the Note Issuer, the Indenture Trustee and
the Delaware Trustee, and each of their respective officers, directors,
employees and agents for, and defend and hold harmless each such Person from and
against, any and all taxes (i) that may at any time be imposed on or asserted
against any such Person as a result of the grant of the 1998 Transition Property
to the Grantee, or (ii) that may be imposed on or asserted against any such
Person under existing law as of the Closing Date as a result of the Grantee's
ownership and assignment of the 1998 Transition Property, the Note Issuer's
issuance and sale of the Notes, or the other transactions contemplated herein,
including, in each case, any sales, gross receipt, general corporation, tangible
personal property, privilege or license taxes, but excluding any taxes imposed
as a result of a failure of such Person to withhold or remit taxes imposed with
respect to payments on any Notes.
(c) The Grantee shall indemnify the Note Issuer, the Indenture Trustee,
the Delaware Trustee and the Holders and each of their respective officers,
directors, employees and agents for, and defend and hold harmless each such
Person from and against, any and all liabilities, obligations, losses, claims,
actions, suits, damages, payments, and reasonable costs or expenses (including
the
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reasonable fees and expenses of their counsel), of any kind whatsoever
(collectively, "Losses") that may be imposed on, incurred by or asserted against
any such Person as a result of (i) the Grantee's willful misconduct, bad faith
or gross negligence in the performance of its duties or observance of its
covenants under this Agreement, or the Grantee's reckless disregard of its
obligation and duties under this Agreement, or (ii) the Grantee's breach of any
of its representations or warranties contained in this Agreement.
(d) The Grantee shall pay any and all taxes levied or assessed upon all or
any part of the Note Issuer's property or assets based on existing law as of the
Closing Date.
(e) Indemnification under Sections 5.01(b) through 5.01(e) shall survive
the resignation or removal of the Indenture Trustee or the Delaware Trustee and
the termination of this Agreement and shall include reasonable fees and expenses
of investigation and litigation (including reasonable attorneys' fees and
expenses).
SECTION 5.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, GRANTEE. Any Person (a) into which the Grantee may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Grantee shall be a party or (c) which may succeed to the properties and assets
of the Grantee substantially as a whole, which Person in any of the foregoing
cases executes an agreement of assumption to perform every obligation of the
Grantee hereunder, shall be the successor to the Grantee under this Agreement
without further act on the part of any of the parties to this Agreement;
PROVIDED, HOWEVER, that (i) immediately after giving effect to such transaction,
no representation or warranty made pursuant to Article III shall have been
breached, (ii) the Grantee shall have delivered to the Note Issuer and the
Indenture Trustee an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation, merger or
24
<PAGE>
succession and such agreement of assumption comply with this Section and that
all conditions precedent, if any, provided for in this Agreement relating to
such transaction have been complied with, (iii) the Grantee shall have delivered
to the Note Issuer and the Indenture Trustee an Opinion of Counsel either (A)
stating that, in the opinion of such counsel, all filings to be made by the
Grantee, including filings with the ICC pursuant to the Funding Law, have been
executed and filed that are necessary to fully preserve and protect the interest
of the Note Issuer in the 1998 Transition Property and Related Assets and
reciting the details of such filings, or (B) stating that, in the opinion of
such counsel, no such action shall be necessary to preserve and protect such
interests (iv) the Rating Agencies shall have received prior written notice of
such transaction and (v) Illinois Power shall have delivered to the Grantee, the
Note Issuer, the Delaware Trustee and the Indenture Trustee an opinion of
independent tax counsel (as selected by, and in form and substance reasonably
satisfactory to, Illinois Power, and which may be based on a ruling from the
Internal Revenue Service) to the effect that such consolidation or merger will
not result in a material adverse federal income tax consequence to Illinois
Power, the Grantee, the Note Issuer, the Delaware Trustee, the Indenture Trustee
or the then existing Holders. Notwithstanding anything herein to the contrary,
the execution of the foregoing agreement of assumption and compliance with
clauses (i), (ii), (iii) and (iv) above shall be conditions to the consummation
of any transaction referred to in clauses (a), (b) or (c) above. When any Person
acquires the properties and assets of Illinois Power Securitzation Limited
Liability Company, substantially as a whole and becomes the successor to
Illinois Power Securitzation Limited Liability Company in accordance with the
terms of this Section 5.02, then upon the satisfaction of all of the other
conditions of this Section 5.02, Illinois Power Securitzation
25
<PAGE>
Limited Liability Company shall automatically and without further notice be
released from its obligations hereunder.
SECTION 5.03. LIMITATION ON LIABILITY OF GRANTEE AND OTHERS. The Grantee
and any director or officer or employee or agent of the Grantee may rely in good
faith on the advice of counsel or on any document of any kind, PRIMA FACIE
properly executed and submitted by any Person, respecting any matters arising
hereunder. Subject to Section 4.07, the Grantee shall not be under any
obligation to appear in, prosecute or defend any legal action that shall not be
incidental to its obligations under this Agreement, and that in its opinion may
involve it in any expense or liability.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01. AMENDMENT. The Agreement may be amended by the Grantee and
the Note Issuer, with prior written notice given to the Rating Agencies and the
prior written consent of the Indenture Trustee, but without the consent of any
of the Holders, to cure any ambiguity, to correct or supplement any provisions
in this Agreement or for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions in this Agreement or of
modifying in any manner the rights of the Holders; PROVIDED, HOWEVER, that such
action shall not, as evidenced by an Officer's Certificate delivered to the Note
Issuer and the Indenture Trustee, adversely affect in any material respect the
interests of any Holder. This Agreement may also be amended from time to time
by the Grantee and the Note Issuer, with prior written notice given to the
Rating Agencies and the prior written consent of the Indenture Trustee and
Holders holding not less than a majority
26
<PAGE>
of the Outstanding Amount of the Notes of all Series affected thereby, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders; PROVIDED, HOWEVER, that no such amendment shall (a) increase or
reduce in any manner the amount of; or accelerate or delay the timing of; IFC
Collections or (b) reduce the aforesaid percentage of the Outstanding Amount of
the Notes, the Holders of which are required to consent to any such amendment,
without the consent of the Holders of all the outstanding Notes.
Promptly after the execution of any such amendment or consent, the Note
Issuer shall furnish a copy of such amendment or consent to the Indenture
Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Holders pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Indenture
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement. The Indenture Trustee may, but shall not be obligated to, enter into
any such amendment which affects the Indenture Trustee's own rights, duties or
immunities under this Agreement or otherwise.
SECTION 6.02. NOTICES. All demands, notices and communications upon or to
the Grantee, the Note Issuer, the Indenture Trustee or the Rating Agencies under
this Agreement shall be in writing, personally delivered, mailed or sent by
telecopy or other similar form of rapid transmission, and shall be deemed to
have been duly given upon receipt (a) in the case of the Grantee, Illinois Power
Securitzation Limited Liability Company, c/o Illinois Power Company, 500
27
<PAGE>
South 27th Street, Decatur, Illinois 62525; (b) in the case of the Note Issuer,
to Illinois Power Special Purpose Trust, c/o First Union Trust Company, National
Association, One Rodney Square, 920 King Street, 1st Floor, Wilmington, Delaware
19801, Attention: Corporate Trust Administration, (c) in the case of the
Indenture Trustee, at the Corporate Trust Office; (d) in the case of Moody's, to
Moody's Investors Service, Inc., ABS Monitoring Department, 99 Church Street,
New York, New York 10007; (e) in the case of Standard & Poor's, to Standard &
Poor's Corporation, 26 Broadway (10th Floor), New York, New York 10004,
Attention of Asset Backed Surveillance Department; (f) in the case of Fitch, to
Fitch Investors Service, L.P., One State Street Plaza, New York, New York 10004,
Attention of Commercial Asset-Backed Securities; or (g) in the case of Duff &
Phelps, to Duff & Phelps Rating Co., 17 State Street, 12th Floor, New York, New
York 10004, Attention of Asset Backed Monitoring Group; or as to each of the
foregoing, at such other address as shall be designated by written notice to the
other parties.
SECTION 6.03. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Section 5.02, this Agreement may not be
assigned by the Grantee.
SECTION 6.04. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Grantee, the Note Issuer, the
Indenture Trustee, the Delaware Trustee and the Holders, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the 1998 Transition
Property or Related Assets or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
SECTION 6.05. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
28
<PAGE>
prohibition or unenforceability without invalidating the remaining provisions
hereof; and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 6.06. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 6.07. HEADINGS. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 6.08. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 6.09. ASSIGNMENT TO INDENTURE TRUSTEE. The Grantee acknowledges
and consents to any transfer, pledge, assignment and grant of a security
interest by the Note Issuer to the Indenture Trustee pursuant to the Indenture
for the benefit of the Holders of all right, title and interest of the Note
Issuer in, to and under the 1998 Transition Property and Related Assets and the
proceeds thereof and the assignment of any or all of the Note Issuer's rights
and obligations hereunder to the Indenture Trustee.
SECTION 6.10. LIMITATION OF LIABILITY. It is expressly understood and
agreed by the parties hereto that (a) this Agreement is executed and delivered
by First Union Trust Company, National Association ("FIRST UNION") not
individually or personally but solely as Delaware Trustee
29
<PAGE>
on behalf of the Note Issuer, in the exercise of the powers and authority
conferred and vested in it, (b) the representations, undertakings and agreements
herein made by the Delaware Trustee on behalf of the Note Issuer are made and
intended not as personal representations, undertakings and agreements by First
Union are made and intended for the purpose of binding only the Note Issuer, (c)
nothing herein contained shall be construed as creating any liability on First
Union individually or personally, to perform any covenant either expressed or
implied contained herein, except in its capacity as Delaware Trustee, all such
liability, if any, being expressly waived by the parties who are signatories to
this Agreement and by any Person claiming by, through or under such parties and
(d) under no circumstances shall First Union be personally liable for the
payment of any indebtedness or expense of the Note Issuer or be personally
liable for the breach or failure of any obligation, representation, warranty or
covenant made or undertaken by the Note Issuer under this Agreement; PROVIDED,
HOWEVER, that this provision shall not protect First Union against any liability
that would otherwise be imposed by reason of willful misconduct, bad faith or
gross negligence in the performance of its obligations and duties under this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers as of the day and year first above
written.
ILLINOIS POWER SECURITIZATION LIMITED
LIABILITY COMPANY, Grantee
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ILLINOIS POWER SPECIAL PURPOSE TRUST,
Note Issuer
By First Union Trust Company, National
Association, not in its individual
capacity but solely as Delaware
Trustee
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Acknowledged and accepted:
HARRIS TRUST AND SAVINGS BANK, not in
its individual capacity but solely as
Indenture Trustee
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
<PAGE>
SCHEDULE 3.06
PROCEEDINGS
None, except:
[insert any applicable proceedings]
<PAGE>
EXHIBIT 10.2
Form of Grant Agreement
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT RELATING TO GRANT OF INTANGIBLE TRANSITION PROPERTY
between
ILLINOIS POWER COMPANY
and
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
Dated as of [_____________], 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.02. Other Definitional Provisions. . . . . . . . . . . . . . . . . .2
ARTICLE II - Grant of Transition Property. . . . . . . . . . . . . . . . . . . . . .3
SECTION 2.01. Grant of Transition Property . . . . . . . . . . . . . . . . . .3
ARTICLE III - Representations and Warranties of Illinois Power . . . . . . . . . . .4
SECTION 3.01. Organization and Good Standing . . . . . . . . . . . . . . . . .5
SECTION 3.02. Due Qualification. . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.03. Power and Authority. . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.04. Binding Obligation . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 3.05. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 3.06. No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 3.07. Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 3.08. The 1998 Transition Property . . . . . . . . . . . . . . . . . .7
ARTICLE IV - Covenants of Illinois Power . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.01. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.02. No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.03. Delivery of Collections. . . . . . . . . . . . . . . . . . . . 13
SECTION 4.04. Notice of Liens. . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.05. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.06. Covenants Related to the 1998 Transition Property
and the Notes. . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.07. Protection of Title. . . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.08. Nonpetition Covenants. . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.09. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4.10. Contracts for Non-Tariffed Services. . . . . . . . . . . . . . 18
ARTICLE V - Illinois Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 5.01. Liability of Illinois Power; Indemnities . . . . . . . . . . . 18
SECTION 5.02. Merger or Consolidation of or Assumption of the
Obligations of Illinois Power. . . . . . . . . . . . . . 19
SECTION 5.03. Limitation on Liability of Illinois Power and Others . . . . . 21
i
<PAGE>
ARTICLE VI - Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.01. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.02. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.03. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.04. Limitations on Rights of Others. . . . . . . . . . . . . . . . 24
SECTION 6.05. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.06. Separate Counterparts. . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.07. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.08. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 6.09. Assignments to Note Issuer and Indenture Trustee . . . . . . . 25
</TABLE>
ii
<PAGE>
AGREEMENT RELATING TO GRANT OF INTANGIBLE TRANSITION PROPERTY (as the same
may be hereafter amended, supplemented or otherwise modified from time to time,
this "Agreement") dated as of __________ 1998, between ILLINOIS POWER COMPANY,
an Illinois corporation ("Illinois Power"), and ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY, a Delaware limited liability company (the "Grantee").
WHEREAS, Illinois Power filed the Application with the ICC pursuant to
Section 18-103 of the Funding Law requesting the issuance of a transitional
funding order;
WHEREAS, Illinois Power requested in the Application that the transitional
funding order (i) establish, create and grant rights, in favor of the Grantee,
in and to "intangible transition property" (as defined in Section 18-102 of the
Funding Law) in the aggregate amount of $1,634,000,000; and (ii) establish and
create "instrument funding charges" as defined in Section 18-102 of the Funding
Law, granting the right to impose and receive certain non-bypassable charges
expressed in cents per kilowatt hour from and after the effective date of the
associated tariff;
WHEREAS, the ICC issued the 1998 Funding Order on ___________, 1998, which
created and established the intangible transition property requested by Illinois
Power in the Application;
WHEREAS, the 1998 Funding Order granted to and vested in the Grantee, as
current and original property rights, and not by assignment from Illinois Power,
all right, title and interest to impose and receive the IFCs authorized by and
under the 1998 Funding Order and all related revenues, collections, claims,
payments, money or proceeds thereof, including all right, title and interest of
the Grantee in, to and under the 1998 Funding Order; and
WHEREAS, the Grantee has agreed (i) to transfer the 1998 Transition
Property to the Note Issuer pursuant to the Sale Agreement, and (ii) to pay
Illinois Power the net proceeds received by the Grantee from the Note Issuer in
connection with such transfer;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein have the meanings assigned to them in that certain
Indenture (including Appendix A thereto) dated as of the date hereof, between
Illinois Power Special Purpose Trust, as the Note Issuer, and Harris Trust and
Savings Bank, as the Indenture Trustee, as the same may be amended, supplemented
or otherwise modified from time to time.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) "AGREEMENT" shall have the meaning set forth in the preamble hereto.
(b) Non-capitalized terms used herein which are defined in the Public
Utilities Act shall, as the context requires, have the meanings assigned to such
terms in the Public Utilities Act, but without giving effect to amendments to
the Public Utilities Act after the date hereof which have a material adverse
effect on the Note Issuer or the Holders.
(c) All terms defined in this Agreement shall have the defined meaning
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(d) The words "hereof" "herein," "hereunder" and words of similar import,
when used in this Agreement, shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Section, Schedule and Exhibit
references contained in this Agreement are references to
2
<PAGE>
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter forms of such terms.
ARTICLE II
GRANT OF TRANSITION PROPERTY
SECTION 2.01. GRANT OF TRANSITION PROPERTY. In consideration of Illinois
Power's actions in requesting that the 1998 Transition Property be created and
vested in the Grantee, the Grantee agrees to remit to Illinois Power the net
proceeds remitted to it by the Note Issuer from the sale of the Notes. To the
extent that, notwithstanding the Funding Law, the Application and the 1998
Funding Order, applicable law provides that Illinois Power has any interest in
the 1998 Transition Property or any part thereof, Illinois Power sells,
transfers, assigns, sets over and otherwise conveys to the Grantee without
recourse (subject to the obligations herein) all of Illinois Power's right,
title and interest, if any, in, to and under the 1998 Transition Property (such
grant of the 1998 Transition Property, and such sale, transfer, assignment, set
over and conveyance, include, to the fullest extent permitted by the Funding
Law, the assignment of all revenues, collections, claims, rights, payments,
money or proceeds of or arising from the IFCs pursuant to the 1998 Funding Order
and the 1998 Initial Tariff, including, without limitation, any Allocable IFC
Revenue Amounts). Such sale, transfer, assignment, set over and conveyance by
Illinois Power is expressly stated to be an absolute transfer, and pursuant to
Section 18-108 of the Funding Law, shall be treated
3
<PAGE>
as an absolute transfer (as in a true sale), and not as a pledge or other
financing, of the 1998 Transition Property. The previous sentence is the
express statement referred to in Section 18-108 of the Funding Law. To the
extent that, notwithstanding the Funding Law, the Application and the 1998
Funding Order, Illinois Power is deemed to have any interest in the 1998
Transition Property or any part thereof under applicable law, and if the
foregoing sale, transfer, assignment, set over and conveyance is held not to be
an absolute transfer (as in a true sale) as contemplated under Section 18-108 of
the Funding Law, then such sale, transfer, assignment, set over and conveyance
shall be treated as a pledge of the 1998 Transition Property and Illinois Power
shall be deemed to have granted a security interest to the Grantee in the 1998
Transition Property. Illinois Power takes the position that it has no rights in
the 1998 Transition Property to which such a security interest could attach.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ILLINOIS POWER
Illinois Power makes the following representations and warranties, as of
the Closing Date, on which the Grantee has relied in assigning the 1998
Transition Property to the Note Issuer. These representations and warranties
shall survive (i) the grant of the 1998 Transition Property to the Grantee
pursuant to the 1998 Funding Order and the 1998 Initial Tariff, (ii) to the
extent that Illinois Power has any interest in the 1998 Transition Property or
any part thereof, the sale, transfer, assignment, set over and conveyance by
Illinois Power contemplated hereby, (iii) the sale, transfer, assignment, set
over and conveyance of the 1998 Transition Property and Related Assets to the
Note Issuer and (iv) the pledge thereof to the Indenture Trustee pursuant to the
Indenture.
4
<PAGE>
SECTION 3.01. ORGANIZATION AND GOOD STANDING. Illinois Power is duly
organized and validly existing as a corporation in good standing under the laws
of the State of Illinois, with the power and authority to own its properties and
to conduct its business as such properties are currently owned and such business
is presently conducted, and had at all relevant times, and has the requisite
power, authority and legal right to request that the ICC issue the 1998 Funding
Order. Illinois Power is engaged in the generation, transmission, distribution
and sale of electricity to the public in Illinois, is a public utility within
the meaning of Section 3-105 of the Public Utilities Act and is an electric
utility within the meaning of the Funding Law and Article XVI of the Public
Utilities Act.
SECTION 3.02. DUE QUALIFICATION. Illinois Power is duly qualified to do
business as a corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or lease of
property or the conduct of its business shall require such qualifications,
licenses or approvals (except where the failure to so qualify would not be
reasonably likely to have a material adverse effect on Illinois Power's
business, operations, assets, revenues or properties).
SECTION 3.03. POWER AND AUTHORITY. Illinois Power has the requisite power
and authority to execute and deliver this Agreement and to carry out its terms;
and the execution, delivery and performance of this Agreement have been duly
authorized by Illinois Power by all necessary corporate action.
SECTION 3.04. BINDING OBLIGATION. This Agreement constitutes a legal,
valid and binding obligation of Illinois Power enforceable against Illinois
Power in accordance with its terms, subject to applicable insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws relating
to or affecting creditors' rights generally from time to time in effect and to
general
5
<PAGE>
principles of equity (including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing), regardless of whether considered
in a proceeding in equity or at law.
SECTION 3.05. NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
(i) conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a default under, the
Articles of Incorporation or by-laws of Illinois Power, or any indenture,
agreement or other instrument to which Illinois Power is a party or by which it
shall be bound; (ii) result in the creation or imposition of any Lien upon any
of its properties pursuant to the terms of any such indenture, agreement or
other instrument; or (iii) violate any law or any order, rule or regulation
applicable to Illinois Power of any court or of any Federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over Illinois Power or its properties.
SECTION 3.06. NO PROCEEDINGS. [Except as set forth on Schedule 3.06,]
there are no proceedings or investigations pending or, to Illinois Power's
knowledge, threatened, before any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over Illinois Power or its properties involving or relating to Illinois Power or
the Grantee or to Illinois Power's knowledge, any other Person: (i) asserting
the invalidity of the Funding Law, this Agreement, any of the other Basic
Documents or the Notes, (ii) seeking to prevent the grant of the 1998 Transition
Property to the Grantee or the consummation of any of the transactions
contemplated by this Agreement or any of the other Basic Documents, (iii)
seeking any determination or ruling that could reasonably be expected to
materially and adversely affect Illinois Power's performance of its obligations
under, or the validity or enforceability of, this Agreement,
6
<PAGE>
any of the other Basic Documents or the Notes, or (iv) which could reasonably be
expected to adversely affect the Federal or state income tax attributes of the
Notes.
SECTION 3.07. APPROVALS. No approval, authorization, consent, order or
other action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with Illinois Power's execution and delivery of this Agreement,
Illinois Power's performance of the transactions contemplated hereby or Illinois
Power's fulfillment of the terms hereof, except (i) those that have been
obtained or made and (ii) filings to be made by Illinois Power with the ICC
pursuant to the 1998 Funding Order and the Funding Law relating to Illinois
Power's use of proceeds from the transactions contemplated hereby and the final
terms of each Series of Notes issued pursuant to the Indenture.
SECTION 3.08. THE 1998 TRANSITION PROPERTY.
(a) INFORMATION. All information provided by Illinois Power to the
Grantee with respect to the 1998 Transition Property (including the 1998 Funding
Order and the 1998 Initial Tariff) is correct in all material respects.
(b) TITLE. It is the intention of the parties hereto that the vesting of
the 1998 Transition Property in the Grantee as contemplated by the 1998 Funding
Order shall be irrevocable and enforceable against Illinois Power and its
successors and that no interest in or title to the 1998 Transition Property
shall be part of Illinois Power's estate in the event of the filing of a
bankruptcy petition by or against Illinois Power under any bankruptcy law.
Accordingly, Illinois Power reaffirms that it has no right, title or interest in
and to the 1998 Transition Property and any sale, transfer, assignment, set over
and conveyance which may nonetheless be contemplated by Section 2.01 hereof
shall constitute an absolute transfer to the Grantee, within the meaning of
Section 18-108
7
<PAGE>
of the Funding Law, of any right, title and interest Illinois Power may
otherwise have had in the 1998 Transition Property (or any part thereof) created
by, under and pursuant to the 1998 Funding Order, such transfer is irrevocable
and enforceable against Illinois Power and its successors, and no interest in or
title to the 1998 Transition Property shall be part of Illinois Power's estate
in the event of the filing of a bankruptcy petition by or against Illinois Power
under any bankruptcy law. No portion of the 1998 Transition Property has been
sold, transferred, assigned, pledged or otherwise conveyed by Illinois Power to
any Person other than the Grantee. Immediately prior to the sale, transfer,
assignment, set over and conveyance contemplated hereunder, Illinois Power's
right, title and interest in and to the 1998 Transition Property, if any, is
free and clear of all Liens and rights of any other Person, and no offsets,
defenses or counterclaims exist or have been asserted with respect thereto.
Illinois Power, in its capacity as Servicer or otherwise, will not at any time
assert any Lien against or with respect to any of the 1998 Transition Property.
(c) TRANSFER FILINGS. The 1998 Transition Property has been validly
granted and transferred to the Grantee pursuant to the 1998 Funding Order and,
to the extent applicable, this Agreement, the Grantee owns all right, title and
interest to the 1998 Transition Property, free and clear of all Liens and rights
of any other Person (other than Liens created pursuant to the Sale Agreement and
the Indenture), and all filings to be made by Illinois Power (including filings
with the ICC under the Funding Law) necessary in any jurisdiction to give the
Grantee a perfected ownership interest in the 1998 Transition Property, free and
clear of all Liens, have been made. No further action is required under
Illinois law to maintain such ownership interest in the 1998 Transition
Property. No further action, other than any filings or other steps required to
be taken with respect to proceeds or on account of events occurring after the
date hereof by Sections 9-103, 9-304,
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9-306, 9-402(7) or 9-403(2)-(3) of the UCC, is required to maintain such first
priority perfected ownership interest in the Related Assets.
(d) STATE PLEDGE. Under the laws of the State of Illinois and the United
States in effect on the Closing Date, the State of Illinois has agreed with the
Holders, pursuant to Section 18-105(b) of the Funding Law, as follows:
"(b) The State pledges to and agrees with the holders of any
transitional funding instruments who may enter into contracts with an
electric utility, grantee, assignee or issuer pursuant to this Article
XVIII that the State will not in any way limit, alter, impair or reduce the
value of intangible transition property created by, or instrument funding
charges approved by, a transitional funding order so as to impair the terms
of any contract made by such electric utility, grantee, assignee or issuer
with such holders or in any way impair the rights and remedies of such
holders until the pertinent grantee instruments or, if the related
transitional funding order does not provide for the issuance of grantee
instruments, the pertinent transitional funding instruments and interest,
premium and other fees, costs and charges related thereto, as the case may
be, are fully paid and discharged. Electric utilities, grantees and
issuers are authorized to include these pledges and agreements of the State
in any contract with the holders of transitional funding instruments or
with any assignees pursuant to this Article XVIII and any assignees are
similarly authorized to include these pledges and agreements of the State
in any contract with any issuer, holder or any other assignee. Nothing in
this Article XVIII shall preclude the State of Illinois from requiring
adjustments as may otherwise be allowed by law to the electric utility's
base rates, transition charges, delivery services charges, or other charges
for tariffed services, so long as any such adjustment does not directly
affect or impair any instrument funding charges previously authorized by a
transitional funding order issued by the [ICC]."
As a result of the foregoing pledge, the State of Illinois may not, except as
provided in the succeeding sentence, in any way limit, alter, impair or reduce
the value of the 1998 Transition Property or the IFCs in a manner substantially
impairing the Indenture or the rights and remedies of the Holders, until the
Notes, together with interest thereon, are fully paid and discharged.
Notwithstanding the immediately preceding sentence, the State would be allowed
to effect a temporary impairment of the Holders' rights if it could be shown
that such impairment was necessary to advance a significant and legitimate
public purpose.
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(e) 1998 FUNDING ORDER AND TARIFFS; OTHER APPROVALS. Under the laws of
the State of Illinois and the United States in effect on and at all relevant
times before the Closing Date, (i) Illinois Power was authorized to file the
Application, (ii) Illinois Power filed the Application with the ICC on June 24,
1998, in proper form, requesting the issuance of a transitional funding order;
(iii) the 1998 Funding Order and 1998 Initial Tariff established, created and
granted rights in and to intangible transition property in an aggregate amount
of $1.634 billion, and the 1998 Transition Property and the right to impose and
collect IFCs constitute current and original property rights vested in the
Grantee to the fullest extent permitted by law; (iv) the 1998 Funding Order has
been duly entered by the ICC and is in full force and effect; (v) the 1998
Initial Tariff is in full force and effect and is not subject to modification by
the ICC except as provided under the Funding Law; (vi) as of the issuance of the
Notes, the Notes are entitled to the protections provided in Section 18-104(c)
of the Funding Law and, accordingly, the 1998 Funding Order is not revocable by
the ICC; (vii) the State of Illinois may not limit, alter, impair or reduce the
1998 Transition Property so as to substantially impair the terms of any contract
made by Illinois Power, the Grantee or the Trust with the Holders or impair the
rights and remedies of such Holders unless the State could demonstrate that such
impairment was necessary to advance a significant and legitimate State purpose,
and neither the 1998 Funding Order nor the 1998 Transitional Property or the
related IFCs are subject to reduction, postponement, impairment or termination
by subsequent action of the ICC; (viii) the process by which the 1998 Funding
Order was adopted and approved and the 1998 Initial Tariff was filed, and the
1998 Funding Order and the 1998 Initial Tariff themselves, comply with all
applicable laws, rules and regulations; and (ix) no other approval,
authorization, consent, order or other action of, or filing with, any court,
Federal or state regulatory body, administrative agency or other
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governmental instrumentality is required in connection with the creation and
grant of the 1998 Transition Property, except those that have been obtained or
made and those filings described in Section 3.07.
(f) ASSUMPTIONS. The assumptions used in calculating the IFCs are
reasonable and made in good faith.
(g) CREATION OF 1998 TRANSITION PROPERTY. Upon the effectiveness of the
1998 Initial Tariff: (i) all of the 1998 Transition Property constitutes a
current property right vested in the Grantee; (ii) the 1998 Transition Property
includes, without limitation, (A) the right, title and interest in and to the
IFCs authorized under the 1998 Funding Order, as adjusted from time to time, (B)
the right, title and interest in and to all revenues, collections, claims,
payments, money or proceeds of or arising from the IFCs set forth in the 1998
Initial Tariff, and (C) all rights to compel Illinois Power, as Servicer (or any
successor), to file for and obtain adjustments to the IFCs pursuant to the 1998
Funding Order; and (iii) the Grantee is entitled to impose and collect the IFCs
described in the 1998 Funding Order and the 1998 Initial Tariff in an aggregate
amount equal to the principal amount of the Notes, all interest thereon, all
amounts required to be deposited in the Overcollateralization Subaccount and the
Capital Subaccount, and all related fees, costs and expenses in respect of the
Notes until they have been paid in full, subject only to the $1.634 billion
limitation set forth in the 1998 Funding Order as to the maximum dollar amount
of 1998 Transition Property created thereunder.
(h) PROPERTY OF GRANTEE. To the fullest extent permitted by the Funding
Law and all other applicable law, the 1998 Transition Property and the right to
impose and collect IFCs contemplated thereunder constitute current property
rights of the Grantee and its assigns, including the Note Issuer
11
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and its assigns (including the Indenture Trustee on behalf of the Holders),
which property has been placed beyond the reach of Illinois Power and its
creditors, as in a true sale, and which property rights may not be limited,
altered, impaired, reduced or otherwise terminated by any subsequent actions of
Illinois Power or any third party and which shall, to the full extent permitted
by law, be enforceable against Illinois Power, its successors and assigns, and
all other third parties (including judicial lien creditors) claiming an interest
therein by or through Illinois Power or its successors and assigns.
ARTICLE IV
COVENANTS OF ILLINOIS POWER
SECTION 4.01. CORPORATE EXISTENCE. So long as any of the Notes are
outstanding, Illinois Power (a) will keep in full force and effect its
existence, rights and franchises as a corporation under the laws of the State of
Illinois (unless it becomes, or any successor to Illinois Power hereunder is or
becomes, organized under the laws of any other State or of the United States of
America, in which case Illinois Power will keep in full effect its existence,
rights and franchises under the laws of such other jurisdiction), (b) will
obtain and preserve its qualification to do business, in each case to the extent
that in each such jurisdiction such existence or qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, and any
of the other Basic Documents to which Illinois Power is a party and each other
instrument or agreement necessary or appropriate to the proper administration of
this Agreement and the transactions contemplated hereby and (c) at all times
hereafter, neither Illinois Power nor any successor will
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<PAGE>
cause or permit the Grantee or the Note Issuer to elect to be classified as an
association taxable as a corporation for federal income tax purposes.
SECTION 4.02. NO LIENS. Except for the conveyances hereunder, Illinois
Power (i) will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien on, any of the 1998
Transition Property or any interest therein, (ii) will not at any time assert
any Lien against or with respect to any of the 1998 Transition Property in its
capacity as Servicer or otherwise, (iii) will not seek to limit, alter, impair,
reduce or otherwise terminate the property rights of the Grantee or any assignee
of the Grantee, and (iv) shall defend the right, title and interest of the
Grantee in, to and under the 1998 Transition Property against all claims of
third parties claiming through or under Illinois Power.
SECTION 4.03. DELIVERY OF COLLECTIONS. If Illinois Power receives
collections in respect of the IFCs or the proceeds thereof, or in replacement
therefor, including, without limitation, any Allocable IFC Revenue Amounts,
Illinois Power agrees to hold such payments in trust for the Servicer and to pay
the Servicer all payments received by Illinois Power in respect thereof as soon
as practicable after receipt thereof by Illinois Power, but in no event later
than [ ] Business Days after such receipt.
SECTION 4.04. NOTICE OF LIENS. Illinois Power shall notify the Grantee,
the Note Issuer and the Indenture Trustee promptly after becoming aware of any
Lien on any of the 1998 Transition Property other than the conveyances
hereunder, under the Sale Agreement and under the Indenture.
13
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SECTION 4.05. COMPLIANCE WITH LAW. Illinois Power shall comply with
its organizational or governing documents and all laws, treaties, rules,
regulations and determinations of any governmental instrumentality applicable
to it, except to the extent that failure to so comply would not materially
adversely affect the Grantee's, the Note Issuer's or the Indenture Trustee's
interests in the 1998 Transition Property or under any of the Basic
Documents, or Illinois Power's performance of its obligations hereunder or
under any of the other Basic Documents to which it is party.
SECTION 4.06. COVENANTS RELATED TO THE 1998 TRANSITION PROPERTY AND THE
NOTES.
(a) So long as any of the Notes are outstanding, Illinois Power shall
indicate in its financial statements that it is not the owner of the 1998
Transition Property.
(b) So long as any of the Notes are outstanding, Illinois Power shall not
own or purchase any Notes.
(c) Illinois Power agrees that upon the creation and grant of the 1998
Transition Property to the Grantee pursuant to the 1998 Funding Order and, to
the extent applicable, this Agreement, (i) to the fullest extent permitted by
law, including applicable ICC Regulations, the Grantee shall have all of the
rights of the owner of the 1998 Transition Property (including all of the rights
originally held by Illinois Power, if any, with respect to the 1998 Transition
Property), including the right (subject to the terms of the Servicing Agreement)
to exercise any and all rights and remedies to collect any amounts payable by
any Customer or third party collection agent, including any ARES, in respect of
the 1998 Transition Property, notwithstanding any objection or direction to the
contrary by Illinois Power and (ii) any payment by any Customer or third party
collection agent, including any ARES, to the Grantee (or to the Servicer for the
benefit of the Grantee) shall discharge such
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<PAGE>
Customer's or third party's obligations in respect of the 1998 Transition
Property to the extent of such payment, notwithstanding any objection or
direction to the contrary by Illinois Power.
(d) So long as any of the Notes are outstanding, (i) except with respect
to federal and other applicable taxes, Illinois Power shall not make any
statement or reference in respect of the 1998 Transition Property that is
inconsistent with the ownership interest of the Grantee, and (ii) Illinois Power
shall not take any action in respect of the 1998 Transition Property except
solely in its capacity as the Servicer under the Servicing Agreement or as
otherwise contemplated by the Basic Documents.
(e) So long as any of the Notes are outstanding, Illinois Power shall not
initiate any material changes with respect to its policies and procedures
pertaining to credit (including requirements for deposits from Customers),
billing, collections (including procedures for disconnection of service for
non-payment) and restoration of service after disconnection, and shall not
initiate any changes in any ICC tariffs relating to the foregoing matters which
are likely to adversely affect Illinois Power's ability to make timely recovery
of amounts billed to Customers, except for any such changes required by
applicable law.
(f) If Illinois Power determines that the aggregate dollar amount of IFC
Charges to be imposed and collected is reasonably likely to exceed the maximum
dollar amount of Intangible Transition Property authorized by the 1998 Funding
Order and any Subsequent Funding Orders and any Notes remain outstanding,
Illinois Power shall make a good faith effort to take any and all subsequent
regulatory action with the ICC to obtain an order permitting the creation of
additional Intangible Transition Property in an amount sufficient to pay such
Notes in full.
15
<PAGE>
SECTION 4.07. PROTECTION OF TITLE. Illinois Power shall execute and
file such filings, including filings with the ICC pursuant to the Funding
Law, and cause to be executed and filed such filings, all in such manner and
in such places as may be required by law fully to preserve, maintain, and
protect the interests of the Grantee in the 1998 Transition Property,
including all filings required under the Funding Law relating to the grant of
the 1998 Transition Property to the Grantee. Illinois Power shall deliver
(or cause to be delivered) to the Grantee file-stamped copies of, or filing
receipts for, any document filed as provided above, promptly following such
filing. Illinois Power shall institute any action or proceeding necessary to
compel performance by the ICC or the State of Illinois of any of their
obligations or duties under the Funding Law, the 1998 Funding Order, the 1998
Initial Tariff or any amendatory tariff filed pursuant to Section 18-104(k)
of the Funding Law, and Illinois Power agrees to take such legal or
administrative actions, including defending against or instituting and
pursuing legal actions and appearing or testifying at hearings or similar
proceedings, as may be reasonably necessary to protect the Grantee from
claims, state actions or other actions or proceedings of third parties which,
if successfully pursued, would result in a breach of any representation set
forth in Article III hereof. The costs of any such actions or proceedings
will be payable by Illinois Power. Illinois Power designates the Grantee as
its agent and attorney-in-fact to execute any filings with the ICC or other
instruments required by the Grantee pursuant to this Section, it being
understood that the Grantee shall have no obligation to execute any such
instruments.
