<PAGE>
Registration No. 333-63537
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ILLINOIS POWER SPECIAL PURPOSE TRUST
(Issuer of Securities)
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
(Depositor of the Trust as described herein)
(Exact name of Registrant as Specified in Its Certificate of Formation)
<TABLE>
<S> <C>
DELAWARE 37-1376566
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
500 SOUTH 27TH STREET, DECATUR, ILLINOIS 62521, (217) 450-2435
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------------
ERIC B. WEEKES, MANAGER
500 SOUTH 27TH STREET, DECATUR, ILLINOIS 62521, (217) 362-7635
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
WITH COPIES TO:
Owen E. MacBride Renwick D. Martin
Schiff Hardin & Waite Brown & Wood LLP
7200 Sears Tower One World Trade Center
Chicago, Illinois 60606 New York, New York 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>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Transitional Funding Trust Notes............ $864,000,000 100% $864,000,000 $240,192(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) A registration fee of $295 was previously paid based on the fee requirement
in effect at the time of the initial filing of this Registration Statement
on September 16, 1998.
--------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 4, 1998.
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>
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-2 % NOTES
$ CLASS A-3 % NOTES
$ CLASS A-4 % NOTES
$ CLASS A-5 % NOTES
$ CLASS A-6 % NOTES
$ CLASS A-7 % NOTES
ILLINOIS POWER COMPANY
SERVICER
---------------------
The Illinois Power Special Purpose Trust Transitional Funding Trust Notes,
Series 1998-1 (the "Offered Notes"), offered hereby will consist of the seven
classes listed above. Each Offered Note will be secured primarily by, and
payable from, 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 OFFERED HEREBY DO NOT CONSTITUTE A DEBT, LIABILITY OR
OTHER OBLIGATION OF THE STATE OF ILLINOIS OR OF ANY POLITICAL SUBDIVISION,
AGENCY OR INSTRUMENTALITY THEREOF AND DO NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF ILLINOIS POWER COMPANY OR ANY OF ITS AFFILIATES. NONE OF THE
OFFERED NOTES OR THE UNDERLYING INTANGIBLE TRANSITIONAL PROPERTY WILL BE
GUARANTEED OR INSURED BY ILLINOIS POWER COMPANY 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 PROCEEDS TO
PUBLIC (1) DISCOUNTS (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............................................. % % %
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
Company 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 estimated to be $ .
------------------------------
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. SALOMON SMITH BARNEY
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
ABN AMRO INCORPORATED
A.G. EDWARDS & SONS, INC.
J.P. MORGAN & CO.
LOOP CAPITAL MARKETS,
LLC
------------------------------
The date of this Prospectus Supplement is December , 1998.
<PAGE>
Interest on each Class of Offered Notes at the applicable Note Interest Rate
will be payable quarterly on March 25th, June 25th, September 25th and December
25th or, if any such day is not a Business Day, the next succeeding Business Day
(each, a "Payment Date") commencing , 1999. See "Description of the
Offered Notes" herein.
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 , 1998 (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 THE GRANTEE AND
CERTAIN OTHER ASSETS OF THE TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE OFFERED
NOTES. NONE OF ILLINOIS POWER COMPANY OR ITS AFFILIATES WILL HAVE ANY
OBLIGATIONS IN RESPECT OF THE OFFERED NOTES OR THE INTANGIBLE TRANSITION
PROPERTY, EXCEPT AS EXPRESSLY SET FORTH IN THE PROSPECTUS.
THE TRANSITIONAL FUNDING ORDER AUTHORIZING THE ISSUANCE OF THE OFFERED NOTES
DOES 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 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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE OFFERED NOTES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
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-23 herein and which begins on page 121 in the Prospectus
for the location of the definitions of capitalized terms that appear in the
Prospectus and this Prospectus Supplement.
S-2
<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-3
<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-23 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 FINAL NOTE
PRINCIPAL MATURITY 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........... %
</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, will issue the Offered Notes, which
will be sold to the Underwriters. The Offered Notes will
be secured primarily by, and payable from, 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 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 Company, 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.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
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. These payments
are collectively referred to herein as the "Specified
Payments." The IFC Charges will be increased in connection
with the issuance of any additional Notes pursuant to any
subsequent Transitional Funding Order, to a level
calculated to be sufficient over time to make the
Specified Payments in respect of all outstanding Notes.
To enhance the likelihood of timely recovery of the
amounts necessary to make the Specified Payments, the IFC
Charges may be increased from time to time through
Adjustments, as described in the Prospectus, over the life
of the Notes (including the Offered Notes). 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.
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 seven
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 Offered Notes" herein and "Description
of the Notes" in the Prospectus.
None of the Offered Notes or the underlying Intangible
Transition Property will be guaranteed or insured by
Illinois Power Company 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, agency
or instrumentality 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
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Trustee pursuant to the Indenture will cease to be Note
Collateral and will no longer be available for payment of
the Offered Notes.
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............ Cynthia G. Steward and Eric B. Weekes.
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. The Indenture will be qualified under the
Trust Indenture Act of 1939.
Indenture Trustee............... Harris Trust and Savings Bank, an Illinois banking
corporation, acting not in its individual or corporate
capacity, but solely as trustee under the Indenture (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,
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
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" in the Prospectus, IFC
Charges are nonbypassable, 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. In addition, the
1998 TFO specifies that Illinois Power will not enter into
private contracts with customers who, but for such
contracts, would otherwise have been obligated to pay
Applicable Rates unless the customer agrees to pay amounts
equal to the IFC Charges the customer would have paid, had
the services provided under the private contract been
subject to Applicable Rates, to the Trust or to Illinois
Power as Servicer. (The customers described in the
preceding two sentences are referred to herein
collectively as 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 to make all
payments on the Offered Notes based on certain assumptions
contained in its application for the 1998 TFO, including
an assumption that the Notes will bear interest at a rate
of 7.5% per annum, are set forth in "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 billable 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
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
Charge payable by each of the seven (7) IFC Customer
Classes beginning on the Series Issuance Date is as
follows:
</TABLE>
<TABLE>
<CAPTION>
IFC CHARGES (CENTS
IFC CUSTOMER CLASS PER KWH)
---------------------------------------------- -------------------
<S> <C> <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 Adjustments to the IFC Charges. The
Reconciliation Periods for the Offered Notes will be
January 1 through June 30 and July 1 through December 31
and the Adjustment Dates will be February 1 and August 1,
commencing 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 the limitation of the maximum amount of Intangible
Transition Property authorized by the ICC in the related
Transitional Funding Order or 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 Specified Payments 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 March 25th, June 25th, September 25th and December
25th (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. The Expected Maturity Date and the Final Maturity
Date for each Class of Offered Notes are specified above
under "-- Summary of Offered Notes."
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
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
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 and Acquisition of Subsequent Intangible
Transition Property" 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, to the extent permitted by
applicable law, interest on such unpaid interest 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 Offered 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 principal payments
on the Offered Notes in the following order and priority,
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; and (7) to the holders of the Class A-7 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 Offered 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
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
principal balance of the Offered Notes has been reduced to
less than five percent (5%) of the initial principal
balance thereof. 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. See "Description of the Offered 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 outstanding 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:
OVERCOLLATERALIZATION. The Overcollateralization Amount
established in connection with the issuance of the Offered
Notes will be [$4,320,000], 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 and the Reserve
Subaccount 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 make
the Specified Payments (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
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
interest and make Scheduled Payments on the Notes and to
make 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
[$4,220,000], 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:
(a) equal to $540,000, for so long as IFC Charges are
billed concurrently with charges otherwise billed by the
Servicer to Customers or (b) not to exceed $3,240,000, 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.
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 on
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 -- Possible Payment Delays
Caused by Inaccurate Usage and Credit
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
Projections", "-- Possible Payment Delays Caused by
Reliance on Alternative Retail Electric Suppliers and
Other Third-Party Collectors", "-- Uncertainties Related
to the Electric Industry Generally -- Shrinking Customer
Base as a Result of Municipalization", "-- Nature of the
Notes -- Uncertain Payment Amounts and Weighted Average
Life" and "Description of the Intangible Transition
Property -- Adjustments to IFC 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 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.
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 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 Liquidity", "-- Limited Nature of Ratings" and "--
Uncertain Payment Amounts and Weighted Average Life", and
"Certain Payment, Weighted Average Life and Yield
Considerations" in the Prospectus and "Ratings" herein and
in the Prospectus.
Taxation of the Notes........... Illinois Power has received a ruling from the Internal
Revenue Service (the "IRS") holding that, among other
things, the Offered Notes will be obligations of Illinois
Power for federal income tax purposes. In the opinion of
Mayer, Brown & Platt, 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
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
purposes. Such opinion assumes, based on the ruling from
the IRS described above, that the Notes will constitute
indebtedness of Illinois Power for federal income tax
purposes. See "Material United States Federal Tax
Consequences" herein and in the Prospectus.
ERISA Considerations............ The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code"), impose
various requirements on employee benefit plans and certain
other plans and arrangements subject to ERISA, and on
persons who are fiduciaries with respect to such plans and
arrangements, in connection with the investment of assets
which are deemed to be "plan assets" for purposes of ERISA
or Section 4975 of the Code, unless a statutory or
administrative exemption is available. A fiduciary of any
employee benefit plan or other plan or arrangement that is
subject to ERISA or Section 4975 of the Code, before
purchasing the Notes, should therefore determine that an
investment in the Notes is consistent with the fiduciary
duties of ERISA and does not violate the prohibited
transaction provisions of ERISA or the Code.
</TABLE>
S-13
<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 seven Classes:
<TABLE>
<CAPTION>
INITIAL NOTE
PRINCIPAL EXPECTED FINAL INTEREST
CLASS AMOUNT MATURITY DATE MATURITY DATE RATE
- ------------------------------------- ----------- --------------- --------------------- -------------
<S> <C> <C> <C> <C>
A-1.................................. %
A-2.................................. %
A-3.................................. %
A-4.................................. %
A-5.................................. %
A-6.................................. %
A-7.................................. %
</TABLE>
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 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.
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, to the extent permitted by applicable law, interest on
such unpaid interest 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.
S-14
<PAGE>
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 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;
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.
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 $540,000 per quarter, (d) there are no net
earnings on amounts on deposit in the Collection Account, (e) Operating
Expenses, Administration Fees, and amounts owed to the Delaware Trustee and the
Indenture Trustee are in the aggregate [$ ] 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>
DATE CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS A-7
- ---------------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Series Issuance Date
<CAPTION>
OFFERED NOTES
DATE TOTAL
- ---------------------- ---------------
<S> <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
S-15
<PAGE>
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 effect to payments that would otherwise be made on such date) has
been reduced to less than five percent (5%) of the initial principal balance of
the Offered Notes. Notice of such redemption will be given by the Trust to the
Indenture Trustee and the Rating Agencies not less than 25 days nor more than 50
days prior to the date of redemption, and written notice shall also be given to
each holder of Offered Notes to be redeemed by first-class mail, postage
prepaid, mailed not less than five days nor more than 25 days prior to the
applicable 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
[$4,320,000], 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>
</TABLE>
[INFORMATION TO BE PROVIDED]
OTHER CREDIT ENHANCEMENT
RESERVE SUBACCOUNT. IFC Collections available with respect to any Payment
Date in excess of amounts necessary to make the Specified Payments (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 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.
CAPITAL SUBACCOUNT. Upon the issuance of the Offered Notes, the Trust will
retain proceeds in the amount of [$4,220,000], 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
S-16
<PAGE>
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.
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 imposed
and collected over time by the Servicer on behalf of the Trust without further
action by the ICC. In its application for the 1998 TFO, based on certain
assumptions set forth therein, including an assumption that the Notes will bear
interest at a rate of 7.5% per annum, 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. The 1998 TFO also permits the sale of the
Offered Notes in an aggregate principal amount not to exceed $864 million. The
1998 TFO is final and is no longer subject to appeal.
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 nonbypassable 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 assumptions contained in its application
for the 1998 TFO, are as follows:
<TABLE>
<CAPTION>
IFC CHARGES
IFC CUSTOMER CLASS (CENTS PER KWH)
- ----------------------------------------------------------------------------- -------------------
<S> <C>
Residential 1.74
Small Commercial 1.64
Large Commercial 1.32
Municipal 1.54
Industrial Firm 1.00
Industrial High Load Factor Firm 0.45
Industrial Non-Firm 0.26
</TABLE>
S-17
<PAGE>
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 billable 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 CHARGES
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 make the Specified Payments. 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.
Each Adjustment will be calculated by the Servicer within the one-month
period following the end of each Reconciliation Period. The Reconciliation
Periods for the Offered Notes will be January 1 through June 30 and July 1
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
applicable Reconciliation Period (each, an "Adjustment Date"). The initial
Adjustment Date for the Offered Notes will be August 1, 1999.
See "Description of the Intangible Transition Property -- Adjustments to
Instrument Funding Charges" in the Prospectus.
S-18
<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 -- Possible Payment Delays Caused by Reliance on
Alternative Retail Electric Suppliers and Other Third-Party Collectors" 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: (a) equal to $540,000, for so long as IFC Charges are billed
concurrently with charges otherwise billed by the Servicer to Customers or (b)
not to exceed $3,240,000, 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 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
The Servicer will provide the statements and reports described under
"Servicing -- Statements by Servicer" in the Prospectus.
S-19
<PAGE>
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
Illinois Power has received a ruling from the IRS holding that, among other
things, (a) the Trust's issuance of the Offered Notes will not result in gross
income to Illinois Power and (b) the Offered Notes will be obligations of
Illinois Power. See "Material United States Federal Tax Consequences" 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 material United States federal income and estate tax
consequences relevant to the purchase, ownership and disposition of the Notes by
the initial beneficial owners thereof, see "Material United States Federal Tax
Consequences" in the Prospectus.
S-20
<PAGE>
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 is acting as representative, has severally agreed to
purchase, the respective principal amounts of the Offered Notes set forth
opposite its name below.
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS A-7
NAME NOTES NOTES NOTES NOTES NOTES NOTES NOTES
- ---------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................
Salomon Smith Barney Inc................
Chase Securities Inc....................
Donaldson, Lufkin & Jenrette Securities
Corporation...........................
First Chicago Capital Markets, Inc......
NationsBanc Montgomery Securities LLC...
ABN AMRO Incorporated...................
A.G. Edwards & Sons, Inc................
J.P. Morgan Securities Inc..............
Loop Capital Markets, LLC...............
----------- ----------- ----------- ----------- ----------- ----------- -----------
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, and percent of the principal amount
of the Class A-7 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,
and percent of the principal amount of the Class A-7 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-21
<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 issuance of the Offered Notes will be
passed upon for the Trust by Schiff Hardin & Waite, Chicago, Illinois, counsel
to Illinois Power and for the Underwriters by Brown & Wood LLP, New York, New
York. Certain legal matters relating to the United States federal tax
consequences of the issuance of the Offered Notes will be passed upon for the
Trust by Mayer Brown & Platt, Chicago, Illinois, counsel to Illinois Power.
Certain legal matters relating to the Trust will be passed upon for the Trust by
Richards, Layton & Finger, P.A., Wilmington, Delaware.
S-22
<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 TERM DEFINED ON PAGE
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
1998 Authorized IFC Charges...................................................................... S-7
1998 IFC Tariff.................................................................................. S-7
1998 ITP......................................................................................... S-6
1998 TFO......................................................................................... S-4
Adjustment Date.................................................................................. S-18
Administration Agreement......................................................................... S-6
Administrator.................................................................................... S-6
ARES............................................................................................. S-19
Book-Entry Note.................................................................................. S-12
Capital Subaccount............................................................................... S-10
Cede............................................................................................. S-12
Class............................................................................................ S-5
Class Principal Balance.......................................................................... S-5
Code............................................................................................. S-13
Commission....................................................................................... S-3
Customers........................................................................................ S-7
Delaware Trustee................................................................................. S-6
DTC.............................................................................................. S-3
ERISA............................................................................................ S-13
Exchange Act..................................................................................... S-3
Expected Maturity Date........................................................................... S-8
Final Maturity Date.............................................................................. S-8
General Subaccount............................................................................... S-10
Grantee.......................................................................................... S-3
Illinois Power................................................................................... S-6
Indenture Trustee................................................................................ S-6
IRS.............................................................................................. S-12
Note Interest Rate............................................................................... S-14
Noteholders...................................................................................... S-3
Notes............................................................................................ S-14
Offered Notes.................................................................................... S-4
Original Note Principal Balance.................................................................. S-5
Overcollateralization Amount..................................................................... S-16
Overcollateralization Subaccount................................................................. S-10
Payment Date..................................................................................... S-2, S-8
Prospectus....................................................................................... S-2
Rating Agency.................................................................................... S-12
Record Date...................................................................................... S-8
Required Overcollateralization Level............................................................. S-10
Reserve Subaccount............................................................................... S-10
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM DEFINED ON PAGE
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Series Issuance Date............................................................................. S-4
Servicer......................................................................................... S-6
Servicing Fee.................................................................................... S-11
Specified Payments............................................................................... S-5
Trust............................................................................................ S-6
Trust Agreement.................................................................................. S-6
Underwriters..................................................................................... S-21
</TABLE>
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
S-24
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 4, 1998.
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>
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. (CONTINUED ON FOLLOWING PAGE)
------------------------
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, LIABILITY OR OTHER
OBLIGATION OF THE STATE OF ILLINOIS OR OF ANY POLITICAL SUBDIVISION, AGENCY OR
INSTRUMENTALITY 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 COMPANY OR ITS AFFILIATES.
THE INTANGIBLE TRANSITION PROPERTY ASSIGNED TO THE TRUST BY THE GRANTEE,
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 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.
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 121 herein for the location of the definitions of
capitalized terms that appear in this Prospectus.
December , 1998.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
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 Intangible Transition
Property, among other things, will represent a current right to receive certain
nonbypassable usage-based per kilowatt-hour charges to be imposed against
certain customers of Illinois Power Company. Collection of these charges will be
the primary source of payment of principal and interest on the Notes.
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. 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.
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, the Grantee 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
2
<PAGE>
Statement, and any Prospectus Supplement describe all 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 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 Securitization Limited Liability Company at 500
South 27th Street, Decatur, Illinois 62521, or by telephone at (217) 424-7568,
Attention: Daniel L. Mortland.
3
<PAGE>
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 material 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 Floating Rate Notes
and the identity of any Swap Counterparty related thereto.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY......................................................................................... 9
RISK FACTORS............................................................................................... 29
Uncertainties Associated with Unusual Asset Type......................................................... 29
Legal Challenges Which Could Adversely Affect Noteholders................................................ 29
Possible Payment Delays or Losses as a Result of Amendment or Repeal of Amendatory Act or Breach of State
Pledge................................................................................................. 30
Limit on Amount of Intangible Transition Property Available to Pay Notes................................. 31
Potential Servicing Issues............................................................................... 31
Reliance on Illinois Power as Servicer................................................................. 31
Possible Payment Delays Caused by Inaccurate Usage and Credit Projections.............................. 32
Possible Payment Delays Caused by Changes in Payment Terms of Customers................................ 32
Limited Information Regarding Customers................................................................ 32
Possible Payment Delays Caused by Reliance on Alternative Retail Electric Suppliers and Other
Third-Party Collectors................................................................................ 33
Possible Payment Delays Caused by Commingling of IFC Payments With Servicer's Other Funds.............. 33
Possible Payment Delays as a Result of Year 2000 Issues--Year 2000 Readiness Disclosure................ 34
Uncertainties Related to the Electric Industry Generally................................................. 34
Untried New Illinois Market Structure.................................................................. 34
Shrinking Customer Base as a Result of Technological Change............................................ 35
Shrinking Customer Base as a Result of Municipalization................................................ 36
Possible Payment Delays Caused by Changes in General Economic Conditions and Electricity Usage......... 36
Uncertainties Caused by Changing Regulatory and Legislative Environment.................................. 37
Reduction in Amount of Revenue From Applicable Rates..................................................... 37
Bankruptcy and Creditors' Rights Issues.................................................................. 40
Possible Adverse Effect on Noteholders as a Result of the Bankruptcy of Illinois Power, the Grantee or
the Trust............................................................................................. 40
Possible Adverse Effect on Noteholders as a Result of the Bankruptcy of the Servicer................... 42
Nature of the Notes...................................................................................... 43
Limited Liquidity...................................................................................... 43
Restrictions on Book-Entry Registration................................................................ 43
Limited Sources of Payment for the Notes and Limited Credit Enhancement................................ 43
Effect of Additional Series of Notes or Other Transitional Funding Orders on Outstanding Notes......... 44
Limited Nature of Ratings.............................................................................. 44
Uncertain Payment Amounts and Weighted Average Life.................................................... 45
Effect of Optional Redemption on Weighted Average Life and Yield....................................... 45
Additional Risks of Floating Rate Notes................................................................ 45
ELECTRIC INDUSTRY RESTRUCTURING IN ILLINOIS................................................................ 46
General.................................................................................................. 46
Amendatory Act Overview.................................................................................. 46
Transition Charges....................................................................................... 46
Transition Period........................................................................................ 48
Alternative Retail Electric Suppliers.................................................................... 49
Competitive Services..................................................................................... 49
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Federal Initiatives; Increased Competition............................................................... 50
DESCRIPTION OF THE INTANGIBLE TRANSITION PROPERTY.......................................................... 50
Creation of Intangible Transition Property Under the Funding Law......................................... 50
Limitations on the Amounts of Transitional Funding Instruments, Intangible Transition Property and
Instrument Funding Charges Which Can Be Authorized; Permitted Use of Proceeds.......................... 52
Imposition and Collection of Instrument Funding Charges; Adjustment Mechanism............................ 53
The Transitional Funding Order Issued at the Request of Illinois Power................................... 54
Transactions Pursuant to the Transitional Funding Order.................................................. 56
Nonbypassable IFC Charges................................................................................ 57
Adjustments to IFC Charges............................................................................... 57
Sale and Assignment of Intangible Transition Property.................................................... 58
Grant Agreement.......................................................................................... 59
Representations and Warranties of Illinois Power....................................................... 60
Covenants of Illinois Power............................................................................ 62
Amendment of Grant Agreements.......................................................................... 64
Indemnification Obligations of Illinois Power.......................................................... 64
Sale Agreement........................................................................................... 65
Representations and Warranties of Grantee.............................................................. 65
Covenants of the Grantee............................................................................... 67
Amendment of Sale Agreements........................................................................... 68
Indemnification Obligations of the Grantee............................................................. 69
CERTAIN PAYMENT, WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS............................................ 70
THE TRUST.................................................................................................. 71
THE GRANTEE................................................................................................ 72
Managers and Officers.................................................................................... 73
THE SERVICER............................................................................................... 74
General.................................................................................................. 74
Illinois Power Customer Base, Electric Energy Consumption and Base Rates................................. 74
Forecasting Electricity Consumption...................................................................... 77
Forecast Variances....................................................................................... 78
Credit Policy; Billing; Collections; Restoration of Service.............................................. 79
Credit Policy.......................................................................................... 79
Billing Process........................................................................................ 79
Collection Process..................................................................................... 80
Restoration of Service................................................................................. 81
Loss and Delinquency Experience.......................................................................... 81
Delinquencies............................................................................................ 82
Year 2000 Issues--Year 2000 Readiness Disclosure......................................................... 83
SERVICING.................................................................................................. 84
Servicing Procedures..................................................................................... 84
Servicing Standards and Covenants........................................................................ 85
Remittances to Collection Account........................................................................ 86
No Servicer Advances..................................................................................... 87
Servicing Compensation................................................................................... 87
Alternative Retail Electric Suppliers and Other Third-Party Collectors................................... 87
Servicer Representations and Warranties.................................................................. 89
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statements by Servicer................................................................................... 89
Evidence as to Compliance................................................................................ 89
Certain Matters Regarding the Servicer................................................................... 90
Servicer Defaults........................................................................................ 90
Rights Upon Servicer Default............................................................................. 91
Waiver of Past Defaults.................................................................................. 91
Successor Servicer....................................................................................... 91
Amendment................................................................................................ 92
Termination.............................................................................................. 92
DESCRIPTION OF THE NOTES................................................................................... 92
General.................................................................................................. 92
Interest and Principal................................................................................... 93
Payments on the Notes.................................................................................... 94
Floating Rate Notes...................................................................................... 95
No Third-Party Credit Enhancement........................................................................ 95
Registration and Transfer of the Notes................................................................... 95
Book-Entry Registration.................................................................................. 96
Definitive Notes......................................................................................... 98
Optional Redemption...................................................................................... 99
Conditions of Issuance of Additional Series and Acquisition of Subsequent Intangible Transition
Property............................................................................................... 100
List of Noteholders...................................................................................... 100
SECURITY FOR THE NOTES..................................................................................... 101
General.................................................................................................. 101
Pledge of Note Collateral................................................................................ 101
Security Interest in Note Collateral..................................................................... 101
Creation and Perfection of Security Interest in Intangible Transition Property Under the Funding Law... 101
Right of Foreclosure................................................................................... 102
Filings Made With Respect to the Intangible Transition Property........................................ 102
Security Interest in Additional Note Collateral.......................................................... 102
Description of Indenture Accounts........................................................................ 103
Collection Account..................................................................................... 103
General Subaccount..................................................................................... 103
Reserve Subaccount..................................................................................... 104
Overcollateralization Subaccount....................................................................... 104
Capital Subaccount..................................................................................... 104
Allocations; Payments.................................................................................... 104
State Pledge............................................................................................. 106
Reports to Noteholders................................................................................... 106
Supplemental Indentures.................................................................................. 107
Certain Covenants of the Delaware Trustee and the Trust.................................................. 107
Events of Default; Rights Upon Event of Default.......................................................... 109
Actions by Noteholders................................................................................... 111
Annual Compliance Statement.............................................................................. 111
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES............................................................ 111
Tax Consequences to United States Noteholders............................................................ 112
United States Noteholder............................................................................... 112
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Payments of Interest................................................................................... 112
Original Issue Discount................................................................................ 112
Market Discount and Premium............................................................................ 113
Sale, Exchanges, Redemption or Retirement of the Notes................................................. 113
Tax Consequences to Non-United States Noteholders........................................................ 113
Backup Withholding and Information Reporting............................................................. 115
ERISA CONSIDERATIONS....................................................................................... 117
USE OF PROCEEDS............................................................................................ 119
PLAN OF DISTRIBUTION....................................................................................... 119
RATINGS.................................................................................................... 120
LEGAL MATTERS.............................................................................................. 120
EXPERTS.................................................................................................... 120
INDEX OF PRINCIPAL DEFINITIONS............................................................................. 121
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 121
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
Transitional Funding Trust Notes (the "Notes"). The
Funding Law was one portion of Public Act 90-561 (the
"Amendatory Act") which amended the Illinois Public
Utilities Act (as so amended, the "Act") and became law
on December 16, 1997.
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 of
which provides, or will provide, 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 nonbypassable usage-based
charges (expressed in cents per kilowatt-hour) from
Customers, and all related revenues, collections,
claims, payments, money or proceeds thereof. These
charges are nonbypassable in that Customers cannot avoid
paying them regardless of from whom their electricity is
purchased; provided, however, that such charges must be
deducted from 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
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Grantee has assigned or 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 Act;
the Transitional Funding Orders and all tariffs filed
with the ICC in connection therewith (each, an "IFC
Tariff"); 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."
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. These payments are
collectively referred to herein as the "Specified
Payments."
To enhance the likelihood of timely recovery of the
amounts necessary to make the Specified Payments, the
IFC Charges may be adjusted from time to time through
Adjustments, as described under "Description of the
Intangible Transition Property--Adjustments to IFC
Charges" over the term of each Series of Notes.
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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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 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,
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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.
Trust Assets...................... The assets of the Trust will consist of the Intangible
Transition Property and the other Note Collateral,
including proceeds of the issuance retained by the Trust
in an amount specified in each Prospectus Supplement
which will be sufficient to meet certain reserve
requirements of the Indenture (the "Indenture") between
the Trust and the Indenture Trustee.
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. The Delaware Trustee will manage the Trust
pursuant to the Trust Agreement.
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 Beneficiary Trustees will execute and
file the Registration Statement and certain related
documents, register the Notes with the applicable state
securities commissions and take other necessary or
appropriate related actions.
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 in right of payment with 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
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used, among other things, to pay (a) fees payable to the
Delaware Trustee, the Indenture Trustee, the Servicer
and the Administrator; (b) all other fees, costs,
expenses and indemnities of the Trust (together with the
fees described in (a) above, "Operating Expenses"); and
(c) 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.
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. 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" 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
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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."
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. 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"). The Indenture Trustee acts for and on behalf
of the Noteholders pursuant to the Indenture.
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.
Transitional Funding Orders....... The ICC has issued and may hereafter issue one or more
financing orders in favor of the Grantee at the request
of Illinois Power (each a "Transitional Funding Order").
Each Transitional Funding Order will provide for, among
other things, the creation of Intangible Transition
Property and the vesting thereof in the
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Grantee. Although it is anticipated that all
Transitional Funding Orders will be identical in all
material respects, since the issuance thereof is subject
to the discretion of the ICC, there may be variations
between Transitional Funding Orders. If the findings in
any subsequent Transitional Funding Order differ
materially from the findings in the Transitional Funding
Order disclosed in this Prospectus, all of such
differences will be disclosed in the related Prospectus
Supplement.
Intangible Transition Property.... Each Transitional Funding Order obtained by Illinois
Power from the ICC will create and establish a certain
dollar amount of Intangible Transition Property. 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 imposed and
collected under such Transitional Funding Order over
time by the Servicer on behalf of the Trust without
further action by the ICC.
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
"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.
IFC Charges....................... Under the Act, each Transitional Funding Order will
provide for the establishment, imposition and collection
of nonbypassable, usage-based, per kilowatt-hour charges
on designated consumers of electricity (the "IFC
Charges"). Specifically, 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 (I.E., Illinois Power's
geographic service area as of January 1, 1998 and any
other locations in which it was then providing electric
utility services to Customers) in Illinois, or other
person or group of persons obligated, from time to time,
to pay to Illinois Power or any successor Applicable
Rates. In addition, each Transitional Funding Order will
specify that Illinois Power will not enter into private
contracts with any customers who, but for such
contracts, would otherwise have been obligated to pay
Applicable Rates unless the customer agrees to pay to
the Grantee or to its assigns, or to the Servicer, as
applicable, amounts equal to the IFC Charges the
customer
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would have paid had the services provided under the
private contract been subject to Applicable Rates. (The
customers described in the preceding two sentences are,
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 or equivalent amounts, 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.
"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
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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.
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. 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. See "Description of the Intangible Transition
Property--The Transitional Funding Order Issued at the
Request of Illinois Power."
The IFC Charges will be calculated, and adjusted from
time to time, to generate projected revenues expected to
be sufficient to make the Specified Payments. 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 Monthly 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.
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
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Collection Account will be sufficient to make the
Specified Payments.
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
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 Intangible Transition Property
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
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 billable 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 IFC 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,
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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").
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 and
Acquisition of Subsequent Intangible Transition
Property." 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 any remedial actions taken by Noteholders of
one Series will affect the other Series.
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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 Schedule 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 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
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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, 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.
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 for cash on any Payment Date on or prior to
December 31, 2004 using proceeds received from the
issuance of any additional Series or Class 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.
In addition, a Series of Notes shall be subject to
redemption if and to the extent provided in the related
Prospectus Supplement.
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
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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.
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,
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 Monthly 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 make the
Specified 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...................... In order 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 an additional
amount
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(for any Series, the "Overcollateralization Amount")
specified in the related Prospectus Supplement. The
Overcollateralization Amount established in connection
with each Series of Notes 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 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 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, the
Overcollateralization Subaccount will be replenished on
subsequent Payment Dates 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."
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, the Capital Subaccount will
be replenished on subsequent Payment Dates 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."
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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 all IFC Payments to the Collection
Account within two Servicer Business Days of collection
unless the Monthly Remittance Conditions are met, in
which case the Servicer will remit to the Collection
Account on the tenth day of each month (or, if such day
is not a Servicer Business Day, on the next Servicer
Business Day) (each such monthly date, a "Monthly
Remittance Date"), all IFC Payments collected by the
Servicer during the immediately preceding Billing
Period. For these purposes, IFC Payments are deemed
collected when posted to a Customer's account (which
under the Servicer's current procedures occurs within
two Senior Business Days of receipt of payment by the
Servicer). 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 as
shown in the following diagram, which provides a general
summary of the flow of funds from the Customers through
the Servicer to the Collection Account and the various
allocations therefrom. For a more detailed discussion,
see "Security for the Notes-- Allocation; Payments."
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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. In order to enhance the likelihood that the
collection of IFC Charges by the Servicer will not be
adversely affected as a result of the collection of the
IFC Charges by ARES and other third-party collection
agents, the ICC will approve certain procedures in each
Transitional Funding Order regarding the remittance
obligations of such
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third parties. See "Servicing--Alternative Retail
Electric Suppliers and Other Third-Party Collectors."
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 (the "Servicing Fee"), in the
amount specified in the related Prospectus Supplement.
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."
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.
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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
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............. In the opinion of Mayer, Brown & Platt, 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. Such opinion assumes that, based on a ruling
or tax opinion described under "Material United States
Federal Tax Consequences," the Notes will constitute
indebtedness of Illinois Power for federal income tax
purposes.
See "Material United States Federal Tax Consequences"
herein and in the related Prospectus Supplement.
ERISA Considerations.............. The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code"), impose
various requirements on employee benefit plans and
certain other plans and arrangements subject to ERISA,
and on persons who are fiduciaries with respect to such
plans and arrangements, in connection with the
investment of assets which are deemed to be "plan
assets" for purposes of ERISA or Section 4975 of the
Code, unless a statutory or administrative exemption is
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available. A fiduciary of any employee benefit plan or
other plan or arrangement that is subject to ERISA or
Section 4975 of the Code, before purchasing the Notes,
should therefore determine that an investment in the
Notes is consistent with the fiduciary duties of ERISA
and does not violate the prohibited transaction
provisions of ERISA or the Code. See "ERISA
Considerations" herein and in the related Prospectus
Supplement.
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RISK FACTORS
The risk factor disclosure in this Prospectus and in any Prospectus
Supplement, to the extent disclosure is included therein, summarizes all
material risk factors. Investors should consider, among other things disclosed
in this Prospectus, the following factors in connection with the purchase of the
Notes.
UNCERTAINTIES ASSOCIATED WITH UNUSUAL ASSET TYPE
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 WHICH COULD ADVERSELY AFFECT NOTEHOLDERS
The existence and grant of Intangible Transition Property, the status of
such Intangible Transition Property as a separate property right and the
regulatory authorization for Illinois Power's entering into the transactions
under the Basic Documents are generally dependent on relevant provisions of the
Funding Law and the related Transitional Funding Order. The Amendatory Act (of
which the Funding Law is a part) provides that if any of its provisions are held
invalid, all of its provisions shall be deemed invalid. Thus, a judicial
determination that any provision of the Amendatory Act is invalid would, absent
legislative intervention at that time, result in the entirety of the Amendatory
Act (including the Funding Law) being deemed invalid. It is therefore possible
that, although a Transitional Funding Order has become final and no longer
subject to appeal, a legal challenge to the Amendatory Act could result in
payment delays or losses to the Noteholders. However, the Amendatory Act also
provides that no presumption as to the validity or invalidity of any contracts,
transactions, order, billings or payments pursuant to the Funding Law (such as
the contracts, transactions, orders, billings or payments related to the
Transitional Funding Orders) shall result from a determination of the invalidity
of the Amendatory Act.
Illinois Power will represent and warrant in each Grant Agreement that the
related Transitional Funding Order is valid, binding and irrevocable. There can
be no assurances, however, that a claim by a person that a provision of the
Amendatory Act is invalid would not result in the invalidation of the entire
Amendatory Act (including the Funding Law). If the Amendatory Act were
invalidated, a person could attempt to challenge such Transitional Funding Order
by arguing that such invalidation should be applied retroactively with the
result that there is no regulatory authorization for the associated
transactions. If such an argument were successful, such Transitional Funding
Order, the Intangible Transition Property created thereby and the transactions
entered into pursuant to its authorization, could all be deemed invalid for lack
of authorization, and Noteholders could suffer a loss of their investment in the
Notes.
The issuance of Notes is conditioned upon the rendering of an opinion by
Schiff Hardin & Waite, counsel to Illinois Power, to the effect that such
Transitional Funding Order would remain in effect and the rights thereunder,
including the rights of the Trust to impose and collect the portion of
Customers' bills represented by the IFC Charges, would remain enforceable
against Illinois Power and its assigns (including a trustee in bankruptcy) in
the event of a judicial invalidation of the Amendatory Act unless a specific
order or ruling were obtained from a court or the ICC invalidating, amending or
otherwise modifying such Transitional Funding Order.
The issuance of Notes is further conditioned upon the rendering of an
opinion by Schiff Hardin & Waite to the effect that a judicial determination
that one or more provisions of the Amendatory Act is
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invalid should not be applied so as to result in the Noteholders losing their
rights created pursuant to such Transitional Funding Order. Such opinion will be
based on a reasoned application of judicial decisions involving similar or
analogous circumstances (inasmuch as there are no reported controlling
precedents) which have recognized that judicial decisions should not be applied
retroactively where to do so would produce inequitable results, re-open final
judgments or impair vested rights, such as the rights created pursuant to such
Transitional Funding Order. Any judicial determination would also involve the
application of equitable principles. Although Illinois Power has agreed in the
Grant Agreement that any impairment of Noteholders' rights to payments on the
Notes arising from a judicial invalidation of the Amendatory Act is inequitable,
such statement is not binding on any court and any application of equitable
principles would be subject to the discretion of the court which is asked to
apply them and the court's evaluation of the facts and equities before it. In
that connection, a declaration of invalidity of the Funding Law itself, as
opposed to an invalidation solely as the result of an invalidation of another
provision of the Amendatory Act, would be a factor tending to reduce the
strength of the equitable principles and related considerations that otherwise
would support the continuing validity of the rights of the Noteholders.
Accordingly, the issuance of the Notes is further conditioned on the inclusion
of a statement in the opinion to be delivered by Schiff Hardin & Waite that
nothing in their research in connection with such opinion revealed any judicial
decisions which such firm believes would provide a basis on which a court would
declare the Funding Law to be invalid.
In light of the foregoing discussion, there can be no assurance that a
judicial invalidation of one or more provisions of the Amendatory Act will not
also result in the invalidation of a Transitional Funding Order or Noteholders'
rights with respect thereto. In this regard, investors should be aware that a
successful challenge under federal law of another state's utility deregulation
statute that is similar to the Amendatory Act could be invoked as legal
precedent for invalidating the Amendatory Act.
POSSIBLE PAYMENT DELAYS OR LOSSES AS A RESULT OF AMENDMENT OR REPEAL OF
AMENDATORY ACT OR BREACH OF STATE PLEDGE
The Illinois Legislature could amend or repeal the Funding Law or other
provisions of the Amendatory 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. Such actions would be
subject to challenge under the United States and Illinois Constitutions, and as
a condition to the issuance of 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 Clauses
of such Constitutions the constitutionality of any law subsequently enacted by
the Illinois Legislature that purports to limit, alter, impair or reduce 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. In
addition, Illinois Power will represent and warrant in the Grant Agreement that
the State of Illinois may not limit, alter, impair or reduce the value of the
Intangible Transition Property in a manner substantially impairing the Indenture
or the rights and remedies of the Noteholders (and, consequently, may not
revoke, reduce, postpone or terminate the related Transitional Funding Order or
the rights of the Noteholders to receive IFC Payments and all other proceeds of
the Intangible Transition Property), until the Notes, together with interest
thereon, are fully paid and discharged (except to the extent of a temporary
impairment that the State of Illinois were to demonstrate is necessary to
advance a significant and legitimate public purpose).
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. As a condition to the issuance of the Notes, Schiff
Hardin & Waite will render an opinion to the effect that, based on such court
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decisions, an attempt by citizens of Illinois to use the initiative power to
enact legislation causing an impairment of the rights of Noteholders would be
held invalid.
Because the IFC Charges are to be deducted from Applicable Rates and the
right of Illinois Power to collect Applicable Rates is not solely dependent on
the provisions of the Amendatory Act, an amendment or repeal of the Amendatory
Act would not eliminate (although it could reduce) the sources of cash flow from
which the Notes are to be repaid. Illinois Power will covenant in the Servicing
Agreement that it will continue to impose and collect all IFC Charges (as
adjusted from time to time) or equivalent amounts, deduct IFC changes or
equivalent amounts from Applicable Rates and remit such amounts to the Trust (in
each such case unless otherwise prohibited by applicable law or judicial or
regulatory order in effect at such time) notwithstanding any such repeal or any
amendment of the Amendatory Act. Under current law, no assurance can be given
that the Servicer is authorized to act in accordance with such covenant if the
applicable Transitional Funding Order is no longer in effect. Therefore, no
assurance can be given that a repeal or amendment of provisions of the
Amendatory Act might not impair the rights of the Noteholders. However, Illinois
Power has agreed to indemnify the Noteholders for certain losses which may
result if Illinois Power is unable to continue to impose or collect IFC Charges
or equivalent amounts. See "Description of the Intangible Transition
Property--Grant Agreement--Indemnification Obligations of Illinois Power." If
the Illinois Legislature were to repeal or amend the Funding Law in a manner
adverse to Noteholders in violation of the State Pledge, the Servicer would be
obligated to institute (and the Indenture Trustee, for the benefit of the
Noteholders, shall be entitled and empowered to institute) any necessary
proceedings to seek to overturn such change in law, 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 such proceedings to final
judgment or decree. The Servicer would be required to advance its own funds to
cover the costs of prosecuting any such proceedings, but would be entitled to
reimbursement for such costs as an Operating Expense under the Indenture. Any
such proceedings might adversely affect the price and liquidity of the Notes and
the rate of repayment 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 outcome of any such proceedings
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 AVAILABLE TO PAY NOTES
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. 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 by more than the amount in the
Capital Subaccount, then Illinois Power, as Servicer, would be obligated, in
good faith, to require 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 increases, however, except in connection with an
issuance of additional Notes, and the Noteholders could, accordingly, suffer a
loss in such event. 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.
POTENTIAL SERVICING ISSUES
RELIANCE ON ILLINOIS POWER AS 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 services 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 performing
its functions as Servicer, it may be
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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
IFC Payments 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 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. See
"Servicing."
POSSIBLE PAYMENT DELAYS CAUSED BY INACCURATE USAGE AND CREDIT
PROJECTIONS. If the Servicer is unable 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, the timing and
amount of IFC Collections may be significantly affected and therefore
Noteholders may fail to receive timely payments of interest on the Notes or
payments of principal in accordance with the Expected Amortization Schedules or
in full by the Expected or Final Maturity Dates. 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. 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.