SECTION 4.08. NONPETITION COVENANTS. Notwithstanding any prior
termination of this Agreement or the Indenture, but subject to the ICC's right
to order the sequestration and payment of revenues arising with respect to the
1998 Transition Property notwithstanding any bankruptcy,
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<PAGE>
reorganization or other insolvency proceedings with respect to Illinois
Power, the Grantee or any other grantee or assignee of the 1998 Transition
Property pursuant to Section 18-107(c)(4) of the Funding Law, Illinois Power
shall not, prior to the date which is one year and one day after the
termination of the Indenture, acquiesce, petition or otherwise invoke or
cause or join with any other Person to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Grantee or the Note Issuer under any Federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of or for the
Grantee or the Note Issuer or any substantial part of the property of the
Grantee or the Note Issuer, or ordering the winding up or liquidation of the
affairs of the Grantee or the Note Issuer.
SECTION 4.09. TAXES. So long as any of the Notes are outstanding,
Illinois Power shall, and shall cause each of its subsidiaries to, pay all
material taxes, assessments and governmental charges imposed upon it or any of
its properties or assets or with respect to any of its franchises, business,
income or property before any penalty accrues thereon if the failure to pay any
such taxes, assessments and governmental charges would, after any applicable
grace periods, notices or other similar requirements, result in a lien on the
1998 Transition Property; PROVIDED that no such tax need be paid if Illinois
Power or one of its subsidiaries is contesting the same in good faith by
appropriate proceedings promptly instituted and diligently conducted and if
Illinois Power or such subsidiary has established appropriate reserves as shall
be required in conformity with generally accepted accounting principles.
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SECTION 4.10. CONTRACTS FOR NON-TARIFFED SERVICES. Neither Illinois
Power nor any successor thereto shall enter into any contract with any
Customer obligated (or who would, but for such contract, be obligated) to pay
IFCs if, as a result thereof, such Customer would not receive tariffed
services, unless the contract provides that the Customer will pay an amount
to the Grantee or its assigns or to Illinois Power, as Servicer, as
applicable, equal to the amount such Customer would pay in IFCs if the
services provided under such contract were tariffed services. Any revenues
received by Illinois Power or such successor from any such contract services
shall, to the extent of the authorized amount of the IFCs included therein
(or deemed included therein pursuant to the 1998 Funding Order and this
Section), be deemed to be proceeds of, and included in, the 1998 Transition
Property.
ARTICLE V
ILLINOIS POWER
SECTION 5.01. LIABILITY OF ILLINOIS POWER; INDEMNITIES.
(a) Illinois Power shall indemnify the Grantee, the Note Issuer, the
Indenture Trustee, the Delaware Trustee and the Holders, and each of their
respective officers, directors, employees and agents for, and defend and hold
harmless each such Person from and against, any and all taxes (other than any
taxes imposed on the Holders) (i) that may at any time be imposed on or asserted
against any such Person as a result of the grant of the 1998 Transition Property
to the Grantee, or (ii) that may be imposed on or asserted against any such
Person under existing law as of the Closing Date as a result of the Grantee's
ownership and assignment of the 1998 Transition Property, the Note Issuer's
issuance and sale of the Notes, or the other transactions contemplated herein,
including, in
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each case, any sales, gross receipt, general corporation, tangible personal
property, privilege or license taxes, but excluding any taxes imposed as a
result of a failure of such person to properly withhold or remit taxes
imposed with respect to payments on any Notes.
(b) Illinois Power shall indemnity the Grantee, the Note Issuer, the
Indenture Trustee, the Delaware Trustee and the Holders and each of their
respective officers, directors, employees and agents for, and defend and hold
harmless each such Person from and against, any and all liabilities,
obligations, losses, claims, actions, suits, damages, payments, and
reasonable costs or expenses, of any kind whatsoever (collectively, "Losses")
that may be imposed on, incurred by or asserted against any such Person as a
result of (i) Illinois Power's willful misconduct, bad faith or gross
negligence in the performance of its duties or observance of its covenants
under this Agreement, or Illinois Power's reckless disregard of its
obligations and duties under this Agreement; and (ii) Illinois Power's breach
of any of its representations or warranties contained in this Agreement
(including without limitation the representations and warranties specified in
Sections 3.01, 3.03, 3.04, 3.05, 3.08(b), 3.08(c), 3.08(d), 3.08(e) or
3.08(g).
(c) Illinois Power shall pay any and all taxes levied or assessed upon all
or any part of the Grantee's property or assets based on existing law as of the
Closing Date.
(d) Indemnification under Sections 5.01(b) through 5.01(d) shall survive
the termination of this Agreement and shall include reasonable fees and expenses
of investigation and litigation (including reasonable attorneys' fees and
expenses).
SECTION 5.02. MERGER OR CONSOLIDATION OF OR ASSUMPTION OF THE OBLIGATIONS
OF ILLINOIS POWER. Any Person (a) into which Illinois Power may be merged or
consolidated, (b) which may result from any merger or consolidation to which
Illinois Power shall be a party or (c) which
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may succeed to the properties and assets of Illinois Power substantially as a
whole, which Person in any of the foregoing cases executes an agreement of
assumption to perform every obligation of Illinois Power hereunder, shall be
the successor to Illinois Power under this Agreement without further act on
the part of any of the parties to this Agreement; PROVIDED, HOWEVER, that (i)
immediately after giving effect to such transaction, no representation or
warranty made pursuant to Article III shall have been breached and (if
Illinois Power is the Servicer) no Servicer Default, and no event which,
after notice or lapse of time, or both, would become a Servicer Default shall
have occurred and be continuing, (ii) Illinois Power shall have delivered to
the Grantee, the Note Issuer, the Delaware Trustee and the Indenture Trustee
an Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption comply
with this Section and that all conditions precedent, if any, provided for in
this Agreement relating to such transaction have been complied with, (iii)
Illinois Power shall have delivered to the Grantee, the Note Issuer and the
Indenture Trustee an Opinion of Counsel either (x) stating that, in the
opinion of such counsel, all filings to be made by Illinois Power, including
filings with the ICC pursuant to the Funding Law, have been executed and
filed that are necessary to fully preserve and protect the interest of the
Grantee in the 1998 Transition Property and reciting the details of such
filings, or (y) stating that, in the opinion of such counsel, no such action
shall be necessary to preserve and protect such interests, (iv) the Rating
Agencies shall have received prior written notice of such transaction and (v)
Illinois Power shall have delivered to the Grantee, the Note Issuer, the
Delaware Trustee and the Indenture Trustee an opinion of independent tax
counsel and/or a ruling from the Internal Revenue Service (as selected by,
and in form and substance reasonably satisfactory to, Illinois Power) to the
effect that such consolidation or merger will not result in a material
adverse federal
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income tax consequence to Illinois Power, the Grantee, the Note Issuer, the
Delaware Trustee, the Indenture Trustee or the then existing Holders.
Notwithstanding anything herein to the contrary, the execution of the
foregoing agreement of assumption and compliance with clauses (i), (ii),
(iii) and (iv) above shall be conditions to the consummation of any
transaction referred to in clauses (a), (b) or (c) above. When any Person
acquires the properties and assets of Illinois Power substantially as a whole
and becomes the successor to Illinois Power in accordance with the terms of
this Section 5.02, then upon the satisfaction of all of the other conditions
of this Section 5.02, Illinois Power shall automatically and without further
notice be released from its obligations hereunder.
SECTION 5.03. LIMITATION ON LIABILITY OF ILLINOIS POWER AND OTHERS.
Illinois Power and any director or officer or employee or agent of Illinois
Power may rely in good faith on the advice of counsel or on any document of any
kind, PRIMA FACIE properly executed and submitted by any Person, respecting any
matters arising hereunder. Subject to Section 4.07, Illinois Power shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its obligations under this Agreement, and that in its
opinion may involve it in any expense or liability.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01. AMENDMENT. The Agreement may be amended by Illinois Power
and the Grantee, with prior written notice given to the Rating Agencies and the
prior written consent of the Note Issuer, but without the consent of any of the
Holders, to cure any ambiguity, to correct or supplement any provisions in this
Agreement or for the purpose of adding any provisions to or
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changing in any manner or eliminating any of the provisions in this Agreement
or of modifying in any manner the rights of the Holders; PROVIDED, HOWEVER,
that such action shall not, as evidenced by a Illinois Power Officer's
Certificate delivered to the Note Issuer, adversely affect in any material
respect the interests of any Holder.
This Agreement may also be amended from time to time by Illinois Power and
the Grantee, with prior written notice given to the Rating Agencies and the
prior written consent of the Note Issuer, the Indenture Trustee and Holders
holding not less than a majority of the Outstanding Amount of the Notes of all
Series affected thereby, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Holders; PROVIDED, HOWEVER, that no
such amendment shall (a) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, IFC Collections or (b) reduce the aforesaid
percentage of the Outstanding Amount of the Notes, the Holders of which are
required to consent to any such amendment, without the consent of the Holders of
all the outstanding Notes.
Promptly after the execution of any such amendment or consent, the Grantee
shall furnish a copy of such amendment or consent to the Note Issuer, the
Indenture Trustee and each of the Rating Agencies.
It shall not be necessary for the consent of Holders pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof.
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SECTION 6.02. NOTICES. All demands, notices and communications upon or
to the Grantee, the Note Issuer, the Indenture Trustee or the Rating Agencies
under this Agreement shall be in writing, personally delivered, mailed or
sent by telecopy or other similar form of rapid transmission, and shall be
deemed to have been duly given upon receipt (a) in the case of Illinois
Power, to Illinois Power Company, 500 South 27th Street, Decatur, Illinois
62525; (b) in the case of the Grantee, to Illinois Power Securitization
Limited Liability Company, c/o Illinois Power Company, 500 South 27th Street,
Decatur, Illinois 62525; (c) in the case of the Note Issuer, to Transitional
Funding Trust, c/o First Union Trust Company, National Association, One
Rodney Square, 920 King Street, 1st Floor, Wilmington, Delaware 19801, Attn:
Corporate Trust Administration; (d) in the case of the Indenture Trustee, at
the Corporate Trust Office; (e) in the case of Moody's, to Moody's Investors
Service, Inc., ABS Monitoring Department, 99 Church Street, New York, New
York 10007; (f) in the case of Standard & Poor's, to Standard & Poor's
Corporation, 26 Broadway (10th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department; (g) in the case of Fitch, to Fitch
Investors Service, L.P., One State Street Plaza, New York, New York 10004,
Attention of Commercial Asset-Backed Securities; or (h) in the case of Duff &
Phelps, to Duff & Phelps Credit Rating Co., 17 State Street, 12th Floor, New
York, New York 10004, Attention of Asset Based Monitoring Group; or as to
each of the foregoing, at such other address as shall be designated by
written notice to the other parties.
SECTION 6.03. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Section 5.02, this Agreement may not be
assigned by Illinois Power.
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SECTION 6.04. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of Illinois Power, the Grantee, the Note
Issuer, the Indenture Trustee, the Delaware Trustee and the Holders, and nothing
in this Agreement, whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the 1998
Transition Property or under or in respect of this Agreement or any covenants,
conditions or provisions contained herein.
SECTION 6.05. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 6.06. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 6.07. HEADINGS. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 6.08. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
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SECTION 6.09. ASSIGNMENTS TO NOTE ISSUER AND INDENTURE TRUSTEE.
Illinois Power acknowledges and consents to any transfer, pledge, assignment
or grant of a security interest by the Grantee to the Note Issuer pursuant to
the Sale Agreement, and by the Note Issuer to the Indenture Trustee for the
benefit of the Holders pursuant to the Indenture, of all right, title and
interest of the Grantee in, to and under the 1998 Transition Property and the
proceeds thereof, and the assignment of any or all of the Grantee's rights
and obligations hereunder to the Note Issuer and the Indenture Trustee.
Illinois Power agrees that the Note Issuer and the Indenture Trustee, as
assignees, shall, subject to the terms of the Basic Documents, have the right
to enforce this Agreement and to exercise directly all of the Grantee's
rights and remedies under this Agreement (including without limitation, the
right to give or withhold any consents or approvals of the Grantee to be
given or withheld hereunder), and acknowledges that with respect to the sale,
transfer, assignment, set over and conveyance of the 1998 Transition Property
and Related Assets to the Note Issuer and the pledge thereof to the Indenture
Trustee pursuant to the Indenture, the Note Issuer and the Indenture Trustee
have relied on the representations and warranties made by Illinois Power
herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers as of the day and year first above
written.
ILLINOIS POWER COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY,
Grantee
By:
----------------------------
Name:
--------------------------
Title:
--------------------------
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SCHEDULE 3.06
PROCEEDINGS
None, except:
[insert any applicable proceedings]
<PAGE>
EXHIBIT 10.3
Form of Servicing Agreement
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INTANGIBLE TRANSITION PROPERTY SERVICING AGREEMENT
between
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY,
Grantee
and
ILLINOIS POWER COMPANY,
Servicer
Dated as of [ ], 1998
- -------------------------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE I - Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.02. Other Definitional Provisions. . . . . . . . . . . . . . .3
ARTICLE II - Appointment and Authorization . . . . . . . . . . . . . . . . . .4
SECTION 2.01. Appointment of Servicer; Acceptance of Appointment . . . .4
SECTION 2.02. Authorization. . . . . . . . . . . . . . . . . . . . . . .4
SECTION 2.03. Dominion and Control Over the Intangible Transition
Property . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE III - Billing Services . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 3.01. Duties of Servicer . . . . . . . . . . . . . . . . . . . .5
SECTION 3.02. Servicing and Maintenance Standards. . . . . . . . . . . .8
SECTION 3.03. Certificate of Compliance. . . . . . . . . . . . . . . . .9
SECTION 3.04. Annual Report by Independent Public Accountants. . . . . 10
ARTICLE IV - Services Related to Adjustments . . . . . . . . . . . . . . . . 11
SECTION 4.01. Adjustments. . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.02. Limitation of Liability. . . . . . . . . . . . . . . . . 14
ARTICLE V - The Intangible Transition Property . . . . . . . . . . . . . . . 16
SECTION 5.01. Custody of Intangible Transition Property Records. . . . 16
SECTION 5.02. Duties of Servicer as Custodian. . . . . . . . . . . . . 16
SECTION 5.03. Instructions; Authority to Act . . . . . . . . . . . . . 18
SECTION 5.04. Custodian's Indemnification. . . . . . . . . . . . . . . 19
SECTION 5.05. Effective Period and Termination . . . . . . . . . . . . 19
SECTION 5.06. General Indemnification of Indenture Trustee and
Delaware Trustee . . . . . . . . . . . . . . . . . 20
ARTICLE VI - The Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.01. Representations and Warranties of Servicer . . . . . . . 20
SECTION 6.02. Indemnities of Servicer; Release of Claims . . . . . . . 23
SECTION 6.03. Merger or Consolidation of or Assumption of the
Obligations of Servicer . . . . . . . . . . . . . . 25
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SECTION 6.04. Limitation on Liability of Servicer and Others . . . . . 26
SECTION 6.05. Illinois Power Not to Resign as Servicer . . . . . . . . 27
SECTION 6.06. Servicing Compensation . . . . . . . . . . . . . . . . . 27
SECTION 6.07. Compliance with Applicable Law . . . . . . . . . . . . . 28
SECTION 6.08. Access to Certain Records and Information
Regarding Intangible Transition Property . . . . . 28
SECTION 6.09. Appointments . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.10. No Servicer Advances . . . . . . . . . . . . . . . . . . 30
SECTION 6.11. Remittances. . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.12. Compliance with Servicing Standard; Changes in
ICC Tariffs . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII - Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.01. Servicer Default . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.02. Appointment of Successor . . . . . . . . . . . . . . . . 34
SECTION 7.03. Waiver of Past Defaults. . . . . . . . . . . . . . . . . 35
SECTION 7.04. Notice of Servicer Default . . . . . . . . . . . . . . . 35
ARTICLE VIII - Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . 36
SECTION 8.01. Amendment. . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8.02. Maintenance of Records . . . . . . . . . . . . . . . . . 38
SECTION 8.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.04. Assignment . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.05. Limitations on Rights of Others. . . . . . . . . . . . . 39
SECTION 8.06. Severability . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.07. Separate Counterparts. . . . . . . . . . . . . . . . . . 39
SECTION 8.08. Headings . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.09. Governing Law. . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.10. Assignments to Note Issuer and Indenture Trustee . . . . 40
SECTION 8.11. Nonpetition Covenants. . . . . . . . . . . . . . . . . . 40
SECTION 8.12. Limitation of Liability. . . . . . . . . . . . . . . . . 41
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EXHIBITS AND SCHEDULES
Exhibit A Form of Monthly Servicer's Certificate
Exhibit B Form of Certificate of Compliance
[Exhibit C Form of Amendatory Tariff]
Exhibit D Form of Quarterly Servicer's Certificate
Schedule 4.01(a) Expected Amortization Schedule
Schedule 6.01(f) No Proceedings
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ANNEXES
Annex I - Servicing Procedures
Schedule 6 to Annex I - Calculation of Aggregate Remittance Amount
Annex II - Routine Quarterly True-Up Mechanism
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INTANGIBLE TRANSITION PROPERTY SERVICING AGREEMENT dated as of
[ ], 1998, between ILLINOIS POWER SECURITIZATION LIMITED
LIABILITY COMPANY, a Delaware limited liability company (the "Grantee"), and
ILLINOIS POWER COMPANY, an Illinois corporation, as Servicer (the "Servicer").
RECITALS
A. Pursuant to the Funding Law and the 1998 Transitional Funding Order,
the Grantee and the Note Issuer are concurrently entering into the Sale
Agreement, pursuant to which the Grantee is selling the 1998 Intangible
Transition Property to the Note Issuer, and the Grantee may sell Subsequent
Intangible Transition Property to the Note Issuer pursuant to Subsequent Sale
Agreements.
B. In connection with its ownership of the Intangible Transition Property
and in order to collect the IFCs, the Grantee desires to engage the Servicer to
carry out the functions described herein. The Servicer currently performs
similar functions for itself with respect to its own charges to its customers
and may in the future perform such functions for others. In addition, the
Grantee desires to engage the Servicer to act on its behalf in making
Adjustments. The Servicer desires to perform all of these activities on behalf
of the Grantee.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in that certain Indenture (including Appendix A
thereto) dated as of the date hereof between the Note Issuer and Harris Trust
and Savings Bank, as the Indenture Trustee, as the same may be amended,
supplemented or otherwise modified from time to time (the "INDENTURE").
(b) Whenever used in this Agreement, the following words and phrases shall
have the following meanings:
"AGREEMENT" means this Intangible Transition Property Servicing Agreement,
together with all Exhibits, Schedules, Annexes and Attachments hereto, as the
same may be amended, supplemented and otherwise modified from time to time.
"ANNUAL ACCOUNTANT'S REPORT" has the meaning set forth in Section 3.04.
"CERTIFICATE OF COMPLIANCE" has the meaning set forth in Section 3.03.
"DAILY REMITTANCE" has the meaning set forth in Section 6.11(b).
"INTANGIBLE TRANSITION PROPERTY RECORDS" has the meaning assigned to that
term in Section 5.01.
"LOSSES" has the meaning assigned to that term in Section 5.04.
"OFFICER'S CERTIFICATE" means a certificate signed by a Responsible
Officer.
"QUARTER" means each calendar quarter, specifically:
January 1 to and including March 31;
April 1 to and including June 30;
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July 1 to and including September 30; and
October 1 to and including December 31.
"RETIREMENT OF THE NOTES" means the day on which the final distribution is
made to the Indenture Trustee in respect of the last Outstanding Notes.
"SERVICER DEFAULT" means an event specified in Section 7.01.
"SERVICING STANDARD" means the obligation of the Servicer to calculate,
collect, apply, remit and reconcile proceeds of the Intangible Transition
Property, including IFC Payments, and all other Note Collateral for the benefit
of the Note Issuer and the Noteholders (i) with the same degree of care and
diligence as the Servicer applies with respect to payments owed to it for its
own account, (ii) in accordance with procedures and requirements established by
the ICC for collection of electric utility tariffs and (iii) in accordance with
the other terms of this Agreement.
"TERMINATION NOTICE" has the meaning assigned to that term in Section 7.01.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) Non-capitalized terms used herein which are defined in the Public
Utilities Act shall, as the context requires, have the meanings assigned to such
terms in the Public Utilities Act, but without giving effect to amendments to
the Public Utilities Act after the date hereof which have a material adverse
effect on the Note Issuer or the Holders.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) The words "hereof," "herein," "hereunder" and words of similar import,
when used in this Agreement, shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Section, Schedule, Exhibit, Annex
and Attachment references contained in this
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Agreement are references to Sections, Schedules, Exhibits, Annexes and
Attachments in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation."
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter forms of such terms.
ARTICLE II
APPOINTMENT AND AUTHORIZATION
SECTION 2.01. APPOINTMENT OF SERVICER; ACCEPTANCE OF APPOINTMENT. Subject
to Section 6.05 and Article 7, the Grantee appoints the Servicer, and the
Servicer accepts such appointment, to perform the Servicer's obligations
pursuant to this Agreement on behalf of and for the benefit of the Grantee or
any assignee thereof in accordance with the terms of this Agreement and
applicable law. This appointment and the Servicer's acceptance thereof may not
be revoked except in accordance with the express terms of this Agreement.
SECTION 2.02. AUTHORIZATION. With respect to all or any portion of the
Intangible Transition Property, the Servicer shall be and is authorized and
empowered by the Grantee to (a) execute and deliver, on behalf of itself and/or
the Grantee, as the case may be, any and all instruments, documents or notices,
and (b) on behalf of itself and/or the Grantee, as the case may be, make any
filing and participate in proceedings of any kind with any governmental
authorities, including with the ICC. The Grantee shall furnish the Servicer
with such documents as have been prepared by the Servicer for execution by the
Grantee, and with such other documents as may be in
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the Grantee's possession, as necessary or appropriate to enable the Servicer to
carry out its servicing and administrative duties hereunder. Upon the
Servicer's written request, the Grantee shall furnish the Servicer with any
powers of attorney or other documents necessary or appropriate to enable the
Servicer to carry out its duties hereunder.
SECTION 2.03 DOMINION AND CONTROL OVER THE INTANGIBLE TRANSITION
PROPERTY. Notwithstanding any other provision herein, the Grantee shall have
dominion and control over the Intangible Transition Property, and the Servicer,
in accordance with the terms hereof, is acting solely as the servicing agent and
custodian for the Grantee with respect to the Intangible Transition Property and
the Intangible Transition Property Records. The Servicer shall not take any
action that is not authorized by this Agreement, that is not consistent with its
customary procedures and practices, or that shall impair the rights of the
Grantee in the Intangible Transition Property, in each case unless such action
is required by law or court or regulatory order.
ARTICLE III
BILLING SERVICES
SECTION 3.01. DUTIES OF SERVICER. The Servicer, as agent for the Grantee,
shall have the following duties:
(a) DUTIES OF SERVICER GENERALLY. The Servicer's duties in general shall
include management, servicing and administration of the Intangible Transition
Property (including maintaining records of the cumulative total of IFC
Collections and verifying that such amount has
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not exceeded any cap established by the ICC pursuant to a Funding Order)(1);
obtaining meter reads, calculating usage, billing, collections and posting of
all payments in respect of the Intangible Transition Property; responding to
inquiries by Customers, the ICC or any federal, local or other state
governmental authorities with respect to the Intangible Transition Property;
delivering Bills to Customers and ARES, investigating and handling
delinquencies, processing and depositing collections and making periodic
remittances; furnishing periodic reports to the Grantee, the Note Issuer, the
Indenture Trustee and the Rating Agencies; and taking all necessary action in
connection with Adjustments as set forth herein. Certain of the duties set
forth above may be performed by ARES pursuant to ARES Service Agreements.
Anything to the contrary notwithstanding, the duties of the Servicer set forth
in this Agreement shall be qualified in their entirety by any ICC Regulations as
in effect at the time such duties are to be performed. Without limiting the
generality of this Section 3.01(a), in furtherance of the foregoing, the
Servicer shall also have, and shall comply with, the duties and responsibilities
relating to data acquisition, usage and bill calculation, billing, customer
service functions, collections, payment processing and remittance set forth in
Annex I hereto, including without limitation payment of all Allocable IFC
Revenue Amounts described therein.
(b) REPORTING FUNCTIONS.
(i) MONTHLY SERVICER'S CERTIFICATE. On or before each
Remittance Date, the Servicer shall prepare and deliver to the
Grantee, the Note Issuer, the Indenture Trustee and the Rating
Agencies a written report substantially in the form of EXHIBIT
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(1)[NEED TO CONFIRM ADEQUACY OF PROCEDURES TO MONITOR THIS NUMBER AND
WHETHER PROCEDURES NEED FURTHER DESCRIPTION IN THIS DOCUMENT.]
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A hereto (a "Monthly Servicer's Certificate") setting forth certain
information relating to IFC Payments received by the Servicer during
the Collection Period immediately preceding such Remittance Date.
(ii) NOTIFICATION OF LAWS AND REGULATIONS. The Servicer
shall immediately notify the Grantee, the Note Issuer, the Indenture
Trustee and the Rating Agencies in writing of any laws or ICC
Regulations hereafter promulgated that have a material adverse effect
on the Servicer's ability to perform its duties under this Agreement.
(iii) OTHER INFORMATION. Upon the reasonable request of the
Grantee, the Note Issuer, the Indenture Trustee or any Rating Agency,
the Servicer shall provide to the Grantee, the Note Issuer, Indenture
Trustee or the Rating Agencies, as the case may be, any public
financial information in respect of the Servicer, or any material
information regarding the Intangible Transition Property to the extent
it is reasonably available to the Servicer, as may be reasonably
necessary and permitted by law, to enable the Grantee, the Note
Issuer, the Indenture Trustee or the Rating Agencies to monitor the
Servicer's performance hereunder. In addition, so long as any of the
Notes of any Series are outstanding, the Servicer shall provide the
Grantee, the Note Issuer and the Indenture Trustee, within a
reasonable time after written request therefor, any information
available to the Servicer or reasonably obtainable by it that is
necessary to calculate the IFCs applicable to each class of Customer.
(iv) PREPARATION OF REPORTS TO BE FILED WITH THE SEC. The
Servicer shall prepare any reports required to be filed by the Grantee
or the Note Issuer under the
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securities laws, including a copy of each Quarterly Servicer's
Certificate described in Section 4.01(c)(ii), the annual Certificate
of Compliance described in Section 3.03, and the Annual Accountant's
Report described in Section 3.04.
SECTION 3.02. SERVICING AND MAINTENANCE STANDARDS. On behalf of the
Grantee, the Servicer shall (a) manage, service, administer and make collections
in respect of the Intangible Transition Property with reasonable care and in
accordance with the Servicing Standard and applicable law, including all
applicable ICC Regulations and guidelines, using the same degree of care and
diligence that the Servicer exercises with respect to similar assets for its own
account and, if applicable, for others; (b) follow customary standards, policies
and procedures for the industry in performing its duties as Servicer; (c) use
all reasonable efforts, consistent with its customary servicing procedures, to
enforce, and maintain rights in respect of, the Intangible Transition Property;
(d) comply with all laws and regulations applicable to and binding on it
relating to the Intangible Transition Property, and (e) make all required
submissions and provide all required notifications to the ICC with respect to
any Adjustments. The Servicer shall be responsible for the imposition,
collection and remittance of IFCs in accordance with Annex I hereto, the
inclusion of IFCs in all Bills, and the deduction of IFCs from tariffed charges
and all other charges from which the IFCs are to be deducted and stated
separately, including, without limitation, all charges under any contracts with
Customers who would, but for such contract, be paying Applicable Rates, where
such contract provides that the Customer will pay an amount each billing period
to the Grantee or its assignee, or to the Servicer, equal to the amount of IFCs
that would have been billed if the services provided under such contract were
subject to Applicable Rates. The Servicer shall follow such customary and usual
practices and procedures as it shall deem necessary or advisable in its
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servicing of all or any portion of the Intangible Transition Property, which, in
the Servicer's judgment, may include the taking of legal action. Without
limiting the foregoing, if the Servicer determines at any time that the
aggregate dollar amount of IFC Charges to be imposed is reasonably likely to
exceed the maximum dollar amount of Intangible Transition Property authorized by
the 1998 Transitional Funding Order and any Subsequent Funding Orders to be
imposed and collected and any Notes remain outstanding, the Servicer shall make
a good faith effort to take any and all subsequent regulatory action with the
ICC to obtain an order permitting the creation of additional Intangible
Transition Property in an amount sufficient to pay such Notes in full.
SECTION 3.03. CERTIFICATE OF COMPLIANCE. The Servicer shall deliver to
the Grantee, the Note Issuer, the Indenture Trustee and the Rating Agencies on
or before September 30 of each year, commencing September 30, 1999 to and
including the September 30 succeeding the Retirement of the Notes, an Officer's
Certificate substantially in the form of EXHIBIT B hereto (a "Certificate of
Compliance"), stating that: (i) a review of the activities of the Servicer
during the twelve months ended the preceding June 30 (or, in the case of the
first Certificate of Compliance to be delivered on or before September 30, 1999,
the period of time from the date of this Agreement until June 30, 1999) and of
its performance under this Agreement has been made under such officer's
supervision, and (ii) to such officer's knowledge, based on such review, the
Servicer has fulfilled all of its obligations in all material respects under
this Agreement throughout such twelve months (or, in the case of the Certificate
of Compliance to be delivered on or before September 30, 1999, the period of
time from the date of this Agreement until June 30, 1999), or, if there has been
a default in the fulfillment of any such material obligation, specifying each
such material default known to such officer and the nature and status thereof.
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SECTION 3.04 ANNUAL REPORT BY INDEPENDENT PUBLIC ACCOUNTANTS.
(a) The Servicer, at its own expense in consideration of the Servicing Fee
paid to it, shall cause a firm of independent certified public accountants
(which may provide other services to the Servicer or Illinois Power) to prepare,
and the Servicer shall deliver to the Grantee, the Note Issuer, the Indenture
Trustee and the Rating Agencies a report addressed to the Servicer (the "Annual
Accountant's Report"), which may be included as part of the Servicer's customary
auditing activities, for the information and use of the Grantee, the Note
Issuer, the Indenture Trustee and the Rating Agencies, on or before September 30
of each year, beginning September 30, 1999 to and including the September 30
succeeding the Retirement of the Notes, to the effect that such firm has
performed certain procedures in connection with the Servicer's compliance with
its obligations under this Agreement during the preceding twelve months ended
June 30 (or, in the case of the first Annual Accountant's Report to be delivered
on or before September 30, 1999, the period of time from the date of this
Agreement until June 30, 1999), identifying the results of such procedures and
including any exceptions noted. If such accounting firm requires the Indenture
Trustee to agree or consent to the procedures performed by such firm, the
Grantee shall direct the Note Issuer to direct the Indenture Trustee in writing
to so agree; it being understood and agreed that the Indenture Trustee will
deliver such letter of agreement or consent in conclusive reliance upon the
direction of the Note Issuer, and the Indenture Trustee will not make any
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of the sufficiency, validity or correctness of such
procedures.
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(b) The Annual Accountant's Report shall also indicate that the accounting
firm providing such report is independent of the Servicer within the meaning of
the Code of Professional Ethics of the American Institute of Certified Public
Accountants.
ARTICLE IV
SERVICES RELATED TO ADJUSTMENTS
SECTION 4.01. ADJUSTMENTS. From time to time, until the Retirement of the
Notes, the Servicer shall identify the need for Adjustments and shall take all
reasonable action to obtain and implement such Adjustments, all in accordance
with the following:
(a) EXPECTED AMORTIZATION SCHEDULE. The initial Expected Amortization
Schedule is attached hereto as SCHEDULE 4.01(a). In connection with the Note
Issuer's issuance of any additional Series of Notes after the Closing Date, the
Servicer, on or prior to the Series Issuance Date therefor, shall revise the
Expected Amortization Schedule to add the requisite information for each new
Series of Notes and set forth, as of each Payment Date through the scheduled
Retirement of the Notes, the aggregate principal amounts of the Notes of all
Series, including such additional Series, expected to be outstanding on such
Payment Date. The Servicer shall also revise the Expected Amortization Schedule
to reflect any required prepayments on account of the receipt of Allocable IFC
Revenue Amounts or any other required or permitted prepayments affecting such
schedule. If the Expected Amortization Schedule is revised as set forth above,
the Servicer shall send a copy of such revised Expected Amortization Schedule to
the Grantee, the Note Issuer, the Indenture Trustee and the Rating Agencies
promptly thereafter.
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(b) ADJUSTMENTS(2)
(i) ADJUSTMENTS AND FILINGS. Within the month following the
end of each Period, the Servicer shall: (A) update the data and
assumptions underlying the calculation of the IFCs, including revenue
from Applicable Rates for each class of Customers, projected
electricity usage during the next Applicable Period for each such
class and including interest and estimated expenses and fees of the
Grantee and the Note Issuer to be paid during such period, and the
rate of delinquencies and write-offs; (B) determine the Required Debt
Service and Debt Service Billing Requirement for the next Applicable
Period based on such updated data and assumptions; (C) determine the
IFCs to be allocated to each class of Customers during the next
Applicable Period based on such Debt Service Billing Requirement and
the terms of the applicable Funding Orders and the Tariffs filed
pursuant thereto; (D) make all required notice and other filings with
the ICC to reflect the revised IFCs, including any Amendatory Tariffs
required under Section 18-104(k) of the Funding Law if the resulting
IFCs for any class of Customer will exceed an amount per kilowatt-hour
greater than the amount per kilowatt-hour authorized for such class of
Customer in the applicable Funding Order; and (E) take all reasonable
actions and make all reasonable efforts to effect such Adjustment and
to enforce the provisions of the Funding Law which limit the ICC's
authority to review any such Amendatory Tariff.
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(2)[THESE PROVISIONS ASSURE SEMI-ANNUAL ADJUSTMENTS EFFECTIVE FEBRUARY 1
AND AUGUST 1. REVISIONS WILL BE NECESSARY IF IT IS DECIDED THAT ADJUSTMENTS
SHOULD BE IMPLEMENTED EITHER ANNUALLY OR QUARTERLY.]
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(ii) In the case of any Adjustment, the Servicer shall
implement the revised IFCs, if any, as of the next Adjustment Date.
(c) REPORTS.
(i) NOTIFICATION OF TARIFF FILINGS AND RECONCILIATION.
Whenever the Servicer files a Tariff with the ICC or implements
revised IFCs with notice to the ICC but without filing a Tariff or
revisions to a Tariff as contemplated by any applicable Funding Order,
the Servicer shall send a copy of such filing or notice (together with
a copy of all notices and documents which, in the Servicer's
reasonable judgment, are material to the adjustments effected by such
Tariff or notice) to the Grantee, the Note Issuer, the Indenture
Trustee and the Rating Agencies concurrently therewith.
(ii) QUARTERLY SERVICER'S CERTIFICATE. Not later than the
Remittance Date immediately prior to each Payment Date, the Servicer
shall deliver a written report substantially in the form of EXHIBIT D
hereto (the "Quarterly Servicer's Certificate") to the Grantee, the
Note Issuer, the Indenture Trustee and the Rating Agencies.
(iii) REPORTS TO CUSTOMERS.
(A) After each revised IFC has gone into effect
pursuant to a Adjustment, the Servicer shall, to the extent and
in the manner and time frame required by applicable ICC
Regulations, if any, cause to be prepared and delivered to
Customers any required notices announcing such revised IFCs.
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(B) In addition, at least once each year, the Servicer
shall cause to be prepared and delivered to Customers a notice
stating, in effect, that the IFCs are owned by the Grantee or any
assignee thereof and not Illinois Power. Such notice shall be
included either as an insert to or in the text of the Bills
delivered to such Customers or shall be delivered to Customers by
electronic means or such other means as the Servicer or the
Applicable ARES may from time to time use to communicate with
their respective customers.
(C) Except to the extent that applicable ICC
Regulations make the Applicable ARES responsible for such costs,
the Servicer shall pay from its own funds all costs of
preparation and delivery incurred in connection with clauses (A)
and (B) above, including but not limited to printing and postage
costs as the same may increase or decrease from time to time.
(iv) ARES REPORTS. The Servicer shall provide to the Rating
Agencies, upon request, any publicly available reports filed by the
Servicer with the ICC (or otherwise made publicly available by the
Servicer) relating to ARES and any other non-confidential and
non-proprietary information relating to ARES reasonably requested by
the Rating Agencies.
SECTION 4.02. LIMITATION OF LIABILITY.
(a) The Grantee and the Servicer expressly agree and acknowledge that:
(i) In connection with any Adjustment, the Servicer is acting
solely in its capacity as the servicing agent hereunder.
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(ii) Neither the Servicer nor the Grantee shall be responsible
in any manner for, and shall have no liability whatsoever as a result
of, any action, decision, ruling or other determination made or not
made, or any delay (other than any delay resulting from the Servicer's
failure to file the Amendatory Tariffs required by Section 4.01 in a
timely and correct manner or other breach by the Servicer of its
duties under this Agreement), by the ICC in any way related to the
Intangible Transition Property or in connection with any Adjustment,
the subject of any filings under Section 4.01, any proposed
Adjustment, or the approval of any revised IFCs.
(iii) The Servicer shall have no liability whatsoever relating
to the calculation of any revised IFCs, including as a result of any
inaccuracy of any of the assumptions made in such calculation
regarding expected energy usage volume and the rate of delinquencies
and write-offs, so long as the Servicer has acted in good faith and
has not acted in a grossly negligent manner in connection therewith,
nor shall the Servicer have any liability whatsoever as a result of
any Person, including the Holders, not receiving any payment, amount
or return anticipated or expected or in respect of any Note generally,
except only to the extent that the same is caused by the Servicer's
gross negligence, willful misconduct, bad faith, or reckless disregard
of its obligations and duties under this Agreement.
(b) Notwithstanding the foregoing, this Section 4.02 shall not relieve the
Servicer of liability for any misrepresentation by the Servicer under Section
6.01 or for any breach by the Servicer of its other obligations under this
Agreement.
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ARTICLE V
THE INTANGIBLE TRANSITION PROPERTY
SECTION 5.01. CUSTODY OF INTANGIBLE TRANSITION PROPERTY RECORDS. To
assure uniform quality in servicing the Intangible Transition Property and to
reduce administrative costs, the Grantee revocably appoints the Servicer, and
the Servicer accepts such appointment, to act as the agent of the Grantee, the
Note Issuer and the Indenture Trustee as custodian of any and all documents and
records that the Grantee shall keep on file, in accordance with its customary
procedures, relating to the Intangible Transition Property, including copies of
each Funding Order and all Tariffs relating thereto, and all documents filed
with the ICC in connection with any Adjustment (collectively, the "Intangible
Transition Property Records"), which are hereby constructively delivered to the
Note Issuer, as transferee of the Grantee (or, in the case of the Subsequent
Intangible Transition Property, will as of the applicable Subsequent Sale Date
be constructively delivered to the Note Issuer, as transferee of the Grantee)
with respect to all Intangible Transition Property.
SECTION 5.02. DUTIES OF SERVICER AS CUSTODIAN.
(a) SAFEKEEPING. The Servicer shall hold the Intangible Transition
Property Records on behalf of the Grantee, the Note Issuer and the Indenture
Trustee, and maintain such accurate and complete accounts, records and computer
systems pertaining to the Intangible Transition Property Records as shall enable
the Grantee to comply with this Agreement and the Sale Agreement, and as shall
enable the Note Issuer to comply with the Sale Agreement and the Indenture. In
performing its duties as custodian the Servicer shall act with reasonable care,
using that degree of care and diligence that the Servicer exercises with respect
to comparable assets that the Servicer services for itself or, if applicable,
for others. The Servicer shall promptly report to the Grantee, the Note Issuer
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and the Indenture Trustee any failure on its part to hold the Intangible
Transition Property Records and maintain its accounts, records and computer
systems as herein provided and promptly take appropriate action to remedy any
such failure. Nothing herein shall be deemed to require an initial review or
any periodic review by the Grantee, the Note Issuer or the Indenture Trustee of
the Intangible Transition Property Records. The Servicer's duties to hold the
Intangible Transition Property Records on behalf of the Grantee, the Note Issuer
and the Indenture Trustee set forth in this Section 5.02, to the extent such
Intangible Transition Property Records have not been previously transferred to a
successor Servicer pursuant to Article VII, shall terminate three years after
the earlier of the date on which (i) the Servicer is succeeded by a successor
Servicer in accordance with Article VII hereof and (ii) no Notes of any Series
are Outstanding.
(b) MAINTENANCE OF AND ACCESS TO RECORDS. The Servicer shall maintain
the Intangible Transition Property Records at 500 South 27th Street, Decatur,
Illinois 62525, or at such other office as shall be specified to the Grantee,
the Note Issuer and the Indenture Trustee by written notice at least 30 days
prior to any change in location. The Servicer shall permit the Grantee, the
Note Issuer and the Indenture Trustee or their respective duly authorized
representatives, attorneys or auditors to inspect, audit and make copies of and
abstracts from the Servicer's records regarding the Intangible Transition
Property and the IFCs (including all the Intangible Transition Property
Records), at such times during normal business hours as the Grantee, the Note
Issuer or the Indenture Trustee shall reasonably request and which do not
unreasonably interfere with the Servicer's normal operations. Nothing in this
Section 5.02(b) shall affect the obligation of the Servicer to observe any
applicable law (including any ICC Regulations) prohibiting disclosure of
information regarding the
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Customers, and the failure of the Servicer to provide access to such information
as a result of such obligation shall not constitute a breach of this Section
5.02(b).
(c) DEFENDING INTANGIBLE TRANSITION PROPERTY AGAINST CLAIMS. The Servicer
shall institute any action or proceeding necessary to compel performance by the
ICC or the State of Illinois of any of their obligations or duties under the
Funding Law, any Funding Order or any Tariff and the Servicer agrees to take
such legal or administrative actions, including defending against or instituting
and pursuing legal actions and appearing or testifying at hearings or similar
proceedings, as may be reasonably necessary to block or overturn any attempts to
cause a repeal of, modification of or supplement to the Funding Law or any
Funding Order or the rights of holders of Intangible Transition Property that
would be adverse to the Grantee, the Note Issuer or any Holders. Unless
expressly prohibited by law or by any court or regulatory order in effect at
such time, the Servicer shall continue to impose, collect and remit IFCs in
accordance with this Agreement during the pendency of any such action and
continuing for so long as the Notes remain Outstanding. The Servicer shall
advance its own funds in order to institute any actions or proceedings described
above, PROVIDED, HOWEVER, that the costs of any such action or proceeding shall
be payable from IFC Collections as an Operating Expense in accordance with the
priorities set forth in Section 8.02(d) of the Indenture. The Servicer's
obligations pursuant to this Section 5.02 shall survive and continue
notwithstanding the fact that the payment of Operating Expenses pursuant to
Section 8.02(d) of the Indenture may be delayed (it being understood that the
Servicer may be required to advance its own funds to satisfy its obligations
hereunder).
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SECTION 5.03. INSTRUCTIONS; AUTHORITY TO ACT. For so long as any
Notes remain Outstanding, the Servicer shall be deemed to have received
proper instructions with respect to the Intangible Transition Property
Records upon its receipt of written instructions signed by a Trust Officer of
the Indenture Trustee.
SECTION 5.04. CUSTODIAN'S INDEMNIFICATION. The Servicer as custodian
shall indemnify the Grantee, the Note Issuer, the Delaware Trustee, the
Indenture Trustee and the Holders and each of their respective officers,
directors, employees and agents for, and defend and hold harmless each such
Person from and against, any and all liabilities, obligations, losses, damages,
payments and claims, and reasonable costs or expenses, of any kind whatsoever
(collectively, "Losses") that may be imposed on, incurred by or asserted against
any such Person as the result of any improper act or omission in any way
relating to the maintenance and custody by the Servicer, as custodian, of the
Intangible Transition Property Records; PROVIDED, HOWEVER, that the Servicer
shall not be liable for any portion of any such amount resulting from the
willful misconduct, bad faith or gross negligence of the Grantee, the Note
Issuer, the Delaware Trustee, the Indenture Trustee or any Holders.
Indemnification under this Section shall survive resignation or removal of
the Indenture Trustee or the Delaware Trustee and shall include reasonable
out-of-pocket fees and expenses of investigation and litigation.
SECTION 5.05. EFFECTIVE PERIOD AND TERMINATION. The Servicer's
appointment as custodian shall become effective as of the Closing Date and shall
continue in full force and effect until terminated pursuant to this Section. If
any Servicer shall resign as Servicer in accordance with the provisions of this
Agreement or if all of the rights and obligations of any Servicer shall have
been
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terminated under Section 7.01, the appointment of such Servicer as custodian
shall be terminated by the Indenture Trustee or by the Holders of Notes
evidencing not less than twenty-five percent (25%) of the Outstanding Amount
of the Notes of all Series in the same manner as the Indenture Trustee or
such Holders may terminate the rights and obligations of the Servicer under
Section 7.01.
SECTION 5.06. GENERAL INDEMNIFICATION OF INDENTURE TRUSTEE AND DELAWARE
TRUSTEE. The Servicer agrees to indemnify and hold harmless the Indenture
Trustee and the Delaware Trustee and their respective directors, officers,
employees and agents from and against any and all Losses incurred by or asserted
against any such Person as a result of or in connection with the transactions
contemplated by this Agreement or any other Basic Document, other than any Loss
incurred by reason or result of the gross negligence or willful misconduct of
the Indenture Trustee or the Delaware Trustee, respectively; PROVIDED, HOWEVER,
that the foregoing indemnity is extended to the Indenture Trustee and the
Delaware Trustee solely in their respective capacities as trustees and not for
the benefit of the Holders or any other Person. The obligations of the Servicer
set forth herein shall survive the termination of this Agreement or the earlier
resignation or removal of the Indenture Trustee under the Indenture or the
Delaware Trustee under the Trust Agreement.
ARTICLE VI
THE SERVICER
SECTION 6.01. REPRESENTATIONS AND WARRANTIES OF SERVICER. The Servicer
makes the following representations and warranties, as of the Closing Date, as
of each Subsequent Sale Date relating to the sale of Subsequent Intangible
Transition Property pursuant to a Subsequent Sale Agreement, and as of such
other dates as expressly provided in this Section 6.01, on which the
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Grantee is deemed to have relied in entering into this Agreement. The
representations and warranties shall survive the execution and delivery of
this Agreement, the transfer of this Agreement to the Note Issuer pursuant to
the Sale Agreement and the pledge thereof to the Indenture Trustee pursuant
to the Indenture.
(a) ORGANIZATION AND GOOD STANDING. The Servicer is duly organized and
validly existing as a corporation in good standing under the laws of the state
of its incorporation, with the power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted, and had at all relevant times, and has, the requisite
power, authority and legal right to service the Intangible Transition Property
and to hold the Intangible Transition Property Records as custodian.
(b) DUE QUALIFICATION. The Servicer is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary licenses
and approvals in, all jurisdictions in which the ownership or lease of property
or the conduct of its business (including the servicing of the Intangible
Transition Property as required by this Agreement) shall require such
qualifications, licenses or approvals (except where the failure to so qualify
would not be reasonably likely to have a material adverse effect on the
Servicer's business, operations, assets, revenues or properties or adversely
affect the servicing of the Intangible Transition Property).
(c) POWER AND AUTHORITY. The Servicer has the requisite power and
authority to execute and deliver this Agreement and to carry out its terms; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Servicer by all necessary corporate action.
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(d) BINDING OBLIGATION. This Agreement constitutes a legal, valid and
binding obligation of the Servicer enforceable in accordance with its terms,
subject to applicable insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws relating to or affecting creditors' rights
generally from time to time in effect and to general principles of equity
(including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing), regardless of whether considered in a proceeding in
equity or at law.
(e) NO VIOLATION. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof do not (i) conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the articles of
incorporation or bylaws of the Servicer, or any indenture, agreement or other
instrument to which the Servicer is a party or by which it shall be bound; (ii)
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument; or
(iii) violate any law or any order, rule or regulation applicable to the
Servicer of any court or of any Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the
Servicer or its properties.
(f) NO PROCEEDINGS. Except as set forth on Schedule 6.01(f), there are no
proceedings or investigations pending or, to the Servicer's knowledge,
threatened before any court, Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the
Servicer or its properties involving or relating to the Servicer or the Grantee
or, to the Servicer's knowledge, any other Person: (i) asserting the invalidity
of this Agreement, or any of the other Basic Documents or the Notes, (ii)
seeking to prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or any of the other Basic
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Documents, (iii) seeking any determination or ruling that could reasonably
be expected to materially and adversely affect the performance by the
Servicer of its obligations under, or the validity or enforceability of this
Agreement, any of the other Basic Documents or the Notes, or (iv) relating to
the Servicer and which could reasonably be expected to adversely affect the
Federal or state income tax attributes of the Notes.
(g) APPROVALS. No approval, authorization, consent, order or other action
of, or filing with, any court, Federal or state regulatory body, administrative
agency or other governmental instrumentality is required in connection with the
Servicer's execution and delivery of this Agreement, the Servicer's performance
of the transactions contemplated hereby or the Servicer's fulfillment of the
terms hereof, except those that have been obtained or made and those that the
Servicer is required to make in the future pursuant to Article IV hereof.
(h) REPORTS AND CERTIFICATES. Each report and certificate delivered in
connection with a Tariff will constitute a representation and warranty by the
Servicer that each such report or certificate, as the case may be, is true and
correct; PROVIDED, HOWEVER, that to the extent any such report or certificate is
based in part upon or contains assumptions, forecasts or other predictions of
future events, the representation and warranty of the Servicer with respect
thereto will be limited to the representation and warranty that such
assumptions, forecasts or other predictions of future events are reasonable
based upon historical performance and other pertinent information.
SECTION 6.02. INDEMNITIES OF SERVICER; RELEASE OF CLAIMS.
(a) The Servicer shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken by the Servicer under this Agreement.
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(b) The Servicer shall indemnify the Grantee, the Note Issuer, the
Indenture Trustee, the Delaware Trustee and the Holders and each of their
respective officers, directors, employees and agents for, and defend and hold
harmless each such Person from and against, any and all Losses that may be
imposed on, incurred by or asserted against any such Person as a result of
(i) the Servicer's willful misconduct, bad faith or gross negligence in the
performance of its duties or observance of its covenants under this Agreement
or its reckless disregard of its obligations and duties under this Agreement,
or (ii) the Servicer's breach of any of its representations or warranties in
this Agreement.
(c) For purposes of Section 6.02(b), in the event of the termination of
the rights and obligations of Illinois Power (or any successor thereto pursuant
to Section 6.03) as Servicer pursuant to Section 7.01, or a resignation by such
Servicer pursuant to this Agreement, such Servicer shall be deemed to be the
Servicer pending appointment of a successor Servicer pursuant to Section 7.02.
(d) Indemnification under Sections 6.02(b) and 6.02(c) shall survive the
resignation or removal of the Indenture Trustee or the Delaware Trustee or the
termination of this Agreement and shall include reasonable out-of-pocket fees
and expenses of investigation and litigation (including reasonable attorneys'
fees and expenses).
(e) Except to the extent expressly provided in this Agreement or the other
Basic Documents (including, without limitation, the Servicer's claims with
respect to the Servicing Fee, reimbursement for any Excess Remittance,
reimbursement for costs incurred pursuant to Section 5.12(d) and the payment of
the consideration for any grant of Intangible Transition Property to the
Grantee), the Servicer releases and discharges the Grantee, the Note Issuer and
the Indenture Trustee and each of their respective officers, directors and
agents (collectively, the "Released Parties") from any and all actions, claims
and demands whatsoever, whenever arising, which the Servicer, in its
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capacity as Servicer or otherwise, shall or may have against any such Person
relating to the Intangible Transition Property or the Servicer's activities
with respect thereto other than any actions, claims and demands arising out
of the willful misconduct, bad faith or gross negligence of the Released
Parties.
SECTION 6.03. MERGER OR CONSOLIDATION OF OR ASSUMPTION OF THE
OBLIGATIONS OF SERVICER. Any Person (a) into which the Servicer may be merged
or consolidated, (b) which may result from any merger or consolidation to which
the Servicer shall be a party or (c) which may succeed to the properties and
assets of the Servicer substantially as a whole, or, with respect to its
obligations as Servicer, which Person in any of the foregoing cases executes an
agreement of assumption to perform every obligation of the Servicer hereunder,
shall be the successor to the Servicer under this Agreement without further act
on the part of any of the parties to this Agreement; PROVIDED, HOWEVER, that (i)
immediately after giving effect to such transaction, no Servicer Default and no
event which, after notice or lapse of time, or both, would become a Servicer
Default shall have occurred and be continuing, (ii) the Servicer shall have
delivered to the Grantee, the Note Issuer, the Indenture Trustee and the Rating
Agencies an Officers' Certificate and an Opinion of Counsel each stating that
such consolidation, merger or succession and such agreement of assumption
complies with this Section and that all conditions precedent provided for in
this Agreement relating to such transaction have been complied with and (iii)
the Servicer shall have delivered to the Grantee, the Note Issuer, the Indenture
Trustee and the Rating Agencies an Opinion of Counsel either (A) stating that,
in the opinion of such counsel, all filings to be made by the Servicer,
including filings with the ICC pursuant to the Funding Law, have been executed
and filed that are necessary to preserve and protect fully the interests of the
Grantee in the Intangible
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Transition Property and reciting the details of such filings or (B) stating
that, in the opinion of such counsel, no such action shall be necessary to
preserve and protect such interests. Notwithstanding anything herein to the
contrary, the execution of the foregoing agreement of assumption and
compliance with clauses (i), (ii) and (iii) above shall be conditions to the
consummation of the transactions referred to in clauses (a), (b) or (c) above.
SECTION 6.04. LIMITATION ON LIABILITY OF SERVICER AND OTHERS. Neither
the Servicer nor any of the directors or officers or employees or agents of the
Servicer shall be liable to the Grantee, the Note Issuer, the Indenture Trustee,
the Delaware Trustee, the Holders or any other Person, except as provided under
this Agreement, for any action taken or for refraining from the taking of any
action pursuant to this Agreement or for errors in judgment; PROVIDED, HOWEVER,
that this provision shall not protect the Servicer or any such person against
any liability that would otherwise be imposed by reason of willful misconduct,
bad faith or gross negligence in the performance of the Servicer's duties or by
reason of reckless disregard of the Servicer's obligations and duties. The
Servicer and any director or officer or employee or agent of the Servicer may
rely in good faith on the advice of counsel reasonably acceptable to the
Indenture Trustee or on any document of any kind, PRIMA FACIE properly executed
and submitted by any Person, respecting any matters arising under this
Agreement.
Except as provided in this Agreement, the Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action that shall not be
related to or incidental to its duties to service the Intangible Transition
Property in accordance with this Agreement, and that in its opinion may involve
it in any expense or liability.
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SECTION 6.05. ILLINOIS POWER NOT TO RESIGN AS SERVICER. Subject to
the provisions of Sections 6.03, Illinois Power shall not resign from the
obligations and duties hereby imposed on it as Servicer under this Agreement
unless either (a) the Servicer determines that the performance of its duties
under this Agreement shall no longer be permissible under applicable law
(disregarding any breach of the State Pledge that is being contested or
subsequent invalidation of the Funding Law, any Funding Order and/or any
tariff or tariffs filed in connection therewith), or (b) the Rating Agency
Condition shall have been satisfied and, to the extent required under any
Funding Order, and, in either case, the ICC shall have approved such
resignation. Notice of any such determination permitting Illinois Power's
resignation shall be given to the Grantee, the Note Issuer, the Indenture
Trustee and the Rating Agencies at the earliest practicable time (and, if
such communication is not in writing, shall be confirmed in writing at the
earliest practicable time) and any such determination shall be evidenced by
an Opinion of Counsel to such effect delivered to the Grantee, the Note
Issuer and the Indenture Trustee concurrently with or promptly after such
notice. No such resignation shall become effective until a successor
Servicer shall have assumed Illinois Power's responsibilities and obligations
in accordance with Section 7.02.
SECTION 6.06. SERVICING COMPENSATION.
(a) In consideration for its services hereunder, until the Retirement of
the Notes, the Servicer shall receive a fee (the "Servicing Fee") quarterly on
each Payment Date in an amount equal to one-fourth of (i) $__________ for so
long as IFCs are billed concurrently with charges or otherwise billed to
Customers or (ii) not to exceed $___________ if IFCs are not billed concurrently
with charges or otherwise billed to Customers but, instead, are billed
separately to Customers. The Servicer shall also be entitled to retain as
additional compensation (i) any interest earnings on IFC
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Payments received by the Servicer and invested by the Servicer pursuant to
Section 6(d) of Annex I hereto during each Collection Period prior to
remittance to the Collection Account and (ii) all late payment charges, if
any, collected from Customers or ARES. So long as the Servicer is billing
Customers for charges for electric service or any Applicable Rates, the
Servicer will bill IFCs to such Customers concurrently with such other
charges and such applicable Rates.
(b) The Indenture Trustee shall pay the Servicer the Servicing Fee set
forth in Section 6.06(a) above on each Payment Date in accordance with the
priorities set forth in Section 8.02(d) of the Indenture, by wire transfer of
immediately-available funds from the Collection Account to an account designated
by the Servicer. Any portion of the Servicing Fee not paid on such date shall
be added to the Servicing Fee payable on the subsequent Payment Date.
(c) Except as provided in Section 5.02(c), the Servicer shall be required
to pay from its own account all expenses incurred by it in connection with its
activities hereunder (including any fees to and disbursements by accountants,
counsel, or any other Person, any taxes imposed on the Servicer and any expenses
incurred in connection with reports to Holders) out of the compensation retained
by or paid to it pursuant to this Section 6.06, and shall not be entitled to any
extra payment or reimbursement therefor.
SECTION 6.07. COMPLIANCE WITH APPLICABLE LAW. The Servicer covenants
and agrees, in servicing the Intangible Transition Property, to comply with all
laws applicable to, and binding upon, the Servicer and relating to such
Intangible Transition Property the noncompliance with which would have a
material adverse effect on the value of the Intangible Transition Property;
PROVIDED, HOWEVER, that the foregoing is not intended to, and shall not, impose
any liability on the Servicer for
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noncompliance with any law that the Servicer is contesting in good faith in
accordance with its customary standards and procedures.
SECTION 6.08. ACCESS TO CERTAIN RECORDS AND INFORMATION REGARDING
INTANGIBLE TRANSITION PROPERTY. The Servicer shall provide to the Grantee,
the Note Issuer, the Indenture Trustee and the Holders access to the
Intangible Transition Property Records in such cases where the Grantee, the
Note Issuer, the Indenture Trustee and the Holders shall be required by
applicable law to be provided access to such records. Access shall be
afforded without charge, but only upon reasonable request and during normal
business hours at the offices of the Servicer. Nothing in this Section shall
affect the Servicer's obligation to observe any applicable law (including any
ICC Regulation) prohibiting disclosure of information regarding the
Customers, and the failure of the Servicer to provide access to such
information as a result of such obligation shall not constitute a breach of
this Section.
SECTION 6.09. APPOINTMENTS. The Servicer may at any time appoint any
Person to perform all or any portion of its obligations as Servicer hereunder;
PROVIDED, HOWEVER, that, unless such person is Illinova Corporation or a
wholly-owned subsidiary thereof, the Rating Agency Condition shall have been
satisfied in connection therewith; PROVIDED FURTHER that the Servicer shall
remain obligated and be liable to the Grantee, the Note Issuer, the Indenture
Trustee and the Holders for the servicing and administering of the Intangible
Transition Property in accordance with the provisions hereof without diminution
of such obligation and liability by virtue of the appointment of such Person and
to the same extent and under the same terms and conditions as if the Servicer
alone were servicing and administering the Intangible Transition Property; and
PROVIDED FURTHER, HOWEVER, that nothing herein (including, without limitation,
the Rating Agency Condition) shall
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preclude the execution by the Servicer of an ARES Service Agreement with any
ARES pursuant to applicable ICC Regulations. The fees and expenses of such
Person shall be as agreed between the Servicer and such Person from time to
time and none of the Grantee, the Note Issuer, the Indenture Trustee, the
Holders or any other Person shall have any responsibility therefor or right
or claim thereto. No such appointment shall constitute a Servicer
resignation under Section 6.05.
SECTION 6.10. NO SERVICER ADVANCES. The Servicer shall not make any
advances of interest or principal on the Notes.
SECTION 6.11. REMITTANCES.
(a) Subject to clause (b) below, on each Remittance Date, the Servicer
shall cause to be made a wire transfer of immediately-available funds equal to
the Aggregate [check] Remittance Amount for the applicable Collection Period to
the General Subaccount of the Collection Account. Prior to each remittance to
the General Subaccount of the Collection Account pursuant to this Section, the
Servicer shall provide written notice to the Indenture Trustee of each such
remittance (including the exact dollar amount to be remitted).
(b) Notwithstanding the foregoing clause (a), during any period in which a
Servicer Default has occurred and is continuing, the failure to satisfy the
Rating Agency Condition or the failure of the Servicer to maintain a short-term
rating of [ ] or better by Standard & Poor's and [ ] or better by
Moody's, the Servicer shall remit to the General Subaccount of the Collection
Account the total IFC Payments [estimated to have been] received by the Servicer
from or on behalf of Customers on a given Servicer Business Day in respect of
all previously Billed IFCs within [two] Servicer Business Days of receipt
thereof by the Servicer (the "Daily Remittance").
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(c) The Servicer agrees and acknowledges that it holds all IFC Payments
collected by it for the benefit of the Grantee and that all such amounts
shall be remitted by the Servicer in accordance with this Section without any
surcharge, fee, offset, charge or other deduction except (i) as set forth in
clause (b) above or clause (d) below and (ii) for late fees permitted by
Section 6.06. The Servicer shall not make any claim to reduce its obligation
to remit all IFC Payments collected by it in accordance with this Agreement
except (i) as set forth in clause (b) above or clause (d) below and (ii) for
late fees permitted by Section 6.06.
SECTION 6.12. COMPLIANCE WITH SERVICING STANDARD; CHANGES IN ICC
TARIFFS. The Servicer shall, with respect to its duties hereunder, comply at
all times with the Servicing Standard, and, so long as any of the Notes are
outstanding, shall not initiate any material changes with respect to its
policies and procedures pertaining to credit (including requirements for
deposits from Customers), billing, collections (including procedures for
disconnection of service for non-payment) and restoration of service after
disconnection, and shall not, except as required by applicable law, initiate any
changes in any ICC tariffs relating to the foregoing which are reasonably likely
to adversely affect the Servicer's ability to make timely recovery of amounts
billed to Customers. Notwithstanding the foregoing, the Servicer may, in its
own discretion, waive any late payment charge or any other fee or charge
relating to delinquent payments, if any, and may waive, vary or modify any terms
of payment of any amounts payable by a Customer, in each case, if such waiver or
action (a) would be in accordance with the Servicer's customary practices or
those of any successor Servicer with respect to comparable assets that it
services for itself, (b) would not materially adversely affect the Noteholders
and (c) would comply with applicable law. In addition,
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the Servicer may write off any amounts that it deems uncollectible in
accordance with its customary practices.
ARTICLE VII
DEFAULT
SECTION 7.01. SERVICER DEFAULT. If any one of the following events (a
"Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to deposit in the Collection Account on
behalf of the Grantee any required remittance that shall continue unremedied for
a period of three Business Days after written notice of such failure is received
by the Servicer from the Grantee, the Note Issuer or the Indenture Trustee or
after discovery of such failure by a Responsible Officer of the Servicer; or
(b) any failure on the part of the Servicer or Illinois Power, as the case
may be, duly to observe or to perform in any material respect any other
covenants or agreements of the Servicer or Illinois Power (as the case may be)
set forth in this Agreement (including Section 4.01) or any other Basic Document
to which it is a party, which failure shall (i) materially and adversely affect
the rights of the Holders and (ii) continue unremedied for a period of 30 days
after the date on which written notice of such failure, requiring the same to be
remedied, shall have been given (A) to the Servicer or Illinois Power (as the
case may be) by the Grantee or the Note Issuer or (B) to the Servicer or
Illinois Power (as the case may be) by the Indenture Trustee or by the Holders
of Notes evidencing not less than twenty-five percent (25%) of the Outstanding
Amount of the Notes of all Series; or
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(c) any representation or warranty made by the Servicer in this
Agreement shall prove to have been incorrect when made, which has a material
adverse effect on the Grantee, the Note Issuer or the Holders and which
material adverse effect continues unremedied for a period of 60 days after
the date on which written notice thereof requiring the same to be remedied,
shall have been delivered to the Servicer by the Grantee, the Note Issuer or
the Indenture Trustee; or
(d) an Insolvency Event occurs with respect to the Servicer or Illinois
Power; then, and in each and every case, so long as the Servicer Default shall
not have been remedied, either the Indenture Trustee, or the Holders of Notes
evidencing not less than twenty-five percent (25%) of the Outstanding Amount of
the Notes of all Series, by notice (a "Termination Notice") then given in
writing to the Servicer (and to the Indenture Trustee if given by the Holders)
may terminate all the rights and obligations (other than the obligations set
forth in Section 6.02 hereof) of the Servicer under this Agreement. In
addition, upon a Servicer Default described in Section 7.01(a), each of the
following shall be entitled to apply to the ICC for sequestration and payment of
revenues arising with respect to the Intangible Transition Property: (1) the
Holders and the Indenture Trustee as beneficiaries of the lien provided under
Section 18-107(c) of the Funding Law; (2) the Grantee or its assignees; (3) the
Note Issuer; or (4) pledgees or transferees of the Intangible Transition
Property. On or after the receipt by the Servicer of a Termination Notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Notes, the Intangible Transition Property, the IFCs or otherwise, shall,
without further action, pass to and be vested in such successor Servicer as may
be appointed under Section 7.02; and, without limitation, the Indenture Trustee
is authorized and empowered to execute and deliver, on behalf of the predecessor
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or
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<PAGE>
things necessary or appropriate to effect the purposes of such Termination
Notice, whether to complete the transfer of the Intangible Transition
Property Records and related documents, or otherwise. The predecessor
Servicer shall cooperate with the successor Servicer, the Grantee, the Note
Issuer and the Indenture Trustee in effecting the termination of the
responsibilities and rights of the predecessor Servicer under this Agreement,
including the transfer to the successor Servicer for administration by it of
(i) all cash amounts that shall at the time be held by the predecessor
Servicer for remittance, or shall thereafter be received by it with respect
to the Intangible Transition Property or the IFCs, and (ii) any and all
Intangible Transition Property Records. All reasonable out-of-pocket costs
and expenses (including attorneys' fees and expenses) incurred in connection
with transferring the Intangible Transition Property Records to the successor
Servicer and amending this Agreement to reflect such succession as Servicer
pursuant to this Section shall be paid by the predecessor Servicer upon
presentation of reasonable documentation of such costs and expenses.
SECTION 7.02. APPOINTMENT OF SUCCESSOR.
(a) Upon the Servicer's receipt of a Termination Notice pursuant to
Section 7.01 or the Servicer's resignation or removal in accordance with the
terms of this Agreement, the predecessor Servicer shall continue to perform its
functions as Servicer under this Agreement, and shall be entitled to receive the
requisite Servicing Fee, until a successor Servicer shall have assumed in
writing the obligations of the Servicer hereunder as described below. In the
event of the Servicer's termination hereunder, the Grantee shall appoint a
successor Servicer with the Note Issuer's prior written consent thereto (which
consent shall not be unreasonably withheld), and the successor Servicer shall
accept its appointment by a written assumption in form acceptable to the Grantee
and the Note Issuer. If within 30 days after the delivery of the Termination
Notice, the Grantee shall not
34
<PAGE>
have obtained such a new Servicer, the Indenture Trustee may petition the
ICC or a court of competent jurisdiction to appoint a successor Servicer
under this Agreement. A Person shall qualify as a successor Servicer only if
(i) such Person is permitted under the Public Utilities Act and ICC
Regulations to perform the duties of the Servicer, (ii) the Rating Agency
Condition shall have been satisfied and (iii) such Person enters into a
servicing agreement with the Grantee having substantially the same provisions
as this Agreement.
(b) Upon appointment, the successor Servicer shall be the successor in all
respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities arising thereafter relating thereto
placed on the predecessor Servicer and shall be entitled to the Servicing Fee
and all the rights granted to the predecessor Servicer by the terms and
provisions of this Agreement.
SECTION 7.03. WAIVER OF PAST DEFAULTS. The Holders of Notes evidencing
not less than a majority of the Outstanding Amount of the Notes of all Series
may, on behalf of all Holders, waive in writing any default by the Servicer in
the performance of its obligations hereunder and its consequences, except a
default in making any required deposits to the Collection Account in accordance
with this Agreement, which waiver shall require the consent of all Holders.
Upon any such waiver of a past default, such default shall cease to exist, and
any Servicer Default arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereto.
SECTION 7.04. NOTICE OF SERVICER DEFAULT. The Servicer shall deliver
to the Grantee, the Note Issuer, the Indenture Trustee and the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event later than
five Business Days thereafter, written notice in an
35
<PAGE>
Officer's Certificate of any event which with the giving of notice or lapse
of time, or both, would become a Servicer Default under Section 7.01(a) or
(b).
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.01. AMENDMENT.
(a) This Agreement may be amended in writing by the Servicer and the
Grantee with five Business Days' prior written notice given to the Rating
Agencies and the prior written consent of the Indenture Trustee, but without the
consent of any of the Holders or Holders, to cure any ambiguity, to correct or
supplement any provisions in this Agreement or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions in
this Agreement or of modifying in any manner the rights of the Holders;
PROVIDED, HOWEVER, that such action shall not, as evidenced by an Officer's
Certificate delivered to the Grantee, the Note Issuer, the Delaware Trustee and
the Indenture Trustee, adversely affect in any material respect the interests of
any Holder.
This Agreement may also be amended in writing from time to time by the
Servicer and the Grantee with prior written notice given to the Rating Agencies
and the prior written consent of the Indenture Trustee and the prior written
consent of the Holders of Notes evidencing not less than a majority of the
Outstanding Amount of the Notes of all Series, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Holders;
PROVIDED, HOWEVER, that no such amendment shall (a) increase or reduce in any
manner the amount of or accelerate or delay the timing of IFC
36
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Collections or (b) reduce the aforesaid percentage of the Outstanding Amount
of the Notes, the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all the outstanding Notes.
Promptly after the execution of any such amendment and the requisite
consents, the Grantee shall furnish written notification of the substance of
such amendment to the Note Issuer, the Indenture Trustee and each of the Rating
Agencies.
It shall not be necessary for the consent of Holders pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof.
Prior to its consent to any amendment to this Agreement, the Indenture
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel stating that such amendment is authorized or permitted by this
Agreement. The Indenture Trustee may, but shall not be obligated to, enter into
any such amendment which affects the Indenture Trustee's own rights, duties or
immunities under this Agreement or otherwise.
(b) Notwithstanding Section 8.01(a) or anything to the contrary in this
Agreement, the Servicer and the Grantee may amend Annex I to this Agreement in
writing with prior written notice given to the Indenture Trustee and the Rating
Agencies, but without the consent of the Indenture Trustee, any Rating Agency or
any Holder, solely to address changes to the Servicer's method of calculating
IFC Payments received as a result of changes to the Servicer's current
computerized customer information system, as contemplated by Section [
] of Annex I hereto; PROVIDED that any such amendment shall not have a
material adverse effect on the Holders.
37
<PAGE>
SECTION 8.02 MAINTENANCE OF RECORDS. The Servicer shall maintain
accounts and records as to the Intangible Transition Property accurately and in
accordance with its standard accounting procedures and in sufficient detail to
permit reconciliation between IFC Payments received by the Servicer and IFC
Collections from time to time deposited in the Collection Account.
SECTION 8.03. NOTICES. All demands, notices and communications upon or
to the Servicer, the Grantee, the Note Issuer, the Indenture Trustee or the
Rating Agencies under this Agreement shall be in writing and personally
delivered, sent by overnight mail or sent by telecopy or other similar form of
rapid transmission, and shall be deemed to have been duly given upon receipt (a)
in the case of the Servicer, to Illinois Power Company, 500 South 27th Street,
Decatur, Illinois 62525; (b) in the case of the Grantee, to Illinois Power
Securitization Limited Liability Company, c/o Illinois Power Company, 500 South
27th Street, Decatur, Illinois 62525; (c) in the case of the Note Issuer, to
Illinois Power Special Purpose Trust, c/o First Union Trust Company, National
Association, One Rodney Square, 920 King Street, 1st Floor, Wilmington, Delaware
19801, Attn: Corporate Trust Administration; (d) in the case of the Indenture
Trustee, at the Corporate Trust Office; (e) in the case of Moody's, to Moody's
Investors Service, Inc., ABS Monitoring Department, 99 Church Street, New York,
New York 10007; (f) in the case of Standard & Poor's, to Standard & Poor's
Corporation, 26 Broadway (10th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department; (g) in the case of Fitch, to Fitch
Investors Service, L.P., One State Street Plaza, New York, NY 10004, Attention
of Commercial Asset-Backed Securities; or (h) in the case of Duff & Phelps, to
Duff & Phelps Credit Rating Co., 17 State Street, 12th Floor, New York, NY
10004, Attention: Asset-Backed Monitoring Group; or as to each of the foregoing,
at such other address as shall be designated by written notice to the other
parties.
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SECTION 8.04. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Section 6.03 and as provided in the
provisions of this Agreement concerning the resignation of the Servicer, this
Agreement may not be assigned by the Servicer.