See "The Servicer--Forecast Variances."
POSSIBLE PAYMENT DELAYS CAUSED BY CHANGES IN PAYMENT TERMS OF
CUSTOMERS. Because the Servicer is permitted (in accordance with the Servicing
Standard) to alter the terms of billing and collection arrangements and modify
amounts due from Customers, such alterations and modifications could delay
collections from 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 Schedule
therefor or in full by the applicable Expected or Final Maturity Dates.
Although the Servicer does not have the right to change the amount of an
individual Customer's IFC Charge (unless the Customer's IFC Charge exceeds the
amount of Applicable Rates to be billed to the Customer, in which case the
Customer's IFC Charge will be limited to the amount of Applicable Rates), the
Servicer 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 the Public Utilities Act
or ICC regulations governing such arrangements. See "The Servicer--Credit
Policy; Billing; Collections; Restoration of Service."
LIMITED INFORMATION REGARDING CUSTOMERS. 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. 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.
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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.
An important element of Illinois Power's policies and procedures relating to
credit and collections is its right to disconnect service on account of
nonpayment. Each Transitional Funding Order will expressly provide that Illinois
Power may disconnect service for nonpayment of IFC Charges to the same extent as
Illinois Power would be entitled to take such action because of nonpayment 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."
POSSIBLE PAYMENT DELAYS CAUSED BY RELIANCE ON ALTERNATIVE RETAIL ELECTRIC
SUPPLIERS AND OTHER THIRD-PARTY COLLECTORS. 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
(which would include the applicable IFC Charges) 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
applicable IFC Charges included in a single bill to a Customer are required to
be remitted to the Servicer by such ARES. 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,
resulting in shortfalls thereof. Such IFC Collection shortfalls could adversely
affect the timely payment of interest on the Notes or the payment of principal
of the Notes in accordance with the Expected Amortization Schedules therefor or
in full by the applicable Expected or Final Maturity Dates.
In addition, there can be no assurance that any ARES will use the same
customer credit standards as the Servicer or that the Servicer will be able to
mitigate credit risks relating to ARES in the same manner in, or to the same
extent to, which it mitigates such risks relating to its Customers, both of
which may have the effect of causing shortfalls in IFC Collections. Changes in
Customer billing and payment practices caused by ARES billing may result in
misdirected or delayed payments due to customer confusion, which could also have
the effect of causing shortfalls in IFC Collections. Furthermore, the Servicer
will have no meaningful ability to control the collection procedures of ARES or
other third parties who simply forward payments on behalf of Customers and not
pursuant to contractual arrangements with Illinois Power or pursuant to
consolidated billing procedures. Finally, any problems arising from new and
untested systems or any lack of experience on the part of any ARES or other
third parties with Customer billings and collections could cause delays in
billing and collecting the IFC Charges resulting in shortfalls in IFC
Collections. Such IFC Collection shortfalls could adversely affect the timely
payment of interest on the Notes or the payment of principal of the Notes in
accordance with the Expected Amortization Schedule therefor or in full by the
applicable Expected or Final Maturity Dates.
POSSIBLE PAYMENT DELAYS CAUSED BY COMMINGLING OF IFC PAYMENTS WITH
SERVICER'S OTHER FUNDS. If the Monthly Remittance Conditions are met, on each
Monthly Remittance Date the Servicer will remit to the Collection Account IFC
Payments collected during the preceding Billing Period; otherwise, on each Daily
Remittance Date, the Servicer will remit all IFC Payments to the Collection
Account within two Servicer Business Days of collection by the Servicer. For
these purposes, IFC Payments are deemed
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collected when posted to a Customer's account (which under the Servicer's
current procedures occurs within two Servicer Business Days of receipt of
payment by the Servicer). Accordingly, IFC Payments received by the Servicer
would not be segregated from the Servicer's general funds until they are
remitted to the Collection Account. A failure or inability of the Servicer to
remit the full amount of the IFC Payments on any Monthly Remittance Date or
Daily Remittance Date, whether voluntary or involuntary, might result in delays
in payments to Noteholders. Such retention of funds could also have adverse
consequences to Noteholders in the event of a bankruptcy of the Servicer. See
"--Bankruptcy and Creditors' Rights Issues--Possible Adverse Effect on
Noteholders as a Result of the Bankruptcy of the Servicer."
POSSIBLE PAYMENT DELAYS AS A RESULT OF YEAR 2000 ISSUES--YEAR 2000 READINESS
DISCLOSURE. Illinois Power uses various software applications and embedded
systems throughout its businesses that will be affected by so-called "Year 2000
issues." These issues may prevent an application or system from correctly
processing dates up to the year 2000 and beyond. Based on Illinois Power's
current schedule for completion of Year 2000 tasks, Illinois Power believes that
its planning is adequate to secure Year 2000 readiness of its critical systems.
Nevertheless, achieving Year 2000 readiness is subject to various risks and
uncertainties, and Illinois Power is not able to predict all the factors that
could cause actual results to differ materially from its current expectations as
to its Year 2000 readiness.
A failure to correct any critical Year 2000 processing problems prior to
January 1, 2000 could have material adverse operational and financial
consequences if the affected systems either cease to function or produce
erroneous data. For example, the Year 2000 issues 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. This could result in significant delays in IFC
Collections and, therefore, in payments to Noteholders. The Year 2000 issues
could affect usage by Customers if there are problems in the generation or
distribution of electricity which could cause the amount of Applicable Rates
from which IFC Charges will be deducted to be materially decreased or delayed.
See "--Reduction in Amount of Revenue From Applicable Rates." For a more
thorough discussion of the Year 2000 issues, see "The Servicer--Year 2000
Readiness Disclosure."
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." 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 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.
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 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, 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
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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.
Illinois Power is in the process of examining its existing investments and
operations in relation to the changing regulatory environment with a view to
rationalizing Illinois Power's investment in, and operating costs of, particular
assets against their ability to contribute to Illinois Power's profits and
revenues. One option under review is the sale or other disposition of some or
all of Illinois Power's generating assets (including the sale or shut-down of
its Clinton Power Station). A number of vertically integrated utilities in
various states have divested, or are in the process of divesting, generating
assets in connection with the implementation of electric industry restructuring
and deregulation in those states. Such sales or dispositions, if implemented by
Illinois Power, could have the effect of separating the generation component of
Illinois Power's business from the transmission and distribution component with
the result, for example, that Illinois Power would substitute wholesale
purchases of electricity for lost generation capacity and resell the electricity
so purchased to its retail customers under tariffs or contracts for
fully-bundled services. Illinois Power does not believe that such transactions
will have a material adverse effect on the revenues it receives from Customers
and therefore will not materially adversely affect the timing or amounts of IFC
Collections. Nonetheless, there can be no assurance that such transactions will
not reduce the amount of Applicable Rates available to Illinois Power from which
the IFC Charges must be deducted. See "--Uncertainties Related to the Electric
Industry Generally--Reduction in Amount of Revenue from Applicable Rates".
SHRINKING CUSTOMER BASE AS A RESULT OF 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. Since
the IFC Charges are based on electricity usage by the Customers of Illinois
Power, reductions in the amount of electricity sold or delivered by Illinois
Power to its Customers will result in higher IFC Charges than would otherwise
exist and could negatively impact the timing of IFC Payments and may result in
delays in payments on the Notes. For example, 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.
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 cogeneration 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. Other Illinois public utilities or their affiliates have formed
similar business alliances with manufacturers of such equipment. 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.
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.
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SHRINKING CUSTOMER BASE AS A RESULT OF 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 and also allows municipalities, subject to certain
conditions, to become ARES. In either the event of municipalization or upon a
municipality becoming an ARES, the number of Illinois Power's Customers
receiving power and energy from Illinois Power would decline, resulting in the
reduction in the amount of electricity sold or delivered by Illinois Power to
its Customers. Since the IFC Charges are based on electricity usage by Customers
of Illinois Power, such reductions will result in higher IFC Charges than would
otherwise exist and could negatively impact the timing of IFC Payments.
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 recovery of 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 recoveries that was
made in respect of lost tariffed revenues would be allocable, in accordance with
the Servicing Agreement, to the IFC Charges and 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 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.
In the event that a municipality becomes an ARES, 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.
POSSIBLE PAYMENT DELAYS CAUSED BY CHANGES IN GENERAL ECONOMIC CONDITIONS AND
ELECTRICITY USAGE. General economic conditions and technological changes that
would significantly alter power 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.
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UNCERTAINTIES CAUSED BY 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.
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.
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 14 bills (none of which passed in committee) were
introduced in the 105th Congress, affecting the deregulation of the electric
utility industry on the state level. Many, but not all, of the bills contained
provisions recognizing the validity of prior state actions relating to
deregulation. At least two of the bills, H.R. 1230 and H.R. 4798, however, would
have prohibited 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 will be.
REDUCTION IN AMOUNT OF REVENUE FROM APPLICABLE RATES
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. Therefore, any decline in revenues from
Applicable Rates may have a negative impact on the timing and amount of IFC
Charges and may adversely affect Illinois Power's financial condition and
thereby its ability to provide electric service or to perform its obligations as
Servicer.
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 IFC 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 billable 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, although the Funding Law specifically preserves the
right of Illinois Power's Customers to bring actions against Illinois Power for
failure to file such Amendatory Tariff, 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.
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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, based on Illinois Power's rates in effect immediately prior to January 1,
1998. 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 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
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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. It has not been
determined at this time whether delivery service charges will be calculated on a
cents per kilowatt-hour basis. In any event, delivery service charges are
expected to be, on a per kilowatt-hour basis and in the aggregate, materially
lower than Illinois Power's current bundled charges 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 may 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 "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 as overbroad
and contrary to the terms of the Amendatory Act. 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 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. On November 18, 1998, the ICC
granted a request for a declaratory ruling to the effect that an entity
installing a cogeneration facility on a customer's premises in Commonwealth
Edison Company's service area which facility is to be owned by such entity and
the output thereof provided to the customer, and which facility also has
attributes (iii) and (v) listed above, is not an ARES. Consequently, the
electrical output obtained by the customer from such a facility, if constructed
in Illinois Power's service area, would not be subject to Applicable Rates.
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 transition charges
and therefore to IFC Charges.
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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 tariffed revenues 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, the Transitional Funding Orders will prohibit Illinois
Power from entering into such contracts unless the Customers expressly agree to
pay the Grantee or the Trust, or Illinois Power as Servicer, an amount equal to
the amount of IFC charges that would have been billed if the services taken by
such Customers under such contracts had continued to be taken under tariff. In
addition, each Transitional Funding Order and the Servicing Agreement will
provide that, if the IFC Charges to be imposed on any IFC Customer Class in an
Applicable Period exceed the total projected revenues for such class in such
Applicable Period, the deficiency shall be allocated among all remaining IFC
Customer Classes. 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 its ability to
provide electric service or to perform its obligations as Servicer.
In addition, 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 in the
second paragraph in this section, and no assurance can be given that such
actions may not adversely affect the Noteholders. Furthermore, under Illinois
Power's servicing procedures, in the event that total IFC Charges for a
particular Customer during a particular Billing Period were to exceed otherwise
Applicable Rates for such Customer, the Customer would only be billed IFC
Charges for the amount of Applicable Rates against which such IFC Charges could
then be offset. If the above-described circumstances occur, such a limitation on
amounts billed to individual Customers could result in payment delays on the
Notes, notwithstanding the ability of the Servicer to allocate any deficiency in
IFC Charges with respect to one IFC Customer Class to the remaining IFC Customer
Classes, as discussed above. See "Servicing."
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 or the
overall amount of the IFC Charges payable by Customers. See "The
Servicer--Illinois Power Customer Base, Electric Energy Consumption and Base
Rates" and "Servicing."
BANKRUPTCY AND CREDITORS' RIGHTS ISSUES
POSSIBLE ADVERSE EFFECT ON NOTEHOLDERS AS A RESULT OF THE BANKRUPTCY OF
ILLINOIS POWER, THE GRANTEE OR THE TRUST. If Illinois Power or the Grantee were
to become a debtor in a bankruptcy case, and a creditor or bankruptcy trustee of
Illinois Power or the Grantee, or Illinois Power or the Grantee itself as
debtor-in-possession, were to take the position that the Intangible Transition
Property constituted property of Illinois Power's or the Grantee's bankruptcy
estate, and a court were to adopt such a position, then delays or reductions in
payments on the Notes could result. Regardless of any specific adverse
determinations in an Illinois Power, Grantee or Trust bankruptcy proceeding, the
mere fact of an Illinois Power, Grantee or Trust bankruptcy proceeding could
have an adverse effect on the secondary market for the Notes, including an
adverse effect on the liquidity and market value of the Notes.
Illinois Power, the Grantee and the Trust have taken steps to minimize the
risk that a creditor or bankruptcy trustee of Illinois Power or the Grantee or
Illinois Power or the Grantee itself would succeed on such a claim. For example,
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
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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 the Basic Documents 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 nor in the portion of the Applicable Rates otherwise to have
been received by Illinois Power to the extent such portion has become IFC
Charges in accordance with the terms and provisions of the related Transitional
Funding Order. Illinois Power, the Grantee and the Trust will also covenant 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. Further, 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, the Grantee and the Trust 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. See "--Potential Servicing Issues--Possible
Payment Delays Caused by Commingling of IFC Payments with Servicer's Other
Funds."
If Illinois Power were to become a debtor in a bankruptcy case and a court
were to order that the assets and liabilities of the Trust or the Grantee should
be consolidated with those of Illinois Power, delays or reductions in payments
on the Notes would likely result. Illinois Power, the Grantee and the Trust have
taken steps to minimize the risk of such a consolidation. 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 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 two of whose members must be independent from Illinois
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 and that the Trust is a distinct entity managed by the
Delaware Trustee. Nonetheless, those steps may not be completely effective.
Should any 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 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, the Grantee or the Trust were to
become the debtor in a bankruptcy case, a creditor of, or a bankruptcy trustee
for, Illinois Power, the Grantee or the Trust, or Illinois Power, the Grantee or
the Trust 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 amounts equivalent to
IFC Charges under contracts, as such Customers enter into such contracts or use
electricity. Any such party might similarly argue, to the extent that any
condemnation or FERC stranded cost recoveries which include amounts for lost
tariffed revenues are awarded from and after commencement of a bankruptcy by or
against Illinois Power, that such amounts came into existence only as such
recoveries were awarded, notwithstanding the provisions of the Servicing
Agreement which provide that a portion of such awards
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should be allocable to the Trust as proceeds of Intangible Transition Property.
If a court were to adopt any of the foregoing positions, 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, the Grantee or the Trust or in
respect of IFC Payments received under contracts entered into after the
commencement of such case. 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, the Grantee or the Trust, then the Indenture Trustee, as Trustee for the
Noteholders, would be an unsecured creditor of Illinois Power, the Grantee or
the Trust, 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, the Grantee's or the Trust'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 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 creditor of, or a bankruptcy trustee for Illinois Power, or Illinois
Power itself as debtor-in-possession, could take the position that the
bankruptcy trustee is not bound prospectively by the provisions of a
Transitional Funding Order requiring that Illinois 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
further reduction in the amounts available to be paid to the Trust, and thus to
the holders of the Notes.
Regardless of whether Illinois Power, the Grantee or the Trust is the debtor
in a bankruptcy case, if a court were to accept the arguments of a creditor of
Illinois Power, the Grantee or the Trust that Intangible Transition Property
and/or related assets come 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 and/or related assets came
into existence may have priority over the Trust's or the Noteholders' interest
in such Intangible Transition Property or related assets, 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.
POSSIBLE ADVERSE EFFECT ON NOTEHOLDERS AS A RESULT OF THE BANKRUPTCY OF THE
SERVICER. The bankruptcy or insolvency of the Servicer could result in delays
or reductions in the payments due on the Notes.
If the Servicer (a) maintains a short-term debt rating of at least "A-1" by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), "P-1"
by Moody's Investors Service, Inc. ("Moody's"), if rated by Duff & Phelps Credit
Rating Co. ("Duff & Phelps"), "D-1" by Duff & Phelps and, if rated by Fitch,
IBCA, Inc. ("Fitch"), "F-1" by Fitch, and (b) meets certain other conditions
(collectively, the
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"Monthly Remittance Conditions"), the Servicer will be entitled to commingle IFC
Payments with its own funds until the relevant Monthly Remittance Date. If the
Monthly Remittance Conditions are not met, then the Servicer will remit all IFC
Payments to the Collection Account within two Servicer Business Days of
collection. For these purposes, IFC Payments are deemed collected when posted to
a customer's account (which under the Servicer's current procedures occurs
within two Servicer Business Days of receipt of payment by the Servicer). 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.
Although (a) 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 and (b) 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 estimation as are
set forth in the Servicing Agreement, 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.
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-- Possible Payment Delays
Caused by Commingling of IFC Payments with Servicer's Other Funds."
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 SOURCES OF PAYMENT FOR THE NOTES AND LIMITED CREDIT
ENHANCEMENT. The Notes are limited-recourse obligations, and the sole source of
payments thereon is the payments made with respect to the Intangible Transition
Property and the other Note Collateral (which is expected to be relatively
small) and, for Floating Rate Notes, the proceeds of any Swap Agreement. 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 and there will
be no forms of credit enhancement for the Notes except for amounts held in the
Overcollateralization Account and the Capital Subaccount and the right of the
Trust to compel Illinois Power, as Servicer, to make Adjustments
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to the IFC Charges. It is not currently anticipated that the Notes will have the
benefit of any third-party credit enhancement, such as guarantees, letters of
credit, insurance or the like. If, however, any Series of Notes is to be issued
with any third-party credit enhancement, it will be set forth in the related
Prospectus Supplement. The Trust's organizational documents will restrict its
right to acquire other assets unrelated to the transactions described herein.
The Notes will not constitute a debt, liability or other obligation of the
State of Illinois or of any political subdivision, agency or instrumentality
thereof and will not represent an interest in or obligation of Illinois Power or
its affiliates. 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 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.
EFFECT OF ADDITIONAL SERIES OF NOTES OR OTHER TRANSITIONAL FUNDING ORDERS ON
OUTSTANDING NOTES. The issuance of additional Series of Notes may have an
adverse effect on the timing or amount of payments received by a Noteholder of
outstanding Notes. 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 $1.728 billion in aggregate principal amount, less the initial
principal amount of previously issued Notes. Any such subsequent Series of Notes
which increases the cumulative amount of issued Notes above $864 million would
be issued in connection with the creation of additional Intangible Transition
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. 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 and
Acquisition of Subsequent Intangible Transition Property." 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 Available to Pay Notes," "--Potential
Servicing Issues," "--Uncertainties Related to the Electric Industry Generally,"
and "--Bankruptcy and Creditors' Rights Issues."
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
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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--
Possible Payment Delays Caused by Inaccurate Usage and Credit Projections" and
"--Possible Payment Delays Caused by Reliance on Alternative Retail Electric
Suppliers and Other Third-Party Collectors." 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 IFC 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 (5%)
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.
Finally, a Series of Notes shall be subject to redemption if and to the extent
provided in the related Prospectus Supplement. Redemption will cause such Notes
to be retired earlier than would otherwise be expected, 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. The liquidity and the market value
of any Floating Rate Notes may be adversely affected by a termination event
under the related Swap Agreement as described in the related Prospectus
Supplement.
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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, 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.
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 cogeneration 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
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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."
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 cogeneration 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 for any
customer or group of customers will be recalculated annually based on changes in
market prices, changes in delivery service rates and changes in the "mitigation
factor" specified in the Amendatory Act, and there will be no retroactive
adjustments to compensate the Utility if transition charge revenues during any
period were less than expected. 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
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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 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--Reductions 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 Illinois Power, the required reduction
in residential base rates is 15% effective August 1, 1998, and an
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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 ("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 electric 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.
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
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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, even if its tariffed revenues from
provision of such services may have declined.
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--Uncertainties Caused by 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.
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 nonbypassable
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
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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."
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 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
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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.
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.
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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 (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 such customer's or class of
customers' rates for tariffed services, including delivery charges or 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,
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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 billable by the Utility for base rates, transition charges
and other rates for tariffed services as set forth in the transitional funding
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
billable 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
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")
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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
nonbypassable usage-based charges expressed in cents per kilowatt-hour payable
by Customers in an aggregate amount calculated to be sufficient to make the
Specified Payments. 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.
Customers who enter into private contracts with a Utility may no longer be
paying rates for tariffed services from which instrument funding charges are to
be deducted and therefore may not be subject to imposition of such charges under
the Funding Law. To address this situation, 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 (I.E., the Trust), 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. Each
Transitional Funding Order will further provide that any revenues received by
Illinois Power or a successor Utility from such contracts shall, to the extent
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. Between the
effective date of the Amendatory Act and on or about October 10, 1998, Illinois
Power entered into a number of private contracts with customers each of which
generally provides that the applicable customer will pay to Illinois Power, as
Servicer, amounts for instrument funding charges calculated in accordance with a
transitional funding order issued by the ICC, and that Illinois Power will
deduct and state separately such amounts from the amounts otherwise payable
under these contracts; however, these contracts do not expressly provide that
the Grantee or its assigns (I.E., the Trust) shall be a third-party beneficiary
of such contract. The aggregate expected total annual revenues from such
contracts currently total an amount equal to approximately 0.95% of Illinois
Power's total operating revenues from sales to retail customers for the fiscal
year ended December 31, 1997.
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
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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 IFC 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 final terms of such Series, which 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, 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 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, less $100,000 in the aggregate
for all Series of Notes, 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.
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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.