SECTION 8.05. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Servicer and the Grantee and, to the
extent provided herein or in the Basic Documents, the Note Issuer, the Indenture
Trustee and the Holders, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Intangible Transition Property or under or in
respect of this Agreement or any covenants, conditions or provisions contained
herein.
SECTION 8.06. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 8.07. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 8.08. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
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<PAGE>
SECTION 8.09. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Illinois, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.
SECTION 8.10. ASSIGNMENTS TO NOTE ISSUER AND INDENTURE TRUSTEE. The
Servicer acknowledges and consents to the assignment of any or all of the
Grantee's rights and obligations hereunder to the Note Issuer pursuant to the
Sale Agreement, and the collateral assignment of any or all of the Note
Issuer's rights and obligations hereunder to the Indenture Trustee pursuant
to the Indenture. After the Grantee transfers its rights and obligations
hereunder to the Note Issuer pursuant to the Sale Agreement, any duty the
Servicer owes to the Grantee and the Note Issuer hereunder shall be fully
performed if such duty is performed for the benefit of the Note Issuer alone.
SECTION 8.11. NONPETITION COVENANTS. Notwithstanding any prior
termination of this Agreement or the Indenture, but subject to the ICC's
right to order the sequestration and payment of revenues arising with respect
to the Intangible Transition Property notwithstanding any bankruptcy,
reorganization or other insolvency proceedings with respect to the debtor,
pledgor or transferor of the Intangible Transition Property pursuant to any
applicable Funding Order or other applicable law, the Servicer shall not,
prior to the date which is one year and one day after the termination of the
Indenture, acquiesce, petition or otherwise invoke or cause the Grantee or
the Note Issuer to invoke or join with them in provoking the process of any
court or governmental authority for the purpose of commencing or sustaining a
case against the Grantee or the Note Issuer under any Federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Grantee or the Note Issuer or any
40
<PAGE>
substantial part of the property of the Grantee or the Note Issuer, or
ordering the winding up or liquidation of the affairs of the Grantee or the
Note Issuer.
SECTION 8.12. LIMITATION OF LIABILITY. It is expressly understood
and agreed by the parties hereto that (a) this Agreement is acknowledged and
accepted by First Union Trust Company, National Association ("First Union"),
not individually or personally but solely as Delaware Trustee on behalf of
the Note Issuer, and by Harris Trust and Savings Bank ("Harris"), not
individually or personally but solely as Indenture Trustee on behalf of the
Holders, in each case in the exercise of the powers and authority conferred
and vested in it, (b) the representations, undertakings and agreements herein
made by the Delaware Trustee on behalf of the Note Issuer, and by the
Indenture Trustee on behalf of the Holders, are made and intended not as
personal representations, undertakings and agreements by First Union and
Harris, respectively, but are made and intended for the purpose of binding
only the Note Issuer and the Holders, respectively, (c) nothing herein
contained shall be construed as creating any liability on First Union or
Harris, individually or personally, to perform any covenant either expressed
or implied contained herein, except in their respective capacities as
Delaware Trustee and Indenture Trustee, all such liability, if any, being
expressly waived by the parties who are signatories to this Agreement and by
any Person claiming by, through or under such parties and (d) under no
circumstances shall First Union or Harris, be personally liable for the
payment of any indebtedness or expenses of the Note Issuer or the Holders,
respectively, or be personally liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by the
Delaware Trustee or the Indenture Trustee, respectively, under this
Agreement; PROVIDED, HOWEVER, that this provision shall not protect First
Union or Harris against any liability that would otherwise be imposed by
reason of willful
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misconduct, bad faith or gross negligence in the performance of their
respective duties under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers as of the day and year first above
written.
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
By:
-----------------------------
Name:
----------------------------
Title:
--------------------------
ILLINOIS POWER COMPANY
By:
-----------------------------
Name:
----------------------------
Title:
--------------------------
Acknowledged and Accepted: FIRST UNION
TRUST COMPANY, NATIONAL ASSOCIATION, not
in its individual capacity but solely as
Delaware Trustee
By:
-------------------------------
Name
-----------------------------
Title:
----------------------------
HARRIS TRUST AND SAVINGS BANK,
not in its individual capacity but solely
as Indenture Trustee
By:
----------------------------
Name:
---------------------------
Title:
-------------------------
43
<PAGE>
EXHIBIT 10.4
Form of Administration Agreement
Page 1 of 6
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT ("Agreement"), dated as of
__________, 1998, is entered into among Illinois Power Company, an Illinois
corporation ("IPC" or the "Administrator") and Illinois Power Securitization,
LLC, a limited liability company ("IPS").
WHEREAS, pursuant to Article XVIII of the Illinois Public Utilities
Act (the "Act"), the Administrator has formed IPS as a limited liability
company of which the Administrator is the sole member in order for IPS to
become a "grantee" of "intangible transition property" in accordance with the
Act; and
WHEREAS, the IP Special Purpose Trust ("Trust") has been created in
order to accept the assignment of all of IPS' right, title and interest in
and to the intangible transition property and certain other property so that
the Trust shall be an "assignee" as defined in Article XVIII of the Act and
will issue "transitional funding instruments" (the "Notes") pursuant to that
certain Note Indenture dated ____,1998 the net proceeds of which will be paid
by the Trust to IPS and by IPS to IPC; and
WHEREAS, IPS requires certain facilities, including, without
limitation, office space, office furniture and equipment, computer equipment
and communications equipment, to carry on its business activities; and
WHEREAS, IPS requires certain services including, without
limitation, administrative, personnel, purchasing and operational services,
in order to carry on its business activities; and
WHEREAS, IPS desires to engage IPC as Administrator hereunder in
order to provide such facilities and services to IPS and to administer the
day to day operations of IPS; and
WHEREAS, IPC is willing to provide such facilities and services and
to act as Administrator hereunder; and
WHEREAS, the parties hereto believe that the Administrator's
provision of such facilities and services will be efficient and
cost-effective for all parties involved; and
WHEREAS, the parties hereto wish to incorporate certain terms and
provisions of that certain Services and Facilities Agreement (the "SAFA")
dated as of May 27, 1994 between Illinova Corporation ("Illinova") and IPC,
as amended, a copy of which SAFA is attached hereto as EXHIBIT A;
<PAGE>
Page 2 of 6
NOW, THEREFORE, in consideration of the mutual promises set forth
below, the parties hereby agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement without
definition shall have the meaning set forth in the SAFA. For the purposes of
this Agreement, the term "Illinova" as used in the SAFA shall mean "IPS".
Non-capitalized terms used herein which are defined in Article XVIII of the
Act shall have the meanings as so defined therein.
2. PROVISIONS OF FACILITIES AND SERVICES. During the term of
this Agreement, IPC hereby agrees to act as Administrator hereunder on behalf
of IPS. The Administrator shall make available or provide to IPS upon its
request, such facilities (collectively, "Facilities") as are described in
Section 1.B of the SAFA and such services (collectively, "Services") as are
described in Section 1.A of the SAFA, with the exception of those services
described in Sections 3.G and 16 of the SAFA; PROVIDED that (i) the
Administrator shall have no obligation to provide any such Facilities or
Services to the extent that IPC, under the SAFA, would not be obligated to
provide such Facilities or Services thereunder and (ii) such Services shall
be administrative and ministerial in nature and are not intended to provide
the Administrator with the right to manage and control IPS, it being
understood that the management and control of IPS and its ongoing
responsibilities shall be governed by separate agreements relating to such
matters, including without limitation IPS's certificate of formation and
limited liability company agreement. The parties hereto further acknowledge
that IPS has been formed as a special purpose entity whose business
activities will be limited to the perfection and maintenance of rights in the
intangible transition property created under an order from the Illinois
Commerce Commission and under the assignment transactions contemplated
thereby, the entry into such documents as may be required to evidence and
consummate the foregoing transactions and any other matters relating or
incidental thereto. Accordingly, the Administrator shall have no obligation
hereunder to provide or perform Facilities or Services to IPS if such
Services or Facilities are not reasonably related to the business activities
recited above. Notwithstanding the foregoing, the Administrator shall
provide all Facilities and Services which IPS has reasonably demonstrated are
necessary for it to comply with the terms of, and perform its obligations
under, all documents, agreements or instruments entered into in connection
with the issuance of the Notes, with the exception of those services to be
provided under that certain Servicing Agreement between IPC and IPS entered
into as of______ 1998. All Facilities and Services shall, except as
otherwise specifically set forth in this Agreement, be provided without
warranty of any kind as provided in the SAFA.
3. INSTRUCTIONS TO EMPLOYEES. The Administrator shall advise all
of its employees requested to perform Services that IPS is a separate legal
entity from IPC and from IPC's subsidiaries and affiliates, other than IPS,
and shall instruct such employees not to represent IPC or its affiliates as
having agreed to pay or as being liable for the debts of IPS and not to
represent IPS as having agreed to pay or as being liable for the debts of IPC
or IPC's affiliates. The Administrator further agrees to advise all
employees performing Services on behalf of IPS that, in performing such
Services, such employees must follow any directions given them by the
officers of IPS and to act in the best interests of IPS, as applicable.
<PAGE>
Page 3 of 6
4. EMPLOYEES. The Administrator shall at all times during the
term of this Agreement provide the following services to all of its personnel
who provide Services to IPS from time to time (such personnel, the
"Employees"), whether or not such Employees are also officers of IPS: (i) any
and all compensation and benefits (including, but not limited to, vacation,
holiday and sick pay, life and health insurance, and pension benefits)
comparable to those maintained for the Administrator's employees not engaged
in rendering Services or as required by any applicable employment practices,
policies and contracts, and (ii) the payment of all required federal, state,
and local taxes, social security contributions and federal and state
unemployment compensation insurance taxes. The Administrator shall also
maintain workmen's compensation and liability insurance covering Employees in
compliance with applicable law on a basis comparable to such insurance
maintained for the Administrator's employees not engaged in rendering
Services.
5. CHARGES AND INVOICING. Charges for the use of the Facilities
and Services shall be determined in accordance with Section 3 and other
applicable cost allocation provisions of the SAFA and all invoicing and
payment for such Facilities and Services shall be in accordance with Section
4 of the SAFA; PROVIDED, HOWEVER, that the Administrator acknowledges that
payments owed under this Agreement, to the extend paid out of collections of
instrument funding charges or other intangible transition property, shall be
subject to the priority of payment set forth in the Note Indenture. All
charges owed hereunder shall, unless otherwise expressly agreed by the
parties, be deemed to be operating expenses, and not fees, for purposes of
the Note Indenture.
6. SERVICING AGREEMENT. Notwithstanding anything to the contrary
in this Agreement, so long as the Administrator is also acting as "Servicer"
under that certain Servicing Agreement entered into as of____, 1998, the
Administrator hereby acknowledges and agrees that all out-of-pocket expenses
and all other costs and expenses incurred by the Administrator in performing
its role as Servicer are being separately compensated through payment of the
"Servicing Fee" payable thereunder and shall not constitute costs and
expenses payable to the Administrator under this Agreement.
7. TERM. The term of this Agreement shall begin as of the date
of issuance of the Notes, and, unless terminated earlier in accordance with
the provisions hereof, shall end on June 30, 2009; PROVIDED, that, if the
Notes issued by the Trust have not been paid in full by such time, then the
IPS shall have the option, by providing thirty days' prior written notice, to
renew this Agreement for successive one-year terms. Notwithstanding the
foregoing, any party hereunder may terminate this Agreement upon written
notice to the other parties hereto; PROVIDED that the Administrator shall not
cease to perform its obligations hereunder unless a successor administrator
reasonably acceptable to IPS shall have been appointed.
8. INDEPENDENT CONTRACTOR. The relationship of the Administrator
to IPS under this Agreement shall be solely that of an independent contractor
entering into a services agreement. No representations or assertions shall
be made or actions taken by either party which could imply or establish any
agency, joint venture, partnership, employment or trust relationship between
the parties with respect to the subject matter of this Agreement. The
Administrator shall have no authority or power whatsoever to enter into any
agreement, contract or commitment on behalf of the
<PAGE>
Page 4 of 6
other party hereto or create any liability or obligation whatsoever on behalf
of such other party to any person or entity. Conversely, IPS shall not have
any authority or power whatsoever to enter into any agreement, contract or
commitment on behalf of the Administrator or create any liability or
obligation whatsoever on behalf of the Administrator to any person or entity.
9. ADMINISTRATOR'S STANDARD OF CARE. IPC's sole and exclusive
duty of care in discharge of its duties as Administrator to IPS is limited to
refraining from engaging in (i) any act with the express purpose and intent
of causing injury or damage to IPS or (ii) a knowing violation of law. IPC
and IPS specifically recognize and agree that the standard of care provided
for in this Section 9 shall be in lieu of any other standard of care that
might be argued to apply in connection with IPC's discharge of its
administrative duties under this Agreement. It is further recognized and
agreed that IPC, in discharging its duties under this Agreement, does not
have any fiduciary or other obligation to IPS solely as a result of agreeing
to act as Administrator under this Agreement (other than as set forth in this
Section 9).
10. CONFIDENTIALITY. The parties hereto agree to abide by the
confidentiality provisions set forth in the SAFA.
11. RECORDS. The Administrator shall maintain appropriate books
of account and records relating to services performed hereunder, which books
of account and records shall be accessible for inspection by IPS at any time
during normal business hours.
12. OTHER ACTIVITIES OF ADMINISTRATOR. Nothing herein shall
prevent the Administrator or its affiliates from engaging in other businesses
or, in its sole discretion, from acting in a similar capacity as an
administrator for any other person or entity even though such person or
entity may engage in business activities similar to those of IPS.
13. NOT APPLICABLE TO IPC IN OTHER CAPACITIES. Nothing in this
Agreement shall affect any obligation IPC may have in any other capacity.
14. NO PETITION. Administrator hereby covenants and agrees that,
prior to the date which is one year and one day after the payment in full of
all Notes, it will not institute against, or join any other person in
instituting against, IPS any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or other similar proceeding under the
laws of the United States or any state of the United States.
15. MISCELLANEOUS.
(a) All provisions of this Agreement shall be binding upon the
parties hereto, their respective successors, legal representatives and
assigns. Neither party shall have the right to assign all or any portion of
its obligations under or interest in this Agreement, except monies which may
be due pursuant hereto, without the prior written consent of the other party;
PROVIDED, HOWEVER, that Administrator may subcontract or assign all or any
portion of its obligations under or interest in this
<PAGE>
Page 5 of 6
Agreement to any affiliate of Administrator upon written notice to IPS so
long as any subcontracting will not relieve the Administrator from liability
for its duties hereunder.
(b) No waiver by any party hereto of any of its rights under this
Agreement shall be effective unless in writing and signed by an officer or
other duly authorized representative of the party waiving such right. No
waiver of any breach of this Agreement shall constitute a waiver of any
subsequent breach, whether or not of the same nature. This Agreement may not
be modified except by a writing signed by officers or other duly authorized
representatives of each of the parties hereto.
(c) This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof, and cancels and supersedes
any and all prior written or oral contracts or negotiations between the
parties hereto with respect to the subject matter hereof. All exhibits
referenced herein are hereby incorporated into this Agreement and made an
integral part thereof.
(d) This Agreement and the rights and obligations of the parties
under this Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of Illinois.
(e) The descriptive headings of the several sections hereof are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
(f) Wherever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
<PAGE>
Page 6 of 6
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first shown above.
ILLINOIS POWER COMPANY
By:_________________________________
Title:______________________________
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
By:_________________________________
Title:______________________________
<PAGE>
Exhibit A
Page 1 of 6
SERVICES AND FACILITIES AGREEMENT
THIS AGREEMENT is made and entered into this 27th day of May, 1994 by
and between Illinois Power Company, an Illinois corporation ("IP") and
Illinova Corporation, an Illinois corporation ("Illinova").
WHEREAS, IP has been ordered by the Illinois Commerce Commission
("ICC"), in Docket 92-0404, to form a holding company in which IP and IP
Group, Inc. ("IP Group") are subsidiaries and Illinova is such holding
company;
WHEREAS, IP desires to provide Illinova and Illinova's other
subsidiaries (hereinafter collectively "Illinova") with the use of
facilities, equipment and/or administrative and management services
reasonably necessary for the management of the businesses of Illinova subject
to the terms and conditions of this Agreement; and
WHEREAS, Illinova shall pay IP's fully loaded costs for the provision of
any and all such services and facilities all as provided in this Agreement;
NOW, THEREFORE in consideration of the terms and conditions hereinafter
set forth, IP and Illinova agree as follows:
1. IP may provide Illinova from time to time, as reasonably requested
by Illinova, with the use of the following services and/or facilities as
provided herein:
A. General management and administrative services, including, but
not limited to (i) executive management, legal, accounting, tax services and
employee benefits participation/processing, and (ii) treasury and finance
services, including, but not limited to, cash management, processing of
receipts and disbursements, arranging for short-term and long-term financing,
making and managing short-term investments.
B. Physical facilities, including, but not limited to, office
space, fixtures, furniture, equipment, supplies and other machinery/equipment
(collectively "Facilities") used by IP in the provision of Services to
Illinova or used by Illinova in its businesses.
2. IP reserves the right, in its exclusive discretion, to schedule the
provision of all such Services and Facilities so as not to interfere with its
utility operations, which shall have first priority.
3. lllinova agrees to pay IP for such Services and Facilities at IP's
fully loaded cost which includes direct labor expense, labor overheads,
employee benefits participation/processing expenses, other administrative and
general overheads and costs, and interest on cash advances, as set forth
below:
<PAGE>
Exhibit A
Page 2 of 6
A. Direct labor expense is the cost of the actual time spent by
IP employees on work performed for Illinova.
B. Labor overheads consist of costs directly associated with
labor such as payroll taxes, paid absence, insurance, pension and other
benefits.
C. Employee benefits participation/processing expenses consist of
the full cost (i.e., contributions to the plans, direct labor, labor
overheads and administrative and general overheads) to IP of Illinova's
employees participating in IP's employee benefit plans and all costs incurred
by IP in processing any benefits for Illinova's employees under the plans,
which include, but are not limited to, the Health Insurance Plan, Pension
Plan, Incentive Savings Plan, Long-Term Disability Plan and Life Insurance
Plan.
D. Supplies used by Illinova and paid for by IP shall be
reimbursed by Illinova at IP's full cost including handling costs.
E. (i) Administrative and general overheads will be determined
in a cost study to be performed by the parties.
(ii) Office space use, if any, shall also be determined in
the cost study on a rental basis and rent shall be
based upon, inter alia, the total cost to IP for use of
the office space in any building occupied by Illinova
using a comparison of the square footage occupied by
Illinova in relation to the total square footage
occupied by Illinova and IP and the total cost of the
use of such space. A similar determination will be
made for use of fixtures, furniture, equipment and
other Facilities.
(iii) The cost study shall also consist of a review of
employee time and data entries, interviews with
Illinova and IP personnel, records review and other
activities necessary for making a fair and reasonable
allocation of direct and indirect support to Illinova.
This study shall be conducted at the conclusion of a
six month period for purposes of determining and then
billing the administrative and general management
overheads as well as determining and billing a monthly
amount to cover the costs of employee benefits
participation/ processing expenses and all other
Services and Facilities provided hereunder. The cost
study shall be performed periodically thereafter, but
no less than annually, for determining costs to be
billed to Illinova for continuing Services and
Facilities use.
F. Reimbursement (or credit) of any taxes due to operations of
Illinova as a result of filing consolidated income tax returns.
<PAGE>
Exhibit A
Page 3 of 6
G. Interest on cash advances from IP to Illinova shall be
calculated at the higher of (i) the interest rate at which Illinova could
have borrowed the funds pursuant to an existing bank credit agreement(s) or
commercial paper facility(ies) entered into between Illinova and an
unaffiliated third party or parties, or (ii) IP's actual interest cost for
the funds obtained or used to provide the cash advance to Illinova.
4. IP shall invoice Illinova for all Services and Facilities, if used,
monthly. Invoices will be payable by Illinova 30 days after receipt of
invoice.
5. Whenever IP provides Services or Facilities to Illinova, each IP
employee providing such Services shall maintain a record of all time spent in
performing any Services for Illinova and the use of all Facilities used in
the provision of such Services. Executive officers of IP shall provide a
written estimate of the percentage of business time spent (on a monthly
basis) on behalf of Illinova and shall be included in the cost study.
6. This Agreement shall take effect upon Illinova and IP having
received all necessary federal, state and shareholder approvals for the
reorganization and for the execution and performance of this Agreement. This
Agreement shall remain in effect for an initial term of five (5) years from
the date of ICC approval and from year to year thereafter until either party
terminates this Agreement by 90 day prior written notice given to the other
party before the end of any such term.
7. This Agreement constitutes the sole and entire agreement between
the parties with respect to the subject matter herein and supersedes all
previous proposals, oral or written, negotiations, representations,
commitments and all other communications between the parties. No other terms
or conditions shall be binding upon the parties unless accepted by them in
writing.
8. This Agreement may not be assigned by either party without the
prior written consent of the other party.
9. This Agreement shall be governed by, construed and interpreted
pursuant to the laws of the State of Illinois.
10. Every part, term or provision of this Agreement is severable from
all others. Notwithstanding any possible future finding by duly constituted
authority that a particular part, term or provision is invalid, void or
unenforceable, this Agreement has been made with the clear intention that the
validity and enforceability of the remaining parts, terms and provisions
shall not be affected thereby.
11. The parties agree to comply with all provisions of all laws
applicable to this Agreement or the work to be performed hereunder and with
all applicable rules, regulations, orders and directives of all governmental
bodies having jurisdiction.
<PAGE>
Exhibit A
Page 4 of 6
12. Failure by either party to insist upon strict performance of any
term or condition herein shall not be deemed a waiver of any rights or
remedies that either party may have against the other and shall not be deemed
a waiver of any subsequent default of any term and condition hereof.
13. In the performance of the work hereunder, IP shall be an
independent contractor with authority to control and direct the performance
of the work hereunder except as limited herein.
14. lllinova shall have access to and the right to examine any and all
books, documents, papers and records which pertain to the work hereunder. IP
shall maintain all such records for a period of seven years after completion
or termination of this Agreement. Such examination may be conducted within
five business days after notice to IP. IP shall produce all such records at
the headquarters of IP.
15. The parties agree to keep confidential all information coming to
its knowledge in the course of the performance of the work hereunder relating
to the business of either IP or Illinova except that which is required to be
disclosed to any governmental body having jurisdiction over either party. If
either party is required to make disclosure, such party shall provide 14 days
prior written notice to the other party and take all steps necessary to make
such disclosure confidential under the rules of the governing body. All such
information shall remain the sole property of the party who provided such
information in the first instance. The foregoing restrictions on disclosure
shall survive the termination or completion of this Agreement.
16. Any cash advances made by IP to Illinova pursuant to this Agreement
shall be in accordance with the following terms:
A. The balance of cash advances at any time shall not exceed the
amount of funds which Illinova could borrow directly pursuant to
an existing bank credit agreement(s) or commercial paper
facility(ies) entered into between Illinova and an unaffiliated
third party or parties.
B. The duration of each cash advance shall not be more than three
months.
All outstanding cash advances shall be repaid by Illinova as of
the end of each calendar quarter.
C. Finding No. (5) of the Illinois Commerce Commission order in
Docket 94-0005 dated October 3, 1995 provided approval for cash
advances subject to the conditions that:
(1) the cash advances to Illinova shall not at any time exceed
the unused balance of funds actually available to Illinova
under Illinova's existing bank credit agreements;
<PAGE>
Exhibit A
Page 5 of 6
(2) the cash advances to Illinova shall not at any time exceed
the amount of Fifty Million Dollars ($50,000,000.00);
(3) the financial institution with whom Illinova has a bank
credit agreement has a bond rating of at least A- by
Standard and Poors and A3 by Moodys at the time the
institution enters into said agreement with Illinova;
(4) the term of the Addendum shall be limited to three years
from the date of this Order (October 3,1995), subject to
extension, if deemed appropriate by further order of the
Commission, upon application by IP.
17. Illinois Power agreed to the following provisions in obtaining
initial approval of this agreement by the Illinois Commerce Commission on May
13, 1994:
A. Illinois Power will develop written guidelines for charging time,
materials, services and facilities to Illinova within sixty days
after completion of the first cost study. IP will inform all
departments which may provide services to Illinova or its
subsidiaries of said guidelines, and will provide the Director of
Accounting of the Commission's Public Utility Division with a
copy of said guidelines, within sixty days after the adoption
thereof.
B. Illinois Power will submit to the Commission Staff certain
information related to its allocation of costs between the
Company and its affiliates. This information will be submitted
for each calendar year until the Company files its next general
rate case; and will consist of a description of each service
provided by the Company to its affiliates; the Company's monthly
billing to Illinova; the costs allocated to Illinova from
Illinois Power; and backup for each allocation.
C. Illinois Power will allow the Commission's Staff access to all
books, accounts and records of the Company, and, to the extent
that the Company has or may obtain possession or control of the
books, accounts and records of, Illinova and its non-utility
subsidiaries which in any way impact on Illinois Power or in
order to determine whether there has been any transaction with or
impact on Illinois Power.
D. Illinois Power will perform periodic audits of the transactions
performed under the Agreement to ensure compliance with the
Commission's order, the Agreement, the current cost studies, and
the written guidelines. These written audit reports shall be
retained by the Company and will be available for Commission
Staff review.
<PAGE>
Exhibit A
Page 6 of 6
18. Nothing in this Agreement shall be construed as requiring Illinova
to use the Services or Facilities of IP and Illinova is free to obtain any
such Services or Facilities from third parties.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
effective the day and year first above written.
ILLINOVA CORPORATION ILLINOIS POWER COMPANY
By: /s/ Larry D. Haab By: /s/ Larry F. Altenbaumer
------------------------ -----------------------------
Larry D. Haab Larry F. Altenbaumer
Chairman, President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
<PAGE>
EXHIBIT 23.2
Consent of PricewaterhouseCoopers LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated September 15, 1998,
relating to the financial statements of Illinois Power Securitization Limited
Liability Company, which appears in such Prospectus. We also consent to the
references to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
St. Louis, Missouri
September 16, 1998
<PAGE>
EXHIBIT 25
Form T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as
Trustee
Check if an Application to Determine
Eligibility of a Trustee Pursuant to Section
305(b)(2) _______________
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Robert D. Foltz, Harris Trust and Savings Bank,
111 West Monroe Street, Chicago, Illinois, 60603
312-461-4662
(Name, address and telephone number for agent for service)
Illinois Power Securitization Limited Liability Company
(Name of obligor)
Delaware Applied For
(State of Incorporation) (I.R.S. Employer Identification No.)
500 South 27th Street
Decatur, Illinois 62521
(Address of principal executive offices)
Special Purpose Trust Transitional Funding Trust Notes
(Title of indenture securities)
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System,Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee is now in effect
which includes the authority of the trustee to commence business and
to exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in
effect and includes the authority of the Trustee to commence business
and to exercise corporate trust powers was filed in connection with
the Registration Statement of Louisville Gas and Electric Company,
File No. 2-44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in
connection with the Registration Statement of Commercial Federal
Corporation; File No. 333-20711, and is incorporated herein by
reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 15th day of September, 1998.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Robert D. Foltz
---------------------------
Robert D. Foltz
Vice President
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Robert D. Foltz
---------------------------
Robert D. Foltz
Vice President
3
<PAGE>
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of September 30, 1997, as published in accordance with
a call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
[LOGO] HARRIS BANK
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on September 30, 1997, a state banking institution organized and
operating under the banking laws of this State and a member of the Federal
Reserve System. Published in accordance with a call made by the Commissioner of
Banks and Trust Companies of the State of Illinois and by the Federal Reserve
Bank of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
<S> <C> <C>
CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS:
NON-INTEREST BEARING BALANCES AND CURRENCY AND COIN........................ $1,188,709
INTEREST BEARING BALANCES.................................................. $550,173
SECURITIES:.....................................................................
a. HELD-TO-MATURITY SECURITIES $0
b. AVAILABLE-FOR-SALE SECURITIES $3,685,983
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL I $396,400
LOANS AND LEASE FINANCING RECEIVABLES:
LOANS AND LEASES, NET OF UNEARNED INCOME................................... $8,401,048
LESS: ALLOWANCE FOR LOAN AND LEASE LOSSES................................. $107,180
---------------
LOANS AND LEASES, NET OF UNEARNED INCOME, ALLOWANCE, AND RESERVE
(ITEM 4.a MINUS 4.b)....................................................... $8,293,868
ASSETS HELD IN TRADING ACCOUNTS................................................. $98,368
PREMISES AND FIXED ASSETS (INCLUDING CAPITALIZED LEASES)........................ $213,612
OTHER REAL ESTATE OWNED......................................................... $778
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES............. $86
CUSTOMER'S LIABILITY TO THIS BANK ON ACCEPTANCES OUTSTANDING.................... $41,205
INTANGIBLE ASSETS............................................................... $283,839
OTHER ASSETS.................................................................... $603,886
----------------
TOTAL ASSETS $15,356,907
-----------------
-----------------
4
<PAGE>
<CAPTION>
LIABILITIES
<S> <C> <C>
DEPOSITS:
IN DOMESTIC OFFICES........................................................ $8,374,055
NON-INTEREST BEARING.................................................. $2,770,029
INTEREST BEARING...................................................... $5,604,026
IN FOREIGN OFFICES, EDGE AND AGREEMENT SUBSIDIARIES, AND IBF'S............. $1,991,659
NON-INTEREST BEARING.................................................. $27,364
INTEREST BEARING...................................................... $1,964,295
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE IN DOMESTIC
OFFICES OF THE BANK AND OF ITS EDGE AND AGREEMENT SUBSIDIARIES, AND IN IBF'S:
FEDERAL FUNDS PURCHASED & SECURITES SOLD UNDER AGREEMENTS TO REPURCHASE.... $2,549,328
TRADING LIABILITIES 62,186
OTHER BORROWED MONEY:...........................................................
a. WITH REMAINING MATURITY OF ONE YEAR OR LESS $630,911
b. WITH REMAINING MATURITY OF MORE THAN ONE YEAR $0
BANK'S LIABILITY ON ACCEPTANCES EXECUTED AND OUTSTANDING $41,205
SUBORDINATED NOTES AND DEBENTURES............................................... $325,000
OTHER LIABILITIES.............................................................. $132,188
----------------
TOTAL LIABILITIES $14,106,532
----------------
----------------
EQUITY CAPITAL
COMMON STOCK.................................................................... $100,000
SURPLUS......................................................................... $600,853
a. UNDIVIDED PROFITS AND CAPITAL RESERVES...................................... $553,257
b. NET UNREALIZED HOLDING GAINS (LOSSES) ON AVAILABLE-FOR-SALE SECURITIES ($3,735)
----------------
TOTAL EQUITY CAPITAL $1,250,375
----------------
----------------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK, AND EQUITY CAPITAL............. $15,356,907
-----------------
-----------------
</TABLE>
I, Pamela Piarowski, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
PAMELA PIAROWSKI
10/29/97
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
JAMES J. GLASSER
Directors.
5
<PAGE>
EXHIBIT 99.1
Application for
Transitional Funding Order
STATE OF ILLINOIS
ILLINOIS COMMERCE COMMISSION
ILLINOIS POWER COMPANY )
)
APPLICATION FOR A TRANSITIONAL FUNDING )
ORDER PURSUANT TO ARTICLE XVIII OF THE ) DOCKET NO. 98-
PUBLIC UTILITIES ACT AND REQUEST FOR CERTAIN )
OTHER AUTHORIZATIONS RELATED THERETO )
PURSUANT TO SECTIONS 7-101 AND 7-102 )
OF THE PUBLIC UTILITIES ACT )
APPLICATION FOR TRANSITIONAL FUNDING ORDER AND PETITION
To the Illinois Commerce Commission:
Illinois Power Company ("Illinois Power" or "IPC") hereby applies to the
Illinois Commerce Commission for a Transitional Funding Order ("TFO")
pursuant to Article XVIII of the Public Utilities Act ("PUA"), Article XVIII
also being known as the Electric Utility Transitional Funding Law, 220 ILCS
5/18-101 ET SEQ. ("EUFTL"), and also requests certain authorizations related
to its application for a TFO, pursuant to Section 7-101 and Section 7-102 of
the PUA, 220 ILCS 5/7-101 and 7-102. Illinois Power is submitting as part of
and in support of its Application and Petition ("Application") the prepared
testimony and exhibits of Larry F. Altenbaumer, Robert A. Schultz, Scott A.
Smith and Kevin D. Shipp, identified as IP Exhibits 1.1 through 1.3, 2.1
through 2.8, 3.1 through 3.5, and 4.1 through 4.3, respectively, and which
are attached to and incorporated as an integral part of this Application and
Petition. In further support of its Application, IPC states as follows:
1. Illinois Power is an electric utility as defined in Section 16-102
of the PUA and is authorized to apply to the Commission for a TFO pursuant to
Section 18-103 of the EUTFL.
2. Illinois Power Securitization Limited Liability Company ("IPS")
will be created as a limited liability company, to be a "grantee", as that
term is defined in the EUTFL, and the
<PAGE>
owner of the "Intangible Transition Property" ("ITP") to be created by the
TFO. 220 ILCS 5/18-102.
3. IPS will enter into a Trust Agreement with a financial institution
experienced in providing corporate trust services to form the Illinois Power
Special Purpose Trust ("Trust"). IPS will assign its right, title and
interest in the ITP to be created pursuant to the requested TFO, and Trust
will issue "Transitional Funding Instruments" ("TFI") authorized by the TFO
to the public.
INTANGIBLE TRANSITION PROPERTY
4. Illinois Power requests that the Commission establish, create and
grant IPS rights in and to ITP, as defined in Section 18-102 of the EUTFL, in
the total dollar amount of $1,634 million, consisting of the right to collect
that amount of "Instrument Funding Charges" ("IFC"), as defined in Section
18-102 of the EUTFL, from retail customers of Illinois Power and other
persons, through per-kilowatt-hour charges as in effect from time-to-time,
including the right to periodic adjustments of the IFC in accordance with
Section 18-104(d) of the EUTFL. The total dollar amount of ITP requested does
not exceed the amount specified in Section 18-104(a) of the EUTFL.
5. Illinois Power requests that the Commission's TFO authorize IPS to
assign its rights, title and interest in and to the ITP created by the TFO to
Trust.
INSTRUMENT FUNDING CHARGES
6. Illinois Power requests that the Commission's Order herein:
(a) Authorize and direct Illinois Power, as servicer, on behalf of
IPS or its assignee, Trust, to impose and collect IFC, as defined in
Section 18-102 of the EUTFL, from retail customers pursuant to Section
18-104 of the EUTFL in the total dollar amount of $1,634 million; and
<PAGE>
(b) Authorize Illinois Power to enter into a Servicing Agreement with
IPS, which IPS may assign its rights and duties under to Trust, to account
for and remit the IFC to IPS, or to Trust as assignee of IPS, pursuant to
Section 18-104(f) of the EUTFL.
7. The IFC to be collected from each class of retail customers of
Illinois Power or other persons subject to IFC will be based on an allocation
among such classes of retail customers of the total annual amount of IFC in
accordance with percentage ratios determined by dividing the base rate
revenue from each such class by Illinois Power's total base rate revenue for
the 1996 calendar year, as required by Section 18-103(d)(4) of the EUTFL.
The procedure for calculation of the initial IFC to be imposed is shown in IP
Exhibit 4.2. On a cents per kilowatt-hour ("kwh") basis, the estimated IFC
to be collected from retail customers of Illinois Power and other persons in
order to collect the Projected Debt Service Billing Requirement for the
period ending December 31, 1999, shown on Attachment 4 to IP Exhibit 2.3, are
as follows based on actual 1997 kilowatt-hour sales:
<TABLE>
<CAPTION>
SERVICE CLASSIFICATION 1, 2 DESCRIPTION CENTS PER KWH
1 MW AND ABOVE
<S> <C> <C>
1. S.C. 21, 22 and 29 Firm Service 1.00
2. S.C. 24 and 26 High Load Factor Firm Service 0.45
3. S.C. 30, 35, and 37 Non-Firm Service 0.26
- ---------------------
</TABLE>
1 Including special and negotiated contracts.
2 Unmetered Outdoor Area Lighting (S.C. 39) kwh are included in the
determination of the cents per kwh charges for all classes.
3
<PAGE>
<TABLE>
<CAPTION>
BELOW 1 MW
<S> <C> <C>
4. S.C. 11 and 19 Large Commercial 1.32
5. S.C. 10, 12, 13, 14 and 15 Small Commercial 1.64
6. S.C. 2 and 3 Residential 1.74
7. S.C. 41, 42 and 45 Municipal 1.54
</TABLE>
The actual total and per-kwh IFC applicable to each customer class in each
period shall be calculated in order to recover the projected Debt Service
Billing Requirement for such period, as described in IP Exhibits 2.3 and 4.3
attached to this Application. The projected Debt Service Billing Requirement
for each period shall be calculated based on the principal amount of the TFI,
the expected maturity date for each series, the resultant Expected
Amortization Schedule, the interest rates on the TFI, required payments to
fund and maintain overcollateralization reserves, servicing fees and other
expenses, prior period over-collection or under-collection amounts, and
projected kwh sales and deliveries to retail customers and other persons
subject to IFC, uncollectibles and defaults during the succeeding period.
The actual initial IFC will be set forth in the initial Rider IFC tariff
which Illinois Power will upon issuance of the initial series of TFI.
8. (a) Illinois Power requests that the TFO state that Illinois Power,
as servicer on behalf of IPS or its assignee, Trust, is authorized and directed
to impose the IFC associated with each series of TFI on each retail customer of
Illinois Power, class of retail customers of Illinois Power, or other person or
group of persons obligated to pay any base rates, transition charges or other
rates for tariffed services on or after the date that series of TFI is issued,
including any customer taking a tariffed service from Illinois Power on or after
that date who subsequently takes a contract service or other competitive service
from IPC, and that all
4
<PAGE>
collections in respect of such charges shall, to the extent of the authorized
amount of IFC, be deemed to be proceeds of the ITP created by the TFO.
(b) In addition, IPC states, and requests that the Commission
provide in the TFO as a condition thereto, that IPC and any successor will
not enter into any fully bundled competitive contracts with any retail
customer or other person who is, or otherwise would be, obligated to pay IFC
unless such contract provides that such customer or other person will pay to
IPS or its assignees, or to IPC as servicer, as applicable, an amount each
billing period equal to the amount of IFC that the customer would pay if the
customer took a tariffed service or services from IPC. Illinois Power, IPS
and Trust will agree that any revenues received by Illinois Power or its
successor from any such fully bundled contract services customer shall, to
the extent IFC would be imposed on the retail customer or other person if
such customer or person were taking a tariffed service or services from IPC,
be deemed to be proceeds of, and included in, the ITP and IFC. Illinois
Power requests that the Commission, in the TFO, acknowledge and accept the
intent of IPC, IPS and Trust that any such revenues received by Illinois
Power or its successor from any such contract services shall, to the extent
of the IFC deemed to be included therein, be deemed to be proceeds of, and
included in, the ITP and IFC created by the TFO.
(c) Further, Illinois Power requests that the TFO acknowledge that
if any retail customer obtains electric power and energy from an alternative
retail electric supplier ("ARES") or from another electric utility without
taking delivery services from Illinois Power, and thereby becomes obligated
to make a lump sum or other fixed payment of transition charges to Illinois
Power (or its successor) pursuant to Section 16-108(h) of the PUA, 220 ILCS
5/16-108(h), or
5
<PAGE>
if IPC (or its successor) becomes eligible to receive any similar payments,
then the portion of such payments allocable to the IFC shall be promptly
remitted by Illinois Power (or its successor) to IPS or its assignee,
Trust, and shall be deemed to be proceeds of, and included in, the ITP and
IFC.
9. Illinois Power requests that the TFO state that where an ARES has
elected to provide a single bill to customers for both the services provided
by the ARES and the services provided by Illinois Power, as permitted by
Section 16-118(b) of the PUA, 220 ILCS 5/16-118(b), the ARES will be
responsible to Illinois Power for collection of the IFC from such customers
and remittance to Illinois Power.
10. The IFC will be deducted and separately stated from the charges to
be billed to Illinois Power's retail customers or other persons or groups of
persons obligated to pay any base rates, transition charges or other rates
for tariffed services from which such IFC has been deducted, pursuant to
Section 18-103(d)(3) and Section 18-104(j), and such base rates, transition
charges or other rates for tariffed services will be correspondingly reduced.
As each series of TFI is issued, Illinois Power will, in accordance with
proposed Rider IFC (IP Exhibit 4.3 attached to this Application), file
tariffs (or revisions to Rider IFC) deducting and separately stating the IFC
relating to that series and to previously-issued series from IPC's base
rates, transition charges or other rates for tariffed services. In
calculating the per-kwh IFC, projected kwh sales and deliveries to retail
customers and other persons subject to the IFC will be used. As contemplated
by Section 18-104(j) of the EUTFL, the deduction of IFC from IPC's base
rates, transition charges and other rates for tariffed services shall not be
construed as a change in or otherwise require a recalculation of the
authorized amounts of such rates and charges under Sections 16-102, 16-107,
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16-108 or 16-110 of the PUA, or otherwise.
11. As required by Section 18-103(d)(5) and Section 18-111(3) of the
EUTFL, the issuance of the TFI and the imposition of the IFC in accordance
with the TFO will not cause IPC's base rates, transition charges or other
rates for tariffed services paid by any retail customer of IPC, class of
retail customers of IPC or other person or group of persons obligated to pay
such rates (a) to exceed the levels then in existence, as adjusted for the
rate decreases provided in Section 16-111(b) of the PUA, or (b) to increase
above the levels which IPC would have been allowed to charge had it not been
authorized to impose and collect IFC.
12. Illinois Power requests that the Commission, in the TFO, in
accordance with Section 18-104(d) of the EUTFL, approve a procedure for
periodic adjustments to the IFC in order to reconcile the IFC collections
with the amounts needed for the Expected Amortization Schedule of the TFI,
interest payments, servicing fees and other expenses, any payments to a
counter-party as part of a swap agreement, and the funding and maintenance of
required reserves.
(a) Illinois Power requests that the TFO authorize IPC to modify the
IFC on a periodic basis, no more frequently than quarterly and no less
frequently than annually, to maintain the IFC collections according to the
projected Debt Service Billing Requirement, including requirements for
servicing fees and other expenses, any swap fees, and required reserves,
for each period. At the conclusion of each period, the IFC collections
during the preceding period would be compared with the IFC that were
projected to have been collected for that period. Under-collections of IFC
in a given period would increase the IFC calculated to be imposed during
the succeeding period, and over-collections in a given period would
decrease the IFC calculated to be
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imposed during the succeeding period. For the succeeding period, revised
IFC would be imposed, calculated to recover over the succeeding period
(i) the projected Debt Service Billing Requirement for the succeeding
period, (ii) plus or minus any amount of under-collection or
over-collection, respectively, of IFC in the preceding period, (iii)
plus any increased interest cost incurred or to be incurred by Trust as
a result of having to delay scheduled repayments of principal on the TFI
due to a shortfall in IFC collections in the preceding period.
(b) Any revisions to IFC resulting from the adjustment procedure, and
to the charges and deductions set forth in Rider IFC, would be filed with
the Commission at least three business days prior to their effective date,
along with a report showing the reconciliation for the preceding period and
the calculations supporting the revised IFC.
(c) Proposed Rider IFC, submitted as IP Exhibit 4.3 attached to this
Application, shows the formula and procedure for IPC's proposed periodic
adjustment mechanism.
(d) Illinois Power states that at present it plans to implement the
periodic adjustment mechanism on an annual basis. However, Illinois Power
requests authorization to implement the periodic adjustment mechanism on a
quarterly or semi-annual basis if it concludes, based on discussions with
rating agencies, investors and other financial advisors, that more frequent
adjustments than annual are necessary in order to obtain the highest
possible ratings for the TFI.
13. Illinois Power requests that the TFO state:
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(a) that, notwithstanding any other provision of law, the TFO, the
ITP created and established thereby, and the IFC authorized to be imposed
and collected thereunder "shall not be subject to reduction, postponement,
impairment or termination by any subsequent action of the Commission", as
provided in Section 18-104(c) of the EUTFL, and that the Commission will
not revoke, amend or otherwise change the tariffs evidencing the Trust's
right to receive IFC in any manner which would defeat the legitimate
expectations of the TFI holders to receive such IFC on a timely basis;
(b) that the holders of the TFI, and the Trustee of the Trust for the
benefit of the TFI holders, shall be entitled to the benefit of the pledges
and agreements of the State of Illinois set forth in Section 18-105(b) of
the EUTFL and that each of IPC, IPS and Trust is authorized to include such
pledges and agreements in any contracts with the TFI holders, the Trustee
or any assignees, pursuant to Section 18-105(b);
(c) that to the full extent permitted by the EUTFL or other
applicable law, the ITP created and established by the TFO and the right to
impose and collect IFC as contemplated thereunder will constitute property
rights of IPS and its assignees (including Trust) which property rights may
not be limited, altered, impaired or reduced or otherwise terminated by any
subsequent actions of IPC or any third party and which shall, to the full
extent permitted by law, be enforceable against Illinois Power, its
successors and assigns, and all other third parties (including judicial
lien creditors) claiming an interest therein by or through Illinois Power
or its successors or assigns; and
(d) that as provided under Section 18-107(c) of the EUTFL, the lien
of the Trust on the ITP shall (i) attached automatically to such ITP from
the time of issuance of the TFI;
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(ii) be continuously perfected through a filing with the Chief Clerk of
the Commission; (iii) be enforceable against IPC, IPS, the Trust, and
all third parties, including judicial lien creditors; (iv) from and
after the filing described in clause (ii) above, constitute a
continuously perfected security interest in and lien on all then
existing or thereafter arising revenues and proceeds arising with
respect to the associated ITP, whether or not the electric power and
energy included in the calculation of such revenues and proceeds have
been provided; (v) rank prior to any other lien, including any judicial
lien, which subsequently attaches to the ITP or to any other rights
created by the TFO or any revenues or proceeds of the foregoing; (vi)
not be defeated or adversely affected, whether or not the IFC are
separately stated on the customers' bills and whether or not the IFC are
collected by IPC, IPS or a third party, by changes to the TFO or to the
IFC payable by any retail customer, class of retail customers or other
person or group of persons obligated to pay such IFC nor by commingling
of revenues arising with respect to ITP with any funds of Illinois Power
or any successor, IPS or Trust; and
(e) that any misapplication of the proceeds of issuance of the TFI
by IPC shall not affect the validity of the TFI or the right of IPS or
its assignee, Trust, to impose and collect the IFC.
ISSUANCE OF AND USE OF PROCEEDS FROM
TRANSITIONAL FUNDING INSTRUMENTS
14. Illinois Power requests that the Commission's TFO authorize Trust
to issue TFI, as defined in Section 18-102 of the EUTFL, to be sold to the
public after August 1, 1998, in the total principal amount of $864,000,000.
This amount of TFI does not exceed the amount specified in
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Section 18-103(d)(6)(A) of the EUTFL, as shown in IP Exhibits 1.1 and 1.2
attached to this Application. Illinois Power requests that the TFO provide
that, in accordance with Section 18-104(g) of the EUTFL, Trust shall be
afforded flexibility in establishing the terms and conditons of the TFI,
including, without limiting the foregoing, repayment schedules, collateral,
required debt service and other reserves, interest rates and other financing
costs.
15. Illinois Power requests that the Commission's TFO provide that the
TFI authorized to be issued shall be non-recourse except as to, and will be
payable solely out of the proceeds of, the following property: (a) the ITP,
including all IFC collections and revenues described in paragraph 8 of this
Application, (b) all rights of IPS or its assignee under the Servicing
Agreement with IPC or any successor servicer of the ITP, and under any other
agreements entered into by IPS or its assignee as issuer of the TFI in
connection with the transaction, (c) any bank collection accounts, investment
accounts or similar reserve accounts established in connection with the
issuance of the TFI and all cash or investment property or other amounts on
deposit therein from time to time, (d) solely with respect to TFI, if any,
which bear a floating rate of interest, any interest rate hedging agreement
executed solely to permit issuance of such TFI, (e) all rights to obtain
adjustments to the IFC in accordance with Section 18-104(d) of the EUTFL, (f)
all present and future claims, demands, causes and choses in action in
respect of any or all of the foregoing, and (g) all payments on or under and
all proceeds in respect of any or all of the foregoing (collectively, the
"Note Collateral").
16. The expected maturity date of each series of TFI will be no later
than December 31, 2008, in accordance with Section 18-103(d)(2) of the EUTFL.
The projected Debt Service Billing Requirement will be calculated, and
should be authorized by the Commission, to provide for IFC
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collections sufficient to repay principal and interest on all series of the
TFI by December 31, 2008, plus servicing fees and other expenses, swap
payments and fees, and to maintain required reserves, taking into account
projected kwh sales and deliveries of electricity to retail customers and
other persons subject to IFC, lags between collection and payment dates,
uncollectibles and defaults. Illinois Power requests that, in accordance
with Section 18-104(l) of the EUTFL, the TFO provide that if any series of
TFI has not been paid in full by its expected maturity date, the right of IPS
(or its assignee, Trust), through its servicer, to impose and collect IFC in
connection with such series of TFI, and the obligation of IPC to continue to
deduct and separately state such IFC from its base rates, transition charges
and other rates for tariffed services, shall continue beyond such expected
maturity date until such time as all series of TFI have been paid in full.
17. Trust will remit the proceeds from the issuance of TFI, less
amounts sufficient to cover any fees and expenses Trust is required to pay
and reserves Trust is required to maintain, to IPS, as consideration for the
assignment by IPS of its interest in the ITP. IPS will distribute such
proceeds, less amounts sufficient to cover any fees and expenses IPS is
required to pay and reserves IPS is required to maintain, to Illinois Power.
18. Illinois Power will use the distribution it receives from IPS to
refinance its debt and/ or equity in a manner that IPC reasonably
demonstrates will result in an overall reduction in its cost of capital,
taking into account the cost of financing, as required by Section
18-103(d)(1)(A) and as shown in IP Exhibits 3.1 - 3.5 attached to this
Application, and for the other purposes listed in subsections 18-103(d)(1)(C)
- - (E) of the EUTFL.
19. In accordance with Section 18-103(d)(1)(A) of the EUTFL, at least
80% of the proceeds from issuance of the TFI will be used by Illinois Power
for the purpose of refinancing its debt
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and/or equity, and no more than 20% of such proceeds will be used for the
purposes listed in Section 18-103(d)(1)(C)-(E) of the EUTFL, as shown in IP
Exhibits 2.1 and 2.4 attached to this Application.
20. As required by Section 18-103(d)(1)(ii) of the EUTFL, the issuance
of the TFI and the use of the proceeds to refinance Illinois Power's debt and
equity will not result in the common equity component of Illinois Power's
capital structure (excluding the portion of the capital structure that
consists of obligations representing TFI) being reduced below the lesser of
40% and IPC's common equity percentage as of December 31, 1996, adjusted to
reflect any write-off of assets or common equity implemented or required to
be implemented as a result of the 1997 amendments to the PUA adopted in
Public Act 90-561, as shown in IP Exhibits 2.1 and 2.7 attached to this
Application.
21. Illinois Power will use the accounting treatment for the retirement
or redemption of long-term debt or preferred stock and the repurchase of
common equity that is depicted on IP Exhibit 2.6 attached to this
Application. The proposed accounting treatment for the repurchase of common
stock is the same accounting treatment required by the Commission's order in
Docket 94-0518 for repurchases of common stock by Illinois Power from its
parent company. In addition, for purposes of repurchases of its common
equity using proceeds of the issuance of the TFI, Illinois Power requests a
waiver of the "free cash flow test" imposed by the order in Docket 94-0518 on
IPC's repurchases of its common stock from its parent company.
22. In accordance with Section 18-103(d)(1)(A) of the EUTFL, the parent
company of Illinois Power will use the proceeds it receives from the
repurchase by Illinois Power of its equity, or common stock, to repurchase
the common stock of the parent company from the public
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and to pay commercially reasonable transaction costs associated with such
repurchase. In accordance with Section 18-103(d)(1) of the EUTFL, no
proceeds from the issuance of the TFI will be used to repay, retire or
refinance any obligations incurred by any affiliate of Illinois Power, other
than obligations incurred by IPS in connection with these transactions.
23. In accordance with Section 18-104(h) and Section 18-111(4) of the
EUTFL, Illinois Power (a) will file with the Commission a statement of the
final terms of the issuance of any series of TFI, and a report showing the
use of proceeds therefrom, within 90 days of the receipt of proceeds from
such issuance, and (b) will file with the Commission a summary report showing
the use of proceeds from the issuance of TFI pursuant to the TFO within 90
days following the last use of proceeds from such issuance.
PROVISIONS RELATING TO ILLINOIS POWER'S
ROLE AS SERVICER, AND OTHER AGREEMENTS
24. Illinois Power requests that the TFO authorize Illinois Power to
enter into an Administration Agreement with IPS, in the form of the agreement
attached to this Application as IP Exhibit 2.8, pursuant to Section 7-101
and Section 7-102 of the PUA.
25. Illinois Power requests that the TFO consent, pursuant to Section
7-101 of the PUA, to the performance by the First National Bank of Decatur,
which is an "affiliated interest" of Illinois Power, of lockbox and similar
collection and remittance functions with respect to IFC billed and collected
by Illinois Power as servicer.
26. Illinois Power requests that the TFO contain, among others, the
following provisions, in order to enable IPC to perform its function as
servicer and to provide for proper reporting to Trust:
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(a) Except as otherwise required by law with respect to taxes or
similar governmental charges included in bills and invoices to customers,
Illinois Power or any successor servicer for Trust must allocate any
shortfall in revenues received from any retail customer or other person
ratably based on the amount of the customer's bills and invoices
constituting IFC and the amount constituting other rates, fees and charges
owed to Illinois Power.
(b) In the event of default by Illinois Power in payment to or for
the benefit of IPS or its assignees (including Trust) of the IFC, the
Commission, upon application by (i) the holders of the TFI and the Trustee
or representatives of the holders as beneficiaries of the statutory lien
permitted by Section 18-107(c) of the EUTFL, (ii) IPS or its assignees,
(iii) Trust, or (iv) pledgees or transferees of the ITP, shall order the
sequestration and payment to or for the benefit of IPS or such other party
of revenues arising with respect to the ITP.
(c) The Commission shall not approve or require any third party
servicer or servicers to replace Illinois Power or any of its servicing
functions without determining that approving or requiring such third party
servicer to replace IPC will not cause the then-current ratings of the TFI
to be withdrawn or downgraded.
(d) Illinois Power may disconnect service to any customer who fails
to pay IFC billed on behalf of Trust, in accordance with the Commission's
regulations pertaining to disconnections, in the same manner as IPC may
disconnect the customer for failure to pay any charge for service billed by
Illinois Power.
(e) In any instance in which a retail customer's metering is provided
by an ARES and the customer's metered kwh are not otherwise available to
Illinois Power, the
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ARES will be required to enter into a contract obligating the ARES to
provide IPC with the customer's kwh consumption used for billing
purposes for the billing period.
(f) Illinois Power should be authorized and directed to require ARES
which are billing retail customers for services provided by Illinois Power
to enter into contracts (i) requiring the ARES to remit its IFC collections
to Illinois Power every second business day, (ii) entitling Illinois Power,
within seven days after a default by an ARES in remitting collections to
Illinois Power, to assume responsibility for billing the charges for
services provided by Illinois Power, and the IFC, or to switch that
responsibility to a third party, and (iii) imposing such other terms with
respect to credit and collection policies as may be reasonably necessary to
prevent the then-current rating of the TFI from being withdrawn or
downgraded.
27. Illinois Power requests that the TFO aknowledge that in connection
with the transactions described in this Application, IPC (individually, as
servicer or otherwise) may (i) make representations and warranties with respect
to, among other things, the validity of IPS' and its assignees' (including
Trust's) title to the ITP, (ii) observe covenants for the benefit of IPS and its
assignees (including Trust), (iii) indemnify IPS and its assignees (including
Trust) against any breaches of such representations, warranties and covenants to
protect such parties against other losses which result from actions or inactions
of IPC, (iv) agree to remit to Trust, for the benefit of the TFI holders, a
portion of payments which IPC receives on account of lost tariffed revenues from
which future IFC would have been deducted, which portion IPC has agreed
constitutes proceeds of such IFC and ITP.
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28. Illinois Power will submit a complete proposed TFO during the
course of this proceeding.
WHEREFORE, Illinois Power Company requests that the Commission issue a
Transitional Funding Order in accordance with this Application and the
Electric Utility Transitional Funding Law, and that the Commission grant
in such order the other authorizations requested herein.
Respectfully submitted,
ILLINOIS POWER COMPANY
by /s/ Robert A. Schultz
-----------------------------
Robert A. Schultz
Vice President - Finance
500 South 27th Street
Decatur, Illinois 62521
Attorneys for Illinois Power Company:
Owen E. MacBride Joseph L. Lakshmanan
Schiff Hardin & Waite Illinois Power Company
7200 Sears Tower 500 South 27th Street
Chicago, Illinois 60606 Decatur, Illinois 62521
312-258-5680 217-362-7449
312-258-5600 (fax) 217-362-7458 (fax)
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STATE OF ILLINOIS )
) SS
COUNTY OF MACON )
VERIFICATION
Robert A. Schultz, on oath, states that he is Vice President - Finance
of Illinois Power Company, the Applicant herein; that he is authorized to
make this verification on its behalf; that he has read the foregoing
Application for Transitional Funding Order and Petition and is familiar with
the contents thereof; and that the information set forth therein is true and
correct to the best of his knowledge, information and belief.
/s/ Robert A. Schultz
------------------------------
Robert A. Schultz
Subscribed and sworn to before me
this 24th day of June, 1998
/s/ Kimberly S. Tish
- --------------------------------
Notary Public
<PAGE>
EXHIBIT 99.2
Transitional Funding Order
STATE OF ILLINOIS
ILLINOIS COMMERCE COMMISSION
Illinois Power Company )
)
Application for a Transitional Funding )
Order pursuant to Article XVIII of the ) 98-0488
Public Utilities Act and request for certain )
other authorizations related thereto )
pursuant to Sections 7-101 and 7-102 )
of the Public Utilities Act. )
ORDER
By the Commission:
On June 24, 1998, Illinois Power Company ("IP," "Illinois Power,"
"Company" or "Applicant") filed with the Illinois Commerce Commission
("Commission") a verified Application for Transitional Funding Order and
Petition ("Application"). IP requested, pursuant to Article 18 of the Public
Utilities Act ("Act"), also known as the Electric Utility Transitional
Funding Law, 220 ILCS 5/18-101 et seq. ("EUTFL"), that the Commission issue a
transitional funding order ("TFO"), among other things, creating and
establishing intangible transition property in and for the benefit of
Illinois Power Securitization Limited Liability Company ("IPS"); consisting
of the right to collect instrument funding charges from retail customers of
IP, authorizing the imposition and collection of the instrument funding
charges, including a procedure for implementing periodic adjustments to the
instrument funding charges; authorizing the issuance of transitional funding
instruments, secured by the intangible transition property, by Illinois Power
Special Purpose Trust ("Trust"), and authorizing IP to act as "servicer" to
collect the instrument funding charges from retail customers of IP on behalf
of IPS or its assignee, Trust, pursuant to a servicing agreement. IP's
Application also requested, pursuant to Section 7-101 of the Act, that the
Commission approve IP's entry into an administrative services agreement with
IPS, in the form attached to the Application as IP Exhibit 2.8; and that the
Commission consent to the performance by First National Bank of Decatur, an
"affiliated interest" of IP, of certain services in accordance with IP's
performance of its functions as servicer for the intangible transition
property.
A petition to intervene was filed by Enron Energy Services, Inc.
("Enron") and was granted by the Hearing Examiners.
Pursuant to notice as required by law and the rules of the Commission, a
prehearing conference was held before duly authorized Hearing Examiners of
the Commission at its offices in Springfield, Illinois on July 7, 1998.
Thereafter, a hearing
<PAGE>
for the presentation of evidence was held on August 4, 1998. Appearances were
entered by counsel on behalf of Applicant, Commission Staff and Enron.
Evidence was presented by Applicant and Staff. At the conclusion of the
hearing on August 4, 1998, the record was marked "Heard and Taken.
The following witnesses submitted testimony and exhibits on behalf of
Applicant: Larry F. Altenbaumer, Senior Vice President and Chief Financial
Officer; Robert A. Schultz, Vice President - Finance; Scott A. Smith,
Business Consultant in IP's Treasury Department; and Kevin D. Shipp, Client
Service Manager in IP's Financial Business Group. The following witnesses
submitted testimony on behalf of Staff: Scott Rungren, Senior Financial
Analyst in the Finance Department of the Financial Analysis Division; Thomas
Q. Smith, an Accounting Supervisor in the Accounting Department of the
Financial Analysis Division; William G. Saxe, a Senior Analyst in the Rates
Department of the Financial Analysis Division; and Eric P. Schlaf, an
Economist in the Policy Program of the Energy Division.
IP filed a proposed transitional funding order.
I. STATUTORY BACKGROUND
On December 16, 1997, Public Act 90-561 ("PA 90-561") was signed into
law. PA 90-561 contains a timetable for substantial restructuring of the
electric power industry in Illinois. It also includes the Electric Utility
Transitional Funding Law, or EUTFL, which authorizes the Commission to issue
a TFO, upon application of an electric utility, to create and establish
intangible transition property ("ITP") in an electric utility or a third
party (referred to as a "grantee"), consisting of the right to collect
instrument funding charges ("IFC") from retail customers of the utility; and
to authorize the issuance of transitional funding instruments ("TFI") secured
by the ITP. The financing mechanism established by the EUTFL is often
referred to as "securitization." The EUTFL contains various requirements that
the applicant must meet in order for the Commission to issue a TFO.
Among the requirements of the EUTFL is that the amount of the ITP which
the Commission may authorize cannot exceed the sum of the rate base
established by the Commission in the electric utility's last rate case, plus
certain costs imposed by the Electric Service Customer Choice and Rate Relief
Law of 1997, such as labor severance and retraining expenditures, and costs
incurred pursuant to the EUTFL, such as costs related to the issuance of TFI
and the use of proceeds therefrom for refinancing purposes. Section
18-104(a). The Commission can authorize the imposition and collection of IFC
in amounts sufficient to pay when due principal and interest on the TFI, the
costs of issuance, servicing and required reserves, and certain other fees,
costs and charges related thereto. Section 18-104(a). IFC must be stated
separately on retail customers' bills, and cannot cause the rates paid by the
utility's retail customers to increase. Sections 18-103(d)(3), 18-104(j) and
18-111(3). The TFO must also establish a procedure or mechanism for periodic
reconciliation of the IFC actually
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collected to the amount projected to be collected, and for adjustment to the
per-kilowatt-hour ("kwh") IFC in order to ensure timely repayment of the TFI.
Section 18-104(d). The EUTFL requires the Commission to authorize the
electric utility to enter into a servicing agreement with the entity in which
the ITP is created, or that entity's assignee, pursuant to which the utility
will bill and collect the IFC from its retail customers and remit the
collections to the grantee or assignee.
The EUTFL allows the Commission to authorize the issuance of TFI in
amounts which do not exceed 50% of the electric utility's total
capitalization at December 31, 1996, multiplied by the ratio of the electric
utility's revenues from Illinois retail electric customers during the
calendar year 1996 to its total retail electric revenues during that year;
however, only one-half of this amount may be authorized for issuance during
the period August 1, 1998 through July 31, 1999. Section 18-103(d)(6). The
expected maturity date of any series of TFI can be no later than December 31,
2008; however, if principal and interest on a series of TFI have not been
paid in full by that date, collection of IFC may continue until the TFI are
repaid in full. Sections 18-103(d)(2) and 18-104(l).
The proceeds from the issuance and sale of TFI can only be used for
purposes specified in the EUTFL. There purposes include, among others, (i)
refinancing the electric utility's debt or equity or both, in a manner which
the utility reasonably demonstrates will reduce its overall cost of capital,
taking into account the costs of financing, and (ii) paying costs and fees
incurred in connection with the issuance and collateralization of the TFI and
with the use of proceeds. Section 18-103(d)(1) (A) and (C), (D) and (E). In
addition, an electric utility may not use the proceeds from issuance of TFI
in a manner which causes the utility's common equity ratio (excluding the
portion of its capital structure represented by TFI) to be reduced below the
lesser of (i) 40% or (ii) the utility's common equity ratio at December 31,
1996, adjusted for any write-offs required to be implemented as a result of
enactment of the Electric Service Customer Choice and Rate Relief Law of
1997. Section 18-103(d)(1).
II. EVIDENCE PRESENTED IN SUPPORT OF THE APPLICATION
A. TRANSACTION OVERVIEW
Larry Altenbaumer, IP's Senior Vice President and Chief Financial
Officer and Chief Financial Officer, Treasurer and Controller for IP's parent
company, testified that IP was requesting the creation of $1,634 million of
ITP to be owned by IPS, and the creation of $1,634 million of IFC to be
imposed on retail customers of IP. He testified that IPS would assign its
rights to the ITP to Trust, and that authorization was requested for Trust to
issue up to $864 million of TFI to the public. IP also requested authority
for IP to enter into servicing and administration agreements with IPS. Mr.
Altenbaumer stated that IP would use the proceeds of issuance of the TFI to
repurchase and retire IP's outstanding debt, preferred stock and securities,
and
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common stock, and to pay for issuance and transaction costs associated
with issuance of the TFI and with the refinancings. IP Ex. 1.1 at 3-4.
1. CALCULATION OF THE PROPOSED AMOUNTS OF ITP AND IFC
Robert Schultz, IP's Vice President-Finance, explained the methodology
used to calculate the requested amount of ITP, $1,634 million. He stated
that this amount represents the total IFC to be billed over time, under a
"worst case" rating agency stress test scenario, to pay principal of the TFI
under the Expected Amortization Schedule, interest on the TFI, and the
servicing fees and other fees, costs and charges, and to fund or maintain any
required reserves, based on kwh usage projections and taking into account
delays in bill collections, postulated uncollectibles experience, and
defaults. He explained that the exact amounts of the total and annual IFC
actually to be billed and collected will be a function of the TFI structure,
including payment method, interest rate and maturities, the possible issuance
of TFI with floating interest rates and the entry into interest rate "swap"
agreements in connection with those TFI, the servicing fees and expenses and
the required reserves, as well as the actual timing and amount of IFC
collections. The final determination of the transaction structure will not
be made until just prior to issuance and will in part be based on market
conditions at that time. He stated that IP is requesting creation of a total
amount of $1,634 million of ITP and IFC, based on the scenario detailed in
Section III of IP Exhibit 2.3, which IP believes will be sufficient to
provide for full payment of the TFI under a "worst case" rating agency stress
test analysis. Mr. Schultz emphasized, however, that in no event will the
IFC charged be more than required to meet actual debt service on the TFI and
related costs. IP Ex. 2.1 at 6-10 and IP Ex. 2.3.
Mr. Schultz testified that the computations of the total ITP and IFC in
IP Exhibit 2.3 were based on a mortgage type payment schedule, but that IP is
requesting authorization to select alternative payment options, such as equal
principal payments, based on market conditions. IP Ex. 2.1 at 8-9. He
stated that the Expected Amortization Schedule for the TFI shown in IP
Exhibit 2.3 assumed quarterly payment of principal and interest, but that the
actual TFI could provide for semi-annual payments if such payments turn out
to be more favorable from an investor demand or credit rating perspective.
IP Ex. 2.1 at 11.
Mr. Schultz testified that the total amount of ITP and IFC requested to
be authorized did not exceed the sum of (1) the rate base in IP's last
electric rate case ($3,256,138,000 as found in Docket 91-1047 (Order on
Rehearing, Aug. 7, 1992)), plus (2) certain labor-related costs as provided
for in Section 16-128 of the PUA, plus (3) the various issuance and
transaction costs specified in Section 18-104(a) of the EUTFL. He stated
that IP did not intend to use any of the TFI proceeds to pay Section 16-128
costs. He testified that the sum of the Docket 91-0147 rate base and the
various issuance and transaction costs totaled $3,312,288,000, versus a
requested amount of ITP and IFC of $1,634 million. IP Ex. 2.1 at 12-13.
4
<PAGE>
Mr. Schultz explained that it was not certain that the total amount of
IFC requested will in fact be charged to customers. Upon issuance of each
series of TFI, IP will file appropriate revisions to its IFC tariff, Rider
IFC, to deduct and separately state from IP's tariffed charges the specific
IFC for that series, based on the principal amount, term to maturity,
interest rate, and issuance and transaction costs and reserves. The
specifics of each TFI issuance will also be set forth in a filing with the
Commission within 90 days after each issuance, which will provide, among
other things, the Expected Amortization Schedule and the expected Debt
Service Billing Requirement associated with that series. IP Ex. 2.1 at 13-14.
C. ISSUANCE OF TFI
Mr. Altenbaumer presented IP Exhibit 1.2 which showed that the requested
amount of TFI, $864 million, was equal to 25% of IP's total capitalization at
December 31, 1996, times the ratio of IP's Illinois electric retail revenues
to its total retail electric revenues for the 12 months ended December 31,
1996. IP Ex. 1.1 at 4-5.
Mr. Schultz testified that the expected maturity dates for the TFI would
be no later than December 31, 2008. He explained that some series of TFI may
contain a "legal final" maturity date which is one or two years after the
expected maturity date of the TFI, in order to satisfy rating agency
requirements. The "legal final" date is the date after which, if the TFI
have not been repaid in full, note holders may pursue extraordinary remedies
against the Trust. He stated, however, that the debt service and Expected
Amortization Schedules will be established for each series of TFI to support
full repayment at an expected maturity date no later than December 31, 2008.
IP Ex. 2.1 at 14-15.
Mr. Schultz stated that a significant credit enhancement feature, which
will be incorporated in the overall structure of the TFI for the purpose of
achieving triple-A bond ratings, will be the creation of cash and
over-collateralization reserves, which it is projected will need to be equal
to approximately 1.0% of the outstanding principal amount of the TFI. He
testified that an initial reserve equal to 0.50% of the principal amount of
the TFI is expected to be required. In addition, IP is requesting
authorization to set the IFC at levels sufficient to fund an
overcollateralization reserve, which is expected to be not less than 0.50% of
the initial principal balance of the TFI and which will be collected
approximately ratably over the life of the TFI. Mr. Schultz stated that the
actual amounts of these reserves would be finalized prior to issuance based
on rating agency and investor requirements and other legal and financial
concerns. He stated that the amounts for reserves were projected based on
what was required in the California utility securitizations. Mr. Schultz
stated that a second significant credit enhancement feature would be the IFC
true-up mechanism presented by Mr. Shipp. IP Ex. 2.1 at 16-18.
Mr. Schultz explained the possible issuance of floating rate notes by
Trust and the use of interest rate "swap" agreements in connection with those
TFI. He stated that
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<PAGE>
depending on market conditions, Trust may issue one or more series of TFI
with floating interest rates tied to a benchmark such as yields on 5-year
Treasury securities or the LIBOR rate, and simultaneously enter into interest
rate "swap"agreements with a counter-party or parties, such as a major
financial institution. He explained that under a swap agreement, the
counter-party, for a fee, would agree to pay Trust interest at the actual
floating interest rate payable on the TFI in exchange for an agreed, fixed
interest rate. He stated that in such a transaction, IFC collections would
be the source of the payments to the counter-party. Mr. Schultz testified
that issuance of floating-rate TFI may enable Trust to obtain a lower overall
interest rate than is achievable on a fixed-rate TFI. Under the swap
agreement, the counter-party, in return for a swap fee (if any), agrees to
take on the additional risk which was imposed on Trust when it issued the
floating-rate TFI. IP Ex. 2.1 at 18-19.
Mr. Schultz testified that based on a review of the costs incurred in
the three California utility securitizations in November-December 1997, the
underwriting and issuance costs for the TFI are estimated to be $6.3 million.
He stated that the issuance costs include legal and accounting costs, SEC
fees, rating agency fees, and printing costs. In addition, the requirement
for the cash reserve is estimated to be 0.5% of the TFI proceeds, or about
$4.3 million. IP Ex. 2.1 at 18-21 and IP Ex. 2.4.
D. USE OF PROCEEDS FROM ISSUANCE OF THE TFI
Mr. Altenbaumer testified that IP will use the proceeds it receives from
the sale of TFI to retire outstanding debt, preferred stock and preferred
securities and common stock equity and to pay issuance and transaction costs
associated with issuance of the TFI and with the refinancing transactions.
He stated that issuance costs, underwriting expense and cash reserves for the
$864 million of TFI were projected to total approximately $10.6 million.
With the net proceeds, approximately $853 million, IP plans to retire
approximately $300 to $600 million of IP debt, with premiums related thereto
expected to range between $15 and $45 million; to repurchase approximately
$50 to $125 million of preferred stock and securities, with no premium
required; and to repurchase approximately $100 to $350 million of common
equity from IP's parent company. Mr. Altenbaumer presented IP Exhibit 1.3
summarizing the entire refinancing plan. IP Ex. 1.1 at 5-6. He further
stated that IP's parent company will use the entire proceeds from the
repurchase of IP common stock to repurchase its common stock from its public
shareholders and to pay a projected three cents per share transaction fee
charged by the agent. He also stated that none of the proceeds from issuance
of the TFI will be used to repay, retire or refinance obligations incurred by
any affiliates of IP, other than obligations of IPS incurred in connection
with the transactions contemplated by the Application. IP Ex. 1.1 at 6-7.