NONBYPASSABLE IFC CHARGES
Each Transitional Funding Order will provide that the IFC Charges are
nonbypassable, 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 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 make the Specified Payments.
Each Transitional Funding Order also requires 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 make the Specified Payments. 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 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 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
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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 billable 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.
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
and related assets. 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.
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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:
(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.
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
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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, that:
(a) the information provided by Illinois Power to the Grantee with
respect to the applicable Intangible Transition Property is correct in all
material respects;
(b) immediately prior to the transactions contemplated by the Grant
Agreement, Illinois Power's right, title and interest in and to all of its
rights to payments under Applicable Rates is free and clear of all
encumbrances, and is not subject to any defenses or counterclaims nor have
any such encumbrances, defenses or counterclaims been asserted with respect
thereto;
(c) the applicable Intangible Transition Property has been validly
granted to and vested in the Grantee, and 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 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 first priority perfected
ownership interest in such Intangible Transition Property will have been
made and no further action is required under Illinois law to maintain such
ownership interest in such Intangible Transition Property;
(d) (i) Illinois Power was authorized to apply for each Transitional
Funding Order;
(ii) Illinois Power filed each such application in proper form with
the ICC;
(iii) each Transitional Funding Order pursuant to which any
Intangible Transition Property has been created and each related IFC
Tariff has established, created and granted rights in and to the related
Intangible Transition Property and is valid, binding and irrevocable and
such Intangible Transition Property (including the right to impose and
collect the related IFC Charges) constitutes a current and original
property right vested in the Grantee;
(iv) each Transitional Funding Order pursuant to which any
Intangible Transition Property has been created has been duly entered by
the ICC, is final and non-appealable and is in full force and effect;
(v) no Transitional Funding Order nor any Intangible Transition
Property created and established thereby nor the related IFC Charges
shall be subject to reduction, postponement, impairment or termination by
any subsequent action of the ICC;
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(vi) the State of Illinois may not limit, alter, impair or reduce
the value of the Intangible Transition Property in a manner substantially
impairing the Indenture or the rights and remedies of the Noteholders
(and, consequently, may not revoke, reduce, postpone or terminate the
related Transitional Funding Order or the rights of the Noteholders to
receive IFC Payments and all other proceeds of the Intangible Transition
Property), until the Notes, together with interest thereon, are fully
paid and discharged (except to the extent of a temporary impairment that
the State of Illinois is able to demonstrate is necessary to advance a
significant and legitimate public purpose);
(vii) a substantial impairment of the Noteholders' rights to payments
on the Notes, arising from a judicial invalidation of the Amendatory Act,
would be inequitable;
(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 related IFC Charges 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 the related IFC Charges
authorized under the related Transitional Funding Order, as adjusted from
time to time, (B) the right, title and interest in 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 in an aggregate amount equal to the principal amount of the
Notes, all interest on the Notes, all amounts required to be deposited in
the Reserve Subaccount, the Overcollateralization Subaccount and (to the
extent payable from the proceeds of the related IFC Charges) 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 limitation
set forth in the Transitional Funding Orders as the aggregate maximum
dollar amount of Intangible Transition Property;
(g) Illinois Power is a corporation duly organized, validly existing 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 perform the terms of such Grant
Agreement and has (and has had at all relevant times) 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 customary exceptions relating to
bankruptcy and equitable principles;
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(j) the consummation of the transactions contemplated by such Grant
Agreement does not conflict with, or result in a default under, Illinois
Power's Articles of Incorporation, bylaws 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 been previously obtained or
made (it being understood that Illinois Power nonetheless has ongoing legal
obligations to make future filings with the ICC relating to Illinois Power's
use of proceeds from and the final terms of the transactions contemplated by
such Grant Agreement); and
(l) except as disclosed in the 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. In each Grant Agreement, Illinois Power will
covenant, among other things, that:
(a) so long as any of the Notes are outstanding, it will keep in full
force and effect its existence, rights and franchises as a corporation under
the laws of its jurisdiction of incorporation and its qualification to do
business to the extent necessary to protect the validity of the Basic
Documents;
(b) it will not sell, pledge, assign or transfer to any other person, or
grant, create, incur, assume, suffer to exist or otherwise assert any lien
on or seek to limit, alter, impair, reduce or terminate any of the related
Intangible Transition Property or any interest therein;
(c) it shall defend the right, title and interest of the Grantee or the
Trust in, to and under the related Intangible Transition Property against
all claims of third parties claiming through or under Illinois Power;
(d) it will pay to the Servicer all payments received by it in respect
of the IFC Charges or the proceeds thereof no later than two Business Days
after such receipt by Illinois Power;
(e) it shall notify the Grantee, the Trust and the Indenture Trustee
promptly after becoming aware of any lien on any of the related Intangible
Transition Property other than the conveyances under the Grant Agreement,
the Sale Agreement and the Indenture;
(f) it shall comply with its organizational documents and all applicable
laws to the extent that failure to so comply would materially adversely
affect the Trust's or the Indenture Trustee's interests in the Intangible
Transition Property;
(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 creation and grant of the Intangible Transition Property
and, for so long as the Notes are outstanding, except with respect to taxes,
it will not make any statement or reference in respect of the Intangible
Transition Property that is inconsistent with the ownership interest of the
Grantee;
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(i) 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 or the Trust in the Intangible
Transition Property, including all filings required under the Funding Law
relating to the grant of the related Intangible Transition Property to the
Grantee;
(j) 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 or the Trust 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 such Grant Agreement;
(k) it shall not, prior to the date which is one year and one day after
the termination of the Indenture, acquire, petition or otherwise invoke or
cause any other Person to invoke the process of any court or government
authority for the purpose of commencing or sustaining a case against, or
appointment of a receiver for, the Grantee or the Trust under any federal or
state bankruptcy, insolvency or similar law; and
(l) it shall pay all material taxes, assessments and governmental
charges imposed upon it or any of its properties or assets if the failure to
pay any such taxes, assessments and governmental charges would, after any
applicable grace periods, result in a lien on the Intangible Transition
Property;
(m) 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;
(n) 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;
(o) it will not, except as required by applicable law, initiate any
material changes to its policies and procedures which are likely to
materially and adversely affect its timely recovery of amounts billed to
Customers;
(p) 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 reasonably necessary to obtain an order permitting the
creation of additional Intangible Transition Property in an amount
sufficient to pay such Notes in full; and
(q) Illinois Power will take any and all actions reasonably necessary to
preserve the Noteholders' rights with respect to payments on the Notes out
of amounts represented by the IFC Charges or their equivalent, including,
but not limited to, (i) making appropriate filings with the State of
Illinois, the ICC or other regulatory bodies to defend, preserve and create
on behalf of Noteholders the right to receive payments as provided in the
Notes, (ii) defending against or instituting and pursuing legal actions and
appearing or testifying in hearings or similar proceedings, as may be
necessary to block or overturn any attempts to cause a repeal, modification
of, supplement to or judicial invalidation of, the Amendatory Act 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, and (iii) unless otherwise prohibited
by applicable law or judicial or regulatory order in effect at such time,
continuing to deduct and pay over to the Servicer for the benefit of the
Trust all IFC Payments or equivalent revenues received by Illinois Power
notwithstanding any declaration of invalidity of the Amendatory Act and/or
the Funding Law. Under current law, no assurance can be
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given that Illinois Power is authorized to act in accordance with clause
(iii) if the applicable Transitional Funding Order is no longer in effect.
However, Illinois Power has agreed to indemnify the Noteholders for certain
losses which may result if Illinois Power is unable to continue to impose or
collect IFC Charges or equivalent amounts.
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 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
Series Issuance 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); and (b) any and all amounts of principal and interest on the Notes
not paid when due in accordance with their terms and the amount of any deposits
to the Trust required to have been made in accordance with the terms of the
Basic Documents which are not made when so required and any and all liabilities,
obligations, claims, actions, suits or payments of any kind whatsoever that may
be imposed on or asserted against any such person, together with any reasonable
costs and expenses incurred by such person, as a result of Illinois Power's
breach of any of its representations, warranties or covenants contained in such
Grant Agreement. Such indemnification obligations will rank PARI PASSU with
other general unsecured obligations of Illinois Power. The indemnities described
above will survive the termination of such Grant Agreement and include
reasonable fees and expenses of investigation and litigation (including
reasonable attorneys' fees and expenses).
Illinois Power will also deliver to the Indenture Trustee a remediation
agreement confirming certain of the representations, warranties and covenants of
Illinois Power contained in the Grant Agreement, and its agreement to continue
to deduct and pay IFC Charges or equivalent revenues in the event the Grant
Agreement is declared invalid. Under current law, no assurance can be given that
Illinois Power is
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authorized to continue to deduct and pay IFC Charges or equivalent revenues
under such agreement if the applicable Transitional Funding Order is no longer
in effect.
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 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, that:
(a) the information provided by the Grantee to the Trust with respect to
the applicable Intangible Transition Property and related assets is correct
in all material respects;
(b) immediately prior to the sale of the Intangible Transition Property
to the Trust, the applicable Intangible Transition Property is owned by the
Grantee free and clear of all security interests, liens, charges and
encumbrances, and is not subject to any defenses or counterclaims nor have
any such encumbrances, defenses or counterclaims been asserted with respect
thereto;
(c) 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 priority perfected ownership interest
in such Intangible Transition Property will have been made and no further
action is required under Illinois law to maintain such ownership interest in
such Intangible Transition Property;
(d) (i) each Transitional Funding Order pursuant to which any
Intangible Transition Property has been created has been duly entered by the
ICC, and is final and non-appealable and is in full force and effect;
(ii) no Transitional Funding Order nor any Intangible Transition
Property created and established thereby nor the related IFC Charges
shall be subject to reduction, postponement, impairment or termination by
any subsequent action of the ICC;
(iii) the State of Illinois may not limit, alter, impair or reduce
the value of the Intangible Transition Property in a manner substantially
impairing the Indenture or the rights and remedies of the Noteholders
(and, consequently, may not revoke, reduce, postpone or terminate the
related Transitional Funding Order or the rights of the Noteholders to
receive IFC Payments and all other proceeds of the Intangible Transition
Property), until the Notes, together with interest thereon, are fully
paid and discharged (except to the extent of a temporary impairment that
the State of Illinois is able to demonstrate is necessary to advance a
significant and legitimate public purpose);
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(iv) 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
(v) 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 related IFC Charges 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 the related IFC Charges
authorized under the related Transitional Funding Order, as adjusted from
time to time, (B) the right, title and interest in 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 in an aggregate amount equal to the principal amount of the
Notes, all interest on the Notes, 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 limitation set forth in the related
Transitional Funding Order as to the maximum dollar amount of Intangible
Transition Property;
(g) the Grantee is a limited liability company duly organized, validly
existing and 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 customary exceptions relating to bankruptcy and
equitable principles;
(j) the consummation of the transactions contemplated by such Sale
Agreement does not conflict with or result in a default under 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 been previously obtained or made; 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 Sale Agreement
or any of the other related Basic Documents,
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(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. In each Sale Agreement, the Grantee will
covenant, among other things, that:
(a) so long as the Notes are outstanding, it will keep in full force and
effect its existence, rights and franchises as a limited liability company
under the laws of its jurisdiction of organization and its qualification to
do business to the extent necessary to protect the validity of the Basic
Documents;
(b) it will not sell, pledge, assign or transfer to any other person, or
grant, create, incur, assume, suffer to exist or otherwise assert any lien
on any of the related Intangible Transition Property or related assets;
(c) it shall defend the right, title and interest of the Trust and
Indenture Trustee in, to and under the related Intangible Transition
Property and related assets against all claims of third parties claiming
through or under the Grantee;
(d) it will hold all payments received by it in respect of the IFC
Charges or the proceeds thereof in trust for the Servicer and pay to the
Servicer all such payments no later than two Business Days after such
receipt by the Grantee;
(e) it shall notify the Trust and the Indenture Trustee promptly after
becoming aware of any lien on any of the related Intangible Transition
Property and related assets other than the conveyances under the Sale
Agreement and the Indenture;
(f) it shall comply with its organizational documents and all applicable
laws to the extent that failure to so comply would materially adversely
affect the Trust's or the Indenture Trustee's interest 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 the 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 shall not own or purchase
any Notes and, except with respect to taxes, 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;
(h) 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 related Intangible Transition
Property and related assets, including all filings required under the
Funding Law relating to the transfer of the related Intangible Transition
Property to the Trust;
(i) 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 such Sale Agreement;
(j) 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, or
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appointment of a receiver for, the Trust under any federal or state
bankruptcy, insolvency or similar law;
(k) it shall pay all material taxes, assessments and governmental
charges imposed upon it or any of its properties or assets if the failure to
pay any such taxes, assessments and governmental charges would, after any
applicable grace periods, result in a lien on the Intangible Transition
Property or related assets;
(l) 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;
(m) 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;
(n) it shall promptly notify the Trust, in writing, of each default
under the Indenture and each material default on the part of Illinois Power
or the Servicer of their respective obligations under the Grant Agreement or
the Servicing Agreement;
(o) 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
(p) the Grantee shall 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) take any action that would be inconsistent with the Trust's absolute
and first priority ownership interest in the Intangible Transition Property
or related assets;
(c) engage in any business other than acquiring, owning, financing,
transferring, assigning and otherwise managing the Intangible Transition
Property and related assets;
(d) incur, assume, guarantee or otherwise become liable, directly or
indirectly, for any indebtedness;
(e) 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; and
(f) 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 in any calendar year.
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
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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, and
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); and (b) any and all amounts of principal and interest
on the Notes not paid when due in accordance with their terms and the amount of
any deposits to the Trust required to have been made in accordance with the
terms of the Basic Documents which are not made when so required and any and all
liabilities, obligations, claims, actions, suits or payments of any kind
whatsoever that may be imposed on or asserted against any such person, together
with any reasonable costs and expenses incurred by such person, as a result of
the Grantee's breach of any of its representations, warranties or covenants
contained in such Sale Agreement. The indemnities described above will survive
the termination of such Sale Agreement and include reasonable fees and expenses
of investigation and litigation (including reasonable attorneys' fees and
expenses).
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
- --Limit on Amount of Intangible Transition Property Available to Pay Notes,"
"--Potential Servicing Issues," "--Uncertainties Related to the Electric
Industry Generally--Shrinking Customer Base as a Result of Municipalization,"
and "Description of the Intangible Transition Property--Adjustments to IFC
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.
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.
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<PAGE>
THE TRUST
The Trust will be a statutory business trust 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. Pursuant to the terms
of the Trust Agreement, the Trust will be created for the specific purpose of
acquiring and owning the Intangible Transition Property and the other Note
Collateral, issuing and registering the Notes, pledging its interest in the
Intangible Transition Property and other Note Collateral pursuant to the terms
of the Indenture, making payments on the Notes, distributing amounts released to
the Trust and performing other activities that are necessary, suitable or
convenient to accomplish these purposes. The Trust Agreement will not permit the
Trustees to engage in any activities not directly related to the Note financing.
The assets of the Trust will consist of the Intangible Transition Property,
the other Note Collateral, and any money retained by the Delaware Trustee on
behalf of the Trust to fund the Capital Subaccount. For a description of the
Notes to be issued by the Trust, see "Description of the Notes."
As of the date of this Prospectus, the Trust has not carried on any business
activities and has no operating history. Audited financial statements of the
Trust are included as an exhibit to this Prospectus. The fiscal year of the
Trust will be the calendar year.
The Trust's business will be managed by the Delaware Trustee. Under the
terms of the Trust Agreement, the Delaware Trustee must at all times: (1) be a
corporation satisfying the provisions of Section 3807(a) of the Delaware
Business Trust Act; (2) be authorized to exercise corporate trust powers; (3)
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 (4) 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 the Delaware Trustee at any time fails to
satisfy these provisions, if a receiver is appointed for it, if it is adjudged
bankrupt or if it is otherwise incapable of acting, it will be removed by the
Servicer and the Servicer will appoint a successor Delaware Trustee, which must
also meet the requirements described above.
The Delaware Trustee and the Servicer may jointly appoint a co-trustee for
the purpose of meeting any legal requirements of any state in which any part of
the estate of the Trust may be located. This co-trustee need not meet the
requirements described in the previous paragraph.
The authority of the Beneficiary Trustees under the Trust Agreement is
limited to the performance of the following duties: (1) to execute and file the
Registration Statement of which this Prospectus is a part, and to file any
supplements, amendments and exhibits to this Registration Statement, (2) to
register the Notes with applicable state securities commissions, and (3) to take
any necessary or appropriate related actions (including entering into certain
amendments to the Trust Agreement). The following two people have been named as
the Beneficiary Trustees in the Trust Agreement:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---------------------------------------------------------------- --- ---------------------
<S> <C> <C>
Cynthia G. Steward.............................................. 40 Beneficiary Trustee
Eric B. Weekes.................................................. 46 Beneficiary Trustee
</TABLE>
Cynthia G. Steward will be a Beneficiary Trustee of the Trust. Ms. Steward
has been employed by Illinois Power since 1980. She has held the position of
Controller since September 1995. Prior to being elected Controller, Ms. Steward
held positions as Manager of Employee Services and Director of Accounting.
Eric B. Weekes will be a Beneficiary Trustee of the Trust. Mr. Weekes is
Treasurer of Illinois Power and has held that position since January 1997. Prior
to being employed by Illinois Power, Mr. Weekes was employed by a unit of Kraft
Foods as Director of Financial Analysis, Budgets and Controls. Prior to being
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<PAGE>
employed by Kraft Foods, Mr. Weekes was employed by General Foods and subsidiary
companies in several financial management positions.
As of the date of this Prospectus, none of the Trustees have received any
compensation for their services. The Beneficiary Trustees will not be
compensated by the Trust for their services on behalf of the Trust. The Delaware
Trustee will be paid from the assets of the Trust and will be reimbursed for its
reasonable expenses, including, without limitation, the reasonable compensation,
expenses and disbursements of any agents, representatives, experts and counsel
the Delaware Trustee employs in connection with performance of its duties under
the Trust Agreement.
The Trust Agreement provides that neither the Beneficiary Trustees nor the
Delaware Trustee shall be liable under any circumstances except for liabilities
arising from: (1) such Trustee's grossly negligent action; (2) such Trustee's
grossly negligent failure to act; or (3) such Trustee's own willful misconduct.
The Trust Agreement provides that the Servicer shall indemnify each of the
Delaware Trustee, the Beneficiary Trustees and their successors, assigns, agents
and servants to the fullest extent permitted by law against any liability
incurred with respect to their services under the Trust Agreement.
The Trust Agreement provides that the Trust shall dissolve on the earlier
of: (1) final distribution of all money and other property of the Trust in
accordance with the Trust Agreement and other Note financing documents; (2)
December 31, 2020; (3) if the Grantee elects, the day following the date when
the aggregate outstanding amount of the Notes is zero; or (4) judicial
dissolution of the Trust. The Grantee is not entitled to revoke or terminate the
Trust prior to this date. Any funds remaining in the Trust after this date of
dissolution, and after the satisfaction of all of the claims of creditors, are
to be distributed to the Grantee.
Under the Trust Agreement, no trustee shall have the power to commence a
voluntary proceeding in bankruptcy relating to the Trust, except that the
Delaware Trustee may commence such a proceeding with the prior approval of the
Grantee and delivery to the Delaware Trustee of a signed certificate from the
Grantee stating that the Grantee reasonably believes that the Trust is
insolvent.
The principal place of business of the Trust is c/o First Union Trust
Company, National Association, One Rodney Square, 920 King Street, 1st Floor,
Wilmington, Delaware 19801 and its telephone number is (302) 888-7532.
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 September 10, 1998 for the principal 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) 450-2435.
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 statements
of the Grantee are included as an exhibit to this Prospectus.
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<PAGE>
MANAGERS AND OFFICERS
In accordance with the Amended and Restated Limited Liability Company
Agreement of the Grantee, the management of the Grantee shall be vested entirely
in the Management Committee.
The following is a list of the managers of the Grantee. All such persons
have served in the capacities set forth below since September 10, 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>
Elizabeth S. Eldridge....................................................... 32 Manager
Douglas K. Johnson.......................................................... 41 Manager
Daniel L. Mortland.......................................................... 49 Manager
Cynthia G. Steward.......................................................... 40 Manager
Eric B. Weekes.............................................................. 46 Manager
</TABLE>
Elizabeth S. Eldridge is a Manager of the Grantee. From 1995 to the present,
Ms. Eldridge has held the position of Vice President of AMACAR Group, LLC, a
firm specializing in securitization consulting and services support. Prior to
that, from 1993 to 1995, Ms. Eldridge was an Assistant Vice President at First
Union National Bank specializing in securitization transactions.
Douglas K. Johnson is a Manager of the Grantee. From 1995 to the present,
Mr. Johnson has held the position of Chief Executive Officer of AMACAR Group,
LLC, a firm specializing in securitization consulting and services support. From
1994 to 1995, Mr. Johnson was Managing Director of the Asset Securitization
Department of First Union Capital Markets. Prior to that, from 1990 to 1994, Mr.
Johnson was Managing Director of the Asset-Backed Markets Division of First
Chicago NBD where he managed the distribution of asset-backed transactions.
Daniel L. Mortland is a Manager of the Grantee. Mr. Mortland has been
employed by Illinois Power since 1979. He has held the position of Assistant
Treasurer since January 1994. Prior to being appointed Assistant Treasurer, he
held positions as Director--Financial Planning and Administrator--Financial
Planning.