Mr. Schultz testified that all proceeds received by IP from issuance of
the TFI will be used to redeem debt, preferred stock or securities and common
equity, to fund the costs of executing the recapitalization, to provide for
the cash reserve, and to pay issuance costs for the TFI (if the cash reserve
and issuance costs are not provided for
6
<PAGE>
by Trust or IPS before remittance of the net proceeds to IP). He stated that
in no event will the issuance and transaction costs and cash reserves total
more than 20% of the proceeds from issuance of the TFI. He stated that the
costs and fees related to the recapitalization will be commercially
reasonable. IP Ex. 2.1 at 22-24 and IP Ex. 2.4. He reviewed the plan for
recapitalization using the TFI proceeds, as presented by Mr. Altenbaumer,
including the premiums and other transaction costs associated with the
security repurchases. He presented IP Exhibit 2.5 listing IP's outstanding
long-term debt issues and preferred stock and securities with the highest
interest or dividend rates which are candidates for redemption using the TFI
proceeds. IP Ex. 2.1 at 24-25.
Mr. Schultz testified that the price of each share of common stock which
IP purchases from its parent company using proceeds from issuance of TFI will
be equal to the market price of the corresponding IP parent company common
share being repurchased, less the net book value per share of each of the
unregulated subsidiaries of IP's parent company, as of the end of the quarter
preceding the repurchase of the parent company's common stock. He stated
that this is consistent with the pricing methodology for share repurchases
specified in the Commission's Order in Docket 94-0518 (March 22, 1995). He
also stated that for common stock repurchases from its parent company using
proceeds from issuance of TFI, IP requests a waiver of the free cash flow
test specified in Docket 94-0518. He testified that the free cash flow test
is not necessary in this case because use of proceeds from issuance of TFI to
repurchase the utility's common stock from its parent company is one of the
purposes authorized by the EUTFL. He also stated that IP would use the
accounting entries for reacquired common stock specified in the order in
Docket 94-0518, and would file an informational report with the Commission
following each repurchase of common stock from its parent company using
proceeds from issuance of TFI. IP Exhibit 2.6 shows IP's proposed accounting
entries for the retirement or redemption of long-term debt and preferred
stock or securities and the repurchase of common equity using the TFI
proceeds. IP Ex. 2.1 at 26-28.
Mr. Schultz showed that IP had a common equity ratio of 42.3% as of
December 31, 1996 after certain write-offs resulting from enactment of the
Electric Service Customer Choice and Rate Relief Law of 1997. He stated that
IP will not use the proceeds from securitization in a way that reduces its
common equity ratio (excluding the TFI) below 40%. He stated that IP will
file reports on the use of proceeds within 90 days after the issuance of each
series of TFI, and will file a summary report within 90 days after the last
use of proceeds from issuance of the TFI. IP Ex. 2.1 at 28-30 and IP Ex.
2.7.
Mr. Altenbaumer summarized the Company's discussions with rating
agencies, financial analysts and advisors and institutional investors
concerning IP's plans for the use of securitization. He stated his
perception that the financial community views securitization as providing an
opportunity for certain utilities such as IP, which have potentially
uneconomic assets, to reduce their financing costs, reduce their
capitalization commensurate with a more rapid amortization of their
above-market
7
<PAGE>
investments, become competitive more quickly, and maintain
financial viability in a deregulated environment. He stated that he had
encountered no expressions of concern in the financial community that the
increase in leverage represented by issuance of the TFI and the anticipated
use of proceeds would result in a significant increase in IP's cost of common
equity and an increase in its overall cost of capital. Rather, the views he
encountered were that issuance of the TFI and the use of proceeds to
refinance debt and equity would help IP improve its competitive position,
reduce its asset-related exposure in the competitive marketplace, and reduce
IP's financial risk. He explained that he expected the issuance of TFI
through a properly structured transaction should have no impacts on the
ratings given by rating agencies to the Company's existing corporate debt,
and that he anticipated the rating agencies will either ignore, or heavily
discount, the TFI issued by a special purpose entity such as Trust for
purpose of analyzing the utility's leverage and financial risk. He
identified the elements of a properly structured TFI issuance that will
enable rating agencies to ignore or discount the TFI in analyzing IP's
leverage and financial risk, and explained how these elements are provided
for in the EUTFL. He identified published reports by various rating agencies
which supported his analysis. IP Ex. 1.1 at 7-15.
Scott Smith, a Business Consultant in IP's Treasury Department,
presented testimony and exhibits to demonstrate that issuance of the TFI and
the proposed use of proceeds to redeem or refinance outstanding debt and
equity of IP will result in a reduction in IP's overall cost of capital. He
performed studies to measure the impact of the increased leverage due to
issuance of the TFI on IP's cost of capital, taking into account the
increased probability of incurring financial distress costs that investors
could perceive due to the increased leverage. He indicated that leverage is
the financial term used to describe the debt portion of a firm's capital
structure. For purposes of his analyses he treated the TFI as debt of IP,
but noted that Mr. Altenbaumer testified that IP does not believe rating
agencies and investors will treat the TFI as debt of IP for purposes of
analyzing its leverage and cost of capital. Mr. Smith performed three sets
of analyses: (1) analyses using the Modigliani-Miller proposition II model
("M-II") after taxes -- this model measures the effect on the cost of common
equity due to changes in leverage in the capital structure. (2) analyses
using the "Hamada equation", which combines MM-II with the Capital Asset
Pricing Model to measure the cost of equity to a leveraged firm at varying
degrees of leverage; and (3) analyses using an equation from Brigham and
Gapenski, FINANCIAL MANAGEMENT THEORY AND PRACTICE, 8th edition -- this model
combines Modigliani-Miller proposition I after taxes with the present value
of the expected costs of financial distress. For his analyses, he assumed
issuance of $864 million of TFI, at an interest rate of 6.5%, and use of
proceeds to repurchase $350 million of common equity (the maximum amount of
common equity repurchases planned by IP) and $500 million of debt and
preferred securities (including debt premiums), and used IP's embedded
weighted average cost of debt before taxes as of December 31, 1997. He
performed analyses using both book capitalization and market capitalization
structures for IP. IP Ex. 3.1 at 3-7.
8
<PAGE>
Mr. Smith's MM-II results (IP Ex. 3.2) showed that if $864 million of
TFI are issued, IP uses the proceeds to buy back no more than $350 million of
common stock, the market imputes the TFI to be debt of IP, and the increased
risk due to additional leverage is not offset or mitigated, IP's weighted
average overall cost of capital will be reduced so long as the average pretax
cost of the TFI is no more than 10.18%. IP Ex. 3.2. His Hamada equation
results (IP Ex. 3.3) showed that, under the same assumptions, IP's weighted
average cost of capital will be reduced so long as the average pretax cost of
the TFI is no more than 9.73%. His Brigham model results (IP Ex. 3.4) showed
that, again under the same assumptions, IP's weighted average cost of capital
will be reduced so long as the average pretax cost of the TFI does not exceed
9.71%. In the financial distress component of his Brigham model analyses,
Mr. Smith used the discounted 10-year cumulative probability of bankruptcy
for a BBB-rated firm, based on Standard & Poor's published data, and
bankruptcy costs as a percentage of the firm's assets that were developed in
a published study on railroad bankruptcies. IP Ex. 3.1 at 7-17.
Mr. Smith also conducted 11 different sensitivities under both the book
and market capitalization approaches, using the Brigham model. (IP Ex. 3.5)
He used a higher 10-year cumulative probability of bankruptcy for a BBB-rated
firm as well as 10-year probabilities of bankruptcy for a BB-rated firm. He
also used varying assumptions as to the cost of bankruptcy as a percent of
the utility's assets. He found that in all but two cases, the cost of
bankruptcy would have to exceed 100% of IP's assets before issuance of the
TFI and use of proceeds caused IP's cost of capital to increase. In those
two cases, bankruptcy costs would have to exceed 68% and 91% of IP's assets
before issuance of the TFI and use of proceeds would increase IP's overall
cost of capital. IP Ex. 3.1 at 17-19.
Based on his analyses, Mr. Smith concluded that issuance of the TFI and use
of the net proceeds to redeem or refinance IP's outstanding debt and equity will
decrease IP's overall weighted average cost of capital, even if the market
considers the TFI to be IP debt. IP Ex. 3.1 at 19-20.
E. IMPOSITION, CALCULATION AND COLLECTION OF IFC
Kevin Shipp, a Client Services Manager in IP's Financial Business Group,
presented IP's proposed IFC tariff, Rider IFC (IP Ex. 4.3), and testified
concerning the imposition, calculation and collection of the IFC and the
proposed true-up mechanism. He stated that the IFC associated with each
series of TFI will be imposed on each retail customer of IP, class of retail
customers of IP, or other person or group of persons obligated to pay any
base rates, transition charges or other rates for tariffed services on or
after the date that a series of TFI is issued, including any retail customer
taking a tariffed service from IP on and after that date who subsequently
takes fully-bundled contract service or other competitive service from IP and
no longer pays any base rates, transition charges or other rates for tariffed
services to IP. In addition, to ensure that the stream of revenues is
derived from as broad a group of customers as possible,
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<PAGE>
and is therefore more secure, IP (or any successor) will not enter into any
fully bundled competitive contracts with any retail customer or other person
who is, or who otherwise would be, obligated to pay IFC, but who is not
paying any tariffed rates to IP, unless the contract provides that the
customer will pay to IPS or its assignees, or to IP as servicer, an amount
each billing period equal to the amount of IFC the customer would pay if
taking the contract services as tariffed services. Any such customer will
receive a credit against the billing under the contract equal to the amount
of IFC billed. IP, IPS and Trust will agree that any revenues received by IP
from any such fully bundled contract services shall, to the extent IFC would
be imposed on the customer if taking tariffed services, be deemed to be
proceeds of and included in the ITP. Further, if any retail customer obtains
electric power and energy from an ARES or another electric utility without
taking IP's delivery services, and therefore becomes obligated to make a lump
sum or other fixed payment of transition charges to IP in accordance with PUA
Section 16-108(h) of the Act, or if IP becomes eligible to receive any
similar payments, the portion of those payments allocable to the IFC shall be
promptly remitted by IP to IPS or its assignee. IP Ex. 4.1 at 3-6.
Mr. Shipp explained that the cents-per-kwh IFC charges to be applicable
in each period will be calculated by (i) allocating the total IFC among the
customer classes subject to IFC based on the ratio of each class' 1996 base
rate revenue to IP's total 1996 base rate revenue, and (ii) dividing the IFC
allocated to each class by expected kwh sales and deliveries to the class for
the period. IP Exhibit 4.2 illustrates this procedure, except that actual
1997 kwh are used. The calculation on page 2 of the exhibit is based on the
projected debt service billing requirement for the period ending December
31, 1999 under the "worst case" rating agency stress test scenario presented
by Mr. Schultz in IP Exhibit 2.3, and results in the following cents-per-kwh
IFC:
<TABLE>
<CAPTION>
Allocation of Cents/Kilowatt
Service Classification Description % Allocation IPC Costs (Millions) Hour
---------------------- ----------- ------------ -------------------- --------------
<S> <C> <C> <C> <C>
1 Mw and Above
S.C. 21, 22 and 29 Firm Service 8.0% $15.0 1.00
S.C. 24 and 26 High Load Factor 15.2% 28.5 0.45
Firm Service
S.C. 30, 35 and 37 Non-Firm Service 1.5% 2.7 0.26
Below 1 Mw
S.C. 11 and 19 Large Commercial 24.0% 45.0 1.32
S.C. 10, 12, 13, 14 and 15 Small Commercial 4.6% 8.5 1.64
S.C. 2 and 3 Residential 43.7% 81.8 1.74
S.C. 41, 42 and 45 Municipal 3.0% 5.7 1.54
-------------------------- ---------------- ------ ---- ----
Total 100% $187.2
</TABLE>
Mr. Shipp stated that as each series of TFI is issued, IP will calculate the
per-kwh IFC and will revise the charges under Rider IFC to provide for these
IFC plus those for previously issued series to be deducted and separately
stated from IP's base rates, transition charges and other rates for tariffed
services. Each customer will pay the same amount that the customer would pay
absent the IFC. IP Ex. 4.1 at 6-9.
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<PAGE>
Mr. Shipp described the proposed true-up mechanism included in Rider IFC
for the purpose of maintaining the IFC collections at levels required to
support the Expected Amortization Schedule, interest payments, servicing cost
and other expenses and to ensure that reserve accounts are adequately funded.
At the end of each period specified in Rider IFC (annually, semi-annually or
quarterly), IP will reconcile the IFC collected during the preceding period
with the total IFC scheduled to be collected in that period. Any
over-collection or under-collection amount will be subtracted from or added
to the amount of IFC scheduled to be collected in the succeeding period. In
addition, any interest cost incurred or to be incurred by Trust as a result
of having to delay scheduled repayment of principal on the TFI due to a
shortfall in IFC collections in the prior period will be added to the amount
of IFC scheduled to be collected in the succeeding period. The resulting
amount of IFC for the succeeding period will be allocated to the customer
classes subject to IFC on the basis of their 1996 base rate revenues, and the
amount allocated to each class will be divided by projected kwh sales and
deliveries to the class in the succeeding period to arrive at per-kwh IFC for
each class. Mr. Shipp stated that no later than three business days prior to
the first day of the second month following the end of a reconciliation
period, IP will file any resulting revisions to the IFC in Rider IFC, along
with a reconciliation of scheduled to actual IFC collections during the
preceding period and the calculation of any revised per-kwh IFC. The revised
IFC will be effective on the first day of the second month following the end
of the reconciliation period, meaning February 1 for annual reconciliations,
February 1 and August 1 for semi-annual reconciliations, or February 1, May
1, August 1 and November 1 for quarterly reconciliations. IP Ex. 4.1 at
9-13.
Mr. Shipp stated that IP presently plans to implement reconciliations
and true-ups on an annual basis, but requests authorization to implement the
periodic adjustments on a semi-annual or quarterly basis if it determines,
based on discussions with rating agencies, investors and financial advisors
that reconciliations and true-ups are required more frequently than annually
to obtain the highest possible ratings for the TFI. At or prior to issuance
of the initial series of TFI, IP will file its final form of Rider IFC which
will specify the frequency with which the true-up mechanism will be
implemented. He also explained that there will be no "final" true-up. IP
will monitor IFC billings and collections on a daily basis and will terminate
IFC billings as soon as it is determined that the full amount necessary to
repay TFI principal, interest and other associated costs has been collected.
Any excess collections will be paid to the owner of the underlying ITP within
90 days of the maturity date of the TFI. IP Ex. 4.1 at 13-15.
F. SERVICING, ADMINISTRATION AND OTHER AGREEMENTS
Mr. Schultz testified that IP would charge Trust an annual fee of 0.25%
of the initial aggregate principal amount of the TFI ($2.16 million per
year) to act as servicer to collect and remit the IFC revenues. However, in
the event IFC are not billed concurrently with other charges for services,
the servicing fee will be higher to reflect additional costs relating to dual
billing. He stated that in the latter situation, it is not expected that the
servicing fee will exceed 1.50% of the initial aggregate principal
11
<PAGE>
balance of the TFI ($13.0 million per year). He stated that these servicing
fees were the same fees established in the California utility securitizations
in November-December 1997, and were determined there to represent a
reasonable "arms-length" fee for the services being performed. He explained
that establishing an "arms-length" fee is a necessary component of the
securitization structure to establish the "bankruptcy remoteness" of the ITP
from IP, and to enable Trust to retain a successor servicer should that be
necessary. Mr. Schultz stated that IP's financial advisors have indicated
that investors and rating agencies will expect a comparable servicing fee in
the Illinois transactions to that negotiated in the California transactions.
IP Ex. 2.1 at 30-31.
Mr. Schultz testified that IPS will be a special purpose entity with no
employees; therefore, it will be necessary for IP and IPS to enter into an
Administration Agreement pursuant to which IP will perform ministerial
services and provide facilities for IPS to ensure that IPS can perform such
operations as are necessary to maintain its existence and perform its
obligations under the transaction documents. He presented the proposed
Administration Agreement as IP Exhibit 2.8. The proposed agreement
incorporates in substantial part the provisions of the existing Services and
Facilities Agreement between IP and its parent company, including the
requirement that IP be paid for services and facilities at fully loaded cost.
IP Ex. 2.1 at 31-32.
Mr. Altenbaumer testified that a member of IP's Board of Directors is a
director of the First National Bank of Decatur ("Bank"), which is thereby an
"affiliated interest" of IP. He stated that Bank performs lockbox activities
for IP and, therefore, IFC billed and collected by IP as servicer could be
deposited into Bank. He stated that the relationship between IP and Bank
would not influence any decisions or actions related to the transactions
described in the Application. IP Ex. 1.1 at 15-16.
Mr. Schultz explained that it is expected that IP will be required under
the transaction documents (1) to make certain representations and warranties
with respect to, among other things, the validity of IPS' or its assignee's,
Trust's, title to the ITP and (2) to observe certain covenants for the
benefit of IPS and Trust. He stated that IP will also be required to
indemnify IPS and Trust against any breaches of these representations,
warranties and covenants and to protect IPS and Trust against certain other
losses which could result from actions or inactions of IP. He explained that
such indemnifications are typically required in securitization transactions.
However, they do not in any event cover credit losses due to failure of
customers to pay their bills on a timely basis, or losses in IFC collections
due to shortfalls in projected usage. Mr. Schultz stated that IP may also be
required under the transaction documents to remit to Trust a portion of
payments which IP may receive on account of lost tariffed revenues from which
future IFC revenues would have been deducted. He gave examples of such lost
revenues as (1) payments made by a customer entering into a fully-bundled
competitive contract for service with IP, and (2) a lump-sum transition
charge payment received from a customer pursuant to Section 16-108(h) of the
Act. IP Ex. 2.1 at 32-34.
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<PAGE>
Mr. Schultz stated that IP requests the following provisions be included
in the TFO in order to enable IP to perform its functions as servicer and to
provide for proper reporting to Trust:
(1) Except as otherwise required by law with respect to taxes or
similar governmental charges included in bills and invoices to
customers, IP or any successor servicer for Trust must allocate any
shortfall in revenues received from any retail customer or other
person ratably based on the amount of the customer's bills and
invoices constituting IFC and the amount constituting other rates,
fees and charges owed to the Company.
(2) In the event of default by IP in payment to or for the benefit of
Trust, the Commission, upon application by (i) the holders of the
TFI and the Trustee or representatives of the holders as
beneficiaries of the statutory lien permitted by EUTFL, (ii) IPS or
its assignees, (iii) Trust, or (iv) pledgees or transferees of the
ITP, shall order the sequestration and payment to or for the
benefit of IPS or such other party, of revenues with respect to the
ITP.
(3) The Commission shall not approve or require any third party
servicer or servicers to replace IP without determining that
approving or requiring such a third party servicer to replace IP
will not cause the then current ratings of the TFI to be withdrawn
or downgraded.
(4) IP may disconnect service to any customer who fails to pay IFC
billed on behalf of Trust, in accordance with the Commission's
regulations pertaining to disconnections, in the same manner as IP
may disconnect the customer for failure to pay any charge for
service billed by IP.
(5) In any instance in which a retail customer's metering is provided
by an alternative retail electric supplier ("ARES") and the
customer's metered kwh are not otherwise available to IP, the ARES
will be required to enter into a contract obligating the ARES to
provide IP with the customer's kwh consumption used for billing
purposes in the billing period.
(6) IP should be authorized and directed to require ARES which are
billing retail customers for services provided by IP to enter into
contracts (i) requiring the ARES to remit its IFC collections to IP
every second business day, (ii) entitling IP, within seven days
after default by an ARES in remitting collections to IP, to assume
responsibility for billing and collecting the charges for services
provided by IP, and the IFC, or to switch that responsibility to a
third party, and (iii) imposing such other terms with respect to
credit and collection policies as may be reasonably necessary to
prevent the then-current rating of the TFI from being withdrawn or
downgraded. IP Ex. 2.1 at 34-37.
13
<PAGE>
Mr. Schultz testified that provisions (5) and (6) above were not
intended to require an ARES to provide IP with information on the price of,
or total charges for, power or other services supplied by the ARES which are
billed to or paid by the ARES customer, but rather only the number of kwh
delivered to the ARES' customer. He explained that one of the components of
the securitization structure important to obtaining a triple-A rating is the
fact that the utility, as servicer, will be billing customers for both the
IFC and the utility's own charges for services, and will apply the same
credit and collection policies and procedures to both. He stated that IP
will be required to account to IPS or Trust for the total kwh consumed by the
retail customer and the related IFC billings based on that kwh usage. In
those circumstances in which the ARES is the only provider metering the
customer, IP must be legally entitled to obtain the kwh usage information
from the ARES in order for IP to carry out its responsibilities as servicer.
In addition, information on the ARES' customers' kwh usage will be important
information to IP in developing forecasts of kwh sales and deliveries in
order to implement the IFC true-up mechanism. Mr. Schultz stated that in
order to have the certainty required in this area to satisfy potential rating
agency concerns relating to the TFI which are to be issued in 1998, it is
necessary to have established in the TFO IP's right to require contracts
obligating ARES to supply IP with information on customers' kwh usage where
the ARES is the only entity metering the customer for billing purposes. He
stated that this requirement should not impose any additional burden on the
ARES in these circumstances. IP Ex. 2.1 at 37-41.
Mr. Schultz testified that it was reasonable to require an ARES to remit
its IFC collections to IP every second business day. He explained that IP is
only requesting that the ARES be required to remit IFC it has actually
collected from its customers within two business days after the collection.
He indicated that any longer remittance period would simply provide the ARES
with an interest-free loan of Trust's revenues. He stated that any company
with financial resources and sophistication to establish and operate a
billing and collection system to bill its own customers on a regular basis
should be readily able to handle this requirement. Mr. Schultz noted that IP
already has contracts with third parties who act as collection agents for
receiving and remitting bill payments by customers to IP, which require the
agents to remit collections to IP within two business days of receipt. IP
Ex. 2.1 at 41-44.
Mr. Schultz explained the necessity of establishing in the TFO IP's
right to resume responsibility for billing the charges for IP services, and
the IFC, in the event an ARES fails to remit collections to IP within seven
days. He stated that a default by an ARES in remitting collections to IP is
a potential early warning sign that the ARES is encountering financial
difficulties, or difficulties in carrying out its billing and collection
responsibilities. To preserve the creditworthiness of the securitization
structure and ensure that IFC will continue to be billed and collected in a
timely manner, Mr. Schultz indicated that it is necessary that IP be allowed
to take over responsibility for billing the services provided by IP, and the
IFC, or switch the responsibility to a third party. Mr. Schultz stated that
including this provision in the TFO is necessary to address rating agency
concerns with respect to the TFI to be issued in 1998. Mr. Schultz explained
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that IP should also be authorized to implement such additional credit and
collection policies with respect to ARES who are billing and collecting on
behalf of IP as rating agencies may require to establish and maintain the
highest credit ratings on the TFI. The specific provisions which rating
agencies may require are unknown at this time. IP Ex. 2.1 at 44-47.
Mr. Schultz explained that it is necessary to include the proposed
provisions relating to billing and collection by ARES in the TFO even though
IP and other utilities will be filing tariffs covering "single billing" by
ARES. The TFI will be issued in 1998, but the Commission will not be
approving "single billing" tariffs until 1999, and is unknown what credit and
collection terms the Commission will allow in those tariffs. He noted that
an ARES could go into bankruptcy or otherwise default in its remittance of
IFC collections to IP. If the ARES were required to remit IFC collections
less frequently than IP proposes, or if IP did not have the right to promptly
take over responsibility for billing and collecting its charges and the IFC
following an ARES default, larger amounts of IFC collections would be at
risk. These possibilities would represent a degradation of creditworthiness
of the securitization structure from the viewpoint of rating agencies and
potential investors. In addition, lost IFC collections due to an ARES
default will be billed again to retail customers through the true-up
mechanism. Mr. Schultz concluded that these provisions are needed in the TFO
in order to address rating agency concerns relating to issuance of the TFI in
1998. IP Ex. 2.1 at 47-49.
III. EVIDENCE PRESENTED BY COMMISSION STAFF AND APPLICANT'S RESPONSE
Scott Rungren, a Senior Financial Analyst in the Finance Department of
the Financial Analysis Division, testified that based on his review of IP's
testimony and responses to his data requests, IP met all of the applicable
finance-related requirements in the EUTFL. He stated that those
finance-related requirements include the following: (1) the aggregate amount
of TFIs to be issued shall not exceed (a) during the twelve-month period
commencing August 1, 1998, an amount equal to 25% of the utility's total
capitalization as of December 31, 1996, multiplied by the ratio of the
utility's revenues from Illinois electric utility retail customers in the
1996 calendar year to its total electric retail revenues for such year; and
(b) thereafter, an amount equal to 50% of the utility's total capitalization
as of December 31, 1996, multiplied by the same ratio described in (a)
(Section 18-103(d)(6)); (2) the expected maturity date for the TFI shall be
no later than December 31, 2008, subject to the provisions of Sections
18-104(l) and (m) (Section 18-103(d)(2)); (3) the TFI may not be issued until
August 1, 1998, and may not be issued after December 31, 2004 (Section
18-111(1)); (4) the utility must use at least 80% of TFI proceeds to
refinance debt or equity, or for the other purposes specified in Section
18-103(d)(1)(B) in the event the Commission finds the sale or issuance of TFI
for those other purposes to be in the public interest; (5) no more than 20%
of the maximum amount of TFI proceeds permitted can be used for purposes,
other than to refinance debt or equity, specified in Section 18-103(d)(1)(B);
(6) the utility cannot use the proceeds of the sale of the TFI to repay or
retire obligations incurred by
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any affiliate of the utility (other than in connection with any financing of
grantee instruments or TFI issued by such affiliate) without consent of the
Commission (Section 18-103(d)(1)); (7) the utility's use of proceeds for the
purposes specified in Section 18-103(d)(1)(A) shall not, as of the date of
application of such proceeds, result in the common equity component of its
capital structure, exclusive of the portion thereof that consists of
obligations representing TFI or grantee instruments, being reduced below the
lesser of (a) 40% and (b) the common equity percentage on December 31, 1996
adjusted to reflect any write-off of assets or common equity implemented or
required to be implemented as a result of the EUTFL (Section 18-103(d)(1));
(8) any proceeds transferred to a parent company through a common stock
repurchase transaction shall be used to retire publicly traded common stock
of the parent company or to pay commercially reasonable transaction costs
associated with such retirement (Section 18-103(d)(1)(A)); (9) the aggregate
amount of ITP to be created does not exceed the sum of the rate base
established in the electric utility's last rate case prior to the effective
date of the EUTFL plus other specific costs enumerated in Section 18-104(a),
minus the amount of any ITP previously created in a prior TFO (Section
18-104(a)).
Mr. Rungren also testified that IP reasonably demonstrated that its
proposed TFI issuance and planned use of proceeds will result in an overall
reduction in its cost of capital, thus satisfying Section 18-103(d)(1)(A).
He reviewed the analyses presented by IP witness Smith and noted that each
scenario considered by Mr. Smith indicated that the use of TFI proceeds, as
proposed by IP, will result in a reduction in IP's overall cost of capital.
Mr. Rungren also stated that he reviewed the electronic version of the
spreadsheet used by IP witness Smith to perform the analyses presented in his
testimony, examined all the inputs and assumptions Mr. Smith employed,
verified the results Mr. Smith presented in his testimony, and found no
errors or unreasonable assumptions.
Mr. Rungren recommended that the Commission approve IP's securitization
proposal to issue $864 million of TFI, the proceeds from which will be used
to retire or repurchase outstanding long-term debt, preferred securities, and
common stock.
Thomas Q. Smith, Accounting Supervisor in the Accounting Department of
the Financial Analysis Division, testified that changes to Rider IFC for
purposes of implementing periodic adjustments to the IFC should be filed with
the Commission at least three business days prior to their effective date, as
proposed by IP in IP Exhibit 4.3, and that this would give Staff adequate
time to review the changes under the direction of Section 18-104(j). He also
testified that he concurred with IP's position that securitization issuances
should not be made until IP receives the private letter ruling it requested
from the IRS. He also stated that IP had proposed proper journal entries for
its debt and preferred stock retirements and common stock repurchases. He
concurred that the accounting procedures proposed by IP are consistent with
the procedures set out in the Uniform System of Accounts, the Act, any and
all administrative orders of the Commission, and any other applicable laws,
statutes and regulations as applicable to recording debt retirements and
stock repurchases. He noted that to the extent that
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accounting procedures might need to be changed from those proposed by IP, it
is appropriate for IP to continue to adhere to the requirements of these
authorities. Finally, Mr. Smith noted that IP had proposed to file reports
with the Commission describing the use of proceeds from issuance of the TFI,
as provided by Section 18-104(h). He recommended that, in order to keep the
Commission fully informed, IP's reports should include documentation of the
accounts debited and credited, and the dollar amounts entered therein.
In his rebuttal testimony, Mr. Schultz stated that IP agrees with Mr.
Smith's recommendation to include the amounts debited and credited and the
dollar amounts entered in its use of proceeds reports filed with the
Commission.
William G. Saxe, Senior Rate Analyst in the Rates Department of the
Financial Analysis Division, testified that IP's listing of customers who are
required to pay the IFC is in compliance with the requirements of the EUTFL.
He stated that he agreed with IP's request to impose the IFC on non-tariffed
contract customers, as proposed by Mr. Shipp at IP Exhibit 4.1, page 5, lines
1-3. He stated that it would be inconsistent to impose the IFC on customers
that take bundled tariffed service from IP, but not on customers that take
non-tariffed bundled contract service from IP; and that it also would be
inconsistent to impose the IFC on customers that take energy from an ARES and
delivery services from IP, but not on customers that take both energy and
delivery services from IP. Mr. Saxe further testified that IP's proposal for
allocating the IFC among the customers required to pay the charge, as
presented by Mr. Shipp, was in compliance with the EUTFL. He also noted that
the customer classes IP proposed to use to allocate the IFC appeared
reasonable. Mr. Saxe further indicated that under IP's Application, the IFC
charge will not result in higher rates for IP's retail customers. He
testified that based on information in IP's Application and proposed Rider
IFC, Staff was confident that IP's IFC tariff will be set up correctly in
accordance with Section 18-104(j). He recommended, however, that in order to
give Staff ample opportunity to confirm the appropriateness of the actual
IFCs set forth in the tariff, IP should be required to file its proposed
tariff with the Commission at least three business days prior to the
effective date of the tariff.
In his rebuttal testimony, Mr. Shipp stated that IP committed that the
Rider IFC tariff will be filed with the Commission at least three business
days prior to its initial effective date.
Eric P. Schlaf, an Economist in the Policy Program of the Energy
Division, testified that with respect to IP's proposals concerning
requirements for billing, collection and remittance of IFC by an ARES which
elects to provide a single bill to the retail customer, as embodied in IP's
proposed Rider IFC and described by Mr. Schultz in his direct testimony, the
Commission should approve the same provisions as it approved in Commonwealth
Edison's transitional funding order in Docket 98-0319. In his rebuttal
testimony, Mr. Schultz stated that IP accepted and agreed with Dr. Schlaf's
recommendation. Mr. Shipp, in rebuttal testimony, presented as IP Exhibit
4.5 a
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revised form of Rider IFC which was modified to incorporate the ARES-related
provisions approved by the Commission in Docket 98-0319. The following five
paragraphs set forth those provisions:
In any instance in which the metering of a retail customer of IP is
provided by an ARES and the customer's metered kwh are not otherwise
available to the Company, IP will be entitled to require the ARES to enter
into a contract obligating the ARES to provide IP with the customer's total
kwh consumption used for billing purposes in each billing period.
In any instance in which an ARES or another electric utility is billing
a retail customer of IP for services provided by IP as allowed by Section
16-118(b) of the Act, or services provided by IP are being billed by any
other third-party (such an ARES, other electric utility or other third party
collector being hereinafter referred to as a "third party collector"), IP
will be entitled to require the third party collector to enter into a
contract requiring the third party collector to either (i) remit IFC
collected from customers within seven days after receipt, provided however
that if the third party collector otherwise is required to remit payments to
IP or its successor on a more frequent basis, the third party collector shall
remit IFC at the same time as such other payments; or (ii) at the option of
the third party collector, which shall be exercised by providing to IP a
written notification of the election of the following option, which election
may not be changed for a period of one calendar year after it is exercised,
to choose (in lieu of remitting IFC within seven days of receipt) to pay IFC
to IP within 15 days of the date of IP's bill provided that (1) the third
party collector pays all IFC for which it bills regardless of whether
payments are actually received from customers, and (2) a third party
collector who does not have investment-grade credit ratings (BBB- or better)
must post a deposit or comparable security equal to one month's estimated IFC.
Further, if a dispute materializes between IP and a third party
collector (as defined above) concerning billing and collection for services
provided by IP, the third party collector must pay the undisputed portion of
its collections over to IP, and must pay the disputed amounts to IP under
protest pending resolution of the matter. If and to the extent the third
party collector is successful in the dispute, either through a negotiated
resolution or a Commission determination, the third party collector should
receive interest on the portion of the disputed amount which is paid back by
IP. Further, if a dispute cannot be resolved informally between IP and the
third party collector, IP and the third party collector shall jointly file a
complaint with the Commission and thus, no party will be singled out to bear
the burden of proof.
If a third party collector does not remit IFC to IP on or before the
date remittance is due under the remittance option selected by the third
party collector (as described above), a default occurs. When 10 days have
elapsed after the date of default, IP may provide written notice to the third
party collector of IP's intent to begin to bill customers previously billed
by the third party collector for IFC because of the third party collector's
default in remitting IFC when due. A copy of this notice shall be provided
to the
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Commission. If IP receives no response from the third party collector
initiating dispute resolution or no payment by the fifth day after the notice
is sent, IP shall have the right to resume billing the retail customers
formerly billed by the ARES for the services provided by IP, and the IFC. If
IP receives a response unrelated to a dispute and/or remittance of the IFC
within this time, the third party collector will be presumed liable for the
Commission authorized rate of interest during the interval between the
remittance due date under the option elected by the third party collector and
the date of actual payment to IP. Reversion to dual-billing by IP will not
limit the rights of IP, any successor servicer, IPS, Trust or the holders of
the TFI to recover, with interest, IFC collected but not remitted by the
third party collector.
Finally, to the extent that IP, as servicer, deems it necessary to
change its, or impose any other, credit or collection terms or policies with
respect to third party collectors, IP shall do so by filing for Commission
review and approval an appropriate revision to Rider IFC, or a new or
supplemental tariff, as appropriate.
IV. COMMISSION CONCLUSIONS
Based on its review of the EUTFL, IP's Application and the entire
record, the Commission concludes that IP has presented evidence which
establishes that its Application meets the requirements of the EUTFL and that
the Commission should issue a TFO as requested by IP.
The Commission is not required to make a public interest finding in this
Order. IP has not proposed to use the proceeds of the TFI to repay or retire
fuel contracts or obligations related to spent nuclear fuel or to make
expenditures pursuant to Section 16-128, such as labor severance costs or
employee retraining costs. The expected maturity date for the TFI is no
later than December 31, 2008, so no public interest finding is required under
Section 18-104(m). As required by Section 18-103(d), the Order in this
docket is being issued within 90 days after the filing of IP's Application.
In addition to the findings and ordering paragraphs which the Commission
is entering in this Order based on the Application and the evidence as
summarized above, there are other matters which the EUTFL requires that the
TFO provide. These provisions include the following:
(1) Section 18-104(a) states that, except as otherwise provided in the
TFO, the TFI shall be non-recourse to the credit or assets of the
electric utility, other than any assets comprising ITP.
(2) Section 18-104(a) also states that the Commission's TFO shall
specifically provide that the IFC will not be subject to any
defense, counterclaim or right of set-off arising as a result of
failure by the electric utility to perform or provide past, present
or future services.
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(3) Section 18-104(c) states that notwithstanding any other provision of
law, neither the TFO nor the ITP created and established thereby nor
the IFC authorized to be imposed and collected thereunder shall be
subject to reduction, postponement, impairment or termination by any
subsequent action of the Commission.
(4) Section 18-104(g) provides that in its TFO, the Commission shall
afford flexibility in establishing the terms and conditions of the
TFI, including repayment schedules, collateral, required debt
service and other reserves, interest rates and other financing
costs, and the ability of the electric utility, at its option, to
effect a series of issuances of TFI and correlated assignments,
sales, pledges, or other transfers of ITP, not to exceed the
aggregate dollar amounts approved in the TFO.
(5) Section 18-104(j) provides that the deduction of IFC from the
electric utility's base rates, transition charges or other rates for
tariffed services shall not be construed as a change in, or
otherwise require a recalculation of, the authorized amount of such
base rates, transition charges, and other rates for tariffed
services under PUA Sections 16-102, 16-107, 16-108, or 16-110 of
the Act, as applicable.
(6) Section 18-104(l) states that if any series of TFI has not been paid
in full by its expected maturity date, the ITP created by the TFO
and the right of the grantee, assignee, issuer, electric utility or
other person authorized by the TFO to impose and collect IFC shall
continue beyond the final date set forth in the TFO until such time
as the related TFI have been paid in full.
(7) Section 18-105(b) states that the State pledges and agrees with
holders of any TFI who may enter into contracts with an electric
utility, grantee, assignee or issuer pursuant to the EUTFL that the
State will not in any way limit, alter, impair or reduce the value
of ITP created by, or IFC approved by, a TFO so as to impair the
terms of any contract made by such electric utility, grantee,
assignee or issuer with such holders or in any way impair the rights
and remedies of such holders until the pertinent grantee instruments
or TFI and interest, premium and other fees, costs and charges
related thereto are fully paid and discharged. Section 18-105(b)
also provides that electric utilities, grantees and issuers are
authorized to include these pledges and agreements of the State in
any contract with the holders of TFI or with any assignees and that
any assignees are similarly authorized to include these pledges and
agreements of the State in any contract with any issuer, holder or
other assignee.
(8) Section 18-107(c) provides that to the extent the TFI purport to be
secured by the ITP, as specified in the TFO, the lien of the TFI
shall
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attach automatically to such ITP from the time of issuance of the
TFI; such lien shall be enforceable against the electric utility,
any assignee, grantee, or issuer, and all third parties, including
judicial lien creditors, subject only to the rights of any third
parties holding previously-perfected security interests in the ITP
if value has been given by the purchasers of the TFI; such lien is
perfected and ranks prior to any other lien, including any
judicial lien, which subsequently attaches to the ITP, whether or
not the electric power and energy included in the calculation of
such revenues and proceeds have been provided.
(9) Section 18-108 provides that a sale, assignment or other transfer
of ITP which is expressly stated in the documents governing the
transaction to be a sale or other absolute transfer, in a
transaction approved in a TFO, shall be treated as an absolute
transfer of all the transferor's right, title and interest in, to
and under such ITP which places such transferred property beyond
the reach of the transferor or its creditors, as in a true sale,
and not as a pledge or other financing of such ITP. Section
18-108 further states that the characterization of such a transfer
as an absolute transfer and the corresponding characterization of
the transferee's property interest shall not be defeated or
adversely affected by (i) the commingling of revenues arising with
respect to ITP with funds of the electric utility or other funds
of the assignee, issuer or grantee; (ii) granting to holders of
TFI a preferred right to the ITP; (iii) the provision by the
electric utility, grantee, assignee or issuer of any recourse,
collateral or credit enhancement with respect to TFI; (iv)
retention by the assigning party of a partial interest in any ITP,
whether direct or indirect, subordinate or otherwise; or (v) the
electric utility's responsibilities for collecting IFC and any
retention of bare legal title for purpose of such collection
activities.
Accordingly, the Commission will include findings and ordering paragraphs in
this Order conforming to these provisions of the EUTFL.
V. FINDINGS AND ORDERING PARAGRAPHS
The Commission, having reviewed the verified Application of Illinois
Power Company for a transitional funding order including the prepared
testimony and exhibits submitted therewith, which collectively constitute the
"Application", and the record herein, and being fully advised in the
premises, is of the opinion and finds that:
(1) Illinois Power is an Illinois corporation engaged in the business of
providing electric utility service to the public in portions of the
State of Illinois, is an "electric utility" as defined in Section
16-102 of the Public Utilities Act, and is authorized to file, and
has filed, in proper form, an Application with the
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Commission pursuant to Section 18-103 of the EUTFL for issuance of
a transitional funding order;
(2) the Commission has jurisdiction over Illinois Power and of the
subject matter of the Application and of this proceeding;
(3) the statements of fact set forth in the prefatory portion of this
Order are supported by the evidence and the record and are hereby
adopted as findings of fact;
(4) Illinois Power Securitization Limited Liability Company will be a
"grantee" as that term is defined in Section 18-102 of the EUTFL and
will be the owner of the intangible transition property to be
created by this Order;
(5) IPS will enter into a Trust Agreement with a financial institution
experienced in providing corporate trust services to form the
Illinois Power Special Purpose Trust;
(6) intangible transition property in the aggregate amount of
$1,634,000,000, consisting of the currently existing, present right
to impose and collect that amount of instrument funding charges from
retail customers of Illinois Power in accordance with this Order,
including the right to periodic adjustments of such instrument
funding charges in accordance with Section 18-104(d) of the EUTFL,
should be created and established in and for the benefit of IPS, as
an original right and not by sale or assignment from Illinois Power;
such amount of intangible transition property does not exceed the
amount of intangible transition property which may be created and
established in accordance with Section 18-104(a)) of the EUTFL;
(7) IPS should be authorized to, and will, sell, transfer and assign its
right, title and interest in the intangible transition property to
be created pursuant to this Order to Trust, in accordance with
Section 18-104(f) of the EUTFL;
(8) Trust should be authorized to, and will, issue transitional funding
instruments in an aggregate principal amount not to exceed
$864,000,000, to be secured by the intangible transition property
created by this Order in and for the benefit of IPS, in accordance
with and as authorized by this Order; such amount of transitional
funding instruments does not exceed 25% of Illinois Power's total
capitalization, including both debt and equity, as of December 31,
1996, multiplied by the ratio of Illinois Power's revenues from
Illinois electric utility retail customers in the 1996 calendar year
to its total electric retail revenues for such 1996 year, and
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does not exceed the amount permitted by Section 18-103(d)(6)(A) of
the EUTFL;
(9) in accordance with Section 18-104(g) of the EUTFL, Trust shall be
afforded flexibility in establishing the terms and conditions of the
transitional funding instruments which it issues pursuant to this
Order, including, without limiting the foregoing, repayment
schedules, collateral, required debt service and other reserves,
interest rates and other financing costs;
(10) Trust will remit the proceeds from the issuance of the transitional
funding instruments, less any amounts required to be retained by
Trust as a capital or cash reserve or for payment of costs of
issuance, to IPS, as consideration for the assignment by IPS of its
interest in the intangible transition property created pursuant to
this Order; IPS will distribute such proceeds, less any amounts
required to be retained by IPS as a capital or cash reserve or for
payment of its costs or costs of issuance, to Illinois Power;
(11) Illinois Power will use the proceeds that are distributed to it by
IPS to refinance debt and equity, in accordance with Section
18-103(d)(1)(A), and for the other purposes listed in Sections
18-103(d)(1)(C), (D) and (E), of the EUTFL; Illinois Power has
reasonably demonstrated that the use of such proceeds by Illinois
Power will result in an overall reduction in Illinois Power's cost
of capital, taking into account the costs of financing; the costs
associated with the issuance and collateralization of the
transitional funding instruments, the costs incurred in connection
with the proposed transactions to recapitalize, refinance or
retire Illinois Power's stock and/or debt, and the costs incurred
or to be incurred to obtain, collateralize, issue, service and
administer the transitional funding instruments, as described in
Illinois Power's evidence herein, are commercially reasonable;
(12) Illinois Power will use a portion of the proceeds which it receives
from IPS to repurchase not more than $350,000,000 of the common
stock of Illinois Power from its parent company; the parent company
of Illinois Power will use the proceeds it receives from such
repurchase of common stock to repurchase the publicly-traded common
stock of the parent company and to pay commercially reasonable
transaction costs associated with such repurchases, in accordance
with Section 18-103(d)(1)(A) of the EUTFL;
(13) Illinois Power will use at least 80% of the proceeds that are
distributed to it by IPS for, and will use no more than 20% of such
proceeds for purposes other than, the purposes specified in Section
18-103(d)(1)(A) of the EUTFL;
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(14) none of the proceeds received by Illinois Power from issuance of the
transitional funding instruments authorized by this Order will be
used to repay or retire obligations incurred by any affiliate of
Illinois Power, other than as provided in Finding (12) of this
Order;
(15) in accordance with Section 18-103(d)(1) of the EUTFL, Illinois
Power's proposed use of the proceeds distributed to it by IPS to
refinance debt and equity, as set forth in the Application, will not
result in the common equity component of Illinois Power's capital
structure falling below the lesser of (i) 40% and (ii) Illinois
Power's common equity percentage as of December 31, 1996 adjusted to
reflect the write-off of common equity implemented by Illinois Power
at December 31, 1997 as a result of enactment of the Electric
Service Customer Choice and Rate Relief Law of 1997; Illinois Power
should be, and is, directed that it may not use the proceeds
distributed to it by IPS to refinance debt and equity in a manner
which results in the common equity component of Illinois Power's
capital structure falling below 40%;
(16) Illinois Power's proposed uses of the proceeds distributed to it by
IPS, as set forth in the Application and in Findings (10) through
(15) of this Order, constitute permissible uses of such proceeds in
accordance with Section 18-103(d)(1) of the EUTFL; Illinois Power
should be, and is, directed to use the proceeds it receives from
issuance of the transitional funding instruments authorized by this
Order for the purposes set forth in Section 18-103(d)(1) of the
EUTFL;
(17) Illinois Power will, and is directed to, determine the price of each
share of common stock which it purchases from its parent company
using proceeds from the issuance of the transitional funding
instruments authorized by this Order as equal to (i) the
market price of the corresponding Illinois Power parent company
common shares being repurchased, less (ii) the net book value per
share of each of the unregulated subsidiaries of Illinois Power's
parent company, as of the end of the quarter preceding the
repurchase of the parent company's common stock;
(18) with respect to purchases of its common stock from its parent
company using proceeds from the issuance of transitional funding
instruments that are distributed to it by IPS, Illinois Power (i) is
not required to comply with the free cash flow test imposed by the
Commission's order issued on March 22, 1995 in Docket 94-0518, (ii)
shall use the accounting entries for reacquired common stock
specified in the March 22, 1995 order in Docket 94-0518, as shown on
IP Exhibit 2.6 in this docket, and (iii) shall file an informational
report with the Commission within 90 days following each
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repurchase of common stock from its parent company using proceeds
from issuance of transitional funding instruments;
(19) with respect to its retirement or redemption of outstanding debt and
preferred stock and securities using proceeds from the issuance of
transitional funding instruments that are distributed to it by IPS,
Illinois Power shall use the accounting entries set forth on IP
Exhibit 2.6 in this docket;
(20) in accordance with Sections 18-104(h) and 18-111(4) of the EUTFL,
Illinois Power shall file with the Commission a statement of the
final terms of the issuance of any series of transitional funding
instruments, and a report showing the use of proceeds therefrom,
within 90 days following the date of such issuance; and shall file
with the Commission a summary report showing the use of proceeds
from the issuance of the transitional funding instruments authorized
by this Order within 90 days following the last use of proceeds from
such issuance; such reports shall show the accounts debited and
credited and the dollar amounts entered;
(21) in accordance with Section 18-104(c) of the EUTFL, notwithstanding
any other provision of law, this Order, the intangible transition
property created and established hereby, and the instrument funding
charges authorized to be imposed and collected hereby shall not be
subject to reduction, postponement, impairment or termination by any
subsequent action of the Commission, and the Commission shall not
revoke, amend or otherwise change the tariffs evidencing the Trust's
right to receive instrument funding charges in any manner which
would defeat the legitimate expectations of the holders of
transitional funding instruments to receive such instrument funding
charges on a timely basis;
(22) the holders of the transitional funding instruments, and the
Trustee of the Trust for the benefit of such holders, shall be
entitled to the benefit of the pledges and agreements of the State
of Illinois set forth in Section 18-105(b) of the EUTFL;
pursuant to Section 18-105(b), each of Illinois Power, IPS and
Trust should be, and is, authorized to include such pledges and
agreements in any contracts with the holders of the transitional
funding instruments, the Trustee or any assignee;
(23) to the full extent permitted by the EUTFL or other applicable law,
the intangible transition property created and established by this
Order and the right to impose and collect instrument funding charges
as contemplated by this Order shall constitute current, original
property rights of IPS and its assignees, including Trust, which
property rights may not be limited, altered, impaired or reduced or
otherwise terminated by any subsequent actions of Illinois Power or
any third party and which shall, to
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the fullest extent permitted by law, be enforceable against
Illinois Power, its successors and assigns, and all other third
parties, including judicial lien creditors, claiming an interest
therein by or through Illinois Power or its successors or assigns;
(24) in accordance with Section 18-107(c) of the EUTFL, the lien of the
Trust in the intangible transition property created and established
by this Order shall (i) attach automatically to such intangible
transition property from the time of issuance of the related
transitional funding instruments, (ii) be continuously perfected
through a filing with the Chief Clerk of the Commission, (iii) be
enforceable against Illinois Power, IPS, the Trust, and all third
parties, including judicial lien creditors, (iv) from and after the
filing described in clause (ii) of this Finding, constitute a
continuously perfected security interest in and lien on all then
existing or thereafter arising revenues and proceeds arising with
respect to the associated intangible transition property, whether or
not the electric power and energy included in the calculation of
such revenues and proceeds have been provided, (v) rank prior to any
other lien, including any judicial lien, which subsequently attaches
to the intangible transition property or to any other rights created
by this Order or any revenues or proceeds of the foregoing, (vi) not
be defeated or adversely affected, whether or not the instrument
funding charges are separately stated on the customers' bills and
whether or not the instrument funding charges are collected by
Illinois Power, IPS or a third party, by changes to this Order or to
the instrument funding charges payable by any retail customer, class
of retail customers or other person or group of persons obligated to
pay such instrument funding charges nor by commingling of revenues
or proceeds arising with respect to intangible transition property
with any funds of Illinois Power or any successor, IPS or Trust;
(25) each of the creation and vesting of the intangible transition
property in IPS, including the right to obtain periodic adjustments
to the instrument funding charges, and the transfer of the
intangible transition property from IPS to Trust, shall constitute
an "absolute transfer" within the meaning of Section 18-108 of the
EUTFL of any right, title and interest Illinois Power or IPS, as
applicable, otherwise may have had in the intangible transition
property including any right Illinois Power may have had to
receive that portion of base rates, transition charges, or other
rates for tariffed services, or of other charges, which has been
deducted and separately stated pursuant to this Order or to
receive any proceeds thereof, and such transfer shall be
irrevocable and enforceable as against Illinois Power, IPS and
their respective successors;
(26) as contemplated by Section 18-108 of the EUTFL and by clause (vi) of
Finding (24) of this Order, the property interest of IPS and of
Trust in the
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intangible transition property and the related charges, revenues,
collections and proceeds created and established by this Order
shall not be defeated by the commingling of such property,
charges, revenues, collections or proceeds with funds of Illinois
Power or any successor thereto or any other funds, including, but
not limited to, funds of an alternative retail electric supplier
or another electric utility, and, accordingly, in the case of any
such revenues, collections, claims, payments, money or proceeds
which are commingled with such other property, revenues,
collections or other payments, the portion allocable to the
instrument funding charges may be determined by such reasonable
methods of estimation as are set forth in the Servicing Agreement
contemplated by Finding (29) of this Order;
(27) in accordance with Section 18-104(a) of the EUTFL, the transitional
funding instruments authorized by this Order shall be non-recourse
to the credit and assets of Illinois Power except as to, and will be
secured only by and payable solely out of the proceeds of, the
following property: (i) the intangible transition property, (ii) all
rights of Trust under the servicing agreement with Illinois Power or
any successor servicer of the intangible transition property and all
rights and property interests under any other agreements entered
into by or for the benefit of Trust in connection with the
transaction, (iii) any bank collection accounts, investment accounts
or similar reserve accounts established in connection with the
issuance of the transitional funding instruments and all cash or
investment property or other amounts on deposit therein from time to
time, (iv) solely with respect to the transitional funding
instruments, if any, which bear a floating rate of interest, any
interest rate swap agreement executed to permit the issuance of such
transitional funding instruments, (v) all rights to obtain
adjustments to the instrument funding charges in accordance with
Section 18-104(d) of the EUTFL, (vi) all present and future claims,
demands, causes and choses in action in respect of any or all of the
foregoing, and (vii) all payments on or under and all proceeds in
respect of any or all of the foregoing; provided, however, that
notwithstanding the non-recourse nature of the transaction, Illinois
Power, individually, as servicer or otherwise may take any of the
actions contemplated by Finding (59) of this Order;
(28) any use by Illinois Power of the proceeds from issuance of the
transitional funding instruments authorized by this Order other
than in accordance with the purposes specified herein pursuant to
Section 18-103(d) of the EUTFL, shall be void, in accordance with
Section 18-111(4), provided, that any misapplication of such
proceeds shall not affect the validity of the transitional funding
instruments, the intangible transition property or the transfer of
the intangible transition property to Trust, or the rights of IPS
or
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its assignee, Trust, to impose and collect the instrument funding
charges authorized by this Order;
(29) Illinois Power should be authorized to, and will, (i) enter into a
Servicing Agreement with IPS in accordance with Section 18-104(f)
of the EUTFL, which IPS should in turn be authorized to assign to
Trust, pursuant to which Illinois Power, as servicer, will collect
the instrument funding charges authorized by this Order from
retail customers and other persons obligated to pay Illinois Power
any base rates, transition charges or other rates for tariffed
services at the time of the issuance of each related series of
transitional funding instruments, and will account for and remit
the applicable instrument funding charges, without the obligation
to remit any investment earnings thereon, to or for the account of
IPS, or of Trust as assignee of IPS; and (ii) in accordance with
Sections 18-104(a) and 18-104(j) of the EUTFL, file tariffs
providing for such instrument funding charges to be deducted,
stated, and collected separately from the amounts otherwise billed
by Illinois Power for base rates, transition charges and other
rates for tariffed services; the obligations of Illinois Power
pursuant to the Servicing Agreement shall continue irrespective of
whether Illinois Power or any successor thereto is providing
electric power and/or other services to the retail customers and
other persons obligated to pay such instrument funding charges;
(30) IPS or its assignee, Trust, and Illinois Power, as servicer, or any
successor to Illinois Power as servicer , should be authorized to
impose and collect up to an aggregate amount of $1,634,000,000 of
instrument funding charges from retail customers of Illinois Power
in accordance with this Order, with the instrument funding charges
associated with each series of transitional funding instruments to
be imposed on and collected from each retail customer of Illinois
Power, class of retail customers of Illinois Power, or other person
or group of persons, obligated to pay any base rates, transition
charges or other rates for tariffed services on and after the date
that such series of transitional funding instruments is issued,
including any customer taking a tariffed service from Illinois Power
on or after the date that a series of transitional funding
instruments is issued who subsequently takes a contract service or
other competitive service from Illinois Power; all collections by
Illinois Power, as servicer, or by any successor servicer, in
respect of such instrument funding charges shall, to the extent of
the authorized amount of instrument funding charges, be deemed
proceeds of the intangible transition property created by this
Order;
(31) in order to ensure that the allocations and collections of
instrument funding charges be maintained across the broadest
possible range of customers and other persons, in accordance with
Section 18-103(d)(4) of
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the EUTFL, and in order to ensure that the instrument funding
charges are non-bypassable, (i) neither Illinois Power nor any
successor shall enter into any competitive contracts with any
retail customer or other person who is, or otherwise would be,
obligated to pay instrument funding charges as authorized by this
Order if, as a result thereof, such customer or other person would
not receive tariffed services, unless such contract provides that
such customer or other person will pay to IPS or its assignees, or
to Illinois Power as servicer, as applicable, an amount each
billing period equal to the amount of instrument funding charges
that the customer would pay if the services provided under such
contract were tariffed services, with such amount to be separately
stated on the billings to such customer, and (ii) the Commission
acknowledges and concurs in the intent of Illinois Power, IPS and
Trust that any revenues received by Illinois Power or any
successor from any such contract services shall, to the extent the
instrument funding charges would be imposed on the retail customer
or other person if such retail customer or person were taking the
contract service as a tariffed service or services from Illinois
Power, be deemed to be proceeds of, and included in, the
intangible transition property and instrument funding charges
created by this Order;
(32) should any retail customer of Illinois Power obtain electric power
and energy from an alternative retail electric supplier or from
another utility, without taking delivery services from Illinois
Power, and thereby become obligated to make a lump sum or other
fixed payment of transition charges to Illinois Power or its
successor in accordance with Section 16-108(h) of the Public
Utilities Act, or should Illinois Power or its successor become
eligible to receive any similar payments, then the portion of such
payments allocable to the instrument funding charges authorized by
this Order shall be promptly remitted by Illinois Power or its
successor to IPS or its assignee, Trust, and shall be deemed to be
proceeds of, and included in, the intangible transition property and
the instrument funding charges authorized by this Order;
(33) in accordance with Section 18-104(a) of the EUTFL, the aggregate
amount of the instrument funding charges to be imposed and
collected by IPS or its assignee, Trust, and by Illinois Power, as
servicer, or any successor to Illinois Power as servicer, in
connection with the issuance of each series of transitional
funding instruments, shall be calculated so as to be sufficient to
pay when due the principal of and interest on such series of
transitional funding instruments, together with premium, servicing
fees and other fees, costs and charges related thereto, and to
maintain any required reserves, including, without limiting the
foregoing and as applicable to each series of transitional
funding instruments, (i) the servicing fee set forth in Finding
(34) of this Order, (ii) any fees or other amounts paid or payable
to a counter-party to a swap agreement or
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arrangement in connection with the issuance of a series of
transitional funding instruments with floating interest rates,
and (iii) reserve amounts as set forth in Finding (37) of this
Order;
(34) Illinois Power should be, and is, authorized to include in the
Servicing Agreement with IPS, and to charge IPS (or its assignee,
Trust), an annual servicing fee based on the initial aggregate
principal amount of each series of transitional funding
instruments, expected to be 0.25% thereof, if the instrument funding
charges associated therewith are billed and collected concurrently
with other charges for service, and further to provide for the
servicing fee to be higher if the instrument funding charges
associated therewith are not billed and collected concurrently with
other charges for service; the servicing fee shall be included in
the calculation of instrument funding charges associated with such
series of transitional funding instruments in accordance with
Finding (33) of this Order;
(35) pursuant to Section 7-101 of the Public Utilities Act, Illinois
Power should be, and is, authorized to enter into an administrative
services agreement with IPS pursuant to which Illinois Power shall
perform administrative services for IPS; such administrative
services agreement shall be in substantially the same form as the
administration agreement submitted as IP Exhibit 2.8 in this docket;
Illinois Power shall file a copy of the executed administration
agreement with the Commission on or before its effective date;
(36) pursuant to Section 7-101 of the Public Utilities Act, the consent
of the Commission should be given to the performance by the First
National Bank of Decatur, which is an "affiliated interest" of
Illinois Power, of lockbox and similar collection and remittance
functions with respect to instrument funding charges billed and
collected by Illinois Power as servicer;
(37) IPS and Trust should be, and are, authorized to provide for cash and
overcollateralization reserves in connection with issuance of each
series of transitional funding instruments authorized by this
Order, as described in the prefatory portion of this Order; such
reserves shall be included in the calculation of the instrument
funding charges associated with such series of transitional funding
instruments in accordance with Finding (33) of this Order;
(38) Illinois Power, as servicer, shall calculate for each period in
which instrument funding charges are to be imposed and collected in
connection with a series of transitional funding instruments issued
in accordance with this Order, a projected debt service requirement
and a projected debt service billing requirement, which shall be
calculated, as described in IP
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Exhibit 2.3 in this docket, based on the principal amount of such
series of transitional funding instruments, the expected or
scheduled maturity date for each such series, the resultant
expected amortization schedule for such series, the interest rate
on each such series of transitional funding instruments, required
payments to fund and maintain overcollateralization reserves,
servicing fees and other expenses, and any other amounts
identified in Finding (33) hereof, prior period over-collection or
under-collection amounts, and projected kilowatt-hour sales and
deliveries to retail customer and other persons subject to the
instrument funding charges and projected uncollectibles and
defaults during the succeeding period;
(39) in accordance with Section 18-103(d)(4) of the EUTFL, Illinois
Power, as servicer, will, and should be directed to, calculate the
cents-per-kilowatt-hour instrument funding charges to be imposed in
each period on each class of customers with respect to each series
of transitional funding instruments, by allocating the amount of
instrument funding charges necessary to collect the projected debt
service billing requirement associated with each such series for
such period, calculated as described in IP Exhibit 2.3 in this
docket, among customer classes based on the ratio of each such
class' 1996 base rate revenue to Illinois Power's total 1996 base
rate revenue, in the manner shown on IP Exhibit 4.2 in this docket,
and dividing the amount of instrument funding charges allocated to
each such class by the number of kilowatt-hours projected to be sold
or delivered to customers in such class during such period; for
purposes of Sections 18-103(a) and (k) of the EUTFL, the instrument
funding charges per kilowatt-hour shown on IP Exhibit 4.2, page 2
and in Section II.E of this Order shall be the instrument funding
charges initially authorized by the Commission; the allocation of
such instrument funding charges among Illinois Power's classes of
retail customers, as shown on IP Exhibit 4.2, page 2, is in
accordance with Section 18-103(d)(4) of the EUTFL;
(40) if, in the calculation of instrument funding charges for any period
in accordance with Finding (39) of this Order, the forecasted
revenues from base rates, transition charges or other rates for
tariffed services from any of the customer classes shown on IP
Exhibit 4.2 in this docket is projected to be less than the amount
of instrument funding charges allocated to such class for such
period, the amount of such shortfall shall be ratably allocated
among the remaining customer classes based on the percentage of each
such class' contribution to Illinois Power's base rate revenues for
the year 1996 calculated excluding the customer class for which
there is such deficiency;
(41) in accordance with Sections 18-103(d)(5) and 18-111(3) of the EUTFL,
imposition of instrument funding charges in accordance with this
Order will
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not cause the base rates, transition charges or other rates for
tariffed services paid by any retail customer of Illinois Power,
class of retail customers of Illinois Power or other person or
group of persons obligated to pay any such rates (i) to exceed the
levels then in effect, as adjusted for the rate decreases required
by Section 16-111(b) of the Public Utilities Act, or (ii) to
increase above the levels which Illinois Power would have been
allowed to charge had it not been authorized to impose and collect
instrument funding charges;
(42) Illinois Power, as servicer, should be allowed to place into effect
Rider IFC, in substantially the form set forth as IP Exhibit 4.5 in
this docket, which shall, in accordance with Sections 18-103(d)(3),
18-104(a) and 18-104(j) of the EUTFL, direct that the amount of the
instrument funding charges associated with each series of
transitional funding instruments including all previously-issued and
still outstanding series be deducted, stated, and collected
separately from the amounts otherwise billed by Illinois Power for
base rates and transition charges and, where applicable, other rates
for tariffed services; Illinois Power shall file its final form of
Rider IFC with the Commission at least three business days prior to
the date of issuance of the initial series of transitional funding
instruments authorized by this Order, to be effective on and after
such date of issuance;
(43) concurrently with the issuance of each series of transitional
funding instruments by Trust, Illinois Power, as servicer, will,
and should be directed to, place into effect in Rider IFC specific
instrument funding charges associated with such series and all
previously-issued and still outstanding series of transitional
funding instruments; to allow for review by the Commission and its
Staff, such instrument funding charges shall be filed with the
Commission three business days prior to the date of issuance of the
series of transitional funding instruments, to be effective on the
date of issuance of such series of transitional funding instruments;
(44) in accordance with Section 18-104(j) of the EUTFL, the deduction of
instrument funding charges from Illinois Power's base rates,
transition charges and, where applicable, other rates for tariffed
services shall not be construed as a change in or otherwise require
a recalculation of the authorized amounts of such rates and charges
under Section 16-102, 16-107, 16-108 or 16-110 of the Public
Utilities Act or otherwise;
(45) the aggregate amount of instrument funding charges associated with
each series of transitional funding instruments authorized by this
Order, calculated in accordance with Finding (33) of this Order,
shall, upon the date of issuance of such series of transitional
funding instruments and the effectiveness of the charges described
in Findings (42) and (43) of this
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Order, become and constitute intangible transition property; all
of such intangible transition property shall constitute a current
property right and shall thereafter continuously exist as property
for all purposes;
(46) in accordance with Section 18-104(a) of the EUTFL, the instrument
funding charges authorized by this Order to be imposed and
collected shall not be subject to any defense, counterclaim or
right of set-off arising as a result of failure by Illinois Power
to perform or provide past, present or future services;
(47) the expected or scheduled maturity date of each series of
transitional funding instruments to be issued by Trust will be no
later than December 31, 2008, in accordance with Section
18-103(d)(2) of the EUTFL, provided that, in accordance with
Section 18-104(l) of the EUTFL, if any such series of transitional
funding instruments has not been paid in full by such date, the
right of IPS (or its assignee, Trust), through its servicer, to
impose and collect instrument funding charges in connection with
such series of transitional funding instruments, and the
obligation of Illinois Power to continue to deduct such instrument
funding charges from its base rates and other rates for tariffed
services, shall continue beyond such date until such time as all
series of transitional funding instruments have been paid in full;
Attachment 1 to IP Exhibit 2.3 in this docket sets forth a
reasonable projection of the Expected Amortization Schedule for
the transitional funding instruments authorized by this Order (it
being understood that such Expected Amortization Schedule will be
finalized only when the transitional funding instruments are
priced); for purposes of Section 18-104(d) of the EUTFL, such
Expected Amortization Schedule constitutes the projections for
repayment set forth in this Order;
(48) in accordance with Section 18-104(d) of the EUTFL, the instrument
funding charges imposed and collected in connection with each series
of transitional funding instruments authorized by this Order should
be revised periodically, in accordance with the procedure and
formula set forth in IP Exhibit 4.5 in this docket, by (i) adding to
or subtracting from the amount of instrument funding charges
scheduled to be collected for the succeeding period any shortfall or
excess in instrument funding charges actually collected and received
by Illinois Power (or any successor servicer) during the preceding
reconciliation period, plus any interest costs incurred or to be
incurred by Trust as a result of having to delay repayment of
principal on such series of transitional funding instruments due to
a short-fall in instrument funding charge collections, (ii)
allocating the resulting revised total amount of instrument funding
charges to be collected during the succeeding period among the
customer classes subject to such instrument funding charges on the
basis of their 1996 base rate revenues, and (iii) dividing the
amount of such instrument
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funding charges allocated to each customer class by the number of
kilowatt-hours which Illinois Power (or any successor servicer)
projects will be sold or delivered to such class during the
succeeding period;
(49) the periodic adjustments of instrument funding charges authorized by
Section 18-104(d) of the EUTFL and Finding (48) of this Order shall
be implemented either quarterly, semi-annually or annually, as
determined by Illinois Power; the final form of Rider IFC, to be
filed with the Commission in accordance with Finding (42) of this
Order, shall specify the frequency with which such periodic
adjustments shall be implemented and the specific three-, six- or
twelve month periods which shall constitute reconciliation periods;
(50) Illinois Power, or any successor servicer, should be, and is,
directed to file with the Commission on or before the third business
day preceding the first day of the second calendar month following
the end of each reconciliation period (i) a report showing the
instrument funding charges to be imposed and collected, and the
cents-per-kilowatt-hour instrument funding charges to be imposed and
collected from each customer class, on and after the first day of
such second calendar month, calculated in accordance with Finding
(48) of this Order, including a reconciliation of the instrument
funding charges which were scheduled to be collected during the
reconciliation period in accordance with the projected debt service
billing requirement for that period as provided in Finding (38) with
the actual amount of instrument funding charges collected during
such reconciliation period; and (ii) revisions to Rider IFC, if
necessary, providing for any revised instrument funding charges to
be deducted, stated, and collected separately from Illinois Power's
base rates, transition charges and other rates for tariffed
services, with such revised charges, if any, to be effective on and
after the first day of the second calendar month following the end
of the reconciliation period, in accordance with Sections 18-104(d),
18-104(j) and 18-104(k) of the EUTFL; provided, that the failure of
Illinois Power or any successor servicer to make such a filing shall
not affect the rights of the owners of the intangible transition
property to secure the adjustments described in Finding (48);
(51) except as otherwise required by law with respect to taxes or similar
governmental charges included in bills and invoices to customers,
Illinois Power or any successor servicer for IPS shall allocate any
shortfall in revenues received from any retail customer ratably
based on the amount of that customer's bills and invoices
constituting instrument funding charges and the amount constituting
other fees and charges;
(52) in the event of default by Illinois Power in payment to or for the
benefit of IPS of the instrument funding charges authorized by this
Order, this
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Commission, upon the application by (i) the holders of
the transitional funding instruments and the trustees or
representatives therefor as beneficiaries of any statutory lien
permitted by Section 18-107(c) of the EUTFL, (ii) IPS or its
assignees, (iii) Trust, or (iv) pledgees or transferees of the
intangible transition property, shall order the sequestration and
payment to or for the benefit of IPS or such other party of revenues
arising with respect to the intangible transition property;
(53) the Commission shall not approve or require any third party
servicer(s) to replace Illinois Power in any of its servicing
functions with respect to the intangible transition property and
instrument funding charges authorized by this Order, in whole or in
part, without determining that approving or requiring such third
party servicer(s) to replace Illinois Power will not cause the then
current rating of the transitional funding instruments to be
withdrawn or downgraded;
(54) any alternative retail electric supplier or other electric utility
which elects to provide a single bill to retail customers of
Illinois Power for both the services provided by such alternative
retail electric supplier or other electric utility and the
delivery services provided by Illinois Power, as permitted by
Section 16-118(b) of the Public Utilities Act, shall be
responsible to Illinois Power for the collection of instrument
funding charges from such customers and the remittance thereof to
Illinois Power;
(55) in order to enable Illinois Power to perform its functions as
servicer for the intangible transition property and instrument
funding charges authorized by this Order, and to provide for proper
reporting by Illinois Power to IPS (or its assignee, Trust), in any
instance in which the metering of a retail customer of Illinois
Power is provided by an alternative retail electric supplier and the
customer's metered kilowatt-hours are not otherwise available to
Illinois Power, Illinois Power should be, and is, authorized and
directed to require such alternative retail electric supplier to
enter into a contract obligating such alternative retail electric
supplier to provide Illinois Power with the customer's total
kilowatt-hour consumption used for billing purposes in each billing
period;
(56) in order to enable Illinois Power to perform its functions as
servicer for the intangible transition property and instrument
funding charges authorized by this Order, and to provide for proper
reporting by Illinois Power to IPS (or its assignee, Trust),
Illinois Power should be, and is, authorized and directed to require
each alternative retail electric supplier or other electric utility
which is billing retail customers of Illinois Power for services
provided by Illinois Power, as permitted by Section 16-118(b) of the
Public Utilities Act, or other third party which is billing retail
customers for services provided by Illinois Power (collectively, a
"third party collector"),
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to enter into a contract or contracts containing the following
requirements: (i) that instrument funding charges shall be
remitted by the third party collector to Illinois Power within
seven days of receipt, provided however that, if the third party
collector otherwise is required to remit payments to Illinois
Power or its successor on a more frequent basis, instrument
funding charges shall be remitted at the same time as such other
payments, and provided further that third party collectors may, at
their option, by providing to Illinois Power a written
notification of their election of the option, which election may
not be changed for a period of one calendar year after it is
exercised, choose (in lieu of remitting instrument funding charge
collections within seven days of receipt) to pay instrument
funding charges to Illinois Power within 15 days of the date of
Illinois Power's bill provided that (1) the third party collector
pays all instrument funding charges for which it bills regardless
of whether payments are actually received from customers, and (2)
a third party collector who does not have investment-grade credit
ratings (BBB- or better) must post a deposit or comparable
security equal to one month's estimated instrument funding
collections; (ii) that disputes between the third party collector
and Illinois Power shall be subject to the formal dispute
resolution process and associated instrument funding charge
remittance procedure set forth in Section III of this Order; and
(iii) that if a third party collector does not remit instrument
funding charges to Illinois Power or its successor when due, the
third party collector will be in default and Illinois Power may,
10 days thereafter, send a notice to the third party collector and
take actions related to defaults delineated in Section III of this
Order;
(57) Illinois Power or any successor servicer, in order to perform its
functions as servicer and to provide proper reporting to IPS and its
assignee, Trust, is obligated to impose such terms and conditions
with respect to credit and collection policies applicable to third
party collectors (as defined in Finding (56) of this Order) as may
be reasonably necessary to prevent the then current rating of the
transitional funding instruments from being downgraded provided,
that any new terms shall be set out in a revision to Rider IFC, or
in a new or supplemental tariff, as appropriate, either of which
shall be filed for Commission review and approval;
(58) Illinois Power should be, and is, authorized to disconnect service
to any customer who fails to pay instrument funding charges billed
by Illinois Power (or by an alternative retail electric supplier or
other electric utility on behalf of Illinois Power), as servicer,
on behalf of IPS (or its assignee, Trust), in accordance with the
Commission's regulations pertaining to disconnections, in the same
manner as Illinois Power may disconnect such customer for failure to
pay any charge for service billed by Illinois Power;
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(59) in connection with the transactions described in the Application and
in this Order, Illinois Power, individually, as servicer or
otherwise, may (i) make representations and warranties with respect
to, among other things, the validity of IPS' and its assignees'
(including Trust's) title to the intangible transition property,
(ii) observe covenants for the benefit of IPS and its assignees
(including Trust), (iii) indemnify IPS and its assignees (including
Trust) against any breach of such representations, warranties and
covenants to protect such parties against other losses which result
from the actions or inactions of Illinois Power, and (iv) agree to
remit to Trust, for the benefit of the holders of the transitional
funding instruments, a portion of payments which Illinois Power
receives on account of lost tariffed revenues from which future
instrument funding charges would have been deducted, which portion
Illinois Power has agreed constitutes proceeds of such instrument
funding charges and intangible transition property created,
established and authorized by this Order;
(60) all of the terms and provisions of this Order binding on Illinois
Power shall be binding on Illinois Power's successors and assigns,
including any successor electric utility which takes over the
provisions of delivery services or other tariffed services within
all or any part of Illinois Power's service area;
(61) the Application filed by Illinois Power Company herein should be
approved.