Cynthia G. Steward is a Manager of the Grantee. Ms. Steward has been
employed by Illinois Power since 1980. She has held the position of Controller
since September 1995. Prior to being elected Controller, Ms. Steward held
positions as Manager of Employee Services and Director of Accounting.
Eric B. Weekes is a Manager of the Grantee. Mr. Weekes is Treasurer of
Illinois Power and has held that position since January 1997. Prior to being
employed by Illinois Power, Mr. Weekes was employed by a unit of Kraft Foods as
Director of Financial Analysis, Budgets and Controls. Prior to being employed by
Kraft Foods, Mr. Weekes was employed by General Foods and Subsidiary companies
in several financial management positions.
No compensation has been paid by the Grantee to any officer or manager of
the Grantee since the Grantee was formed. The managers and any officers of the
Grantee, other than the two managers who are independent from Illinois Power
(the "Independent Managers"), 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 both of the Independent Managers will be $7,500. Any officer
will serve in such capacity at the discretion of Illinois Power, as the sole
member of the Grantee. 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
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<PAGE>
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" and collectively, the "Reporting
Customer Classes"): 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, 35 and 37 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. 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, 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" and collectively, the "IFC Customer
Classes") 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
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<PAGE>
Illinois Power also set forth below. See "Description of the Intangible
Transition Property--Adjustments to IFC Charges."
<TABLE>
<CAPTION>
PERCENTAGE OF
1996 BASE RATE
IFC CUSTOMER CLASS DESCRIPTION REVENUES
- -------------------------------------------- ------------------------------- -----------------
<S> <C> <C>
Residential................................. SC 2 and 3 43.7%
Small Commercial............................ SC 10, 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 Factor Firm............ SC 24 and 26 15.2%
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 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
nine months of 1998 and each of the five (5) preceding years. Any updated
information relating to the table below will be set forth in a Prospectus
Supplement. There can be no assurances that
75
<PAGE>
the electricity sales, billed revenues, number of customers, average billed
revenues per kilowatt hour or the composition of any of the foregoing will
remain at or near the levels reflected in the following table:
BILLED ELECTRICITY SALES, BILLED REVENUES AND CUSTOMERS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998(2)
------------ ------------ ------------ ------------ ------------ -------------
<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 3,879,362
Commercial........................ 3,264,855 3,583,456 3,785,633 3,876,383 3,919,311 3,086,398
Industrial........................ 8,153,278 8,621,879 8,655,006 8,398,830 8,442,601 6,526,052
Municipal......................... 316,626 345,734 366,990 367,033 367,893 285,908
------------ ------------ ------------ ------------ ------------ -------------
Total........................... 16,334,904 17,085,670 17,552,227 17,413,663 17,434,003 13,777,720
BILLED REVENUES ($000S):
Residential....................... 442,611 467,777 497,669 483,708 490,035 383,722
Commercial........................ 255,764 296,795 318,731 316,341 327,466 253,257
Industrial........................ 340,957 370,824 387,966 356,985 381,339 282,859
Municipal......................... 23,954 25,014 25,553 25,151 25,863 20,130
------------ ------------ ------------ ------------ ------------ -------------
Total........................... 1,063,286 1,160,410 1,229,919 1,182,185 1,224,703 939,968
AVERAGE NUMBER OF CUSTOMERS:
Residential....................... 499,366 494,156 490,727 495,855 497,085 504,745
Commercial........................ 56,801 56,378 56,180 56,792 57,041 58,304
Industrial(1)..................... 409 340 249 254 251 251
Municipal......................... 717 2,978 4,655 4,735 4,786 4,930
------------ ------------ ------------ ------------ ------------ -------------
Total........................... 557,293 553,852 551,811 557,636 559,163 568,230
AVERAGE BILLED REVENUE
(CENTS PER KILOWATT-HOUR):
Residential....................... 9.62 10.32 10.49 10.14 10.42 9.89
Commercial........................ 7.83 8.28 8.42 8.16 8.36 8.21
Industrial........................ 4.18 4.30 4.48 4.25 4.52 4.33
Municipal......................... 7.57 7.24 6.96 6.85 7.03 7.04
------------ ------------ ------------ ------------ ------------ -------------
</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.
(2) Data is available for January 1, 1998 through September 30, 1998.
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 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.
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<PAGE>
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
(based on Illinois Power's rates in effect immediately prior to January 1,
1998), 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........................................................ 8.28 CENTS
Small Commercial................................................... 9.85 CENTS
Large Commercial................................................... 7.44 CENTS
Municipal.......................................................... 8.85 CENTS
Industrial Firm.................................................... 5.79 CENTS
Industrial High Load Factor Firm................................... 4.60 CENTS
Industrial Non-Firm................................................ 1.41 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 0.301 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 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 Revenue 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 an independent economic forecasting and
consulting firm employed by Illinois Power separately from any transaction
contemplated by this
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<PAGE>
Prospectus 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. In addition, Illinois Power will use its annual sales forecast to
determine the appropriate levels of IFC Charges from time to time. As a result,
Illinois Power's ability to accurately predict energy consumption may affect the
timing of IFC Payments.
The table below shows annual variances for forecasts prepared by Illinois
Power for the following year. 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. Any updated information relating to the table below will be set forth in
a Prospectus Supplement. 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.
<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 3,775,756
Actual..................... 4,600,145 4,534,601 4,744,598 4,771,417 4,704,198 3,879,362
Variance................... 1.30% (1.50%) 1.14% 0.97% (1.74%) 2.74%
COMMERCIAL
Forecast................... 3,170,922 3,306,498 3,709,448 3,832,250 3,930,531 2,883,435
Actual..................... 3,264,855 3,583,456 3,785,633 3,876,383 3,919,311 3,086,398
Variance................... 2.96% 8.38% 2.05% 1.15% (0.29%) 7.04%
INDUSTRIAL
Forecast................... 8,725,107 8,651,994 8,541,865 8,359,181 8,515,235 6,353,810
Actual..................... 8,153,278 8,621,879 8,655,006 8,398,830 8,442,601 6,526,052
Variance................... (6.55%) (0.35%) 1.32% 0.47% (0.85%) 2.71%
MUNICIPAL
Forecast................... 340,331 320,744 348,259 356,847 379,566 387,926
Actual..................... 316,626 345,734 366,990 367,033 367,893 285,908
Variance................... (6.97%) 7.79% 5.38% 2.85% (3.08%) (26.30%)
TOTAL
Forecast................... 16,777,555 16,882,717 17,290,625 17,273,825 17,612,878 13,400,927
Actual..................... 16,334,904 17,085,670 17,552,227 17,413,663 17,434,003 13,777,720
Variance................... (2.64%) 1.20% 1.51% 0.81% (1.02%) 2.81%
</TABLE>
- ------------------------
(1) Data is available from January 1, 1998 through September 30, 1998.
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.
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<PAGE>
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. Illinois Power will agree, in each Grant Agreement
and the Servicing Agreement, not to initiate any such changes which are likely
to materially and adversely affect Illinois Power's ability to make timely
recovery of amounts billed to Customers, except 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. As of December 1, 1998, approximately 58% of Illinois Power's
electric service customers also received 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. Under Illinois Power's current
procedures, Customer payments are deposited in Illinois Power's bank accounts
and posted to customer accounts within one business day after receipt if payment
is made directly to Illinois Power and within two business days after receipt if
payment is made to a third-party collection agent of Illinois Power. 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 be
subject to agreements with agencies administering the Low Income Home Energy
Assistance Fund which limits 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 due date of the final bill. 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.
Subject to the restrictions of the Grant Agreement and the Servicing
Agreement, 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.
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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 nine 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. Any updated information relating to the table below
will be set forth in a Prospectus Supplement. 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.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998(1)
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BILLED REVENUES ($000S):
Residential......................... $ 442,611 $ 467,777 $ 497,669 $ 483,708 $ 490,035 $ 383,722
Commercial.......................... 255,764 296,795 318,731 316,341 327,466 253,257
Industrial.......................... 340,957 370,824 387,966 356,985 381,339 282,859
Municipal........................... 23,954 25,014 25,553 25,151 25,863 20,130
------------ ------------ ------------ ------------ ------------ -------------
Total........................... $ 1,063,286 $ 1,160,410 $ 1,229,919 $ 1,182,185 $ 1,224,703 $ 939,968
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998(1)
--------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET ELECTRIC UNCOLLECTIBLES ($000S):
Residential........................................ $ 2,973 $ 5,267 $ 4,111 $ 5,135 $ 4,425 $ 3,253
Commercial......................................... 426 859 461 621 557 323
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 $ 3,576
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998(1)
--------- --------- --------- --------- --------- -----------------
<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% 0.85%
Commercial.............................................. 0.17% 0.29% 0.14% 0.20% 0.17% 0.13%
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% 0.38%
</TABLE>
- ------------------------
(1) Data is available for January 1, 1998 through September 30, 1998.
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When accounts are billed final, most bills are due 21 days later. If unpaid
after such 21-day period, a series of letters will be issued and the account
reported to Illinois Power's skip tracing program for internal and external
matching. If still unpaid after 90 days since the bill issue date, the account
will be written off and automatically referred to a collection agency.
On a monthly basis, net write-offs are simply the gross write offs for the
month, less recoveries (payments and adjustments) for that month. Although for
the most part, the write-offs are accounts that have reached the 90-day point
during any particular month, recoveries, while received during such month, could
be for accounts charged off in any previous period.
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 six months of 1998. The table shows the portion of
amounts billed by Reporting Customer Class that remained uncollected 30 days, 60
days, 90 days, 120 days, 150 days and 180 days after billing. 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. Any updated information relating to the table below
will be set forth in a Prospectus Supplement. 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(1) 1995 1996 1997 1998(2)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Percentage of Residential Billings not Collected within:
30 days..................................................... 26.58% 25.61% 26.34% 26.34% 24.91%
60 days..................................................... 13.01% 13.63% 14.66% 14.19% 13.43%
90 days..................................................... 8.11% 8.65% 9.42% 8.59% 7.94%
120 days.................................................... 5.30% 5.64% 5.99% 5.20% 4.48%
150 days.................................................... 3.55% 3.86% 3.96% 3.37% 2.86%
180 days.................................................... 2.49% 2.81% 2.86% 2.47% 2.26%
Percentage of Commercial Billings not Collected within:
30 days..................................................... 9.84% 8.61% 9.90% 11.32% 11.36%
60 days..................................................... 3.16% 2.85% 3.24% 2.83% 2.63%
90 days..................................................... 1.51% 1.31% 1.50% 1.25% 1.21%
120 days.................................................... 0.82% 0.66% 0.80% .62% 0.64%
150 days.................................................... 0.59% 0.45% 0.58% .43% 0.48%
180 days.................................................... 0.53% 0.37% 0.52% .39% 0.45%
Percentage of Industrial Billings not Collected within:
30 days..................................................... 4.07% 3.58% 3.85% 3.69% 2.59%
60 days..................................................... 0.97% 1.79% 1.82% 1.35% 1.61%
90 days..................................................... 0.45% 1.10% 1.19% .80% 1.44%
120 days.................................................... 0.38% 0.75% 1.01% .47% 0.80%
150 days.................................................... 0.37% 0.60% 0.95% .30% 0.40%
180 days.................................................... 0.37% 0.56% 0.95% .20% 0.30%
</TABLE>
- ------------------------
(1) Data is for July, 1994 through December, 1994.
(2) Data is for January, 1998 through June, 1998.
During the period shown above, Illinois Power's delinquency experience for
electric billings showed no discernible trend.
YEAR 2000 ISSUES--YEAR 2000 READINESS DISCLOSURE
Illinois Power uses various software, systems and technology throughout its
businesses that will be affected by the date change in the Year 2000. In
November 1996, Illinois Power deployed a Year 2000 project team to coordinate
the identification, evaluation and implementation of changes to computer systems
and applications necessary to achieve a Year 2000 date conversion with no effect
on customers or disruption to business operations. As of October 31, 1998,
Illinois Power had inventoried 99% of its systems and applications and estimated
that its assessment efforts were approximately 95% complete and that its
implementation efforts were approximately 34% complete. The schedule for the
implementation of the Year 2000 ready software and systems contemplates that
critical software and systems will be Year 2000 ready by mid-year 1999.
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 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. Illinois Power is in the process of verifying its
computerized billing system for Year 2000 readiness and expects that its billing
system will be
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Year 2000 ready by the end of 1999. Additionally, Illinois Power is upgrading or
remediating certain software and engineering systems in its nuclear and fossil
electricity generation facilities and in its electrical and 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 achieving Year 2000 compliance by 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 $20.4
million through 1999. The amount expensed as of October 31, 1998 was $6.4
million.
Illinois Power has begun the process of developing contingency plans to
address the most reasonably likely worst case scenarios that could occur in the
event that various Year 2000 issues are not resolved in a timely manner.
Contingency planning is an ongoing process and is expected to continue through
the fourth quarter of 1999 as plans are reviewed and refined.
A failure to correct any critical Year 2000 processing problems prior to
January 1, 2000 could have material adverse operational and financial
consequences if the affected systems either cease to function or produce
erroneous data. For example, the Year 2000 issues 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. This could result in significant delays in IFC
Collections and, therefore, payments to Noteholders. The Year 2000 issues could
also affect usage by Customers if there are problems with the generation or
distribution of electricity which could cause the amount of Applicable Rates
from which IFC Charges will be deducted to be materially decreased or delayed.
See "Risk Factors--Reduction in Amount of Revenue from Applicable Rates."
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. In the
Servicing Agreement, the Servicer will agree to continue to impose IFC Charges
(or equivalent amounts), collect IFC Charges (or equivalent amounts), and remit
IFC Charges (or equivalent amounts) in accordance with the Servicing Agreement
and to ensure that the IFC Charges (or equivalent amounts) are deducted from
Illinois Power's Applicable Rates and other charges in accordance with the Basic
Documents until the retirement of the Notes, unless expressly prohibited by law,
court or regulatory order. Under current law, no assurance can be given that the
Servicer is authorized to act in accordance with such agreement if the
applicable Transitional Funding Order is no longer in effect. However, in the
Grant Agreement Illinois Power has agreed to indemnify the Noteholders for
certain losses which may result if Illinois Power is unable to continue to
impose or collect IFC Charges or equivalent amounts.
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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. However, in any Billing Period in which the total IFC
Charge to be billed to a Customer exceeds the amount of Applicable Rates for
which the Customer would otherwise be billed, the Servicer will only bill such
Customer an IFC Charge equal to the amount of Applicable Rates which the
Customer would otherwise be billed. 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.
Unless the Servicer is not the provider of electric service to Customers, 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 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 of, reversal or supplement to or judicial invalidation of, 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." The Servicer also will undertake to make
filings or initiate ICC proceedings to ensure that the dollar amount of
authorized Intangible Transition Property is adequate for the payment in full of
the Notes.
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,
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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;
(e) make all required submissions and provide all required notifications with
the ICC with respect to adjustments to the IFC Charges as described below
herein; (f) maintain facilities sufficient to enable the Servicer to post IFC
Payments to Customer accounts within two Servicer Business Days of receipt by
the Servicer; and (g) continue to impose and collect all IFC Charges (as
adjusted from time to time), deduct IFC Charges and equivalent amounts from
Applicable Rates and remit such amounts to the Trust (each such action unless
otherwise prohibited by applicable law or judicial or regulatory order in effect
at such time) notwithstanding any repeal or amendment of the Amendatory Act;
PROVIDED, HOWEVER, that under current law, no assurance can be given that the
Servicer is authorized to so act if the applicable Transitional Funding Order is
no longer in effect; PROVIDED, FURTHER, 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 the
applicable amounts 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 "Description of the Intangible
Transition Property--The Transitional Funding Order Issued at the Request of
Illinois Power Company."
The Servicer will indemnify, defend and hold harmless the Grantee, the
Trust, 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, gross negligence or reckless disregard
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 all IFC Payments to the Collection Account within two
Servicer Business Days of collection (each, a "Daily Remittance Date") unless
the Monthly Remittance Conditions are met, in which case the Servicer will remit
to the Collection Account on the tenth day of each month, or if such day is not
a Servicer Business Day, on the next Servicer
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Business Day (each such monthly date, a "Monthly Remittance Date"), all IFC
Payments collected by the Servicer during the immediately preceding Billing
Period (the "Monthly IFC Amount"). For these purposes, an IFC Payment will be
deemed to be collected by the Servicer when it is posted by the Servicer to the
customer's account. In accordance with the Servicer's current procedures for
processing customer payments, such posting occurs within one business day after
receipt if payment is made directly to Illinois Power and within two business
days after receipt if payment is made to a third-party collection agent of
Illinois Power.
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 Applicable Rates 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 the 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.
ALTERNATIVE RETAIL ELECTRIC SUPPLIERS AND OTHER THIRD-PARTY COLLECTORS
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 to be 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
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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 the
IFC Charges), (b) impose commercially reasonable terms with respect to audit 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 of
the Utility (I.E., Illinois Power) providing the delivery services and a listing
of the charges applicable to these services.
In addition, 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. 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 collector 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. 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, 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. 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. In the Servicing Agreement, the Servicer
will agree to implement procedures and policies to ensure that the remittance
obligations of ARES and other third-party collection agents are properly
enforced, including maintaining adequate records and information about such ARES
or third-party collectors, monitoring the performance of and payments by such
ARES or third-party collectors, enforcing the obligations of such ARES or
third-party collectors and implementing appropriate credit and collection
policies. 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 ARES or other third-party collection agents who simply forward
payments on behalf of Customers and not pursuant to contractual arrangements
with Illinois Power or pursuant to consolidated billing procedures. See "Risk
Factors--Potential Servicing Issues--Possible Payment Delays Caused by Reliance
on Alternative Retail Electric Suppliers and Other Third-Party Collectors."
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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); (g) the
calculations and assumptions used by the Servicer in calculating the IFC Charges
in effect from time to time are reasonable and made in good faith; and (h)
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.
STATEMENTS BY SERVICER
On or before the tenth day of each month, or, if such day is not a Servicer
Business Day, on the next Servicer Business Day, 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
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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 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 Servicer may perform its duties through agents or by
delegating them to a third party, but, in any event, the Servicer shall remain
liable for the performance of its duties and its obligations under the Servicing
Agreement. Unless expressly reimbursable under the Servicing Agreement, the fees
and expenses of any such agent or third party shall be paid by the Servicer.
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
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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 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 Trust, with the Grantee'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--Possible
Adverse Effect on Noteholders as a Result of the 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 Trust 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.
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
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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.
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.
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. Although all material
terms of the Notes and the Indenture have been disclosed in this Prospectus,
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
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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 and Acquisition of Subsequent Intangible Transition Property."
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 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 material 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 and the identity of any Swap Counterparty
related thereto.
The Notes do not constitute a debt, liability or other obligation of the
State of Illinois or of any political subdivision, agency or instrumentality
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."
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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 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 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 (including the Servicing Fee and Administration Fee), (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--Uncertainties Associated with Unusual Asset Type" 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 then due with respect thereto (other
than Special Payments, as defined in the Indenture) or, in the case of Floating
Rate Notes, 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.
At such time, if any, as the Notes of any Series 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
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$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 no later than five days prior
to such final payment date, 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, Chicago, Illinois, or Charlotte, North Carolina,
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 IFC Collections, 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."
NO THIRD-PARTY CREDIT ENHANCEMENT
It is not currently anticipated that the Notes will have the benefit of any
third-party credit enhancement, such as guarantees, letters of credit, insurance
or the like. If, however, any Series of Notes is to be issued with any
third-party credit enhancement, it will be set forth in the related Prospectus
Supplement.
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 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.
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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.
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.
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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.
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 and certain other
organizations and may include any underwriters, agents or dealers
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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 "Material
United States Federal Tax Consequences." 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 Series 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
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and depository with respect to the Book-Entry Notes of such Series 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, the 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 Series, 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 certain 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 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 for cash on any Payment Date on or prior to December 31, 2004
using proceeds received from the issuance of any additional Series or Class of
Notes (the "New Notes"). The New Notes will be payable solely out of the
Intangible Transition Property and other Note Collateral and will have no more
than a PARI PASSU lien thereon vis-a-vis all existing Series of Notes. In
addition, a Series of Notes shall be subject to redemption if and to the extent
provided in the related Prospectus Supplement.
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 in all instances of optional redemptions permitted by the
Indenture upon payment of the outstanding principal amount of the Notes to be
redeemed and accrued but unpaid interest thereon as of the date of redemption.
Notice of such redemption will be given by the Trust to the Indenture Trustee
and the Rating Agencies not less than 25 days nor more than 50 days prior to the
date of redemption, and written notice
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shall also be given to each holder of Notes to be redeemed, by first-class mail,
postage prepaid, mailed not less than five days nor more than 25 days prior to
the applicable date of redemption.
CONDITIONS OF ISSUANCE OF ADDITIONAL SERIES AND ACQUISITION OF SUBSEQUENT
INTANGIBLE TRANSITION PROPERTY
The Trust's acquisition of Subsequent Intangible Transition Property and the
issuance of any additional Series of Notes with respect thereto 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 such Subsequent Intangible Transition Property to the Trust
and a filing required by 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 transactions;
(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 such Subsequent Intangible
Transition Property, 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 any 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 any 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.
SECURITY INTEREST IN NOTE COLLATERAL
CREATION AND PERFECTION OF SECURITY INTEREST IN INTANGIBLE TRANSITION
PROPERTY 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
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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 the Intangible
Transition Property."
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--Possible Adverse
Effect on Noteholders as a Result of the Bankruptcy of Illinois Power, the
Grantee or the Trust."
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. In addition, the Grantee will pledge in the Sale
Agreement to make any filings necessary under the UCC to perfect the lien of the
Indenture Trustee in the Note Collateral.
SECURITY INTEREST IN ADDITIONAL NOTE COLLATERAL
Certain items of the Note Collateral do not constitute Intangible Transition
Property and the perfection of the Indenture Trustee's security interest in such
items of Note Collateral is, therefore, subject to the UCC or common law and not
Section 18-107 of the Act. These items consist of the rights of the Trust in (a)
any Grant Agreement, any Sale Agreement or the Servicing Agreement, (b) the
Capital Subaccount or any other funds on deposit in the Collection Account which
do not constitute IFC
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Collections, (c) any interest rate exchange agreements, and (d) proceeds of the
foregoing items. Additionally, any contractual rights of the Trust against
Customers (other than the right to impose instrument funding charges as defined
in the Funding Law and rights otherwise included in the definition of intangible
transition property) would be collateral to which the UCC applies. As a
condition to the issuance of any Series of Notes, the Trust shall have made all
filings and taken any other action required by the UCC or common law to perfect
the lien of the Indenture Trustee in all such items included in the Note
Collateral which do not constitute Intangible Transition Property, and will
covenant to take all actions necessary to maintain or preserve such lien and
security interest on a first priority basis. Each of the Grantee and the Trust
will represent, at the time of issuance of any Series of Notes, that no prior
filing has been made with respect to such party under the terms of the UCC,
other than a filing which provides the Indenture Trustee with a first priority
perfected security interest in such Note Collateral on a parity basis with that
securing any outstanding Notes.
DESCRIPTION OF INDENTURE ACCOUNTS
COLLECTION ACCOUNT. Pursuant to the Indenture, a segregated trust account
(the "Collection Account") will be established by the Trust 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) (i) which 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").
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 IFC Payments to the Collection Account in the manner
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
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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, including any amounts payable by the
Trust to a Swap Counterparty under the terms of a Swap Agreement.
RESERVE SUBACCOUNT. IFC Collections available with respect to any Payment
Date in excess of amounts necessary to make the Specified Payments 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 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 the persons entitled thereto,
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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 payment in full of all outstanding Series of Notes,
the balance, if any, will be released to the Trust.
If on any Payment Date funds on deposit in the General Subaccount are
insufficient to make the payments 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
such payments in full. 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 payments
contemplated by clauses (e), (f) and (g) above, such funds will be allocated
among the various Series and Classes pro rata, as specified in the related
Prospectus Supplement.
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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 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.
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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 material
information for the purposes of such Noteholder's preparation of Federal and
state income tax returns. See "Material United States Federal Tax Consequences."
SUPPLEMENTAL INDENTURES
The Trust and the Indenture Trustee may, from time to time, and without the
consent of the Noteholders of any Series (but with prior notice to the Rating
Agencies), 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.
The Trust and the Indenture Trustee may also, without the consent of the
Noteholders, enter into one or more other agreements supplemental to the
Indenture so long as such supplemental agreement does not, as evidenced by an
opinion of counsel, adversely affect the interests of any Noteholders in any
material respect and the Rating Agency Condition shall have been satisfied with
respect thereto.
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, (d) permit the creation of any lien on the
Note Collateral ranking prior to or on a parity with the lien of the Indenture,
or (e) 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 of Columbia, (b) such entity expressly assumes by an
indenture supplemental to the Indenture 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
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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, (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 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
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) 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.
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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 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.
The Trust will cause the Servicer to deliver to the Indenture Trustee the
annual accountant's certificates, compliance certificates, reports regarding
distributions and statements to Noteholders required by the Servicing Agreement.
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 for such Series; (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 written 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 written 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.
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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, 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 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
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holders have offered the Indenture Trustee satisfactory indemnity, (d) the
Indenture Trustee has for 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, each of the Indenture Trustee, the Noteholders and 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. Notwithstanding the
foregoing, each Noteholder shall be allowed to institute suit for the
non-payment of (a) the interest, if any, on its Notes which remains unpaid as of
the applicable due date and (b) the unpaid principal, if any, of such Notes on
the Final Maturity Date therefor.
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.
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
The following discussion is a summary of material United States federal
income and estate tax consequences 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.
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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. The discussion below assumes
that the Notes are held as capital assets within the meaning of Section 1221 of
the Code.
IT IS RECOMMENDED THAT 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, (a) the Trust's
issuance of the Notes will not result in gross income to Illinois Power and (b)
the Notes will be obligations of Illinois Power. Illinois Power has received
such a ruling with respect to the Notes to be issued in accordance with the
Initial TFO. 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 be 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.
The discussions below under "Tax Consequences to United States Noteholders,"
"Tax Consequences to Non-United States Noteholders" and "Backup Withholding and
Information Reporting" are accurate in all material respects as to matters of
law and legal conclusions and, to the extent such discussions constitute matters
of law or legal conclusions, they are based on the opinion of Mayer, Brown &
Platt.
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), (c)
an estate the income of which is subject to United States federal income
taxation regardless of its source, or (d) a trust described in Section
7701(a)(30) of the Code (taking into account changes thereto and associated
effective dates, elections and transition rules). 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
Section1.1275-5(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 their issue price by more than a statutory
DE MINIMIS amount (I.E., 0.25% of the principal amount of a Note multiplied by
its weighted average maturity), the Notes should not be issued with "original
issue discount." If the stated principal amount of a Note exceeds its issue
price by an amount that is less than or equal to such DE MINIMIS amount, the
excess generally will be taken into income by a United States Noteholder as gain
from the retirement of a Note (as described below under "--Sale, Exchanges,
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Redemption or Retirement of the Notes"), in proportion to principal payments
made on the Notes. A United States Noteholder may elect to treat all interest on
a Note as original issue discount. If such an election is made, the excess of a
Note's stated principal amount over its issue price would not be treated as DE
MINIMIS and would be taken into income on a constant yield basis under the rules
applicable to accrual of original issue discount.
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 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, increased by any
OID previously included by such Noteholder in income with respect to such Note
and 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 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 it is recommended that
prospective purchasers of the Notes 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
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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, generally, 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, 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
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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 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 (which such agent does not actually know to be false)
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 (which such broker does not actually know to be
false) 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. 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
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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. IT IS RECOMMENDED
THAT PROSPECTIVE PURCHASERS 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.
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.
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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.--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.
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.
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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) 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 the 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 Use 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 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
119
<PAGE>
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 issuance of the Notes will be passed
upon for the Trust by Schiff Hardin & Waite, Chicago, Illinois and for the
Underwriters by Brown & Wood LLP, New York, New York. Certain legal matters
relating to the United States federal tax consequences of the issuance of the
Notes will be passed upon for the Trust by Mayer, Brown & Platt, Chicago,
Illinois. Certain legal matters relating to the Trust will be passed upon for
the Trust by Richards, Layton & Finger, P.A., Wilmington, Delaware.
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 and Illinois Power Special
Purpose Trust as of December 2, 1998 and for the period from December 1, 1998
(date of inception) through December 2, 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.
120
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
DEFINED TERM DEFINED ON PAGE
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
1997 Final Regulations........................................................................... 114
Act.............................................................................................. 9
Adjustment Date.................................................................................. 18, 58
Adjustments...................................................................................... 18
Administration Agreement......................................................................... 11
Administration Fee............................................................................... 106
Administrator.................................................................................... 11
Amendatory Act................................................................................... 9, 46
Amendatory Tariff................................................................................ 18
Annual Accountant's Report....................................................................... 89
Applicable Rates................................................................................. 16, 56
ARES............................................................................................. 49
Basic Documents.................................................................................. 108
Beneficiary Trustee.............................................................................. 12
Billing Period................................................................................... 24, 87
Book Entry Note.................................................................................. 26
Book-Entry Notes................................................................................. 26
Business Day..................................................................................... 95
Capital Subaccount............................................................................... 22, 103
Cede............................................................................................. 3
CEDEL............................................................................................ 96
CEDEL Participants............................................................................... 97
Class............................................................................................ 1, 12
Code............................................................................................. 27, 112
Collection Account............................................................................... 103
Commission....................................................................................... 2
Cooperative...................................................................................... 98
Customers........................................................................................ 16
Daily Remittance Date............................................................................ 86
Definitive Notes................................................................................. 98
Delaware Trustee................................................................................. 1, 12
Depositaries..................................................................................... 96
DTC.............................................................................................. 3
Duff & Phelps.................................................................................... 42
Eligible Institution............................................................................. 103
Eligible Investments............................................................................. 103
ERISA............................................................................................ 27
Euroclear........................................................................................ 96
Euroclear Operator............................................................................... 98
Euroclear Participants........................................................................... 98
Event of Default................................................................................. 20, 109
Exchange Act..................................................................................... 3
Excluded Amounts................................................................................. 16, 56
Exemptions....................................................................................... 118
Expected Amortization Schedule................................................................... 20
Expected Maturity Date........................................................................... 93
FDIC............................................................................................. 103
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM DEFINED ON PAGE
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
FERC............................................................................................. 36
Final Maturity Date.............................................................................. 19, 93
Financial Institution............................................................................ 114
Fitch............................................................................................ 42
Floating Rate Notes.............................................................................. 13
Funding Law...................................................................................... 9
General Subaccount............................................................................... 23, 103
Grant Agreement.................................................................................. 9
Grant Agreements................................................................................. 9
Grantee.......................................................................................... 12
ICC.............................................................................................. 9
IFC Charges...................................................................................... 15
IFC Collections.................................................................................. 12
IFC Customer Class............................................................................... 74
IFC Customer Classes............................................................................. 74
IFC Payments..................................................................................... 15, 55
IFC Tariff....................................................................................... 10
Illinois Power................................................................................... 9
Illinova......................................................................................... 11
Indenture........................................................................................ 12, 92
Indenture Trustee................................................................................ 14
Independent Managers............................................................................. 73
Indirect Participants............................................................................ 26
Initial Intangible Transition Property........................................................... 58
Initial TFO...................................................................................... 54
Intangible Transition Property................................................................... 15
IRS.............................................................................................. 111
Lost Revenue Recoveries.......................................................................... 87
Monthly IFC Amount............................................................................... 87
Monthly Remittance Conditions.................................................................... 42
Monthly Remittance Date.......................................................................... 24, 86
Monthly Servicer's Certificate................................................................... 89
Moody's.......................................................................................... 42
New Notes........................................................................................ 21, 99
Non-United States Noteholder..................................................................... 113
Note Interest Rate............................................................................... 93
Noteholders...................................................................................... 3, 111
Notes............................................................................................ 1, 9
Operating Expenses............................................................................... 13
Overcollateralization Amount..................................................................... 23, 104
Overcollateralization Subaccount................................................................. 22, 103
Participants..................................................................................... 26
Parties in Interest.............................................................................. 118
Payment Date..................................................................................... 18, 93
Plan Asset Regulations........................................................................... 118
Plan Assets...................................................................................... 117
Plans............................................................................................ 117
PTCE............................................................................................. 118
Qualified Intermediaries......................................................................... 114
Quarterly Interest............................................................................... 106
</TABLE>
122
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM DEFINED ON PAGE
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Rating Agency.................................................................................... 14
Rating Agency Condition.......................................................................... 44, 93
Reconciliation Period............................................................................ 18
Record Date...................................................................................... 19
Reporting Customer Class......................................................................... 74
Reporting Customer Classes....................................................................... 74
Required Capital Level........................................................................... 23, 104
Required Overcollateralization Level............................................................. 104
Reserve Subaccount............................................................................... 22, 103
Rules............................................................................................ 97
S&P.............................................................................................. 42
Sale Agreement................................................................................... 9
Sale Agreements.................................................................................. 9
SC............................................................................................... 74
Scheduled Payment................................................................................ 20, 94
Securities Act................................................................................... 2
Series........................................................................................... 1, 12
Series Issuance Date............................................................................. 24, 86, 93
Servicer......................................................................................... 11
Servicer Business Day............................................................................ 24, 79
Servicer Defaults................................................................................ 90
Servicing Agreement.............................................................................. 10
Servicing Fee.................................................................................... 26
Servicing Standard............................................................................... 24
Specified Payments............................................................................... 10
State Pledge..................................................................................... 18
Subsequent Intangible Transition Property........................................................ 58
Subsequent Transfer Date......................................................................... 58
Successor Servicer............................................................................... 91
Swap Agreement................................................................................... 10, 95
Swap Counterparty................................................................................ 95
Terms and Conditions............................................................................. 98
TIN.............................................................................................. 115
Transitional Funding Order....................................................................... 14, 54
Trust............................................................................................ 1, 12
Trust Agreement.................................................................................. 1, 12
Trustees......................................................................................... 71
UCC.............................................................................................. 42
Underwriters..................................................................................... 119
United States Noteholder......................................................................... 112
Utilities........................................................................................ 9
Utility.......................................................................................... 9
</TABLE>
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
123
<PAGE>
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Financial Statements of the Grantee......................................................................... F-2
Report of Independent Accountants......................................................................... F-3
Statement of Operations................................................................................... F-4
Balance Sheet............................................................................................. F-5
Statement of Changes in Member's Equity................................................................... F-6
Statement of Cash Flows................................................................................... F-7
Notes to Financial Statements............................................................................. F-8
Financial Statements of the Trust........................................................................... F-10
Definitions............................................................................................... F-11
Report of Independent Accountants......................................................................... F-12
Statement of Operations................................................................................... F-13
Balance Sheet............................................................................................. F-14
Statement of Changes in Member's Equity................................................................... F-15
Statement of Cash Flows................................................................................... F-16
Notes to Financial Statements............................................................................. F-17
</TABLE>
F-1
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
(A DELAWARE LIMITED LIABILITY COMPANY WHOSE SOLE MEMBER IS ILLINOIS POWER
COMPANY)
FINANCIAL STATEMENTS
AS OF SEPTEMBER 11, 1998
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
F-2
<PAGE>
[PricewaterhouseCoopers LLP Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Member of Illinois Power
Securitization Limited Liability Company
September 15, 1998
In our opinion, the accompanying balance sheet and the related statements of
operations and change 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 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.
/s/ PricewaterhouseCoopers LLP
F-3
<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>
<S> <C>
Revenues........................................................................... $ --
Expenses........................................................................... $ --
---------
Net Income (Loss).................................................................. $ --
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
BALANCE SHEET
SEPTEMBER 11, 1998
<TABLE>
<S> <C>
ASSETS
Total Assets....................................................................... $ --
---------
---------
LIABILITIES AND MEMBER'S EQUITY
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-5
<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>
<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-6
<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>
<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-7
<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 proceedings 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 Transitional 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 nonbypassable,
usage-based, per kilowatt-hour charges to be imposed on designated consumers of
electricity.
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.
F-8
<PAGE>
ILLINOIS POWER SECURITIZATION LIMITED LIABILITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(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.
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>
ILLINOIS POWER SPECIAL PURPOSE TRUST
(A DELAWARE BUSINESS TRUST)
FINANCIAL STATEMENTS
AS OF DECEMBER 2, 1998
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
F-10
<PAGE>
DEFINITIONS
The following terms are used in the following Financial Statements with the
following meanings:
<TABLE>
<CAPTION>
TERM MEANING
- ------------------ ----------------------------------------------------------------------------------------------
<S> <C>
IPS............... Illinois Power Securitization Limited Liability Company, a Delaware limited liability company,
whose sole member is Illinois Power
Illinois Power.... Illinois Power Company, a wholly-owned subsidiary of Illinova
Funding Law....... The Illinois Electric Utility Transitional Funding Law of 1997
IFC............... Instrument Funding Charges
Notes............. Transitional Funding Trust Notes
Servicer.......... Responsible for Servicing, Managing and Receiving IFC Payments for a Servicing Fee
Transitional Illinois Commerce Commission order, dated September 10, 1998, issued pursuant to the Funding
Funding Order..... Law, which provides, among other things, for the creation of intangible transition property
Trust............. Illinois Special Purpose Trust, a Delaware business trust
Illinova.......... Illinova Corporation
</TABLE>
F-11
<PAGE>
[PricewaterhouseCoopers LLP Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owner of Illinois Power
Special Purpose Trust
December 3, 1998
In our opinion, the accompanying balance sheet and the related statements of
operations and changes in owner's equity and of cash flows present fairly, in
all material respects, the financial position of Illinois Power Special Purpose
Trust at December 2, 1998, and the results of its operations and its cash flows
for the period from December 1, 1998 (date of inception) through December 2,
1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Trust'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.
/s/ PricewaterhouseCoopers LLP
F-12
<PAGE>
ILLINOIS POWER SPECIAL PURPOSE TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 1, 1998 (DATE OF INCEPTION) TO DECEMBER 2, 1998
<TABLE>
<CAPTION>
<S> <C>
Revenues.............................................................................................. $ --
Expenses.............................................................................................. $ --
----------
Net Income (Loss)..................................................................................... $ --
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
ILLINOIS POWER SPECIAL PURPOSE TRUST
BALANCE SHEET
DECEMBER 2, 1998
<TABLE>
<S> <C>
ASSETS
Total Assets...................................................................... $ --
---------
---------
LIABILITIES AND OWNER'S EQUITY
Owner's Equity...................................................................... $ 1,000
Less: Equity Contribution Due from Illinois Power Securitization
Limited Liability Company................................................... 1,000
---------
Total Liabilities and Member's Equity............................................. $ --
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
ILLINOIS POWER SPECIAL PURPOSE TRUST
STATEMENT OF CHANGES IN OWNER'S EQUITY
FOR THE PERIOD FROM DECEMBER 1, 1998 (DATE OF INCEPTION) TO DECEMBER 2, 1998
<TABLE>
<CAPTION>
Owner's Equity at Inception........................................................ $ --
<S> <C>
Add: Contributed Equity.......................................................... 1,000
Less: Equity Contribution Due from Illinois Power Securitization Limited
Liability Company........................................................ 1,000
---------
Owner's Equity at End of Period.................................................... $ --
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
ILLINOIS POWER SPECIAL PURPOSE TRUST
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 1, 1998 (DATE OF INCEPTION) TO DECEMBER 2, 1998
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
<S> <C>
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-16
<PAGE>
ILLINOIS POWER SPECIAL PURPOSE TRUST
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements include the accounts of Illinois Power Special
Purpose Trust (Trust), a special purpose Delaware business trust, whose sole
owner is Illinois Power Securitization Limited Liability Company (IPS). IPS is a
special purpose Delaware limited liability company, whose sole member is
Illinois Power (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. The Trust was formed on
December 1, 1998, for the exclusive purpose of issuing Transitional Funding
Trust Notes (Notes) and will remit the proceeds to IPS in consideration for the
transferring of IPS' interest in the intangible transition property (described
below). IPS, in turn, will remit the net proceeds to IP in consideration for the
intangible transition property that will be vested in IPS. 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 the
Trust, 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 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 assets of the Trust will consist of the intangible
transition property and the other collateral, including capital transferred by
IPS in an amount specified in the Prospectus Supplement which will be sufficient
to meet certain requirements of the indenture between the Trust and the
indenture trustee. IP anticipates that the Notes will be issued sometime in the
fourth quarter of 1998.
The Trust was organized for 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 proceedings 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 Transitional Funding Order issued by the ICC to IP on
September 10, 1998, including, without limitation, the right, title and interest
to impose and receive instrument funding charges (IFC). IFC's are
non-bypassable, usage-based, per kilowatt-hour charges to be imposed on
designated consumers of electricity.
2. SUMMARY OF ACCOUNTING POLICIES
(A) GENERAL
The Trust follows the accrual method of accounting. The Trust will pay
its own operating expenses and liabilities from its own separate assets.
Administrative and general expenses incurred by IP on behalf of the Trust
will be reimbursed by the Trust in accordance with the Administration
Agreement approved by the ICC.
(B) UNAMORTIZED ISSUANCE EXPENSE IN CONNECTION WITH THE NOTES
The unamortized issuance expenses in connection with the Notes will be
amortized over the life of the Notes.
F-17
<PAGE>
ILLINOIS POWER SPECIAL PURPOSE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(C) INCOME TAXES
As a special purpose business trust, the member of IPS intends for the
Trust, IPS, and IP to be treated as a single entity for tax purposes.
Income and losses are passed through to the member of IPS 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.
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 Adjustments and performing related services. Such servicing fees
shall be paid to the Servicer from the IFC collections.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH THEY RELATE OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SUCH SECURITIES IN ANY JURISDICTIONS IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ILLINOIS POWER
SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Reports to Holders............................. S-3
Prospectus Supplement Summary.................. S-4
Description of the Offered Notes............... S-14
Description of the Intangible Transition
Property..................................... S-17
The Servicer................................... S-19
Servicing...................................... S-19
Material United States Federal Tax
Consequences................................. S-20
Underwriting................................... S-21
Ratings........................................ S-22
Legal Matters.................................. S-22
Index of Principal Definitions................. S-23
PROSPECTUS
Available Information.......................... 2
Reports to Holders............................. 3
Incorporation of Certain Documents by
Reference.................................... 3
Prospectus Supplement.......................... 4
Table of Contents.............................. 5
Prospectus Summary............................. 9
Risk Factors................................... 29
Electric Industry Restructuring in Illinois.... 46
Description of the Intangible Transition
Property..................................... 50
Certain Payment, Weighted Average Life and
Yield Considerations......................... 70
The Trust...................................... 71
The Grantee.................................... 72
The Servicer................................... 74
Servicing...................................... 84
Description of the Notes....................... 92
Security for the Notes......................... 101
Material United States Federal Tax
Consequences................................. 111
ERISA Considerations........................... 117
Use of Proceeds................................ 119
Plan of Distribution........................... 119
Ratings........................................ 120
Legal Matters.................................. 120
Experts........................................ 120
Index of Principal Definitions................. 121
Index of Financial Statements.................. F-1
</TABLE>
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[$864,000,000]
ILLINOIS POWER SPECIAL PURPOSE TRUST
TRANSITIONAL FUNDING
TRUST NOTES,
SERIES 1998-1
$ CLASS A-1 % NOTES
$ CLASS A-2 % NOTES
$ CLASS A-3 % NOTES
$ CLASS A-4 % NOTES
$ CLASS A-5 % NOTES
$ CLASS A-6 % NOTES
$ CLASS A-7 % NOTES
ILLINOIS POWER COMPANY
SERVICER
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
ABN AMRO INCORPORATED
A.G. EDWARDS & SONS, INC.