IT IS THEREFORE ORDERED by the Illinois Commerce Commission that
intangible transition property in the aggregate amount of $1,634,000,000,
consisting of the currently existing, present right to impose and collect
that amount of instrument funding charges from retail customers of Illinois
Power Company in accordance with this Order, including the right to periodic
adjustments of such instrument funding charges in accordance with Section
18-104(d) of the EUTFL, is created and established in and for the benefit of
Illinois Power Securitization Limited Liability Company, as "grantee" as
defined in Section 18-102 of the Electric Utility Transitional Funding Law,
as an original right and not by sale or assignment from Illinois Power; such
amount of intangible transition property does not exceed the amount of
intangible transition property which may be created and established in
accordance with Section 18-104(a)) of the EUTFL.
IT IS FURTHER ORDERED that IPS is authorized to enter into a Trust
Agreement with a financial institution experienced in providing corporate
trust services to form the Illinois Power Special Purpose Trust.
IT IS FURTHER ORDERED that IPS is authorized to sell, transfer and
assign its right, title and interest in the intangible transition property
created pursuant to this Order to Trust, in accordance with Section 18-104(f)
of the EUTFL.
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IT IS FURTHER ORDERED that Trust is authorized to issue transitional
funding instruments in an aggregate principal amount not to exceed
$864,000,000, to be secured by a first priority security interest, in
accordance with Section 18-107(c) of the EUTFL, in the intangible transition
property created by this Order in and for the benefit of IPS, in accordance
with and as authorized by this Order; such transitional funding instruments
shall otherwise be non-recourse to the credit or assets of Illinois Power as
provided in Section 18-104(a) of the EUTFL; such amount of transitional
funding instruments does not exceed 25% of Illinois Power Company's total
capitalization, including both debt and equity, as of December 31, 1996,
multiplied by the ratio of Illinois Power's revenues from Illinois electric
utility retail customers in the 1996 calendar year to its total electric
retail revenues for such 1996 year, and does not exceed the amount permitted
by Section 18-103(d)(6)(A) of the EUTFL.
IT IS FURTHER ORDERED that in accordance with Section 18-104(g) of the
EUTFL, Trust shall be afforded flexibility in establishing the terms and
conditions of the transitional funding instruments which it issued pursuant
to this Order, including, without limiting the foregoing, repayment
schedules, collateral, required debt service and other reserves, interest
rates and other financing costs.
IT IS FURTHER ORDERED that Trust shall remit the proceeds from the
issuance of the transitional funding instruments authorized by this Order,
less any amounts required to be retained by Trust as a capital or cash
reserve or for payment of costs of issuance, to IPS, as consideration for the
assignment by IPS of its interest in the intangible transition property
created pursuant to this Order.
IT IS FURTHER ORDERED that IPS shall distribute the proceeds from the
issuance of the transitional funding instruments authorized by this Order,
which IPS receives from Trust, less any amounts required to be retained by
IPS as a capital or cash reserve or for payment of its costs or costs of
issuance, to Illinois Power.
IT IS FURTHER ORDERED that Illinois Power shall use the proceeds that
are distributed to it by IPS to refinance debt and equity, in accordance with
Section 18-103(d)(1)(A), and for the other purposes listed in Sections
18-103(d)(1)(C), (D) and (E), of the EUTFL; Illinois Power has reasonably
demonstrated that the use of such proceeds by Illinois Power will result in
an overall reduction in Illinois Power's cost of capital, taking into account
the costs of financing; the costs associated with the issuance and
collateralization of the transitional funding instruments, the costs incurred
in connection with the proposed transactions to recapitalize, refinance or
retire Illinois Power's stock and/or debt, and the costs incurred or to be
incurred to obtain, collateralize, issue, service and administer the
transitional funding instruments, as described in Illinois Power's evidence
herein, are commercially reasonable.
IT IS FURTHER ORDERED that Illinois Power shall use a portion of the
proceeds from issuance of the transitional funding instruments authorized by
this Order
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which Illinois Power receives from IPS to repurchase not more than
$350,000,000 of the common stock of Illinois Power from its parent company;
the parent company of Illinois Power shall use the proceeds it receives from
such repurchase of common stock to repurchase the publicly-traded common
stock of the parent company and to pay commercially reasonable transaction
costs associated with such repurchases, in accordance with Section
18-103(d)(1)(A) of the EUTFL.
IT IS FURTHER ORDERED that Illinois Power shall use at least 80% of the
aggregate amount of proceeds from issuance of transitional funding
instruments authorized by this Order that are distributed to it by IPS for,
and shall use no more than 20% of the aggregate amount of such proceeds for
purposes other than, the purposes specified in Section 18-103(d)(1)(A) of the
EUTFL.
IT IS FURTHER ORDERED that none of the proceeds received by Illinois
Power from issuance of the transitional funding instruments authorized by
this Order shall be used to repay or retire obligations incurred by any
affiliate of Illinois Power, other than as provided in Finding (12) of this
Order.
IT IS FURTHER ORDERED that, in accordance with Section 18-103(d)(1) of
the EUTFL, Illinois Power shall not use the proceeds distributed to it by IPS
to refinance debt and equity in a manner that results, as of the date of
application of such proceeds, in the common equity component of Illinois
Power's capital structure falling below the lesser of (i) 40% and (ii)
Illinois Power's common equity percentage as of December 31, 1996 adjusted to
reflect the write-off of common equity implemented by Illinois Power at
December 31, 1997 as a result of enactment of the Electric Service and
Customer Choice Law of 1997.
IT IS FURTHER ORDERED that Illinois Power's proposed uses of the
proceeds from issuance of the transitional funding instruments authorized by
this Order, as set forth in the Application and in Findings (11) through (15)
of this Order, constitute permissible uses of such proceeds in accordance
with Section 18-103(d)(1) of the EUTFL; Illinois Power shall use such
proceeds for the purposes set forth in Section 18-103(d)(1) of the EUTFL.
IT IS FURTHER ORDERED that Illinois Power shall determine the price of
each share of common stock which it purchases from its parent company using
proceeds from the issuance of the transitional funding instruments authorized
by this Order as equal to (i) the market price of the corresponding Illinois
Power parent company common shares being repurchased, less (ii) the net book
value per share of each of the unregulated subsidiaries of Illinois Power's
parent company, as of the end of the quarter preceding the repurchase of the
parent company's common stock.
IT IS FURTHER ORDERED that, with respect to purchases of its common
stock from its parent company using proceeds from the issuance of
transitional funding instruments that are distributed to it by IPS, Illinois
Power (i) shall not be required to
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comply with the free cash flow test imposed by the Commission's order issued
March 22, 1995 in Docket 94-0518, (ii) shall use the accounting entries for
reacquired common stock specified in the March 22, 1995 order in Docket
94-0518, as shown on IP Exhibit 2.6 in this docket, and (iii) shall file an
informational report with the Commission within 90 days following each
repurchase of common stock from its parent company using proceeds from
issuance of transitional funding instruments.
IT IS FURTHER ORDERED that with respect to its retirement or redemption
of outstanding debt and preferred stock and securities using proceeds from
the issuance of the transitional funding instruments that are distributed to
it by IPS, Illinois Power shall use the accounting entries set forth on IP
Exhibit 2.6 in this docket.
IT IS FURTHER ORDERED that, in accordance with Sections 18-104(h) and
18-111(4) of the EUTFL, Illinois Power shall file with the Commission a
statement of the final terms of the issuance of any series of transitional
funding instruments, and a report showing the use of proceeds therefrom,
within 90 days following the date of such issuance; and shall file with the
Commission a summary report showing the use of proceeds from the issuance of
the transitional funding instruments authorized by this Order within 90 days
following the last use of proceeds from such issuance; such reports shall
show the accounts debited and credited and the dollar amounts entered.
IT IS FURTHER ORDERED that, in accordance with Section 18-104(c) of the
EUTFL, notwithstanding any other provision of law, this Order, the intangible
transition property created and established hereby, and the instrument
funding charges authorized to be imposed and collected hereby shall not be
subject to reduction, postponement, impairment or termination by any
subsequent action of the Commission, and the Commission shall not revoke,
amend or otherwise change the tariffs evidencing the Trust's right to receive
instrument funding charges in any manner which would defeat the legitimate
expectations of the holders of transitional funding instruments to receive
such instrument funding charges on a timely basis.
IT IS FURTHER ORDERED that the holders of the transitional funding
instruments, and the Trustee of the Trust for the benefit of such holders,
shall be entitled to the benefit of the pledges and agreements of the State
of Illinois set forth in Section 18-105(b) of the EUTFL; pursuant to Section
18-105(b), each of Illinois Power, IPS and Trust shall be authorized to
include such pledges and agreements in any contracts with the holders of the
transitional funding instruments, the Trustee or any assignee.
IT IS FURTHER ORDERED that to the full extent permitted by the EUTFL or
other applicable law, the intangible transition property created and
established by this Order and the right to impose and collect instrument
funding charges as contemplated by this Order shall constitute current,
original property rights of IPS and its assignees, including Trust, which
property rights may not be limited, altered, impaired or reduced or otherwise
terminated by any subsequent actions of Illinois Power or any third party
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and which shall, to the fullest extent permitted by law, be enforceable
against Illinois Power, its successors and assigns, and all other third
parties, including judicial lien creditors, claiming an interest therein by
or through Illinois Power or its successors or assigns.
IT IS FURTHER ORDERED that in accordance with Section 18-107(c) of the
EUTFL, the lien of the Trust in the intangible transition property created
and established by this Order shall (i) attach automatically to such
intangible transition property from the time of issuance of the related
transitional funding instruments, (ii) be continuously perfected through a
filing with the Chief Clerk of the Commission, (iii) be enforceable against
Illinois Power, IPS, the Trust, and all third parties, including judicial
lien creditors, (iv) from and after the filing described in clause (ii) of
this paragraph, constitute a continuously perfected security interest in and
lien on all then existing or thereafter arising revenues and proceeds arising
with respect to the associated intangible transition property, whether or not
the electric power and energy included in the calculation of such revenues
and proceeds have been provided, (v) rank prior to any other lien, including
any judicial lien, which subsequently attaches to the intangible transition
property or to any other rights created by this Order or any revenues or
proceeds of the foregoing, (vi) not be defeated or adversely affected,
whether or not the instrument funding charges are separately stated on the
customers' bills and whether or not the instrument funding charges are
collected by Illinois Power, IPS or a third party, by changes to this Order
or to the instrument funding charges payable by any retail customer, class of
retail customers or other person or group of persons obligated to pay such
instrument funding charges nor by commingling of revenues or proceeds arising
with respect to intangible transition property with any funds of Illinois
Power or any successor, IPS or Trust.
IT IS FURTHER ORDERED that each of the creation and vesting of the
intangible transition property in IPS, including the right to obtain periodic
adjustments to the instrument funding charges, and the transfer of the
intangible transition property from IPS to Trust, shall constitute an
"absolute transfer" within the meaning of Section 18-108 of the EUTFL of any
right, title and interest Illinois Power or IPS, as applicable, otherwise may
have had in the intangible transition property including any right Illinois
Power may have had to receive that portion of base rates, transition charges,
or other rates for tariffed services, or of other charges, which has been
deducted and separately stated pursuant to this Order or to receive any
proceeds thereof, and such transfer shall be irrevocable and enforceable as
against Illinois Power, IPS and their respective successors.
IT IS FURTHER ORDERED that as contemplated by Section 18-108 of the
EUTFL and by clause (vi) of Finding (24) of this Order, the property interest
of IPS and of Trust in the intangible transition property and the related
charges, revenues, collections and proceeds created and established by this
Order shall not be defeated by the commingling of such property, charges,
revenues, collections or proceeds with funds of Illinois Power or any
successor thereto or any other funds, including, but not
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limited to, funds of an alternative retail electric supplier or another
electric utility, and, accordingly, in the case of any such revenues,
collections, claims, payments, money or proceeds which are commingled with
such other property, revenues, collections or other payments, the portion
allocable to the instrument funding charges may be determined by such
reasonable methods of estimation as are set forth in the Servicing Agreement
contemplated by Finding (29) of this Order.
IT IS FURTHER ORDERED that in accordance with Section 18-104(a) of the
EUTFL, the transitional funding instruments authorized by this Order shall be
non-recourse to the credit and assets of Illinois Power except as to, and
will be secured only by and payable solely out of the proceeds of, the
following property: (i) the intangible transition property, (ii) all rights
of Trust under the servicing agreement with Illinois Power or any successor
servicer of the intangible transition property and all rights and property
interests under any other agreements entered into by or for the benefit of
Trust in connection with the transaction, (iii) any bank collection accounts,
investment accounts or similar reserve accounts established in connection
with the issuance of the transitional funding instruments and all cash or
investment property or other amounts on deposit therein from time to time,
(iv) solely with respect to the transitional funding instruments, if any,
which bear a floating rate of interest, any swap agreement executed to permit
the issuance of such transitional funding instruments, (v) all rights to
obtain adjustments to the instrument funding charges in accordance with
Section 18-104(d) of the EUTFL, (vi) all present and future claims, demands,
causes and choses in action in respect of any or all of the foregoing, and
(vii) all payments on or under and all proceeds in respect of any or all of
the foregoing; provided, however, that notwithstanding the non-recourse
nature of the transaction, Illinois Power, individually, as servicer or
otherwise may take any of the actions contemplated by Finding (59) of this
Order.
IT IS FURTHER ORDERED that any use by Illinois Power of the proceeds
from issuance of the transitional funding instruments authorized by this
Order other than in accordance with the purposes specified herein pursuant to
Section 18-103(d) of the EUTFL, shall be void, in accordance with Section
18-111(4), provided, that any misapplication of such proceeds shall not
affect the validity of the transitional funding instruments, the intangible
transition property or the transfer of the intangible transition property to
Trust, or the rights of IPS or its assignee, Trust, to impose and collect the
instrument funding charges authorized by this Order.
IT IS FURTHER ORDERED that Illinois Power is authorized to (i) enter
into a servicing agreement with IPS in accordance with Section 18-104(f) of
the EUTFL, which IPS shall in turn assign to Trust, pursuant to which
Illinois Power, as servicer, will collect the instrument funding charges
authorized by this Order from retail customers and other persons obligated to
pay Illinois Power any base rates, transition charges or other rates for
tariffed services at the time of the issuance of each related series of
transitional funding instruments, and will account for and remit the
applicable instrument funding charges, without the obligation to remit any
investment earnings thereon, to or for the
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account of IPS, or of Trust as assignee of IPS; and (ii) in accordance with
Sections 18-104(a) and 18-104(j) of the EUTFL, file tariffs providing for
such instrument funding charges to be deducted, stated, and collected
separately from the amounts otherwise billed by Illinois Power for base
rates, transition charges and other rates for tariffed services.
IT IS FURTHER ORDERED that the obligations of Illinois Power pursuant to
the Servicing Agreement authorized by the preceding ordering paragraph shall
continue irrespective of whether Illinois Power or any successor servicer is
providing electric power and/or other services to the retail customers and
other persons obligated to pay such instrument funding charges.
IT IS FURTHER ORDERED that IPS or its assignee, Trust, and Illinois
Power, as servicer, or any successor to Illinois Power as servicer, are
authorized to impose and collect up to an aggregate amount of $1,634,000,000
of instrument funding charges from retail customers of Illinois Power in
accordance with this Order; such instrument funding charges associated with
each series of transitional funding instruments shall be imposed on and
collected from each retail customer of Illinois Power, class of retail
customers of Illinois Power, or other person or group of persons, obligated
to pay any base rates, transition charges or other rates for tariffed
services on and after the date that such series of transitional funding
instruments is issued, including any customer taking a tariffed service from
Illinois Power on or after the date that a series of transitional funding
instruments is issued who subsequently takes a contract service or other
competitive service from Illinois Power.
IT IS FURTHER ORDERED that all collections by Illinois Power, as
servicer, or by any successor servicer, in respect of such instrument funding
charges shall, to the extent of the authorized amount of the instrument
funding charges as stated in the preceding ordering paragraph, be deemed
proceeds of the intangible transition property created by this Order.
IT IS FURTHER ORDERED that in order to ensure that the allocations and
collections of instrument funding charges be maintained across the broadest
possible range of customers and other persons, in accordance with Section
18-103(d)(4) of the EUTFL, and in order to ensure that the instrument funding
charges are non-bypassable, (i) neither Illinois Power nor any successor
shall enter into any competitive contracts with any retail customer or other
person who is, or otherwise would be, obligated to pay instrument funding
charges as authorized by this Order if, as a result thereof, such customer or
other person would not receive tariffed services, unless such contract
provides that such customer or other person will pay to IPS or its assignees,
or to Illinois Power as servicer, as applicable, an amount each billing
period equal to the amount of instrument funding charges that the customer
would pay if the services provided under such contract were tariffed
services, with such amount to be separately stated on the billings to such
customer, and (ii) the Commission acknowledges and concurs in the intent of
Illinois Power, IPS and Trust that any revenues received by
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Illinois Power or any successor from any such contract services shall, to the
extent the instrument funding charges would be imposed on the retail customer
or other person if such retail customer or person were taking the contract
service as a tariffed service or services from Illinois Power, be deemed to
be proceeds of, and included in, the intangible transition property and
instrument funding charges created by this Order.
IT IS FURTHER ORDERED that should any retail customer of Illinois Power
obtain electric power and energy from an alternative retail electric supplier
or from another utility, without taking delivery services from Illinois
Power, and thereby become obligated to make a lump sum or other fixed payment
of transition charges to Illinois Power or its successor in accordance with
Section 16-108(h) of the Public Utilities Act, or should Illinois Power or
its successor become eligible to receive any similar payments, then the
portion of such payments allocable to the instrument funding charges
authorized by this Order shall be promptly remitted by Illinois Power or its
successor to IPS or its assignee, Trust, and shall be deemed to be proceeds
of, and included in, the intangible transition property and the instrument
funding charges authorized by this Order.
IT IS FURTHER ORDERED that, in accordance with Section 18-104(a) of the
EUTFL, the aggregate amount of the instrument funding charges to be imposed
and collected by IPS or its assignee, Trust, and by Illinois Power, as
servicer, or any successor to Illinois Power as servicer, in connection with
the issuance of each series of transitional funding instruments, shall be
calculated so as to be sufficient to pay when due the principal of and
interest on such series of transitional funding instruments, together with
premium, servicing fees and other fees, costs and charges related thereto,
and to maintain any required reserves, including, without limiting the
foregoing and as applicable to each series of transitional funding
instruments, (i) the servicing fee set forth in Finding (34) of this Order,
(ii) any fees or other amounts paid or payable to a counter-party to a swap
agreement or arrangement in connection with the issuance of a series of
transitional funding instruments with floating interest rates, and (iii)
required reserve amounts as set forth in Finding (37) of this Order.
IT IS FURTHER ORDERED that Illinois Power is authorized to include in
the Servicing Agreement with IPS, and to charge IPS (or its assignee, Trust),
an annual servicing fee based on the initial aggregate principal amount of
each series of transitional funding instruments, expected to be 0.25%
thereof, if the instrument funding charges associated therewith are billed
and collected concurrently with other charges for service, and further to
provide for the servicing fee to be higher if the instrument funding charges
associated therewith are not billed and collected concurrently with other
charges for service; such servicing fee shall be included in the calculation
of instrument funding charges associated with such series of transitional
funding instruments in accordance with Finding (33) of this Order.
IT IS FURTHER ORDERED that, pursuant to Section 7-101 of the Public
Utilities Act, Illinois Power should be and is authorized to enter into an
administrative services
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agreement with IPS pursuant to which Illinois Power shall perform
administrative services for IPS; such administrative services agreement shall
be in substantially the same form as the administration agreement submitted
as IP Exhibit 2.8 in this docket; Illinois Power shall file a copy of the
executed administration agreement with the Commission on or before its
effective date.
IT IS FURTHER ORDERED that, pursuant to Section 7-101 of the Public
Utilities Act, consent is given to the performance by the First National Bank
of Decatur, which is an "affiliated interest" of Illinois Power, of lockbox
and similar collection and remittance functions with respect to instrument
funding charges billed and collected by Illinois Power as servicer.
IT IS FURTHER ORDERED that IPS and Trust are authorized to provide for
cash and overcollateralization reserves required in connection with issuance
of each series of transitional funding instruments authorized by this Order,
as described in the prefatory portion of this Order; such reserves shall be
included in the calculation of the instrument funding charges associated with
such series of transitional funding instruments in accordance with Finding
(33) of this Order.
IT IS FURTHER ORDERED that Illinois Power, as servicer, shall calculate
for each period in which instrument funding charges are to be imposed and
collected in connection with a series of transitional funding instruments
issued in accordance with this Order, a projected debt service requirement
and a projected debt service billing requirement, which shall be calculated,
as described in IP Exhibit 2.3 in this docket, based on the principal amount
of such series of transitional funding instruments, the expected or scheduled
maturity date for each such series, the resultant expected amortization
schedule for each such series, the interest rate on each such series of
transitional funding instruments, required payments to fund and maintain
overcollateralization reserves, servicing fees and other expenses, and any
other amounts identified in Finding (33) hereof, prior period over-collection
or under-collection amounts, and projected kilowatt-hour sales and deliveries
to retail customer and other persons subject to the instrument funding
charges and projected uncollectibles and defaults during the succeeding
period.
IT IS FURTHER ORDERED that, in accordance with Section 18-103(d)(4) of
the EUTFL, Illinois Power, as servicer, shall calculate the
cents-per-kilowatt-hour instrument funding charges to be imposed in each
period on each class of customers with respect to each series of transitional
funding instruments, by allocating the amount of instrument funding charges
necessary to collect the projected debt service billing requirement
associated with such series for such period, calculated as described in IP
Exhibit 2.3 in this docket, among customer classes based on the ratio of each
such class' 1996 base rate revenue to Illinois Power's total 1996 base rate
revenue, in the manner shown on IP Exhibit 4.2 in this docket, and dividing
the amount of instrument funding charges allocated to each such class by the
number of kilowatt-hours projected to be sold or delivered to customers in
such class during such period; for purposes of
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Sections 18-103(a) and (k) of the EUTFL, the instrument funding charges per
kilowatt-hour shown on IP Exhibit 4.2, page 2 and in Section II.E of this
Order shall be the instrument funding charges initially authorized by the
Commission; the allocation of such instrument funding charges among Illinois
Power's classes of retail customers, as shown on IP Exhibit 4.2, page 2, is
in accordance with Section 18-103(d)(4) of the EUTFL.
IT IS FURTHER ORDERED that if, in the calculation of instrument funding
charges for any period in accordance with Finding (39) of this Order, the
forecasted revenues from base rates, transition charges or other rates for
tariffed services from any of the customer classes shown on IP Exhibit 4.2 in
this docket is projected to be less than the amount of instrument funding
charges allocated to such class for such period, the amount of such shortfall
shall be ratably allocated among the remaining customer classes based on the
percentage of each such class' contribution to Illinois Power's base rate
revenues for the year 1996 calculated excluding the customer class for which
there is such deficiency.
IT IS FURTHER ORDERED that, in accordance with Sections 18-103(d)(5) and
18-111(3) of the EUTFL, imposition of instrument funding charges in
accordance with this Order shall not cause the base rates, transition charges
or other rates for tariffed services paid by any retail customer of Illinois
Power, class of retail customers of Illinois Power or other person or group
of persons obligated to pay any such rates (i) to exceed the levels then in
effect, as adjusted for the rate decreases required by Section 16-111(b) of
the Public Utilities Act, or (ii) to increase above the levels which Illinois
Power would have been allowed to charge had it not been authorized to impose
and collect instrument funding charges.
IT IS FURTHER ORDERED that Illinois Power, as servicer, shall be allowed
to place into effect Rider IFC, in substantially the form set forth as IP
Exhibit 4.5 in this docket, which shall, in accordance with Sections
18-103(d)(3), 18-104(a) and 18-104(j) of the EUTFL, direct that the amount of
the instrument funding charges associated with each series of transitional
funding instruments including all previously-issued and still outstanding
series be deducted, stated, and collected separately from the amounts
otherwise billed by Illinois Power for base rates and transition charges and,
where applicable, other rates for tariffed services; Illinois Power shall
file its final form of Rider IFC with the Commission at least three business
days prior to the date of issuance of the initial series of transitional
funding instruments authorized by this Order, to be effective on and after
such date of issuance.
IT IS FURTHER ORDERED that, concurrently with the issuance of each
series of transitional funding instruments by Trust, Illinois Power, as
servicer, shall place into effect in Rider IFC specific instrument funding
charges associated with such series and with all previously-issued and still
outstanding series of transitional funding instruments; to allow for review
by the Commission and its Staff, such instrument funding charges shall be
filed with the Commission three business days prior to the date of issuance of
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the series of transitional funding instruments, to be effective on the date
of issuance of such series of transitional funding instruments.
IT IS FURTHER ORDERED that, in accordance with Section 18-104(j) of the
EUTFL, the deduction of instrument funding charges from Illinois Power's base
rates, transition charges and, where applicable, other rates for tariffed
services shall not be construed as a change in or otherwise require a
recalculation of the authorized amounts of such rates and charges under
Section 16-102, 16-107, 16-108 or 16-110 of the Public Utilities Act or
otherwise.
IT IS FURTHER ORDERED that the aggregate amount of the instrument
funding charges associated with each series of transitional funding
instruments authorized by this Order, calculated in accordance with Finding
(33) of this Order, shall, upon the date of issuance of such series of
transitional funding instruments and the effectiveness of the charges
described in Findings (42) and (43) of this Order, become and constitute
intangible transition property; all of such intangible transition property
shall constitute a current property right and shall thereafter continuously
exist as property for all purposes.
IT IS FURTHER ORDERED that, in accordance with Section 18-104(a) of the
EUTFL, the instrument funding charges authorized by this Order to be imposed
and collected shall not be subject to any defense, counterclaim or right of
set-off arising as a result of failure by Illinois Power to perform or
provide past, present or future services.
IT IS FURTHER ORDERED that the expected or scheduled maturity date of
each series of transitional funding instruments to be issued by Trust shall
be no later than December 31, 2008, in accordance with Section 18-103(d)(2)
of the EUTFL, provided that, in accordance with Section 18-104(l) of the
EUTFL, if any such series of transitional funding instruments has not been
paid in full by such date, the right of IPS (or its assignee, Trust), through
its servicer, to impose and collect instrument funding charges in connection
with such series of transitional funding instruments, and the obligation of
Illinois Power to continue to deduct such instrument funding charges from its
base rates and other rates for tariffed services, shall continue beyond such
date until such time as all series of transitional funding instruments have
been paid in full; Attachment 1 to IP Exhibit 2.3 in this docket sets forth a
reasonable projection of the Expected Amortization Schedule for the
transitional funding instruments authorized by this Order (it being
understood that such Expected Amortization Schedule will be finalized only
when the transitional funding instruments are priced); for purposes of
Section 18-104(d) of the EUTFL, such Expected Amortization Schedule
constitutes the projections for repayment set forth in this Order.
IT IS FURTHER ORDERED that in accordance with Section 18-104(d) of the
EUTFL, the instrument funding charges imposed and collected in connection
with each series of transitional funding instruments authorized by this Order
shall be revised periodically, in accordance with the procedure and formula
set forth in IP Exhibit 4.5 in
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this docket, by (i) adding to or subtracting from the amount of instrument
funding charges scheduled to be collected for the succeeding period any
shortfall or excess in instrument funding charges actually collected and
received by Illinois Power (or any successor servicer) during the preceding
reconciliation period, plus any interest costs incurred or to be incurred by
Trust as a result of having to delay repayment of principal on such series of
transitional funding instruments due to a short-fall in instrument funding
charge collections, (ii) allocating the resulting revised total amount of
instrument funding charges to be collected during the succeeding period among
the customer classes subject to such instrument funding charges on the basis
of their 1996 base rate revenues, and (iii) dividing the amount of such
instrument funding charges allocated to each customer class by the number of
kilowatt-hours which Illinois Power (or any successor servicer) projects
will be sold or delivered to such class during the succeeding period.
IT IS FURTHER ORDERED that the periodic adjustments of instrument
funding charges authorized by Section 18-104(d) of the EUTFL and the
preceding ordering paragraph herein shall be implemented either quarterly,
semi-annually or annually, as determined by Illinois Power; the final form of
Rider IFC, to be filed with the Commission in accordance with Finding (42) of
this Order, shall specify the frequency with which such periodic adjustments
shall be implemented and the specific three-, six- or twelve month periods
which shall constitute reconciliation periods.
IT IS FURTHER ORDERED that Illinois Power, or any successor servicer,
should be, and is, directed to file with the Commission on or before the
third business day preceding the first day of the second calendar month
following the end of each reconciliation period (i) a report showing the
instrument funding charges to be imposed and collected, and the
cents-per-kilowatt-hour instrument funding charges to be imposed and
collected from each customer class, on and after the first day of such second
calendar month, calculated in accordance with Finding (48) of this Order,
including a reconciliation of the instrument funding charges which were
scheduled to be collected during the reconciliation period in accordance with
the projected debt service billing requirement for that period as provided in
Finding (38) with the actual amount of instrument funding charges collected
during such reconciliation period; and (ii) revisions to Rider IFC, if
necessary, providing for any revised instrument funding charges to be
deducted, stated, and collected separately from Illinois Power's base rates,
transition charges and other rates for tariffed services, with such revised
charges, if any, to be effective on and after the first day of the second
calendar month following the end of the reconciliation period, in accordance
with Sections 18-104(d), 18-104(j) and 18-104(k) of the EUTFL; provided, that
the failure of Illinois Power or any successor servicer to make such a filing
shall not affect the rights of the owners of the intangible transition
property to secure the adjustments described in Finding (48).
IT IS FURTHER ORDERED that, except as otherwise required by law with
respect to taxes or similar governmental charges included in bills and
invoices to customers, Illinois Power or any successor servicer for IPS shall
allocate any shortfall in
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revenues received from any retail customer ratably based on the amount of
that customer's bills and invoices constituting instrument funding charges
and the amount constituting other fees and charges.
IT IS FURTHER ORDERED that, in the event of default by Illinois Power in
payment to or for the benefit of IPS of the instrument funding charges
authorized by this Order, this Commission, upon the application by (i) the
holders of the transitional funding instruments and the trustees or
representatives therefor as beneficiaries of any statutory lien permitted by
Section 18-107(c) of the EUTFL, (ii) IPS or its assignees, (iii) Trust, or
(iv) pledgees or transferees of the intangible transition property, shall
order the sequestration and payment to or for the benefit of IPS or such
other party of revenues arising with respect to the intangible transition
property.
IT IS FURTHER ORDERED that the Commission shall not approve or require
any third party servicer or servicers to replace Illinois Power as servicer
or in any of its servicing functions with respect to the intangible
transition property and instrument funding charges authorized by this Order,
in whole or in part, without determining that approving or requiring such
third party servicer(s) to replace Illinois Power will not cause the then
current rating of the transitional funding instruments to be withdrawn or
downgraded.
IT IS FURTHER ORDERED that any alternative retail electric supplier or
other electric utility which elects to provide a single bill to retail
customers of Illinois Power for both the services provided by such
alternative retail electric supplier or other electric utility and the
delivery services provided by Illinois Power, as permitted by Section
16-118(b) of the Public Utilities Act, shall be responsible to Illinois Power
for the collection of instrument funding charges from such customers and the
remittance thereof to Illinois Power.
IT IS FURTHER ORDERED that in order to enable Illinois Power to perform
its functions as servicer for the intangible transition property and
instrument funding charges authorized by this Order, and to provide for
proper reporting by Illinois Power to IPS (or its assignee, Trust), in any
instance in which the metering of a retail customer of Illinois Power is
provided by an alternative retail electric supplier and the customer's
metered kilowatt-hours are not otherwise available to Illinois Power,
Illinois Power is authorized and directed to require such alternative retail
electric supplier to enter into a contract obligating such alternative retail
electric supplier to provide Illinois Power with the customer's total
kilowatt-hour consumption used for billing purposes in each billing period.
IT IS FURTHER ORDERED that in order to enable Illinois Power to perform
its functions as servicer for the intangible transition property and
instrument funding charges authorized by this Order, and to provide for
proper reporting by Illinois Power to IPS (or its assignee, Trust), Illinois
Power is authorized and directed to require each alternative retail electric
supplier or other electric utility which is billing retail customers
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of Illinois Power for services provided by Illinois Power, as permitted by
Section 16-118(b) of the Public Utilities Act, or other third party which is
billing retail customers for services provided by Illinois Power
(collectively, a "third party collector"), to enter into a contract or
contracts containing the following requirements: (i) that instrument funding
charges shall be remitted by the third party collector to Illinois Power
within seven days of receipt, provided however that, if the third party
collector otherwise is required to remit payments to Illinois Power or its
successor on a more frequent basis, instrument funding charges shall be
remitted at the same time as such other payments, and provided further that
third party collectors may, at their option, by providing to Illinois Power a
written notification of their election of the option, which election may not
be changed for a period of one calendar year after it is exercised, choose
(in lieu of remitting instrument funding charge collections within seven days
of receipt) to pay instrument funding charges to Illinois Power within 15
days of the date of Illinois Power's bill provided that (1) the third party
collector pays all instrument funding charges for which it bills regardless
of whether payments are actually received from customers, and (2) a third
party collector who does not have investment-grade credit ratings (BBB- or
better) must post a deposit or comparable security equal to one month's
estimated instrument funding collections; (ii) that disputes between the
third party collector and Illinois Power shall be subject to the formal
dispute resolution process and associated instrument funding charge
remittance procedure set forth in Section III of this Order; and (iii) that
if a third party collector does not remit instrument funding charges to
Illinois Power or its successor when due the third party collector will be in
default and Illinois Power may, 10 days thereafter, send a notice and take
actions related to defaults as delineated in Section III of this Order.
IT IS FURTHER ORDERED that Illinois Power or any successor servicer, in
order to perform its functions as servicer and to provide proper reporting to
IPS and its assignee, Trust, is obligated to impose such terms and conditions
with respect to credit and collection policies applicable to third party
collectors (as defined in Finding (56) of this Order) as may be reasonably
necessary to prevent the then current rating of the transitional funding
instruments from being downgraded, provided, that any new terms shall be set
out in a revision to Rider IFC, or in a new or supplemental tariff, as
appropriate, either of which shall be filed for Commission review and
approval.
IT IS FURTHER ORDERED that Illinois Power is authorized to disconnect
service to any customer who fails to pay instrument funding charges billed by
Illinois Power (or by an alternative retail electric supplier or other electric
utility on behalf of Illinois Power), as servicer, on behalf of IPS (or its
assignee, Trust), in accordance with the Commission's regulations pertaining to
disconnections, in the same manner as Illinois Power may disconnect such
customer for failure to pay any charge for service billed by Illinois Power.
IT IS FURTHER ORDERED that, in connection with the transactions described
in the Application and in this Order, Illinois Power, individually, as servicer
or otherwise, may (i) make representations and warranties with respect to, among
other things, the
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validity of IPS' and its assignees' (including Trust's) title to the
intangible transition property, (ii) observe covenants for the benefit of IPS
and its assignees (including Trust), (iii) indemnify IPS and its assignees
(including Trust) against any breach of such representations, warranties and
covenants to protect such parties against other losses which result from the
actions or inactions of Illinois Power, and (iv) agree to remit to Trust, for
the benefit of the holders of the transitional funding instruments, a portion
of payments which Illinois Power receives on account of lost tariffed
revenues from which future instrument funding charges would have been
deducted, which portion Illinois Power has agreed constitutes proceeds of
such instrument funding charges and intangible transition property created,
established and authorized by this Order.
IT IS FURTHER ORDERED that all of the terms and provisions of this Order
binding on Illinois Power shall be binding on Illinois Power's successors and
assigns, including any successor electric utility which takes over the
provisions of delivery services or other tariffed services within all or any
part of Illinois Power's service area.
IT IS FURTHER ORDERED that the Application filed by Illinois Power
Company herein is approved.
IT IS FURTHER ORDERED that, in accordance with Section 18-103 of the
EUTFL, this Order shall become effective in accordance with its terms at such
time as Illinois Power files with the Commission its written consent to all
of the terms and conditions stated herein.
IT IS FURTHER ORDERED that, subject to the provisions of Section 10-113
of the Public Utilities Act and 83 Ill. Adm. Code 200.880, this Order is
final; it is not subject to the Administrative Review Act.
By order of the Commission this 10th day of September, 1998.
(SIGNED) RICHARD L. MATHIAS
Chairman
(S E A L)