J.P. MORGAN & CO.
LOOP CAPITAL MARKETS, LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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........................ $ 240,192
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 manager or other person from
and against any and all claims and demands whatsoever. Section 10.1 of the
Amended and Restated Limited Liability Company Agreement of the Grantee provides
that the Grantee 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 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 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.
II-1
<PAGE>
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.
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.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
**3.1 Certificate of Formation of the Registrant.
3.2 Amended and Restated Limited Liability Company Agreement of the
Registrant.
4.1 Declaration of Trust of the Trust.
**4.2 Form of Transitional Funding Trust Note.
**4.3 Form of Indenture.
5.1 Opinion of Schiff Hardin & Waite relating to the legality of the
Transitional Funding Trust Notes.
5.2 Opinion of Richards, Layton & Finger, P.A.
8.1 Opinion of Mayer, Brown & Platt with respect to material federal tax
matters.
**10.1 Form of Sale Agreement.
**10.2 Form of Grant Agreement.
**10.3 Form of Servicing Agreement.
**10.4 Form of Administration Agreement.
*10.5 Form of Remediation Agreement.
23.1 Consent of Schiff Hardin & Waite (included in Exhibit 5.1).
23.2 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2).
23.3 Consent of Mayer, Brown & Platt (included in Exhibit 8.1).
23.4 Consent of PricewaterhouseCoopers LLP with respect to the Registrant.
23.5 Consent of PricewaterhouseCoopers LLP with respect to the Trust.
**24.1 Power of Attorney with respect to the Registrant (included on page II-5 of
Amendment No. 1 to the Registration Statement).
24.2 Power of Attorney with respect to the Trust (included on page II-5 of this
Amendment No. 2).
**25 Form T-1.
**99.1 Application for Transitional Funding Order.
**99.2 Transitional Funding Order.
99.3 Internal Revenue Service Private Letter Ruling pertaining to the Notes.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
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
II-3
<PAGE>
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 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) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering hereof.
II-4
<PAGE>
(f) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the Indenture 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, as amended, the
Registrant and the Trust each certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and that
the security rating requirement of Form S-3 will be met by the time of sale, and
has duly caused this Amendment No. 2 of the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Decatur, State of Illinois, on this 3rd day of December, 1998.
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
By: /s/ ELIZABETH S. ELDRIDGE*
-----------------------------------------
Elizabeth S. Eldridge
MANAGER
By: /s/ DOUGLAS K. JOHNSON*
-----------------------------------------
Douglas K. Johnson
MANAGER
By: /s/ DANIEL L. MORTLAND*
-----------------------------------------
Daniel L. Mortland
MANAGER
By: /s/ CYNTHIA G. STEWARD
-----------------------------------------
Cynthia G. Steward
MANAGER
By: /s/ ERIC B. WEEKES
-----------------------------------------
Eric B. Weekes
MANAGER
ILLINOIS POWER SPECIAL
PURPOSE TRUST
By: /s/ CYNTHIA G. STEWARD
-----------------------------------------
Cynthia G. Steward, BENEFICIARY TRUSTEE
By: /s/ ERIC B. WEEKES
-----------------------------------------
Eric B. Weekes, BENEFICIARY TRUSTEE
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
above signing on behalf of the Trust constitutes and appoints Eric B. Weekes as
his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any Registration
Statement filed pursuant to Rule 462(b) of the Securities Act prepared in
connection therewith, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as full to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ELIZABETH S. ELDRIDGE*
- ------------------------------ Manager December 3, 1998
Elizabeth S. Eldridge
/s/ DOUGLAS K. JOHNSON*
- ------------------------------ Manager December 3, 1998
Douglas K. Johnson
/s/ DANIEL L. MORTLAND*
- ------------------------------ Manager December 3, 1998
Daniel L. Mortland
/s/ CYNTHIA G. STEWARD
- ------------------------------ Manager December 3, 1998
Cynthia G. Steward
/s/ ERIC B. WEEKES
- ------------------------------ Manager December 3, 1998
Eric B. Weekes
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ERIC B. WEEKES
-------------------------
Eric B. Weekes
ATTORNEY-IN-FACT
(Pursuant to Powers of
Attorney previously filed
as Exhibits to this
Registration Statement)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
- ------------------------------------------------------------------------------------- -------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
**3.1 Certificate of Formation of the Registrant.
3.2 Amended and Restated Limited Liability Company Agreement of the
Registrant.
4.1 Declaration of Trust of the Trust.
**4.2 Form of Transitional Funding Trust Note.
**4.3 Form of Indenture.
5.1 Opinion of Schiff Hardin & Waite relating to the legality of the
Transitional Funding Trust Notes.
5.2 Opinion of Richards, Layton & Finger, P.A.
8.1 Opinion of Mayer, Brown & Platt with respect to material federal tax
matters.
**10.1 Form of Sale Agreement.
**10.2 Form of Grant Agreement.
**10.3 Form of Servicing Agreement.
**10.4 Form of Administration Agreement.
*10.5 Form of Remediation Agreement.
23.1 Consent of Schiff Hardin & Waite (included in Exhibit 5.1).
23.2 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2).
23.3 Consent of Mayer, Brown & Platt (included in Exhibit 8.1).
23.4 Consent of PricewaterhouseCoopers LLP with respect to the Registrant.
23.5 Consent of PricewaterhouseCoopers LLP with respect to the Trust.
**24.1 Power of Attorney with respect to the Registrant (included on page II-5 of
Amendment No. 1 to the Registration Statement).
24.2 Power of Attorney with respect to the Trust (included on page II-5 of this
Amendment No. 2).
**25 Form T-1.
**99.1 Application for Transitional Funding Order.
**99.2 Transitional Funding Order.
99.3 Internal Revenue Service Private Letter Ruling pertaining to the Notes.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
A DELAWARE LIMITED LIABILITY COMPANY
THIS AMENDED AND RESTATED 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 December 2, 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 December 2, 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) and has entered into a Limited Liability Company Agreement to set
forth certain rights, powers and interests of the Sole Member and to provide
for the management of the business and operations of the Company; and
WHEREAS, in accordance with the Act, the Sole Member desires to
enter into this Agreement to amend and restate the terms of the Limited
Liability Company Agreement and 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 Amended and
Restated Limited Liability Company Agreement of the Company, as amended,
modified, supplemented or restated from time to time in accordance with this
Agreement.
"BANKRUPTCY"shall mean, with respect to any Person (as defined in
Section 18-101(12) of the Act), if such Person (i) makes an assignment for
the benefit of creditors, (ii) files a voluntary petition in bankruptcy,
(iii) is adjudged a bankrupt or insolvent, or has entered against it an order
for relief, in any bankruptcy or insolvency proceeding, (iv) files a petition
or answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute,
law or regulation, (v) files an answer or other pleading admitting or failing
to contest the material allegations of a petition filed against it in any
proceeding of this nature, or (vi) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the Person or of all or
any substantial part of its properties, or if 120 days after the commencement
of any proceeding against the Person seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any statute, law or regulation, if the proceeding has not been dismissed, or
if within 90 days after the appointment without such Person's consent or
acquiescence of a trustee, receiver or liquidator of such Person or of all or
any substantial part of its properties, the appointment is not vacated or
stayed, or within 90 days after the expiration of any such stay, the
appointment is not vacated. The foregoing definition of "Bankruptcy" is
intended to replace and shall supersede and replace the definition of
"Bankruptcy" set forth in Sections 18-101(1) and 18-304 of the Act.
"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.
"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 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.
2
<PAGE>
"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 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
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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.
"MANAGEMENT COMMITTEE" shall mean a committee composed of not
less than three nor more than five individuals, at least two of whom at all
times upon or prior to the acquisition by the Company of Intangible
Transition Property must qualify as an Independent Manager. At all times
after the acquisition by the Company of Intangible Transition Property, 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 two Independent Managers 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.
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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.
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") 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 to execute any registration statement, offering
document or related agreements or disclosures related to the issuance of
transitional funding instruments or other instruments by such trusts; 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
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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 Managers, 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, including any registration statement, offering
document or related agreements or disclosures related to the issuance of
transitional funding instruments or other instruments by the trusts described
in Section 2.3(d) herein, 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 Managers, 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.
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, and the Sole Member and the
Management Committee on behalf of 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.
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(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
taken, and maintaining accurate and separate books, records and accounts,
including, but not limited to, payroll and intercompany transaction
accounts.
(g) At all times vest the management of the Company in the
Management Committee and, from and after the entry into any Sale Agreement
and the acquisition of any Intangible Transition Property, ensure that its
Management Committee shall at all times include at least two Independent
Managers.
(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
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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, 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 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;
(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 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 Managers, 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.
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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. The
existence of the Company as a separate legal entity shall continue
until the cancellation of the Certificate as provided in the Act.
3.2 CONTINUATION. Notwithstanding any provision of this Agreement,
the Bankruptcy of any Member will not cause the 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(b) of the Act to agree in writing to dissolve the Company,
including upon the occurrence of the Bankruptcy of any 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.
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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.
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. Except to the extent set forth in this
Agreement, 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. Notwithstanding
the last sentence of Section 18-402 of the Act, except as provided
in this Agreement, a Manager may not bind
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the Company. Prior to the entry into any Sale Agreement and the
acquisition of any Intangible Transition Property, the Sole
Member shall appoint two Independent Managers. In the event that
an 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 Managers annual fees totaling not less than
$3,500 per year. Each Manager, including each 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, no Independent Manager may resign as a Manager of the
Company without the consent of the Sole Member.
6.3 DUTIES OF MANAGERS. 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
Managers, in respect of any decision on any matter referred to in
Section 2.7 shall be owed solely to the Company (including its
creditors) and not to the Members or any other holders of equity
interest in the Company as may exist at such time. Each Manager
shall execute and deliver the Management Agreement.
6.4 REMOVAL OF MANAGERS. A Manager (including the Independent
Managers) may be removed, at any time, with or without cause, upon
the written election of the Sole Member.
6.5 QUORUM: ACTS OF THE MANAGEMENT COMMITTEE. At all meetings of the
Management Committee, a majority of the Managers shall constitute a
quorum for the transaction of business and, except as otherwise
provided in any other provision of this Agreement, the act of a
majority of the Managers present at any meeting at which there is a
quorum shall be the act of the Management Committee. If a quorum
shall not be present at any meeting of the Management Committee,
the Managers present at such meeting may adjourn the meeting from
time to time, without notice other than announcement at the
meeting, until a quorum shall be present. Any action required or
permitted to be taken at any meeting of the Management Committee or
any committee thereof may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing,
setting forth the action so taken shall be signed by the Managers
having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting. Unless
otherwise provided in the Agreement, on any matter that is to be
voted on by Managers, the Managers may vote in person or by proxy.
6.6 OFFICERS. The Sole Member may, from time to time as it deems
advisable, appoint officers of the Company (the "Officers") and
assign in writing titles (including, without limitation, President,
Vice President, Secretary and Treasurer) to any such
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person. Unless the Sole Member decides otherwise, if the title is
one commonly used for officers of a business corporation formed
under the Delaware General Corporation Law the assignment of such
title shall constitute the delegation to such person of the
authorities and duties that are normally associated with that
office. Any delegation pursuant to this Section 6.6 may be
revoked at any time by the Sole Member. The Officers shall be
those individuals listed on SCHEDULE 6.6 from time to time
attached hereto. The Sole Member may revise SCHEDULE 6.6 in its
sole discretion at any time.
ARTICLE 7
DISSOLUTION, LIQUIDATION AND WINDING-UP
7.1 DISSOLUTION. The Company shall continue until dissolved and its
affairs shall be wound up upon the occurrence of the earliest of
the following events:
(a) subject to Section 2.7, the election to dissolve the Company
made in writing by the Sole Member and each Manager, including without
limitation the Independent Managers, 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
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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.
7.5 ORDER OF PAYMENT OF LIABILITIES UPON DISSOLUTION. After satisfying
creditors, including the Members and Managers who are creditors, to
the extent otherwise permitted or required by law (whether by
payment or the making of reasonable provisions for payment), 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 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. To the extent permitted by applicable law, no Manager or
Officer shall be personally liable to the Company for monetary
damages for breach of the duty of care as an Officer or a Manager
for any act or omission.
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.
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(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 Managers. Upon admission of the transferee as 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
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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 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 Managers.
(b) The Company's power to alter, amend or repeal the
Certificate shall be vested in the Sole Member. 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 notice purposes under Section 9.1) 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.
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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 MANAGERS. 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, valid and
binding agreement of the Sole Member, and is enforceable against
the Sole Member by the Independent Managers in accordance with its
terms. The Independent Managers are intended beneficiaries 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
16
<PAGE>
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 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.
17
<PAGE>
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 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
18
<PAGE>
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.
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]
19
<PAGE>
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
<PAGE>
SCHEDULE 6.6
OFFICERS
None.
<PAGE>
EXHIBIT A
NOTICE ADDRESS OF SOLE MEMBER
<TABLE>
<S> <C>
NAME OF MEMBER NOTICE ADDRESS
Illinois Power Company 500 South 27th Street
Decatur, Illinois 62525
Attn: Treasury Department
</TABLE>
<PAGE>
EXHIBIT B
MANAGEMENT AGREEMENT
December __, 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 (as
defined in the LLC Agreement) of Illinois Power Securitization Limited
Liability Company, a Delaware limited liability company (the "Company") in
accordance with the Amended and Restated Limited Liability Company Agreement
of the Company, dated as of December 2, 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 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
DECLARATION OF TRUST
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ILLINOIS POWER SPECIAL PURPOSE TRUST
DECLARATION OF TRUST
Dated as of December 1, 1998
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION
As Delaware Trustee
Cynthia G. Steward and Eric B. Weekes
As Beneficiary Trustees
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
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 . . . . . . . . . . . . . . . . . . . . . . . . .4
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. . . . . . . . . . . . .5
SECTION 3.3 Documents Relating to Sale Agreements. . . . . . . . . . . . . .5
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. . . . . .8
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. . . . . . . . . . . . . . . . . . . . 13
SECTION 5.6 Representations and Warranties . . . . . . . . . . . . . . . . 14
SECTION 5.7 Reliance: Advice of Counsel. . . . . . . . . . . . . . . . . . 15
SECTION 5.8 Trustees May Own Notes . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.9 Compensation and Indemnity . . . . . . . . . . . . . . . . . . 16
SECTION 5.10 Replacement of a Trustee . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 5.11 Merger or Consolidation of Delaware Trustee. . . . . . . . . . 18
SECTION 5.12 Appointment of Co-Trustee or Separate Trustee. . . . . . . . . 18
SECTION 5.13 Eligibility Requirements for Delaware Trustee. . . . . . . . . 19
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 . . . . . . . . . . . . . . . . . . . . . . 22
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
</TABLE>
ii
<PAGE>
THIS IS A DECLARATION OF TRUST, dated as of December 1, 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 Cynthia G. Steward and Eric B. Weekes,
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 special purpose Delaware 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, subject to
the rights 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 on behalf of the Trust 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, 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.
<PAGE>
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 Trust's Issuance
Certificate pursuant to the Indenture and any supplemental indenture or
Trust'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 Trust'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
<PAGE>
(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, subject to the rights of the Holders under the
Indenture, 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);
(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; and
(c) the Grantee shall be the sole beneficial owner of the Trust, such
beneficial ownership to be evidenced by the maintenance of the Certificate
Register, as provided by SECTION 5.1(h) below.
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.
3
<PAGE>
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.
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 the State of 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
4
<PAGE>
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.
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, Trust'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 on behalf of the Trust all
agreements, documents,
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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, 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.
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(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.
(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.
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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.
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.
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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, subject to the rights of the Holders
of Notes under the Basic Documents and the provisions of this Declaration.
No implied covenants or obligations shall be read into this Declaration.
(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
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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 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 its 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
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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, but shall not be
obligated, 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 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
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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;
(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
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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 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,
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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 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.
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(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.
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
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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
Servicer, 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 Servicer, 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) 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.
(b) The Servicer shall, to the fullest extent permitted by 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(b).
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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
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
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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 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:
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(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.
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
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<PAGE>
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) The Trust shall dissolve 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; (iii) judicial termination of the Trust; or (iv) if the Grantee so
elects, the day following the date on which the aggregate Outstanding
Amount of the Notes is zero (any such date of dissolution under (i)-(iv)
being the "Trust Termination Date"). Unless otherwise dissolved in
accordance with the provisions of this Section 6.1(a), the term of the
Trust shall be perpetual.
(b) To the extent permitted by applicable law and except as provided
in Section 6.1(a) of this Declaration, 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 after satisfaction of all
creditors of the Trust as provided by law, and, upon the Grantee's request,
shall be distributed by the Indenture Trustee or the Delaware Trustee to
the Grantee.
(d) Upon the completion of 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.
After such cancellation of the Certificate of Trust, this Declaration
(other than SECTION 5.9) shall terminate.
SECTION 6.2 [RESERVED].
20
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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 Cynthia G. Steward and Eric B.
Weekes, c/o 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; 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
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<PAGE>
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) 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 Trust'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.
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(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 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.
23
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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: /s/ Edward L. Truitt, Jr.
-----------------------------------
Name: Edward L. Truitt, Jr.
-----------------------------------
Title: Vice President
-----------------------------------
BENEFICIARY TRUSTEES:
/s/ Cynthia G. Steward
-----------------------------------------
Name: Cynthia G. Steward
/s/ Eric B. Weekes
-----------------------------------------
Name: Eric B. Weekes
Acknowledged, accepted and agreed
on this 1st day of December, 1998.
ILLINOIS POWER SECURITIZATION
LIMITED LIABILITY COMPANY
By: /s/ Eric B. Weekes
-------------------------
Name: Eric B. Weekes
Title: Manager
24
<PAGE>
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 December __, 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 December __, 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: __________________________________
-----------------------------------------
Cynthia G. Steward, as Beneficiary Trustee
-----------------------------------------
Eric B. Weekes, as Beneficiary Trustee
<PAGE>
EXHIBIT 5.1
OPINION OF SCHIFF HARDIN & WAITE
[SCHIFF HARDIN & WAITE LETTERHEAD]
December 2, 1998
Illinois Power Special Purpose Trust
c/o Illinois Power Company
500 South 27th Street
Decatur, IL 62521
Re: ILLINOIS POWER SPECIAL PURPOSE TRUST
Ladies and Gentlemen:
We have acted as counsel to Illinois Power Company, an Illinois
corporation (the "Company"), Illinois Power Securitization Limited Liability
Company, a special purpose Delaware limited liability company ("IPS") and
Illinois Power Special Purpose Trust, a Delaware business trust (the
"Trust") in connection with the Registration Statement on Form S-3, as
amended to the date hereof (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Trust's Transitional
Funding Trust Notes (the "Notes") to be offered and sold from time to time as
described in the form of preliminary Prospectus and preliminary Prospectus
Supplement (collectively, the "Prospectus") included as part of the
Registration Statement. Capitalized terms used in this letter and not
defined have the meanings given to them in the Prospectus.
We are familiar with the proceedings taken and proposed to be taken by
the Company, IPS and the Trust, in connection with the proposed
authorization, issuance and sale of the Notes by the Trust. In this
connection, we have examined and relied upon such records and other
documents, instruments and certificates and have made such other
investigation as we deemed appropriate as the basis for the opinions set
forth below. In our examination we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of documents submitted to us as certified, conformed or photostatic copies
and the authenticity of such original documents. We have relied, as to
matters of Delaware law, upon the opinion of even date of Richards, Layton &
Finger, P.A., special Delaware counsel to the Company, the Trust and IPS,
which opinion is also being filed as an exhibit to the Registration Statement.
<PAGE>
Illinois Power Special Purpose Trust
December 2, 1998
Page 2
The opinions expressed below are based on the following assumptions:
(a) The Registration Statement will have become effective under the
Securities Act, and a Prospectus Supplement to the Prospectus, describing the
terms of the Notes, will have been filed with the Commission pursuant to Rule
424 under the Securities Act;
(b) The proposed transactions will have been carried out on the basis
set forth in the Registration Statement and in conformity with the
authorizations, approvals, consents or exemptions under the securities laws
of various states and other jurisdictions of the United States and the
authorizations contained in the Transitional Funding Order dated September
10, 1998 issued by the Illinois Commerce Commission in Docket No. 98-0488;
(c) Prior to the issuance of any Notes:
(i) all tariffs required to be filed pursuant to the Funding Law and
the Transitional Funding Order relating to the IFC charges relating
to the Intangible Transition Property will have been filed with the
ICC and become effective, and the Transitional Funding Order will
remain valid and in effect;
(ii) the Indenture will have been executed and delivered by the
Trust's authorized representative and Harris Trust and Savings Bank,
as trustee;
(iii) the maturity dates, the interest rates, the redemption
provisions and the other terms of the Notes being offered will have
been fixed in accordance with the provisions of the Indenture;
(iv) the Grant Agreement between the Company and IPS will have been
executed and delivered;
(v) the Sale Agreement between the Trust and IPS will have been
executed and delivered; and
(vi) the Servicing Agreement and the Administration Agreement, each
between the Company and IPS, will have been executed and delivered.
(d) The Indenture will have been qualified in accordance with the
provisions of the Trust Indenture Act of 1939, as amended.
Based on and subject to the foregoing, we are of the opinion that the
Notes will be legally issued, valid and binding obligations of the Trust,
subject to applicable bankruptcy, insolvency,
<PAGE>
Illinois Power Special Purpose Trust
December 2, 1998
Page 3
fraudulent conveyance, reorganization, moratorium or other similar laws now
or hereafter in effect relating to or affecting creditors' rights generally
and to general principles of equity, at such time as the Notes are properly
executed, authenticated, delivered and paid for as provided in the Indenture
and upon satisfaction of all conditions contained in the Indenture and the
Underwriting Agreement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the references to us under the captions "Risk
Factors -- Legal Challenges Which Could Adversely Affect Noteholders; --
Possible Payment Delays or Losses as a Result of Amendment or Repeal of
Amendatory Act or Breach of State Pledge" and "Legal Matters" in the
Prospectus contained in the Registration Statement.
Very truly yours,
SCHIFF HARDIN & WAITE
By: /s/ Robert J. Regan
---------------------
Robert J. Regan
RJR:mk
<PAGE>
EXHIBIT 5.2
OPINION OF RICHARDS,
LAYTON & FINGER
[RICHARDS, LAYTON & FINGER LETTERHEAD]
December 2, 1998
Illinois Power Special Purpose Trust
c/o Illinois Power Company
500 South 27th Street
Decatur, Illinois 62521
RE: ILLINOIS POWER SPECIAL PURPOSE TRUST
Ladies and Gentlemen:
We have acted as special Delaware counsel for Illinois Power
Company, an Illinois corporation (the "Company"), Illinois Power Special
Purpose Trust, a Delaware business trust (the "Trust"), and Illinois Power
Securitization Limited Liability Company, a Delaware limited liability
company (the "LLC"), in connection with the matters set forth herein. At
your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as of December 1,
1998 (the "Certificate"), as filed in the office of the Secretary of State of
the State of Delaware (the "Secretary of State") on December 1, 1998;
(b) The Declaration of Trust of the Trust, dated as of December 1,
1998 (the "Trust Agreement"), among the trustees of the Trust named therein,
and to be acknowledged, accepted and agreed to by the LLC;
(c) The Registration Statement on Form S-3 relating to the Trust
Notes (as defined below), as filed by the LLC with the Securities and
Exchange Commission on September 16, 1998;
(d) Amendment No. 1 to the Registration Statement on Form S-3
relating to the Trust Notes, as filed by the LLC with the Securities and
Exchange Commission on October 23, 1998;
(e) Amendment No. 2 to the Registration Statement (as amended, the
"Registration Statement") on Form S-3, including a preliminary prospectus
(the "Prospectus") and prospectus supplement (the "Prospectus Supplement"),
relating to the Transitional Funding Trust Notes, Series 1998-1 of the Trust
(the "Trust Notes"), as proposed to be filed by the LLC with the Securities
and Exchange Commission on or about December 3, 1998;
<PAGE>
(f) A form of Indenture, to be entered into between the Trust and
the trustee named therein, attached as an exhibit to the Registration
Statement pursuant to which the Trust Notes are to be issued: and
(g) A Certificate of Good Standing for the Trust, dated December
2, 1998, obtained from the Secretary of State.
Capitalized terms used herein and not otherwise defined are used as
defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in paragraphs (a) through (g) above, which we
believe are all of the documents necessary or appropriate for us to have
considered for the purposes of the opinions stated herein. In particular, we
have not reviewed any document (other than the documents listed in paragraphs
(a) through (g) above) that is referred to in or incorporated by reference
into the documents reviewed by us. We have assumed that there exists no
provision in any document that we have not reviewed that is inconsistent with
the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the
additional matters recited or assumed herein, all of which we have assumed to
be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i)
the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement and the Certificate are in full force and effect and have not been
amended, (ii) except to the extent provided in paragraph 1 below, that each
party to documents examined by us has been duly created, organized or formed,
as the case may be, and is validly existing in good standing under the laws
of the jurisdiction governing its creation, organization or formation, (iii)
the legal capacity of natural persons who are parties to the documents
examined by us, (iv) except to the extent provided in paragraph 2 below, that
each of the parties to the documents examined by us has the power and
authority to execute and deliver, and to perform its obligations under, such
documents, and (v) except to the extent provided in paragraph 3 below, that
each of the documents examined by us has been duly authorized, executed and
delivered by all parties thereto. We have not participated in the
preparation of the Registration Statement (other than Exhibits 5.2 and 23.2
thereto) and assume no responsibility for its contents (other than Exhibits
5.2 and 23.2 thereto).
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our
opinions are rendered only with respect to Delaware laws and rules,
regulations and orders thereunder that are currently in effect.
<PAGE>
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in
good standing as a business trust under Delaware law.
2. Under the Business Trust Act and the Trust Agreement, the
Trust has all necessary trust power and authority to execute and deliver the
Indenture and to issue the Trust Notes, and to perform its obligations under
the Indenture and the Trust Notes.
3. Under the Business Trust Act and the Trust Agreement, the
execution and delivery by the Trust of the Indenture and the Trust Notes, and
the performance by the Trust of its obligations under the Indenture and the
Trust Notes, have been duly authorized by all necessary trust action on the
part of the Trust.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In
addition, we hereby consent to the use of our name under the heading "Legal
Matters" in the Prospectus and the Prospectus Supplement. We also consent to
Schiff Hardin & Waite's relying as to matters of Delaware law upon this
opinion in connection with its rendering of an opinion to be attached as an
exhibit to the Registration Statement. In giving the foregoing consents, we
do not thereby admit that we come within the category of Persons whose
consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. Except as stated above, without our prior written
consent, this opinion may not be furnished or quoted to, or relied upon by,
any other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
BJK/MVP/mvp
<PAGE>
EXHIBIT 8.1
OPINION OF MAYER, BROWN & PLATT
[MAYER, BROWN & PLATT LETTERHEAD]
December 3, 1998
Illinois Power Special Purpose Trust
c/o Illinois Power Company
500 South 27th Street
Decatur, Illinois 62521
Re: Offering of $864,000,000 Transitional Funding Trust Notes,
Series 1988-1 of Illinois Power Special Purpose Trust
Dear Ladies and Gentlemen:
We have acted as United States federal tax counsel to Illinois Power
Special Purpose Trust, a Delaware business trust ("Trust"), in connection
with the offer and sale by Illinois Power Special Purpose Trust of
$864,000,000 Transitional Funding Trust Notes Series 1998-1. You have
requested that we provide our opinion regarding the material tax consequences
disclosed in the prospectus and the prospectus supplement (collectively, the
"Prospectus") included as part of the registration statement (the
"Registration Statement") on Form S-3 (file no. 333-3537).
In providing this opinion, we have relied on (i) the description of the
transaction as set forth in the Prospectus, (ii) factual representations
provided by Illinois Power Company relating to its current and anticipated
operation, management, ownership and structure, (iii) factual representations
provided by the Trust relating to its current and anticipated operation,
management, ownership and structure, and (iv) factual representations
provided by Illinois Power Securitization Limited Liability Company relating
to its current and anticipated operation, management, ownership and
structure.
Based upon and subject to the foregoing, we confirm the specific
opinions set forth in the Prospectus under the captions "Prospectus Summary
- -- Taxation of the Notes," and "Material United States Federal Tax
Consequences", including those under the subcaptions "Tax Consequences to
United States Noteholders," "Tax Consequences to Non-United States
Noteholders," "Backup Withholding and Information Reporting," and "Prospectus
Supplement Summary -- Taxation of the Notes", and adopt those opinions as our
opinions regarding the material tax consequences of this transaction.
This opinion is based on current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury regulations promulgated
thereunder, the interpretation of
<PAGE>
Illinois Power Special Purpose Trust
December 3, 1998
Page 2
the Code and such regulations by the courts and the Internal Revenue Service,
as they are in effect and exist at the date of this opinion. It should be
noted that laws, regulations, judicial decisions and administrative
interpretations are subject to change at any time and, in some circumstances,
with retroactive effect. A material change that is made after the date
hereof in any of the foregoing bases for our opinion could adversely affect
our conclusion.
Sincerely,
/s/ Mayer, Brown & Platt
--------------------------
MAYER, BROWN & PLATT
WAS/br
<PAGE>
EXHIBIT 23.4
CONSENT OF PRICEWATERHOUSECOOPERS LLP
FOR THE REGISTRANT
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
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
December 3, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF PRICEWATERHOUSECOOPERS LLP
FOR THE TRUST
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 December 3, 1998,
relating to the financial statements of Illinois Power Special Purpose Trust,
which appears in such Prospectus. We also consent to the references to us
under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
December 3, 1998
<PAGE>
EXHIBIT 99.3
INTERNAL REVENUE SERVICE
PRIVATE LETTER RULING
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Index Numbers: Washington, DC 20224
61.00-00 61.03-00
61.43-00 451.01-00
Person to Contact:
William A. Schmalzl Thomas M. Preston
Mayer, Brown & Platt Telephone Number:
190 South LaSalle Street 202-622-4443
Chicago, Illinois 60603 Refer Reply To:
CC:DOM:FI&P:2/PLR-108491-98
Date:
September 30, 1998
Legend
Parent = Illinova Corporation
EIN: 37-1319890
Company = Illinois Power Company
EIN: 37-034465
Grantee = Illinois Power Securitization
Limited Liability Company
Issuer = Illinois Power Transitional Funding
Trust
State A = Illinois
State B = Delaware
Statute = Public Act 90-561
Notes = Transitional Funding Instruments
a = 1.634 billion
b = 864 million
c = 0.5
d = 5
Date 1 = December 31, 2008
Dear Mr. Schmalzl:
This letter is in reply to your letter dated April 1, 1998, and other
correspondence, asking the Internal Revenue Service to rule on the
transaction described below.
FACTS
Parent is the common parent of an affiliated group of corporations that
includes Company. Parent files a consolidated return for the group.
Company, a calendar year taxpayer that uses the accrual method of
accounting, is an investor-owned electric utility in State A. Company
generates, transmits, and distributes electricity to residential, commercial,
industrial, and governmental customers within a designated territory. Company
has a monopoly for providing electricity within its territory and
<PAGE>
-2-
is regulated by State A's public utility commission (PUC) and the Federal
Energy Regulatory Commission (FERC). Company maintains its accounts in
accordance with the uniform system of accounts prescribed by the PUC and FERC.
State A is deregulating its electric industry. As a result, Company's
customers will be allowed to contract directly with alternative suppliers of
electricity, and Company will compete with other parties to sell electricity.
To facilitate the transition to deregulation, the Statute's provisions enable
Company to lower its overall cost of capital and ensure its continued market
access to capital during the transition period by allowing Company to collect
nonbypassable charges from consumers of electricity located in Company's
territory. The charges will be based, in part, on the amount of electricity
purchased by the consumer, whether from Company or from an alternative
supplier.
Under Statute, Company is entitled, directly or indirectly through a
special-purpose entity called a "Grantee" to impose and collect a separate,
nonbypassable, usage-based charge called Instrument Funding Charges (IFCs)
and to cause securities to be issued that will be secured by Company's (or
the Grantee's) right to collect the IFCs. The IFCs will be collected from all
consumers. To establish the actual amount of IFCs that may be charged,
Company must apply for a financing order from the PUC.
Under a financing order, IFCs to be collected by Company will be
generally based on the actual electricity usage of each affected consumer.
Actual collection of IFCs will vary from expected collections due to a number
of factors including power usage and delinquencies. The financing order will
require the PUC to adjust, at least annually, the IFC charge. Under Statute,
the right to collect IFCs is a separate property right (Intangible Transition
Property or ITP).
PROPOSED TRANSACTION
The company has received from the PUC a Transitional Funding Order (TFO)
authorizing ITP in the amount of $a, which represents the maximum dollar
amount of IFCs which may be applied and invoiced over time without further
action by the PUC. The TFO also permits the sale of the Notes in an aggregate
principal amount not to exceed $b.
Company will form the Grantee under State B law as a bankruptcy remote,
limited liability company for the special purpose of effectuating the
Proposed Transaction. The Grantee will use the accrual method of accounting.
Company will be the sole member of the Grantee. The Issuer will be created as
a
<PAGE>
-3-
State B business trust, the sole beneficial owner of which will be the
Grantee. For federal income tax purposes, the Issuer and the Grantee are
expected to be treated as divisions of the Company and not as separate
entities. Neither the Grantee nor the Issuer will elect to be treated as an
association taxable as a corporation under section 301.7701-3(b)(1) of the
Procedure and Administration Regulations. Company will contribute, as equity
to the Grantee, cash equal to c percent of the total issue price of the
Notes. The Grantee will contribute that equity to the Issuer and the Issuer
will invest the equity in financial instruments that are issued by parties
unaffiliated with Company and that can be readily converted to cash.
Pursuant to the TFO, ITP in an amount in excess of the principal and
interest payable on the Notes and certain fees, expenses and other
transaction costs has been be granted to the Grantee. Company also requested
that the Transitional Funding Order, authorize both the assignment of the ITP
from the Grantee to the Issuer, and the issuance of the Notes by the Issuer.
The Issuer will issue and sell Notes to investors not to exceed the aggregate
principal amount of b. The proceeds from the issuance of the Notes, net of
issuance costs and any amounts deposited into an Overcollateralization
Subaccount, will be transferred to the Grantee in consideration for the ITP.
The Grantee will then transfer those proceeds to the Company in consideration
for the Company's actions in obtaining the PUC order creating and vesting the
ITP in the Grantee. The assets of the Issuer will consist of the ITP, any
swap or other hedging agreement executed solely to permit the issuance of
Notes bearing a floating rate of interest and other Note Collateral.
The Issuer will issue Notes to Investors in Series that will be divided
into classes, each with a different legal maturity date. Company expects that
the Notes will have scheduled maturity dates no later that Date 1, and final
maturity dates no later than two years beyond Date 1. Scheduled maturity is
the date on which the final principal payment is expected to be paid; legal
maturity is the date on which nonpayment is a default.
Interest on the Notes will be payable quarterly or semiannually at rates
that are based on yields commensurate with similarly rated debt obligations
of comparable weighted average lives. The Notes are expected to be sold at or
near par value. Principal payments will be scheduled to be made quarterly or
semiannually and will be applied in sequential order to each class of Notes
until the outstanding principal balance of the class is reduced to zero.
Scheduled principal payments for each quarter will be different, but the
total scheduled principal payments for each year will be approximately equal.
<PAGE>
-4-
The Notes will be subject to an optional "clean-up" call (i.e., early
payment of all outstanding principal and accrued interest) when the
outstanding principal of the series declines to d percent of the original
issue price of the series. Because the classes will be allocated principal
payments in sequential order, the clean-up call for the Notes will apply only
to the class with the longest maturity.
Initially, Company will service the consumer accounts that are subject
to the IFCs. As Servicer, Company will, on a monthly basis, bill and collect
IFCs, remit collected IFCs to Issuer, and retain all books and records
regarding the IFCs, subject to the Grantee's right of inspection. Company
will retain all investment income earned on the IFCs between the time they
are collected and the time they are remitted to Issuer. Only in the event
that Company fails satisfactorily to perform its servicing functions will
Company be subject to replacement as Servicer. Company's ability to resign as
Servicer will be restricted.
It is possible that alternate retail electric suppliers (ARES) may bill
and collect payments (including IFCs) from customers. In that event, the
Servicer will bill such ARES for the full amount of IFCs, based on the amount
of electricity delivered by the Company, and other charges owed to the
Company in its individual capacity. ARES may be required to take additional
steps designed to reduce commingling risks, including requiring a deposit or
to arrange for credit support from an appropriate institution or any other
steps the PUC may approve. Nonetheless, in all events, the amounts paid will
be based on electricity usage.
The IFCs will be set to provide for recovery of the costs associated
with billing and collecting the IFCs as well as for an excess amount
(Overcollateralization Amount) that will eventually reach c percent of the
original principal amount of the Notes. The Overcollateralization Amount will
be collected ratably over the expected term of the Notes.
Issuer will retain all remitted IFCs in the Collection Account, which
consists of four subaccounts entitled General, Reserve, Capital and
Overcallateralization. The General Subaccount holds all funds in the
Collection Account not held in any of the other three subaccounts. The
Servicer will remit all IFC payments to the General Subaccount and on each
Payment Date, the Trustee will draw on amounts in the General Subaccount to
pay expenses of the Issuer, and to make scheduled payments on the Notes and
to make other payments and transfers in accordance with the terms of the
Indenture. IFC collections in excess of amounts necessary to pay interest and
principal on the notes, related fees and expenses of the Issuer, replenish
the Capital Subaccount
<PAGE>
-5-
up to the required capital level, fund and maintain the Overcollateralization
Subaccount up to its required level, will be allocated to the Reserve
Subaccount.
If the IFCs collected in any period are insufficient to satisfy the
Issuer's payment obligations on the Notes, the Trustee may draw on amounts in
the general Subaccount, the Reserve Subaccount, the Overcollateralization
Subaccount, and finally, the Capital Subaccount to make necessary payments
and transfers under the Indenture. To the extent that amounts in the Capital
Subaccount or the Overcollateralization Subaccount are used to satisfy
scheduled principal and interest payments, future IFCs will be adjusted to
replenish those subaccounts.
Investment income earned on amounts in the Collection Account also may be
used to satisfy scheduled interest and principal payments on Notes and to
replenish the Grantee's equity and the scheduled Overcollateralization
Amount. Any excess earnings will be remitted to the Grantee, which may
distribute the earnings to Company quarterly.
The Notes will provide for the following events of default: (1) a default
of five days or more in the payment of accrued interest on any class of
Notes; (2) a default in the payment of outstanding principal as of the legal
maturity date; (3) a default in payment of the redemption price following an
optional clean-up call as of the redemption date; (4) certain breaches of
covenants, representations or warranties by the Issuer in the indenture under
which the Notes are issued; and (5) certain events of bankruptcy, insolvency,
receivership, or liquidation of the Issuer.
In the event of a payment default, the Trustee or holders of a majority
in principal amount of all series then outstanding may declare the principal
of all classes of the Notes to be immediately due and payable.
The Notes will be nonrecourse but will be secured by the ITP, the
Servicing Agreement, the Collection Account, any swap agreement executed
solely to permit the issuance of floating rate Notes, all rights to obtain
adjustments to the ITP, all present and future claims, demand causes, and
choses in action in respect of any or all of the foregoing (Note
Collateral). Company expects the Notes to receive the highest credit rating
from at least two nationally recognized credit rating agencies.
ISSUES
<PAGE>
-6-
Does the issuance of the PUC financing Order result in gross income to
Company?
Does the issuance of the Notes result in gross income to Company?
Are the Notes obligations of the Company?
LAW
Section 61 of the Internal Revenue Code generally defines gross income
as "income from whatever source derived", except as otherwise provided by
law. Gross income includes income realized in any form, whether in money,
property, or services. Section 1.61-1(a) of the Income Tax Regulations. This
definition encompasses all "accessions to wealth, clearly realized, and over
which the taxpayers have complete dominion," COMMISSIONER V. GLENSHAW GLASS
CO., 348 U.S. 426, 431 (1955), 1955-1 C.B. 207.
The right to collect the IFCs is of significant value in producing
income for Company, and State A's action in making the IFC rights
transferable has enhanced that value. Generally, the granting of a
transferable right by the government does not cause the realization of
income. Rev. Rul. 92-16, 1992-1 C.B. 15 (allocation of air emission rights by
the Environmental Protection Agency does not cause a utility to realize gross
income); Rev. Rul. 67-135, 1967-1 C.B. 20 (fair market value of an oil and
gas lease obtained from the government through a lottery is not includible in
income).
The economic substance of a transaction generally governs its federal
tax consequences. GREGORY V. HELVERING, 293 U.S. 465 (1935), XIV-1 C.B. 193.
Affixing a label to an undertaking does not determine its character. Rev.
Rul. 97-3, 1997-1 C.B. 9. An instrument secured by property may be an
obligation of the taxpayer or, alternatively, may be a disposition of the
underlying property by the taxpayer. CF. ID. (the Small Business
Administration is the primary obligor of certain guaranteed payment rights
that are created under its participating security program).
<PAGE>
-7-
CONCLUSIONS
Based on the facts as represented, we rule as follows:
(1) The issuance of the PUC financing order authorizing the collection
of the IFCs, will not result in gross income to Company.
(2) The issuance of the Notes will not result in gross income to the
Company.
(3) The Notes will be obligations of Company.
Except as specifically ruled on above, no opinion is expressed or
implied regarding the federal tax aspects of the transaction.
This ruling is directed only to Company. Under section 6110(k)(3) of the
Code, this ruling may not be used or cited as precedent.
A copy of this letter should be attached to the federal income tax
return of Company for the taxable years that include the transaction
described in this letter.
Sincerely yours,
Assistant Chief Counsel
(Financial Institutions & Products)
By: /s/ Marshall Feiring
- ------------------------------------
Marshall Feiring
Senior Technician Reviewer, Branch 2
